The Booming Business of Stolen Smartphones

It may not be the stuff of Hollywood movies, like drugs, gambling, and the skin trade, but the new way to strike it rich in the world of smuggling and fraud is through trade in stolen smartphones. Through a myriad of schemes and complex operations, thieves are now making millions of dollars a year either shipping stolen smartphones abroad or by hijacking service through identity theft. Unfortunately, measures that have so far been put in place to curb these crimes have barely put a dent in the numbers.

The Smartphone Trade

In the United States, if you decide that you want the latest smartphone, you need only go down to the mall or a major carrier’s store, and they make it a fairly simple and affordable prospect. In the past, you just had to sign a 2-year contract, and you’d be handed a new iPhone either for free or for a minimal deposit. Even with the elimination of contracts, the initial outlay to get the latest smartphone in the U.S. is small, making these phones easily obtainable.

This isn’t the case in other countries, where an iPhone 6 can cost $1,000 or more from a major carrier, with no payment plan options. Because of this discrepancy, cell phone theft in the U.S. and smuggling to countries in Asia and South America has become incredibly profitable. Criminals have resorted to stealing phones off of the street from individuals, known as “picking apples,” or they engage in a high-volume scheme called credit muling.

What is Credit Muling?

Remember how easy it is for Americans to obtain a smartphone? The thieves have figured this out as well and have leveraged the process with credit muling. A middleman in a major American city will go to homeless shelters and halfway houses, offering $100 to anyone who will obtain a new smartphone with a major carrier. That phone is then handed over to the smuggler, who will ship it overseas for a massive profit. One couple running this scheme were apprehended by California’s eCrime unit. Before being caught and imprisoned, they had made an estimated $2.5 million a year through credit muling.

Has Your Cell Phone Account Been Hijacked?

Credit muling isn’t the only way that cell phone fraud is being perpetrated. Some cell phone owners in the U.S. are finding that their wireless accounts are no longer working. Thieves are hijacking mobile phone accounts through identity theft, which allows them to do several things. First, they can use your minutes and data plan until you figure out what’s happened and have the account shut down. Worse, they’ll order new smartphones to be charged to your credit card, which are then shipped overseas. According to the FTC, the number of wireless account hijackings doubled in 2015 from its level just a few years before.

What is Being Done

The industry is working to stop thieves and cell phone smugglers, but it has been an uphill battle. One solution, implemented by some state and local governments with the cooperation of major phone makers, is to install a “kill switch.” This allows the phone’s owner to make the device inoperable if it’s been stolen. However, this solution only works for activated phones, so won’t affect schemes like credit muling that obtain brand new phones.

The best solution to date is to put better ID verification measures in place for the major carriers. This is where the bulk of the fraud is being perpetrated. So, giving carriers the means to fight identity theft and detect false IDs has the greatest chance of making an effective dent in these smartphone scams.

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Boris Dzhingarov

Boris Dzhingarov is a business news writer who covers a wide range of issues.