When crimes are committed in one country with financial targets in another, and when the originating country either fails or refuses to enforce its own criminal laws against its own citizens felonious activities, is it corruption, an incompetent police force or an indirect attack on the country where the damage is inflicted? We all know of the flood of emails from “relatives if important” Nigerian or Liberian bureaucrats offering a split of in inheritance, a huge payment due the sender, etc. if only the recipient of the email would help get that money off-shore. Fraud? Yes? Incompetent if not exceptionally difficult enforcement? Yes? But an attack by Nigeria on the U.S.? Probably not.
Let’s raise the stakes a tad. This time, let’s look at the plight of Japanese electronics giant, NEC, after it built some factories in neighboring China to take advantage of cheaper manufacturing wage rates. In 2004, the company discovered that massive numbers of CDs and DVDs, bearing the NEC mark, were flooding the international markets. Upon further investigation, NEC began noticing that they were also getting a lot of “NEC” merchandise, hard electronics gear, being sent to NEC facilities for warranty repair. The stuff sure looked like NEC products, with similar configuration and components, but upon further examination, these were knock-offs. Thousands and thousands of them.
The New York Times (April 27, 2006) tells us what actually happened: “After two years and thousands of hours of investigation in conjunction with law enforcement agencies in China, Taiwan and Japan, the company said it had uncovered something far more ambitious than clandestine workshops turning out inferior copies of NEC products. The pirates were faking the entire company…Evidence seized in raids on 18 factories and warehouses in China and Taiwan over the past year showed that the counterfeiters had set up what amounted to a parallel NEC brand with links to a network of more than 50 electronics factories in China, Hong Kong and Taiwan… In the name of NEC, the pirates copied NEC products, and went as far as developing their own range of consumer electronic products - everything from home entertainment centers to MP3 players. They also coordinated manufacturing and distribution, collecting all the proceeds.”
Apparently, when NEC built factories in China, more than one of such factory plans were replicated in a parallel manufacturing universe; pirates were defeating NEC, saving all those research and development costs, by using NEC’s own plans! The counterfeiters had “NEC” signs on their factories and their business cards were labeled with the “NEC” logo. Fake and genuine NEC products were often sold side-by-side with no differentiation. China claimed the miscreants were off-shore, that the factories had official-looking paperwork (albeit bogus) and that China was a much the victim as anyone. Others claimed Chinese lax enforcement of intellectual property rights – seen by many as China’s way of accelerating economic growth at the expense of the genuine inventors and creators – coupled with an oft-cited propensity of government officials to look the other way for the right incentive, were to blame. But China’s relations with Japan have never been completely comfortable, the Japanese atrocities of the 1930s and WWII still linger in the Chinese psyche, and trade disputes have littered their diplomatic relations. Was this NEC debacle a sideshow in this greater contest?
And what about Russia? U.S.-Russian relations have not been particularly good over the past few years, with Prime Minister and Russian strongman, Vladimir Putin seeming to pursue a policy of containing the United States politically and economically, most recently agreeing to supply nuclear fuel rods for an Iranian power plant. But Russia is also famous for its illustrious computer hackers, sophisticated to a level that even threatens the seemingly most secure governmental sites. Hackers have also found ways to bleed Western residents for huge sums with some of the most sophisticated identity theft rings. Russian authorities are notorious for looking the other way, a factor that is so pervasive that it smacks of official government policy.
BadB – operating through Web sites like CarderPlanet carder.su and badb.biz according to the United States Secret Service – is a 27-year-old dual-passport citizen of Ukraine and Israel living in Moscow. His real name is apparently Vladislav A. Horohorin, and his business? Allegedly identity theft on a rather grand scale: stolen credit card numbers were traded globally through exchanges like those Websites list above, generating massive illicit credit card purchases and financial fraud. But like many such hackers, Horohorin lived pretty much out in the open in Moscow, where he apparently was not even slightly at risk of being arrested. As the August 24th New York Times noted: “And in real life, he was nearly as untouchable — because he lived in Russia… For at least nine months, … he lived openly in Moscow as one of the world’s most wanted computer criminals.” His downfall? Leaving safe Moscow and taking a trip to France, where he was promptly arrested.
Sapping the strength of Western nations might seem like a good way to build your own powerbase, not unlike the old pirates who plied the seas in the post-Christopher Columbus days under agreements with one king or queen to raid the commercial ships of an enemy nation. Whatever the reason, this form of illicit consumer fraud apparently is conducted out of Russia with little fear of prosecution: “Law enforcement groups in Russia have been reluctant to pursue these talented authors of Internet fraud, for reasons, security experts say, of incompetence, corruption or national pride. In this environment, BadB’s network arose as ‘one of the most sophisticated organizations of online financial criminals in the world,’ according to a statement issued by Michael P. Merritt, the assistant director of investigations for the Secret Service, which pursues counterfeiting and some electronic financial fraud…
“Computer security researchers have raised a more sinister prospect: that criminal spamming gangs have been co-opted by the intelligence agencies in Russia, which provide cover for their activities in exchange for the criminals’ expertise or for allowing their networks of virus-infected computers to be used for political purposes — to crash dissident Web sites, perhaps… Sometimes, the collateral damage for online business is immediate. A year ago, for example, hackers used a network of infected computers to direct huge amounts of junk traffic at the social netwo rking accounts of a 34-year-old political blogger in Georgia, a country that fought a war with Russia in 2008. The attack, though, spun out of control and briefly crashed the global service of Twitter and slowed Facebook and LiveJournal, affecting tens of millions of computer users worldwide.” The Times. There are a lot of BadB’s working in Russia… a whole lot.
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