Tech Firms Pay Police Agencies to Fight Cyber Crime


Wander through the headquarters of the Sacramento County Sheriff Department's high-tech team and see what cops call the "ideal model" for fighting cyber crime in an age of shrinking budgets.

Fluorescent lights cast a jaundiced pall over the worn office cubicles, the frayed fabric pinned in spots with tacks. On each desk sits a computer, confiscated from a crime scene and still sporting an evidence tag. Windbreakers with the team logo are a luxury.

Then there are the things visitors don't see.

Like the $10,000 body wire Intel Corp. bought for the unit to use in undercover stings. Or the corporate jet Hewlett-Packard Co. used to fly officers to Silicon Valley, and the tens of thousands of dollars the computer firm spent for the team's travel expenses--flights, hotels, meals--when a recent case took officers out of town.

Tired of being ripped off by high-tech criminals, some of America's most powerful computer companies are fighting back with a relatively simple approach: Subsidize the local police.

From inside pilferage and brazen heists to Internet piracy and industrial espionage, digital crime in the United States cost computer hardware and software companies about $3 billion last year.

Authorities, who concede they are barely making a dent in the problem, insist they don't have the staff, resources or public support to tackle the overwhelming number of complaints.

But the computer companies do. Corporate largess ranges from a $100,000 annual grant from Intel that pays for police salaries in Oregon to Motorola Corp. and several other major PC firms donating $10,000 each to an annual fund to help underwrite the Austin (Texas) Police Department's cyber team.

This controversial practice has divided the law enforcement community between those who embrace the help and those who insist it is a means of buying justice.

It also underscores a nationwide dilemma: How can local police departments protect the high-tech sector--and the jobs and tax revenue it provides--if there isn't enough money to handle such cases?

While investigating the Hewlett-Packard case, members of the Sacramento Valley Hi-Tech task force traveled nationwide, at company expense, to serve search warrants, arrest suspects and confiscate evidence.

Before federal criminal charges were filed, however, Hewlett-Packard filed a civil fraud suit against a company in San Diego believed to be tied to the $500-million scheme. Hewlett-Packard used evidence gathered, in part, in the officers' travels to resolve its suit and ultimately obtain a stipulated judgment in its favor for $900,000.

"When companies are directly paying for travel, investigations or salaries, I think that's a very dangerous line that quickly crosses into a conflict of interest," said former FBI Agent Joe Chiaramonte, president of the San Jose chapter of the High Technology Crime Investigation Assn., a trade group.

But police Sgt. Tom Robinson, who heads up the Hillsboro, Ore., computer unit, sees it differently: "Frankly, any department that's not [accepting such grants] is missing the boat."

Advocates such as Robinson insist the money represents the key to winning the war on cyber crime, and is a small investment for the multinational companies.

"If you're inferring that we're paid off, that's not right," said Sacramento County Sheriff's Sgt. Michael Tsuchida. "I'll eat your dinner, sleep in your hotel and still arrest you if you're breaking the law."

'We All Realized We Needed Each Other'

Traditionally, many corporations have shied away from revealing too much to law enforcement to avoid drawing public attention to internal troubles. But as computer piracy grows, companies today are much more willing to seek help from police agencies.

Catching such criminals has long been the bailiwick of federal prosecutors, as tech-savvy criminals rarely stay within the neat confines of city limits when committing fraud on the Internet or stealing computer components.

But federal law prevents prosecutors and the FBI from taking corporate contributions to pay for salaries or travel expenses, and limits the use of evidence collected by private investigators.

State laws, however, have created a much broader gray area for local police. As a result, some local agencies rely on corporate handouts.

When losses mounted from armed robberies at computer chip plants in Austin in the early '90s, the city's high-tech companies decided to finance a private nonprofit group to train officers to deal with the problem. Through the Austin Metro High Tech Foundation, firms including IBM and Dell Computer Corp. annually donate up to $10,000 each for investigators' training, travel and equipment.

In return, businesses--including Applied Micro Devices, National Instruments and Motorola Corp.--say they expect law enforcement to treat computer crime as seriously as drugs and gang violence.

Because Texas law restricts direct corporate contributions to particular police units, the funds are managed and distributed through the Austin Community Foundation, a nonprofit entity.

"[The companies] can tell us what equipment we can or can't buy, but they can't tell us what to do with the cases," said Police Sgt. Robert Pulliam, who runs the department's five-person computer crime team. "We all realized we needed each other."

This circle of financial interdependence has evolved slowly, from a long-standing tradition of police getting information from private investigators hired by the corporations.

Companies typically approach police when they have enough evidence to back up a search warrant, said Los Angeles County Deputy Dist. Atty. William Clark, who prosecutes many trademark cases.

Law enforcement then assembles the case. The corporate investigators often serve as experts, helping to identify fake products or explain the workings of stolen technology.

Microsoft is the most aggressive technology firm when battling thieves, police say. In Hong Kong, the company runs its own stings, setting up fake storefronts as a means of gathering evidence, sources say.

In the United States, Microsoft employs a security force of more than 200 people, some of them former law enforcement officers, who investigate cases and package the evidence, which they hand over to authorities for prosecution.

"As a matter of policy, we don't pay law enforcement to do their jobs," said Anne Murphy, a corporate attorney with Microsoft's anti-counterfeiting group. "In certain cases, Microsoft has provided financial support for operating expenses for investigations."

In 1997, the software giant approached the Los Angeles County Sheriff's Department and offered to help pay for a sting operation.

The price? About $200,000 to purchase printing equipment from suspected software counterfeiters, and give officers the tools needed to create an undercover print shop.

The department declined.

"It's not about the money. It's about how the public perceives the money and how it's being used," said Det. Jess Bembry, who worked for the department's Asian Organized Crime unit at the time. "When defense attorneys start screaming, all anyone cares about is avoiding the perception of impropriety."

The rich scent of wet soil and warm grass wafts across Hillsboro, a bedroom community of Portland, Ore., that has traded its agricultural roots for a future in high-tech manufacturing. This town of 68,000 more than doubles in population during weekdays, as workers flood into the catacomb of industrial facilities that have sprung up throughout the city's rolling hills.

As Oregon's largest private employer, Intel's influence is pervasive. In blue-collar Hillsboro, it is difficult to distinguish the line between corporate philanthropy and corporate influence.

At the Hillsboro Chamber of Commerce, a small plaque that reads "Intel Room" is affixed outside the door of the center's main meeting room--in honor of the company paying to furnish the small space.

Though the town represents Oregon's largest high-tech hub, city managers have set aside only 2.7% of the Hillsboro Police Department's annual $9.2-million budget for its seven-person computer crime team.

There's no need to commit more, city officials say, because Intel catches the shortfall: $100,000 a year, which pays the salary of one of the police officers and some expenses, according to a 1996 city memorandum of understanding obtained by The Times. Additionally, Intel purchased one officer's car, and helped pay for the team's offices, computer workstations, telephones and fax machines.

Of all 231 cases Hillsboro's high-tech team has tackled between 1995 and April 30 of this year, about 41% involve Intel in some way. As of April, about one-fifth of the nearly $210 million the unit recovered is tied to Intel complaints.

Police say the grant, which is permitted by Oregon state law, has not swayed their focus. Investigators attribute the case ratio to black-market demand for fake Intel computer chips and the company's size.

"This may not be the ideal way for us to do business, but at least we're trying to do something about these crimes," said Police Sgt. Robinson, whose team includes members of the FBI and the U.S. attorney's office. "Without us, the criminals run rampant and impact everyone--the companies and the community," he said.

Intel executives insist that their "nontraditional approach" of working with police is legitimate and harmless. It is, they say, merely part of a companywide philosophy to invest in the communities where employees live and work--not a means of gaining police protection.

"It'd be dead wrong to criticize the police unless we could make a contribution," said Chuck Mulloy, a corporate spokesman for Intel.

Other cities are modeling their efforts after Hillsboro. Chandler, Ariz., which has several Intel manufacturing and assembly centers, plans to pattern its own nascent computer team after Hillsboro.

Such partnerships can hurt the police if companies stop paying, say critics. That's a concern in Hillsboro, where city officials admit there are no guarantees that the Intel grant won't disappear.

"The police don't want to hear this, but if we lose the Intel grant, we'll default on the high-tech crime unit," said David Lawrence, Hillsboro's assistant city manager. "We'll have to go back to what we had before, which wasn't much."

Inside a bland concrete warehouse on the edge of Sacramento's city limits, the Sacramento Valley Hi-Tech unit is the quintessential modern police model for fighting computer crime. The task force was created in 1995 and draws officers from 16 enforcement agencies.

The team's diverse membership--officers from different jurisdictions who possess varied skills--is the key to its strength.

"These guys have the best reputation among law enforcement," said L.A. County Sheriff's Det. Bembry. "They do amazing things with very few financial resources."

Each agency pays for its officers' salaries, equipment and vehicle. But the departments don't feed into the team's general operating budget, which is zero, said Sgt. Tsuchida, who runs the unit.

By comparison, the department's narcotics team receives at least $55,000 a year for similar costs.

"We serve at least 50 search warrants a year," Tsuchida said. "We couldn't get the $150 a person to get the training to make sure everyone does it the same way. That's a safety concern."

The financial slack is often covered by local technology companies, which contribute seized assets and occasionally kick in for travel and other expenses, Tsuchida said.

"If the companies don't pay, we can't investigate" some out-of-town cases, said Sacramento County Sheriff's Lt. Jan Hoganson, who commands the unit. "We can't afford it."

Cost was a factor in the recent Hewlett-Packard software theft case, which investigators say has links extending from the Central Valley to Southern California, the Pacific Northwest and Central America.

Bill Conley, president of US Computer Corp. in Redmond, Wash., is one of several people Sacramento's unit arrested in conjunction with the case. The charges, of possessing stolen H-P goods, were later dropped, but Conley insists the case was tainted.

"It was the Hewlett-Packard people--not the Redmond police, not the Sacramento cops--who led the whole thing, who took employees off and threatened to take them to jail," said Conley, 41.

Police, prosecutors and Hewlett-Packard officials scoff at Conley's claim, and cite other types of white-collar crimes, such as insurance fraud, which routinely relies on the private sector for enforcement help. And Sacramento's Hoganson insists his team's focus is unbiased, they say, noting that of the 285 cases the team investigated in 1998, only 16 were tied to companies that are members of the unit's steering committee.

But the California Supreme Court takes the issue seriously. In a 1996 trade secrets case, the court upheld the disqualification of a Santa Cruz County district attorney because the office had accepted more than $13,000 from a Scotts Valley software company, Borland International.

The money was used to hire a computer expert to determine whether a former executive had taken proprietary information to a rival firm, Symantec Corp.

Police and prosecutors say the Hewlett-Packard case is different because the corporation's involvement did not influence their decision to file criminal charges.

"I don't see [it] as a conflict, because you're giving law enforcement the money--not the district attorney's office," said Robert Morgester, a deputy attorney general for the state attorney general's office who helped create and fund the Sacramento team.

California legislators are trying to offset the money pinch, by rolling out a $1.3-million state grant to be divided among three task forces: Sacramento, San Jose and Los Angeles/Orange County. In addition, the governor's office has set aside an additional $1 million for the same purpose.

Investigators say that although the grant helps, it's still not enough.

"That money is already spent on training, hiring new people and getting my guys new computers," Tsuchida said. "We're not breaking any laws now, so why should we change what we're doing?"


Fighting Piracy

High-tech firms are teaming with police to fight software pirating. The cooperative effort takes two forms.

Model 1: The Traditional Model

Microsft Corp.


1. Microsoft maintains its own in-house investigative force, hiring former local, state and federal law enforcement officers. The company also contracts with outside private investigative firms.

2. Employees track tips from consumers, document day-to-day activity of suspected criminals, set up stings.

Local Police

3. Microsoft's team hands over evidence ranging from videotape surveillance to samples of counterfeit goods to local police agency.

4. Police do their own investigation, or use the information compiled by Microsoft to obtain a search warrant.

5. Police make arrests, and hand case to the appropriate prosecutors.

Model 2: The New Model

Intel Corp., Hewlett-Packard


1. The companies provide direct financial incentives and assistance to local police departments.

2. Direct grants from Intel Corp. are used to pay salaries of officers who investigate high-tech crimes, a broad swath of offenses including computer hacking, digital theft and intellectual property violations.

Local Police

3. The company picks up travel costs--hotel, rental car, airline, meals--of a department's investigations into crimes against the computer maker.

4. The company's in-house security staff works closely with local police on all cases to swap information and flesh out tips.

5. Police make arrests, and hand case to the appropriate prosecutors.

Source: Miscrosoft Corp.; Intel Corp.; Sacramento County Sheriff's Dept.; Hillsboro, Ore., Police Dept.; San Jose Police

Fighting Digital Piracy

Sunday: Feeding off the growing interest in computers and the Internet, a new generation of high-tech software pirates is setting up shop in Southern California.

Today: Tired of being ripped off by high-tech criminals, some of America's most powerful computer companies are fighting back with relatively simple approach: subsidize the local police.

This series is available on The Times' Web site at

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