The Software Sopranos
Organized crime targets the booming high-tech black market
CITY OF INDUSTRY, CALIF.--Out on narcotics patrol last spring, Los Angeles County Sheriff's Deputy Murray Simpkins drove up to a suspected "stash pad." The window blinds were drawn tight. A white van backed up to the front door of the house at the end of a suburban cul-de-sac. Parked next to the curb were "rice rockets," souped-up Hondas and Nissans--a telltale sign of Asian gang activity. Inside the house, Simpkins found not dope but a software packaging and labeling facility. Fake Microsoft Office 97 packages were scattered on the floor in various stages of completion; CDs, cases, and bogus labels lay on tables and in closets.
By the time they finished counting, the police had recovered $8.5 million in counterfeit Microsoft software. They had also nabbed four alleged gang members, including Paul Karsing Tam, 24, described as a rising lieutenant in the Wah Ching ("Chinese Youth"), one of the West Coast's oldest Asian organized crime groups. "It's a whole new wave of crime, and it's a lot harder for law enforcement to track," says Simpkins. "How many cops can pick out [software] counterfeits?"
The bust provided another sign of a troubling new trend: Organized crime is getting into the high-tech black market--big time. Law enforcement officials say software piracy, chip re-marking, hardware theft, and counterfeiting have exploded into a $16 billion global business increasingly controlled by criminal syndicates. A major reason: Digital dons, primarily Asian and Russian gang members, can make the same profit margins that they do trafficking narcotics--with considerably less risk of serious jail time.
But the feds are starting to wake up to the problem. The U.S. Customs Service this week is set to open a multijurisdictional coordination center in Washington, D.C., to target intellectual property crimes. Last July, the Justice Department asked U.S. attorneys around the country to bring more cases involving computer offenses. And earlier this month, Attorney General Janet Reno proposed a national crime-fighting network called "Lawnet" to tangle with technology's dark side. "We've got to take on these organizations at all ends to try to dismantle them," says Mark Robinson, customs' director of fraud investigations.
Digital dons. In Southern California, the major Asian gangs involved in counterfeiting include the Black Dragons, Snakeheads, and the Wah Ching. Like their Italian and Irish predecessors, the groups extort, rob, kidnap, and even murder. In 1995, for example, police found suspected Wah Ching member Ming Ching Jin with more than $2.5 million in phony Microsoft software, C-4 explosives, TNT, and an assortment of guns.
The specter of violence from computer bandits looms over other parts of the country as well. In Ohio, a Russian computer dealer, Igor Abramovsky, threatened to kill a man who created a Web site warning consumers about his shoddy knockoff computer parts. A judge sent Abramovsky, who claimed to be in the Russian mob, to jail for 15 months. And in Silicon Valley, the FBI took down a Vietnamese gang called "The Company" that had committed 30 armed robberies of electronics firms.
But Southern California remains the hot spot for high-tech counterfeiting and smuggling. Last May, for instance, authorities in Los Angeles were surprised to find Asian red lobster insignias rather than Intel Inside on chips. The crooks made Pentium processors act like faster chips and sold them at higher prices. In June, a joint federal-local task force based in Westminster discovered $56 million in fake Microsoft products, the largest high-tech software seizure in U.S. history. During the day, Atul Dhurandhar, an Indian immigrant who had filed for bankruptcy in 1995, ran a legitimate printing business. At night, he allegedly used a $1.5 million replicator--provided by a convicted Chinese counterfeiter--to churn out tens of thousands of bogus music and software CDs. Dhurandhar purchased nearly $5 million worth of property, including six houses, with his alleged profits. Dhurandhar's attorney, Frank Ragen, says the government overstated the value of the confiscated CDs "by tens of millions." Law enforcement sources say the Dhurandhar ring has ties to organized crime, a charge his lawyer denies. The sources would not specify which gangs are involved because the investigation is ongoing.
Just two weeks ago, the Westminster unit raided a toy warehouse and came up with 26,000 counterfeit Microsoft mice. Several hundred had defective labels that said "certifidate" instead of " 'certificate' of authenticity." Although he has not been charged, police say the owner of the factory, Kent Chen, took off for Taiwan, a common problem in these investigations.
Companies like Microsoft say counterfeiting and piracy hurt consumers as well as computer companies. "While you may be paying cheaper costs upfront, you are running a very big risk of a pirated copy not being able to perform," says Rich LaMagna, Microsoft's chief investigator. LaMagna says consumers aren't just buying the software, they're also purchasing Microsoft's technical support and its ability to upgrade systems and provide virus-free compact disks.
Software you can't refuse. How do the pirates get away with it? Easy. Police say that while operating in the United States, the Tam group set itself up as a pseudo school named West Hill College. The gang then ordered software from Microsoft at the special education rate (about one third the retail price), repackaged the CDs in phony boxes with certificates of authenticity, labels, and licenses, and then sold them at full price via a computer front company. Its profit: $200 to $300 per box.
Even after getting busted, the software scofflaws continue to operate. In Pomona, Calif., for instance, a man named Hung Lin "Jovi" Wu set up a second counterfeiting operation just 26 days after the cops raided his first CD-replicating business. A judge gave Wu 51 months in jail. One witness said two snakeheads--alien smugglers--fronted the money for the second replicator, but Customs officials were never able to find them. Tam, too, is believed to be up to his old tricks. Sentenced to three years of probation and nominal jail time, he went back to running Game Edge, a 1980s-style video game store in a rundown Hacienda Heights strip mall. When the cops visited recently, they say they discovered 232 counterfeit Sony PlayStation video games, including bootleg copies of Gran Turismo 2. Police also confiscated six PlayStations in the store that had been illegally altered, or "chipped," to override Sony's security system and play the knockoff games. Back in a Los Angeles County jail serving time for his first offense, Tam declined to respond to a reporter's request for an interview. He has not been charged in the video game probe. Meanwhile, the Asian Crime Task Force is continuing to investigate. Says Sgt. Tim Murakami: "The goal is to cut off the head of the dragon. Getting to the dragon's head is not that easy because there are so many layers."
This story appears in the February 7, 2000 print edition of U.S. News & World Report.