Understanding the Smartphone Black Market

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This week, Apple introduced a new iPhone. Among its features: fingerprint recognition and other security measures that could make the device harder to re-sell if it’s been stolen. But it’s up against a sophisticated black market that has had six years to cater to the world’s insatiable appetite for second-hand smartphones.

To call smartphone-related crime an epidemic is not an exaggeration. By one estimate, more than 4,000 phones are stolen every day in the United States.

Last year the crime rate in New York City rose, after years of declines. The reason: 15,000 thousand people reported a stolen phone. People like Jessica Ingle.

“It was like a really crowded bar and I didn’t even notice it,” said Ingle, an NYU sophomore whose phone disappeared last October. Ingle said the thief left her wallet in the handbag.

The phone was never found.

“It has been frustrating,” said Pat Timlin, a former deputy commissioner in the New York City Police Department.

Police officers are doing their best, Timlin said, but the odds are against them. Smartphones are easy to grab, and they can be re-sold so easily they’re almost as liquid as cash.

In a report for the NYPD in 2011, Timlin found stolen phones changing hands all over the city: in bodegas, laundromats, and back alleys.

But no one has a complete picture of the size or scope of the black market.

Over the summer, I took a wiped iPhone 4 to several Brooklyn buyers who advertised for used iPhones on Craigslist.

One buyer, named John agreed to meet me on the street in Brownsville, Brooklyn.

After shaking my hand, John took me inside a beauty parlor, where women sat underneath hair dryers, leafing through magazines.

John introduced me to his business partner, who had a chair behind a glass case of jewelry. This man picked up the phone, flicked through several screens, and asked, ‘How much do you want for it?”

He told me that I could easily have gotten $400 for the phone one year earlier, but I'd be lucky to get $200 today.

Neither John nor his business partner pressed me on where I had obtained the phone, or ran the serial number through a database.

In a shop like this one, an individual thief could easily turn a stolen phone into cash. But smartphone crimes can be a lot more sophisticated than that.

In 2011, Manhattan District Attorney Cyrus Vance announced the arrests of 27 people in a crime ring directed from inside Riker’s Island. Members of this group weren’t stealing phones. They were using stolen identities to manufacture fake credit cards, and buy over a million dollars in gear.

“Those shoppers fanned out across the country, purchasing fraudulently obtained electronic goods from Apple stores in particular,” Vance noted at the news conference.

Many of the fraudulently obtained iPhones and iPads were later sold online, through eBay. Two defendants are still at large.

The plots coming to light today are complex, and increasingly global.

In March, the California Attorney General announced the arrests of two individuals, Shou Lin Wen, and Yuting Tan. They allegedly paid homeless people to buy discounted phones on a 2-year contract. Then they shipped the devices in bulk to Hong Kong, where phones can sell for $2,000 each – ten times as much as in the states.

Marc Rogers of the online security firm Lookout says fraudsters and thieves are good at spotting an opportunity.

When some European countries created blacklists, where users could report stolen phones, and block them from being used again on other networks, they started exporting the phones instead.

“The criminals quickly realized that if you completely sidestep the blacklist by shipping the devices to foreign countries,” Rogers said. “I hate the guys who do this type of stuff.”

Law enforcement tends to focus on thefts on the street and in subways. But Rogers believes that will only end when the black market itself is squeezed.

Rogers says a kill switch, to turn a phone into a useless brick, is a good start. It would be even better if phone owners had to prove their identity before re-setting or re-selling the phone.

“Ultimately it would be fantastic if we could get it set up so once a device is stolen the only value there is from the parts,” Rogers said.

Police will be on high alert when the new iPhone goes on sale. Since the first iPhone debuted six years ago, they have learned that every new Apple product comes with a spike in street crime.


What are some of the steps you can take to protect yourself in case you lose your phone or it's stolen?  Check out the advice from the Huffington Post at the end of the story.