The following is designed to educate the traveler, not to cause paranoia. 

You are much less likely to become a victim once aware of the "tricks" employed to separate you from your possessions. There are several common ploys, with variations.

Police hassles: The police system "works" in a different way than in western countries; in Peru you often have to deal with bribes when a policeman stops you. Being a tourist you can play dumb, but the policeman will often try to intimidate you to make you pay up. Be polite, formal but try not to let them intimidate you. The ONLY thing they are authorized to check you for is your visa for Peru and your passport. NOTHING ELSE. You do not have to show them your money, answer questions that have to do with anything other than your visa or passport or go to the police station. Just make sure you ALWAYS carry your passport in Peru. When there are hassles with the police, contact the tourist police or the SAEC.
 

You might be walking along the street when mustard or shampoo is squirted on you. A sweet little lady or a well-dressed man may approach you, inform you of your unsightly condition and offer to help clean you off. What they really want to do, however, is clean you out! This person will manage to slip off your backpack or bag while cleaning it. Once removed, its gone! On the other hand, the traveler may decline help, suspecting the possibility of theft and seek out a restaurant bathroom in which to clean up. At this point, someone may come banging on the door insisting dire need of the facilities. The traveler, upon relinquishing the WC, may finish washing up at a nearby table. If the gear is set down, it will vanish in an instant. The best solution is to leave the area immediately and return to your hotel, or some other safe place to clean up.

 "Mothers" with a crying baby may ask you to hold the child while you get robbed. To avoid an unpleasant decision, best not to hold any crying babies.
 

Some thieves employ the "lost money trick." You may be sitting on a park bench, at a bus station or restaurant, etc. and holding on to or watching your possessions. Someone nearby may hold up a bill and ask if its yours, or it may be dropped on the floor, near your feet, directing your attention away from your possessions. The moment you bend down to pick up the money, or step towards the person holding the "lost" bill, your gear is gone. Remember, Peruvians dont drop money, and if they find any, they certainly wont offer it to you.
 

Beware if someone offers to watch your luggage or take your picture with your camera. The best rule is to never let go of your belongings. Even in restaurants, keep your bag on your lap, or loop the strap around your chair leg, and then continue to check it by keeping it in contact with your foot.

OTHER TRICKS

The Razor Blade: The thief carries a blade concealed between his fingers. He is very adept at slitting a pocket or pack without your knowledge. Dont keep anything of value in your pockets, and if you have a small backpack, you can wear it in front with an arm slung across it. Some travelers like to keep their larger backpacks inside a heavy rice or fiber bag. The best bet is to take a taxi to your hotel when you reach a new city and avoid walking the streets with lots of gear. If you have to walk with a large backpack, its best to go single file with other backpackers so that all packs are watched except for the last one.

Pickpockets: They go for your trousers, usually in crowds where you are unable to move freely. Never carry anything in a back pocket. Put valuables in a money belt, neck or leg pouch.

Watch or Jewelry Ripoff: A thief may twist off the timepiece of your watch, springing the pins that attach it to the band. It helps to wear a watch on the inside of your wrist. Cheap digital watches are not very tempting; however, gold necklaces, bracelets, earrings, etc., are. They are snatched and gone before you can react. Its best to wear cheap jewelry or none at all.

The Little Old Lady: She collapses or drops something, and while you are trying to help, her accomplice strikes.

Fake Waiter Trick: This usually occurs near bus stations. The thief will come up to your table, pretending to be a waiter. He tries to distract you while an accomplice sneaks off with your bag. Generally you should be wary of anyone trying to get your attention when you have lots of equipment.

Money Changing Tricks: Some money changers on the streets of Lima (and at borders) may try to cheat you. They may: 


(1) Use fixed calculators that total incorrectly; 
(2) Short- change you; 
(3) Set you up to be pickpocketed after theyve seen where you stash your money; 
(4) Pass counterfeit money; 
(5) Hand over the amount of soles you wish to exchange, then claim that you didnt give them the dollars when, in fact, you did. 
Always be sure to receive the correct amount of soles first, count it completely, put it away securely, then hand over your cash dollars. Try to avoid changing money on the street and use casas de cambio (exchange houses) when possible. Again, leg pouches are recommended but be sure to add/remove money in a safe place.

 A scam used near Limas Plaza San Martin is to offer an unusually high exchange rate for travelers checks. The money changer says he needs to make sure the checks arent counterfeit and takes them, unsigned, into his nearby "office." He and the checks have, in fact, found the back exit. Again, when exchanging, do not hand over money or travelers checks until you have received and counted all your soles and have tucked them safely away. The safest place to cash travelers checks is in a bank.
Another trick used by dollar changers is to put folded bills in a large stack so they count twice. Bills are folded in packets of ten (nine wrapped with the tenth). Cheaters will double-fold the top bill to make it appear as if there are two packets of ten, rather than one. When they count the money, it appears to be all there. Even though it takes some time, unfold each stack and count out all the bills in front of the money changer. An honest exchanger will expect you to do this.

The Drug Scam: Ways youre set up 

(1) A small packet of cocaine may be slipped into the money youre exchanging; 
(2) One or two "chummy" Peruvians befriend you in a restaurant and get around to inviting you to a party, or somewhere involving a taxi ride; 
(3) You may just be walking down the street and someone says, "Cocaine, mister?" What happens next? A firm hand is slapped on your shoulder, a man identifies himself as a policeman, perhaps even flashing a badge or a glimpse of his gun, and you are accused of buying cocaine. With #2, the taxi youre in gets stopped by the "police" and somehow there is a packet of cocaine lying at your feet. Sometimes they even put you in hand-cuffs and you are then taken, along with the "pusher," by taxi in the direction of a police station. During the ride, the police ask to see your passport and money. If you are not sufficiently intimidated, the "pusher" will be roughed up. Eventually, your passport is returned, but not your money. If you only have travelers checks they will make you change them at a Casa de Cambio. You are then dropped at an outlying police station and the "police" leave. If you are set up, try the following. Just walk away as if nothing is happening, act the uncomprehending gringo. If this fails, carefully check the badge presented, write down whatever details are possible. Refuse to get into a taxi, insist on walking instead. If this fails, make sure someone youre with knows whats happening, and where you are supposedly being taken. If this fails, keep your cool. Do not be intimidated. Do not hand over your money. All that the real police ever need to see is your passport. They work on intimidation, and if you remain calm, the ruse doesnt work. With #3, do not get involved in drug-deals or with anybody even talking about drugs, the penalties are high. The police drug scam seems to be happening almost weekly around the Plaza San Martin. To be on the safe side, best not to chat to anyone - no matter how friendly they appear.

The Block: Along a busy sidewalk, at the market or in a dense crowd, you may find yourself suddenly "boxed in." The person in front stops moving, and someone behind begin pushing or crowding you. Move quickly in another direction or force your way through the "block."

Sticky Fingers: Though it happens rarely, hotel employees have been known to take money, jewelery, cameras, etc. from a locked room. Keep valuables in the hotel safe or use a padlock.

Staged Fight: Sometimes a fight is staged to draw a crowd. Onlookers are robbed by accomplices. Suppress that voyeuristic urge and move on.



YOU ARE MOST VULNERABLE WHEN:

All your gear is with you. Be especially careful around airports, restaurants, bus and train stations. Take a taxi when you have lots of gear, bags, etc. Think of it as an insurance policy.

Carrying a camera. Keep it in a bag, around your neck, under a jacket.

Wearing glasses. A thief may grab your glasses -- a fairly good method of distraction. You may want to wear a tight strap on them, as well as having an extra pair, but remember that it isnt your glasses they are interested in.

Getting on or off trains/buses. It is best not to move in a crowd. If possible keep your things against a wall until the crowd thins. Also, when watching belongings, be sure that one person doesnt have more to guard than he can physically hang on to.

At the beach. Dont leave belongings unguarded. Risk taking only what you are willing to lose.

Just after changing money.

In a crowd. Thieves are usually working wherever there are street performers.

You are tired. Try to avoid long bus rides. Break your journey and travel during the day.

You do not speak Spanish
. Some people will take advantage of this; give you incorrect change, rip you off, etc. Try to get some knowledge of the language before traveling to Peru. The Spanish word for thief is ladrón. If you are being followed or set up in an open area, point to the person and yell "Ladrón!" This is likely to cool his ardor to rob you. In confined areas such as crowded buses, make a joke out of the situation, but dont confront the thief directly.