As everyone knows, America is experiencing an epidemic of identity theft. In the last five years alone, complaints to the Federal Trade Commission from U.S. residents who have had their identity stolen have skyrocketed 60 percent, to 258,427 in 2007—one-third of all consumer fraud complaints that the commission receives. What’s less well understood, however, is how illegal immigration is helping to fuel this rash of crime. Seeking access to jobs, credit, and driver’s licenses, many undocumented aliens are using the personal data of real Americans on forged documents. The immigrants’ identity theft has become so pervasive that the need to combat it is “a disturbing front in the war against illegal immigration,” according to U.S. Immigration and Customs Enforcement.

The FTC’s latest statistics help show why. The top five states in terms of reported identity theft in 2007 all have large immigrant populations—the border states of Arizona, California, and Texas, as well as Florida and Nevada. People who pilfer legitimate identities in these states are much more likely than in other parts of the country to use them to gain employment unlawfully—the most common reason that illegal aliens steal personal information. In Arizona, for instance, 36 percent of all identity theft is for employment purposes, compared with only 5 percent in Maine, a state with far fewer illegal aliens. “To many law enforcement leaders in Arizona, this suggests that Arizona’s identity-theft epidemic is directly linked to the problem of illegal immigration,” says a recent report by Identity Theft 911, an Arizona company that helps businesses and individuals protect themselves.

Government investigations have only begun to uncover the extent of the crime wave. When ICE agents raided six Swift meat-processing plants in December 2006, they found widespread evidence of fraud involving the use of real people’s identities; the feds eventually charged 148 illegal aliens in the case with crimes related to identity theft. In the first year and a half after Arizona created a special unit to deal with identity theft, investigators said that they were able to purchase more than 1,000 phony documents that made use of real people’s identities. A so-called three-pack—a Social Security card, a driver’s license, and a permanent-resident card—costs on average just $160 in the state.

Government statistics probably grossly underestimate the size of the problem. Many local police departments don’t track identity theft accurately, and the FTC only reports complaints that it receives. By combining data on complaints with FTC consumer surveys—which show that far more people have had their identity stolen than report it—Identity Theft 911 estimates that in Arizona alone, some 1.57 million people, or a quarter of the state’s population, have been victims over the last six years. About one-fifth are children—whose Social Security numbers are especially valuable targets, since the kids usually aren’t employed, making discovery of the fraud less likely. “We just don’t know how they’re getting all this information on minors,” says Maryann McKessy, bureau chief for fraud and identity-theft enforcement in the Maricopa County attorney general’s office.

One disturbing theory: health-care employees with access to children’s files are working for organized gangs that trade in illegal documents and are willing to pay richly for the data. “We have a major problem with workers in medical offices stealing patients’ identities, selling them and making a direct profit,” Sergeant James Bracke of the Phoenix Police Department told authors of the Arizona report. The gangs can afford these bribes because identity theft has become such a big business. In Phoenix, “coyotes,” the smugglers who lead illegal immigrants over our borders, have created a network of phony-document producers and safe houses where undocumented workers can wait until they get their fraudulent papers.

Americans who have their identity stolen by these gangs are in for major headaches. Among the complaints filed with the FTC is that of a Texas man arrested for a crime committed by an illegal alien who had filched his identity. In another case, highlighted by Nevada senator John Ensign in last year’s immigration-reform debate in Congress, the Internal Revenue Service hit a woman with a $1 million back-tax bill, even though she was a stay-at-home mom. An investigation later found that 218 illegal aliens were using her Social Security number. A Los Angeles police detective—who, ironically, worked in the department’s fraud bureau—was unable to buy a home because of bills piled up by an illegal immigrant who stole his Social Security number to gain employment at a processing plant. Then the IRS served the cop with a bill for $40,000 in back taxes; when he protested, the agency threatened to send his case to collection. Other legal residents have had their unemployment claims or workers’ compensation cases rejected after government records showed that someone with their Social Security number was working.

Despite all this, efforts to crack down on identity theft have proved controversial. Ensign offered an amendment to last year’s immigration-reform bill that would have barred illegals from Social Security benefits if they obtained work using stolen identities, but the amendment went down to defeat after critics complained that it was unfair to refuse benefit payments to those who had contributed to the Social Security system, even if they did so under a false identity. Ultimately, the immigration bill itself was defeated, in part because of controversy over its provisions to offer amnesty to illegal aliens, including those who might have stolen identities.

Frustrated by what some see as a tepid federal response, local officials in the hardest-hit areas have stepped up antitheft efforts. In Arizona, a new law makes it a felony to use the identity of another person to obtain a job. Local law enforcement agencies, like the Maricopa County attorney general’s office and the Phoenix Police Department, have expanded their fraud units. Even private businesses have gotten into the fight. Last year, the Arizona offices of A. G. Edwards, the national brokerage firm, held “community shred-a-thons” to give people a chance to destroy outdated financial records and other documents that might provide information to identity-theft gangs.

But many local law enforcement agencies still don’t treat the theft as a serious crime. Until they do, Americans who have had their identity stolen will pay the price in time, stress, and expensive legal bills.