From street theft to credit mules, smartphones at risk

Dec. 19, 2014

Smartphone theft is a booming business, with its practitioners engaging in street theft, electronics-store smash and grab, and more sophisticated schemes involving “credit mules.” And there appears to be no one technical fix to the problem.

In credit muling, a fraudster “hires” an “employee” to ostensibly rate customer experience at mobile device outlets. The employee, using his own credit card, buys one or more on-contract phones, turns the merchandise over to the fraudster, and is reimbursed at the subsidized price plus a profit, with the promise that the fraudster will cancel the two-year contract. Of course, the fraudster doesn’t cancel the contract but arranges to sell the phones overseas with massive profits.

The process is logistically complicated, involving the mule, the middleman fraudster, and local management with overseas contacts. Matthew Shaer in Wired reports on a scheme that netted one couple a nearly $2.5 million annual income by buying iPhones for $200 a pop in the U.S. and selling them for close to $1,000 in China. They got caught—the husband and wife are serving three- and one-year sentences, respectively—but Shaer says authorities are under no illusion that their apprehension comes close to solving the larger problem.

The mobile industry has resisted technical approaches to deterring theft—street theft in particular—because companies make money selling insurance and replacement phones. “But,” writes Shaer, “the problem has grown so undeniable that even the carriers are powerless to resist reforms. Last August, after an intense lobbying campaign led by San Francisco district attorney George Gascón and New York attorney general Eric Schneiderman, Governor Jerry Brown signed a California kill-switch law mandating the inclusion of technology that allows users to lock up a stolen handset and render it unusable; similar legislation was signed in Minnesota.”

Shaer quotes Max Szabo, a spokesperson for the San Francisco district attorney’s office, as saying the arrival of Apple’s Activation Lock has cut iPhone robberies in San Francisco 38% in the first five months of 2014.

(My own phone has antitheft features that I hope I never have to use. I’ve disabled at least one, because I didn’t like receiving extremely unflattering pictures of myself every time I restarted the phone. Now, I get an e-mail if someone enters an incorrect password three times.)

Locking programs can help deter street crime—which is certainly worthwhile, where a confrontation between thief and victim could turn violent. But they are ineffective in credit-mule schemes and smash-and-grab operations. Even smash-and-grab perps are becoming more sophisticated. Shaer reports that smartphone thieves have used camera equipped drones for reconnaissance.

“There’s no bulletproof solution to smartphone theft and there never will be,” wireless industry analyst Jeff Kagan says, as quoted by Shaer. He concludes by quoting security analyst Marc Rogers as saying, “You want to put up obstacles for the criminals at every turn. You’ve got to think of the theft of smart devices as an economy, and you’ve got to destabilize that economy. You’ve got to disrupt the supply chains. You won’t get everyone, but in some places you’ll beat them back.”

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