How eFencing Works

A visitor at the Trade Fair for Digital Marking in Düsseldorf, Germany, grabs the logo of Internet auction house eBay. Are organized retail crime groups grabbing profits from companies?
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For many, the online auction site is the perfect place to find a treasure trove of hard-to-find products and collectibles. Whether you're on the lookout for an old, discontinued camera or you collect antique glass, chances are good you'll find what you're looking for. Of course, the site's also perfect for sellers, too -- anyone who wants to get rid of their used and unwanted goods to eager buyers willing to part with buckets of cash shouldn't have a hard time doing so. As the saying goes, "One man's trash is another man's treasure."

Online auction sites like eBay are popping up everywhere -- even other Web sites like have added auctioning capabilities to parts of its services. Auctions have become so popular that it's become second nature for many searching for goods to head straight for the Internet to search until the desired product is found. After a few clicks and a close eye on the bidding process, a buyer can have nearly anything delivered to his doorstep within a week. On top of this, Web site classifieds like offer even more stuff up for grabs over the Internet on a "buy-it-now" basis.


­But as these businesses have grown and gained popularity, security issues have also surfaced. Fears over identity theft, account theft, phishing (typically sending out fake e-mails that copy the appearance of trustworthy Web sites in order to dupe unsuspecting customers into giving out sensitive information) or buying faulty or broken products have always been a problem for eBay. One of a bidder's worst nightmares is spending lots of money on an item, only to receive the wrong product or nothing at all.

­Another security issue that's currently plaguing retail businesses that produce goods that often find their way onto secondary markets is the crime known as eFencing. What exactly is eFencing, and what does it mean to be a "fence"?


What is eFencing?

Now that organized retail crime groups are using the Internet as tool for eFencing, they're finding they can make more money easier on auction sites like eBay than at pawn shops like this one in Los Angeles, Calif.
Mervyn Penrose Rands/Getty Images

If you think that eFencing involves an underground, online community of gamers who take part in online fencing, or fighting digitally with swords, unfortunately that's not the case. In the world of criminal investigation, a "fence," according to Merriam-Webster OnLine, is both "a receiver of stolen goods" and "a place where stolen goods are bought."

The word "fence," despite its various meanings and whether it's a noun or a verb, has one main root -- the shortening of "defense." The fences people build around their homes provide a defense from outside intruders and allow enclosure. In relation to stolen goods and organized crime, however, fence first popped up in thieves' slang around 1700, with the understanding that such dealings take place "under defense of secrecy" [source: Online Etymology Dictionary].


So a fence's job is fairly straightforward: Steal or buy a popular item for a significantly reduced price and then sell the item in order to make money. In the physical world, much of this activity goes on at pawn shops and flea markets. A fence can steal something from a store and bring it into a pawn shop and, if he remains above suspicion, walk out with a handful of cash and a big profit.

The act of eFencing is the same exact offense, only it's done over the Internet, typically on online auction sites or classifieds like eBay and Craigslist. A thief steals something from a store, posts the item on the Internet and sells it to unsuspecting bidders, making money in the process.

Although fences aren't anything new in the world of retail, the nature of the Internet has increased the act of fencing and made fraudulent transactions much easier. How have online sites increased dealing in stolen goods?



Business of Online Stolen Goods

Retail companies like Wal-Mart have struggled with employee theft in the past and have entire loss prevention departments to counter crime. Many believe that stepping up loss prevention will help combat the act of eFencing.
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The Internet, although not the sole reason for increased retail fraud, has made the selling of stolen goods much easier for thieves in recent years. To understand this, it helps to compare and contrast the differences between a physical fence location such as a pawn shop and an online fence location such as an auction site.

First, the actual location makes a big difference. In order for someone to make money off of stolen goods from a pawn shop, the actual location of the pawn shop needs to be known. The thief needs to get up and physically walk to the pawn shop; there, the employee behind the counter has a chance to see the goods in question and make judgment. An eFence, on the other hand, is conducting business from the Internet, which is accessible just about anywhere.


More importantly, the identity of the eFence is either vague or completely secret. While most pawn shops require identification and even fingerprints, eFences remain largely anonymous when dealing over the Internet. Additionally, while pawn shops have a generally limited customer base -- simply people who happen to walk into a pawn shop looking for used goods -- eFences can find large, diverse groups of people looking to buy over the Internet. On top of all of this, setting up fences over the Internet is more lucrative: Internet buyers pay about 70 cents on the dollar for goods sold online, much higher than the return in a physical setting [source: Wholesale Central].

Aside from downright stealing merchandise, dealers have found other, less conspicuous ways of copping goods. One thief managed to alter bar codes on items from stores like Target and Best Buy, so that once he checked out at the cash register, expensive products would ring up for significantly less. He'd then sell the goods for close to retail, keeping him above, for the most part, any suspicion. Before he was arrested, he made somewhere between $40,000 and $45,000 [source: NBC 10].

What can companies, both online and off, do to safeguard against eFencing? How can consumers identify an item that's part of a fence? Are there any indicators, or is it impossible to know the origin of something you're buying?



Identifying Internet Retail Fraud

According to the National Retail Federation's 2008 Organized Retail Crime Survey, 68 percent of retailers were able to identify stolen goods that dealers were eFencing [source: National Retail Federation]. Although the problem seems to be on the rise, some are suggesting more efficient ways to deal with the theft and fraud online.

Some believe that the auction sites should be providing more protection and doing more to help against eFencing. Brad Brekke, for instance, vice president of assets protection for Target Corp., has suggested something similar to the identification system on eBay Motors: All vehicles listed for sale on eBay Motors must post a Vehicle Identification Number (VIN) that is verified through the company Carfax. This practice, according to Brekke, has completely put an end to the sale of stolen cars on eBay, and a similar system could do the same for stolen iPods and headphones [source: Wholesale Central].


Others think the retail stores themselves need to put more security in place in order to deter customers or employees from shoplifting. More security cameras and metal detectors, for instance, could significantly cut down on loss [source: Investor Trip].

Some of the most common goods stolen and sold online include GPS devices, rechargeable batteries, shavers, headphones, vacuums and over-the-counter medicines. These are items that people buy nearly everyday off of auction sites -- how is it possible to tell if they're part of a fence or not?

There are several indicators to look for when investigating something up for auction on a site like eBay. Sellers offering large quantities of one product over several time periods are typically suspect. It could mean the seller's part of a larger ring of organized crime and has received a bulk of stolen goods from someone else. Merchandise that's still factory sealed is also potentially part of an online fence, as retailers believe that almost 40 percent of "new in box" merchandise sold online is stolen [source: National Retail Federation]. Sellers looking to sell brand-new, stolen merchandise as quickly as possible don't expect people to care whether or not something is shrink-wrapped; in fact, some buyers might find it more attractive, since they know their item isn't used.

For lots more information on online auctions, the Internet and crime, take a chance on the next page.


Frequently Answered Questions

What is e fencing?
E-fencing is the illegal trafficking of stolen goods that are purchased or sold online. This type of fencing can include the sale of stolen merchandise on auction websites, classified ads, and online marketplaces. E-fencing is a growing problem as more and more people turn to the internet to buy and sell items.
Why is it called fencing stolen goods?
The term "fencing" is used to describe the act of selling stolen goods. This term is thought to be derived from the word "fence," which was originally used to describe a person who was involved in the illegal trade of stolen goods.

Lots More Information

Related HowStuffWorks Articles

More Great Links

  • Colapinto, John. "Annals of retail: stop, thief!" The New Yorker. Sept. 1, 2008. (Sept. 5, 2008)
  • Encyclopedia Britannica Online. "Moll Cutpurse." 2008. (Sept. 5, 2008)
  • National Retail Federation. "Organized retail crime in U.S. rises 6%, fueled in part by Internet." (Sept. 12, 2008) in-part-by-internet-4939/nrf-organized-retail-crime-merchandise-identified-fence-locationjpg/
  • NBC 10 News. "eFencing and eBay." Jan. 24, 2007. (Sept. 5, 2008)
  • Online Etymology Dictionary. "Fence (n.)." (Sept. 5, 2008)
  • Pierce, Tarik. "How to solve eBay's eFencing problem." Investor Trip. (Sept. 12, 2008)
  • Sauer, Jerett and Drew Kleven. "Online auctions and eFencing." Retail Industry Leaders Association. March 23, 2006. (Sept. 12, 2008)
  • Wholesale Central."Retail crime and eFencing." Jan. 1, 2008. (Sept. 12, 2008)
  • Williams, Jere. "Investigations 1: fencing." San Francisco Police Department. (Sept. 12, 2008)