Org Crime and Legal Weed

It really should come as no surprise that claims and allegations of organized crime and legal marijuana enterprises, which are sprouting up all over the states that have recently legalized marijuana for recreational use, are starting to surface. Such notions are even the plot line of TV Drama with (Spoiler alert) the FX show Justified (a show about the U.S. Marshal’s Service) having that as their series finale plot line.

Juliette Goodrich reports below:

OAKLAND (CBS SF) – The alleged owner of a chain of medical marijuana clinics faces criminal charges in one of the first cases of its kind in the state. Prosecutors said it’s a criminal enterprise, a prescription mill generating millions of dollars, with most of the money laundered and sent overseas.

KPIX 5 went to one of the clinics 30 minutes to opening time, and things were already jumping: Car after car pulling in, people waiting in line to see a physician for a medical marijuana recommendation. They are not doing anything illegal. But according to law enforcement, the doctor is.

“It’s organized crime,” said Ralph Hughes. He’s an investigator with the Medical Board. Hughes said under California law, Dr. Bennie Brown would have to own and operate the clinic. But in this case, he said there’s evidence a group of “non-doctors” running it instead, and that’s a felony.

Suspected ringleader Michael Malenkov recently appeared in court on a slew of charges, including money laundering and unlawful practice of medicine. His attorney wouldn’t go on camera, but told KPIX 5 her client simply provides marketing services for Dr. Brown, and did nothing illegal.

But prosecutors point to documents they said show Malenkov pays the lease and the salaries of employees, including Dr. Brown, who was hired on Craigslist, and paid handsomely.

“It was about $22,000 a month and it was all cash,” said Hughes.

Prosecutors believe Malenkov is operating 4 clinics illegally, in Oakland, Berkeley, San Jose and Sacramento, under the name 420 MD.

“You figure if you are paying a minimum of $49 per patient, it’s pretty simple math,” said Hughes. “We believe the smaller clinics are in the million dollar a year range, the larger clinics like the Oakland and Sacramento clinics, they are probably closer to $3-4 million,” he said.

The costs add up as KPIX 5 saw firsthand when we went in undercover. We were told for $299 we could get a special “exemption” card that would allow us to have 99 plants and 11 pounds of marijuana. Then there’s the so-called law enforcement package for an extra $50.

“It’s for law enforcement protection,” a person at the counter in the Sacramento clinic told us. “Anything happens with you and the law and you have to go to court, we pay Dr. Brown an hourly rate to go to court with you to testify on your behalf. It’s just peace of mind,” she said.

And it’s all cash. “There’s an awful lot of money that we think has moved out of the country. When we did the search warrant for Malenkov we found stacks of shipping receipts, where packages were being sent back to the Ukraine. I am certain there are others above Malenkov who are Eastern Bloc who are controlling the money,” he said.

KPIX 5 wanted to ask Dr. Brown about his involvement.

“I know in the past you have faced some pretty serious charges in terms of profiteering and conspiracy yet you are here. Why?” we asked him.

“I don’t know what you are talking about,” Brown said. He told us it’s done all over California.

But the medical board doesn’t agree. Shortly after our interview, sheriff’s deputies arrested Dr. Brown for conspiring to operate a clinic without a license.

“He was warned that it was illegal, that it was a felony for him to be doing that. He didn’t care,” said Hughes.

And when we asked him why he is going after marijuana doctors, he had a quick reply: “This has nothing to do with marijuana. It has to do with organized crime. It has to do with corruption.”

Most doctors won’t write you a marijuana recommendation because marijuana is still illegal under federal law. You pretty much have to go to one of these specialized clinics. And since its cash only, it’s all too easy for criminals to open up shop.

Mutual Fund Billionaire Fraud

Street Gangs & Fraud

I have long been concerned about the connection between Street Gangs, Organized Retail Crime, and Fraud. Fraud is a ripe area for organized crime groups to get into and the penalties are quite low compared to say drug smuggling, gun running, or human sex trafficking.

Steve Lieberman also shares my concern and reports below and the link can be found here:

Gangs pursue more sophisticated crimes, police say

Street gangs are not usually associated with white-collar crimes. Times, they are a-changin’.

Known for reputed violent crimes, drug dealing and robberies, street gangs are becoming more sophisticated, using computers and targeting financial institutions, local and federal authorities said.

Until federal and local officials caught wind of their operation, some Bloods-affiliated M-Block Crew members in Rockland County were using phony money orders and forged checks to amass close to $500,000 stolen from banks, authorities said.

During predawn raids Wednesday, a cadre of federal and local police arrested 26 of 35 targets on charges that included third-degree grand larceny and fourth-degree criminal facilitation.

Rockland District Attorney Thomas Zugibe said the suspects bought U.S. Postal Service money orders in $1 to $3 denominations and altered their value to between $850 and $1,000. Suspects deposited the fraudulent money orders or forged checks into bank accounts in Rockland and Bergen County, New Jersey, he said.

“There is evidence gang members — particularly those we have had previous contacts through narcotics or violent actions — are trending toward crimes such as bank fraud,” said Ramapo Detective Sgt. John Lynch, who runs the Rockland Intelligence Center.

Intelligence Center officers work with state and federal law enforcement agencies, analyze crime data and provide investigative information to police and prosecutors.

Lynch said gangsters in organizations like the Bloods have come to realize that financial crimes are less dangerous and the penalties less severe.

“Bank fraud and other financial scams are much harder for law enforcement to investigate,” Lynch said.

The suspects quickly withdrew or attempted to withdraw the money before banks discovered the fraud, Zugibe said. In many instances, bank accounts were opened and used solely for the purpose of conducting these thefts, he said.

Zugibe said the gang leaders targeted 14 financial institutions in Rockland and Bergen.

Lynch said some gang members deposited checks at banks in one state, while others quickly withdrew the money from banks in another state.

“Like any group, criminals, when they find a weakness in the system, they will exploit it,” Lynch said.

In the Rockland case, no grand jury indictments have been made, Rockland prosecutor Richard Kennison Moran said.

Those arrested were charged with numerous counts of felony grand larceny, criminal possession of forged instruments and criminal facilitation of bank fraud.

Medicare Fraud Problems

The WSJ published an article recently on Medicare Fraud and the challenges in fixing the system – or protecting it from fraud. The article can be found here and below. John Carreyrou and Christopher S. Stewart report:

So the cousins used exchange students to create some 70 bogus laboratories, clinics and physician practices, then enrolled the companies in the program with the stolen identities of doctors, prosecutors assert. Medicare paid out $3.3 million over about two years.

Both Mkhitarians pleaded guilty to health-care fraud conspiracy. David was sentenced in September to seven months in prison, and John will be sentenced in February.

Their case illustrates a vulnerability in the nearly $600 billion taxpayer-funded program: Vetting of new providers often is inadequate. An inspection of the Mkhitarians’ companies might have stopped the scheme before it started.

Shortcomings in Medicare’s efforts to stop fraud, abuse and waste have come into focus since April, when the Centers for Medicare and Medicaid Services, the agency that runs the program, made public medical-provider billing records for the first time since 1979. The disclosure followed a legal effort by The Wall Street Journal.

CMS must strike a delicate balance: reducing fraud and abuse as much as possible without restricting access to medical care for the 50 million people who depend on the program. “Preventing fraud, abuse and waste are priorities” and “hold equal importance with creating and maintaining transparent and viable patient-doctor relationships,” CMS said in a written statement.

Fixing some of the system’s most pervasive problems—such as doctors billing for lots of procedures that may not be medically necessary—would require Medicare to change how it pays providers, some former Medicare officials said. That, in turn, would necessitate an act of Congress, they said.

“Unless you change the rules of the game in terms of how Medicare pays, you’ll never fix it,” said Gail Wilensky, who ran Medicare in the early 1990s. Congress is “not going to voluntarily make major changes in a program that is as popular as Medicare,” she said.

Two improvements could be made without congressional involvement: tighter screening of medical providers when they enroll in the program, and more rigorous enforcement to kick out bad actors.

CMS said it has implemented stricter measures to vet new enrollees in recent years. And this month, the Obama administration strengthened CMS’s authority to revoke billing privileges of doctors and other providers with a suspicious pattern of billing.

Current and former law-enforcement officials estimate that fraud accounts for as much as 10% of Medicare’s yearly spending, or about $58 billion in fiscal 2013. Federal antifraud efforts clawed back $2.86 billion in Medicare funds that year.

CMS hasn’t publicly set a specific monetary goal for fraud reduction. In government programs, as in business, attempting to eradicate all fraud is considered close to impossible—and perhaps not even cost-effective, given how expensive it can be.

One problem is that CMS doesn’t have the resources to deal with the sheer volume of providers flooding the system. Every month, some 45,000 new providers, from doctors and physical therapists to nursing homes and ambulance operators, apply to enroll in Medicare.

CMS has tightened some screening requirements since 2011, hiring new contractors that specialize in site visits. The agency also has begun looking for bad actors by checking the fingerprints of, among others, providers of home-health care and durable medical equipment like wheelchairs, two categories with a history of fraud.

In some fraud hot spots around the country, CMS has imposed moratoria on the enrollment of new home-health agencies and ambulance operators. And it now requires suppliers of prosthetics and orthotics to submit $50,000 “surety” bonds before they can start billing Medicare.

Sen. Orrin Hatch, a Utah Republican, is expected in January to become chairman of the Senate Finance Committee, the committee that oversees Medicare. Agence France-Presse/Getty Images

The most stringent vetting is limited to provider categories deemed to carry the highest risk of fraud and abuse. Visiting every new provider would be impractical, former Medicare officials say.

“If the cops stop and hassle every single motorist, two things happen: traffic congestion, and you get political blowback,” said Ted Doolittle, a former deputy director of CMS’s antifraud unit.

Yet simple improvements to the screening process would make it easier to spot fake medical providers.

“Even to get a driver’s license, you need to take a driver’s education course and pass a test,” said Ryan Stumphauzer, former head of the Medicare Fraud Strike Force in Miami. “Why not perform this type of common-sense screening before handing out Medicare billing privileges? Ask basic questions: Does the applicant have education, training or experience in health care? Are they versed in basic Medicare rules and regulations?”

Some legislators say that once bad providers are in the program, CMS and its contractors aren’t quick enough to kick them out.

Sen. Orrin Hatch, a Utah Republican, is expected in January to become chairman of the Senate Finance Committee, the committee that oversees Medicare. He said much more needs to be done “to weed out the bad actors.”

Sen. Hatch and Tom Coburn, an Oklahoma Republican, in September 2011 sent CMS a list of 34 individuals who still had their Medicare-billing privileges despite being convicted of, or pleading guilty to, felonies such as health-care fraud, tax evasion and lewd and lascivious behavior.

CMS responded with a variety of reasons why they might still be enrolled, including that some of the felonies were “not excludable offenses.”

Calling the response unacceptable, the senators criticized the agency for not taking immediate action. And they raised a 35th name: Conrad Murray, Michael Jackson’s personal physician.

Dr. Murray remained “a legitimate Medicare provider,” they noted, even though California had suspended his medical license and a jury had recently convicted him of involuntary manslaughter for providing the pop star with the sedative that caused his death.

Dr. Murray wasn’t excluded from Medicare and Medicaid by the health department’s Office of Inspector General until June 2012, although data show no billing by him that year. He was released from custody last year after serving two years of a four-year sentence. His lawyer, Valerie Wass, said “it’s going to be very difficult for him to get a medical license again in this country because of his conviction.”

A complicating factor is that CMS and the inspector general—two separate agencies within the health department—have separate rules about when they can act against medical providers.

Of the 34 felons on Sens. Hatch and Coburn’s original list, 15 eventually were excluded from Medicare and Medicaid by the inspector general, but some of the exclusions didn’t take effect until two to three years after a conviction or guilty plea. Another 16 are no longer listed as program participants on Medicare’s website. Three remain Medicare providers.

CMS declined to comment on the individuals, citing the federal Privacy Act. A spokesman for the inspector general said the exclusion process takes time because providers have extensive appeal rights. He said the inspector general excluded 4,017 providers in the 2014 fiscal year, up from 3,214 the proceeding year.

When CMS does act to curb questionable billing, recouping the money can be difficult. Providers prevailed at least in part in 62% of the nearly 600,000 Medicare appeals decided by administrative-law judges since 2005, according to a Journal analysis of data published by the health department’s Office of Medicare Hearings and Appeals. The government won just 26% of the time, and 12% of cases were dismissed.

—Christopher Weaver contributed to this article.

Write to John Carreyrou at and Christopher S. Stewart at

Fraud Investigators & Tor

Here is an excellent post by Jacob Parks writing for the ACFE on what Fraud Investigators, Examiners, and other professionals need to know about the internet browser Tor.

Security, Anonymity and Cybercrime

By Jacob Parks, J.D., CFE

November 2014

When criminals use online tools to commit fraud, the investigation often involves looking for whatever digital traces they might have left behind. One of the most important clues in these searches is the Internet Protocol (IP) address. Through subpoenas to service providers, both law enforcement and private parties might be able to match a user’s IP address to an account holder, which can be used as evidence to identify the perpetrator.

However, because of tools like Tor, these clues are not always useful. If IP addresses are the fingerprints of the Internet, then Tor is a pair of gloves. It is a neutral device that can be used for good and evil, and fraud examiners should be aware of its potential effect in investigations.

Like the Layers of an Onion

Tor is software designed to provide users with anonymity and security in some online communications. It also allows them to access certain websites and services on the Deep Web. The U.S. Naval Research Laboratory developed the core concept behind Tor for government agents to send communications anonymously and securely. Later, a group of researchers (with the Navy’s permission) created the Tor Project, which provided free and openly accessible software for private parties and other government agencies to enhance the anonymity and security of their communications. The term Tor derives from the acronym of “the onion router,” which metaphorically compares the layers of an onion to the way in which the network provides layers of encryption to communications.

Users download the Tor Browser, which has basic functions similar to other Internet browsers. It works by sending a user’s online communications, such as a text-based message or a website request, through a network of volunteered computers around the world. Individuals and organizations donate the use of their computers to serve as message “relays.” However, the messages have multiple layers of encryption, making it so that the first relay that receives the message knows the sender’s IP address, but does not know the encrypted contents of the message. The first relay also knows to pass the message on to a second particular relay.

The second relay peels back another layer of encryption before passing the message on to the next relay, which peels back another layer, passes it on and so on. This process occurs several times, and the relays in this stage each only know from whom they received the encrypted message and where to send it next. Eventually, the message reaches the “exit relay,” in which the content of the message is decrypted. The exit relay forwards the message to the original sender’s intended recipient. The only IP address the recipient can see is that of the exit relay. If the recipient wishes to establish an active connection with the sender, then communications travel in reverse through the Tor network, with a similar encryption process.

The result is that, theoretically, no relays in the system (or potential eavesdroppers) know both the content of the message and the original sender. Meanwhile, the recipient knows the content of the message, but does not know the IP address of the original sender. However, users must keep in mind that the exit relay can view the message, so usernames, passwords and other sensitive data will be viewable to that relay (and potentially other parties such as law enforcement and Internet service providers) unless HTTPS is used. The Electronic Frontier Foundation provides a graphic to illustrate the security differences in using Tor, HTTPS, both or neither.

Uses of Tor

There are several methods for trying to remain anonymous online, but Tor is one of the most popular because it offers the security and speed that some other tools lack. In a leaked report obtained by The Guardian from Edward Snowden, the U.S. National Security Agency (NSA) characterized Tor as “the king of high-secure, low-latency Internet anonymity.” The documents also included descriptions of various ways that the NSA has tried to defeat the anonymity and security aspects of Tor, but concluded that the network’s integrity remains largely intact.

Given its anonymous properties, Tor is attractive to cybercriminals. Hidden service providers that operate through sites that are only accessible by using Tor are notorious for providing illegal goods and services. These sites are recognizable by their .onion addresses. One of the most popular Tor hidden services was the first Silk Road, which was commonly described as the “eBay of drugs” before it was shut down (I say first because there has since been at least one copycat of the Silk Road). It is not just illegal substances that are available through Tor hidden services, but also malicious malware and hacking tools that can be used by fraudsters.

However, using Tor is not illegal and it actually has many benefits from an anti-fraud perspective, including:

Allowing anonymous research of sensitive data

Undercover operations that involve online criminal networks

Communicating as a whistleblower with a greater degree of anonymity

Reducing the risk of identity theft when using online services

Reducing the likelihood of eavesdropping by malicious parties and data breaches during online communications

Providing hidden services that allow for secure channels of communication

Circumventing censorship by oppressive governments

Researching data that is only available at specific parts of the Deep Web

Notable Issues

While Tor is generally considered a strong privacy and security option, it does have limitations and is prone to user error. For instance, misconfiguring the browser can result in a loss of anonymity and vulnerability to eavesdroppers. However, this sword cuts both ways. Recalling the Silk Road investigation, the FBI was able to exploit a flaw in the server’s Tor configurations, leading to a leaked IP address. With that data, they quickly determined that the server was located in Iceland. The Tor Project offers guidance that can help users install and properly configure the Tor Browser.

Another common mistake that criminals make is to inadvertently leave hints about their identity when using hidden services, such as through messages, pictures and other clues that can be linked to the person’s actual identity. For instance, a perpetrator might get careless and create a username on a website that is identical to an email login that he created in the past when he was not using IP-masking tools. Crumbs of evidence like that can lead to a more targeted investigation and possibly a positive identification.

Fraud examiners who deal with cybercrime should be familiar with how Tor works and how it might affect an investigation. While it can be an obstacle for identifying perpetrators, it also proves useful in many investigations and other anti-fraud activities.

Organized Retail Fraud – TX

The ACFE breaks up fraud into three categories: Financial Statement Fraud, Corruption, and Asset Misappropriation. The public tends to think of fraud in association to white collar crime — or Financial Statement Fraud — but bribery, kickback schemes, and asset misappropriation are all areas that Fraud Examiners and fraud investigators combat fraud. Asset Misappropriation is more than an employee wondering “who moved my red stapler?” but includes Organized Retail Crime rings. These are groups that intentionally get together, plan, scheme, and execute shoplifting schemes to resell the stolen goods. The amount of losses is estimated at $15 BILLION to $37 BILLION EACH YEAR. That is a mind-boggling amount but at this point, if you’ve been paying attention, shouldn’t be surprising. Fraud is a drain on society. Imagine if that amount of money was put into cancer research, clean energy development, infrastructure, or god forbid — paying down the national debt. (Sarcasm warning).

The article below is from Florian Martin and Ashura Bayyan and discusses ORC – Organized Retail Crime — in Houston, TX.

The U.S. retail industry loses between $15 billion and $37 billion each year to organized retail crime. That’s according to an estimate by the Congressional Research Service. Stores across the country have reported an increase of large-scale thefts on a number of different items, from designer denim and electronics to allergy medicine and infant formula.

“Organized Retail Crime can be one person, or it can be a group, what their sole intent is to take a number of items of the same type with the sole intent of reselling.”

That’s Joe Williams from the Texas Retailers Association. He estimates that in Texas, the retail value of items stolen by professional shoplifters, or “boosters,” falls between $2.5 billion and $3 billion.

He says when those items are stolen, it not only affects retailers but also directly impacts the states.

“If that item is resold in the black market, where there is no sales tax charged, then the state loses sales tax revenue on those items that are boosted. We think that that number is somewhere around $200 million annually.”

Lee bland is the vice president of loss prevention at Stage Stores, a Houston-based retailer that operates over 800 department stores in 30 states.

She says as a result of retail crime, consumers also bear extra cost at the register.

“What happens is we have to raise our prices to cover our losses from the product that’s stolen in the stores.”

The National Retail Federation has listed Houston in the top 10 cities for organized retail crime for each of the last three years.

Bland believes Houston is a hotbed for theft because it is so close to the Mexican border.

“When we do apprehend organized retail crime groups, they’re here illegally. And so what happens is, someone will smuggle them across the border, and in return for being smuggled into the United States. They are obligated to be a part of this organize retail theft group for a year or two to pay back their in-transit into the United States.”

Williams says Texas retailers have increased surveillance and are improving customer services to make stores less susceptible to retail theft.

Expense Fraud

Citigroup’s Mexican Banking Unit has uncovered $15 million in expense fraud in relation to a security unit that Citigroup operated. I am sure the irony is not lost here, but $15 million is still a lot of money in fraud losses, even for a bank like Citigroup which has uncovered $400 million in fraudulent loans from its Mexican bank unit regarding an oil services company. The Mexican News Daily reports below:

Another case of fraud has been uncovered at Banamex. The bank’s owner, United States-based Citigroup Inc., said today that it has found evidence of a US $15 million fraud related to a private security company the bank operated.

The company, it was found, had been offering its services to third parties, and had submitted fraudulent expense claims. Like many large corporations, Banamex offered security services to its board members and their families.

 The security firm, set up after board member and businessman Alfredo Harp was kidnapped in 1994, is being wound down.

Earlier this year Citigroup found that more than $400 million in fraudulent loans had been made by its Mexican bank unit to oil services company Oceanografía. Two traders have been fired for rogue trading, and writedowns have been taken for bad loans to Mexican homebuilders.

As well, Banamex is facing a criminal investigation in the United States for violating money-laundering laws.

The story can be found here.

Identity Theft Tax Fraud Tips

It’s that time of the year again – if you filed a tax extension for 2014. Below is an article on how to protect yourself from Identity Theft in relation to tax faud. Michael Hoffman writes:

Fraudsters who use stolen personally identifiable information can perpetrate a wide variety of fraudulent financial schemes, such as hacking online accounts, submitting phony insurance claims, and applying for loans and credit cards to pad their bank accounts. Increasingly, though, identity theft tax refund fraud is becoming a favorite money-making scheme for criminals.

There have been many newsworthy stories in recent months of identity theft and how the information can be used against individuals. Because identity theft tax refund fraud has become the most popular tax scam around, you might even know someone who has been a victim of it. All that is needed is a computer (or even a cell phone with the necessary app) and someone’s Social Security number (SSN) and date of birth.

This fraud is so rampant that the U.S. Internal Revenue Service (IRS) estimates that it mistakenly paid $5.2 billion to identity thieves in 2013, according to a report by the Government Accountability Office (GAO). The fraudsters filed fraudulent tax returns on behalf of millions of unsuspecting taxpayers, and the IRS did not catch the scheme until well after the refund checks had been processed. However, the financial damage could have been far worse: The IRS also estimates that it was able to identify and stop $24.2 billion in attempted identity theft tax refund fraud last year.

Components of the Scam

Believe it or not, this fraud scheme is fairly easy to execute. Citizens usually receive a W2 tax form from their employers by the end of January each year. For the most part, taxpayers then file returns by April 15. During that window, fraudsters are able to steal individuals’ personal information, usually Social Security numbers, file fake returns as the victims and collect the refund checks. Because the IRS attempts to issue refunds within three weeks of receiving submitted tax returns, the scam happens quickly and painlessly for the fraudsters.

Moreover, employers have until March to send their formal W2s to the Social Security Administration (SSA), which eventually passes the documentation on to the IRS. The agency does not begin the uphill process of verifying tax returns against employers’ W2s until July, which only increases the fraudsters’ chances of getting away with the crime. The GAO has reported that it can take more than a year for the IRS to complete the necessary confirmations and discover the fraud.

Recent Incidences of Note

For decades, Florida has been the hotbed of fraudulent activity in the U.S. Medicare fraud, mortgage fraud, securities fraud and now tax frauds using stolen identities are plentiful throughout the region. For the third consecutive year, the state leads the nation in terms of identity theft complaints, and Miami is also No. 1 in terms of metropolitan areas that suffer from identity theft. However, Florida has some competition.

Recently in Georgia, two instances of identity theft tax refund fraud made headlines. A Cobb County man, Mauricio Warner, was sentenced to 20 years in federal prison for stealing the identities of thousands of people to file fraudulent tax returns that claimed more than $5 million in refunds, which he had the IRS deposit into various accounts. From January 2011 to April 2012, Warner filed more than 5,000 false returns using the identities of unsuspecting victims, but he was also ordered to pay full restitution to the government at sentencing. In addition, a Cobb County woman was arrested and accused of filing a tax refund worth more than $94 million. Brigitte Jackson, who reported $99 million in 2013 income, attempted to pick up her mega refund check at the local grocery store. She was apprehended after her repeated phone calls inquiring about her phony tax return were routed to financial fraud authorities.

In Pittsburgh, Penn., the scheme recently included an international angle. Five Nigerians were charged with using other individuals’ identities to claim bogus tax returns. The perpetrators used stolen personal information gathered off the Internet to open bank accounts, obtain credit cards and steal millions of dollars from the U.S. Treasury by filing fake returns. Over a 10-year period, the accused fraudsters accumulated more than $10 million in false tax returns before the scam was detected. The fraud was discovered when an employee at a nearby credit union recognized that application forms filed by the fraudsters contained similar stolen data.

Ways to Protect Your Identity

Although identity theft is difficult to completely guard against, there are steps you can take to make it challenging for fraudsters to steal personally identifiable information, including:

Regularly check your credit report.

Do not carry a Social Security card or any documentation containing your SSN.

Properly dispose of documentation containing sensitive information; shred it instead of leaving it in the trash.

Only give personal information when absolutely necessary — especially on websites and via social media — and keep track of those who have access to it (this might be helpful in determining the breach source if victimized).

Never use public Wi-Fi or a non-password-protected network to file electronically.

Protect personal laptops and devices by installing firewalls and the most recent anti-virus software.

File taxes as early as possible during tax season because criminals try to file fraudulent returns before the actual filer (once the IRS receives a return with an SSN, the agency will reject any duplicate filings and immediately notify you).

If filing taxes is not required, consider doing so anyway to prevent a criminal from submitting a false return in your name, and to be alerted if someone has already filed in your name.

Be leery of phone calls from people who already know your SSN and claim to be IRS agents. Some even manipulate caller ID. (The IRS warned of this sophistication last October.)

Even by following these tips, the threat remains and seems to be growing. In 2010, tax- and wage-related identity theft accounted for 16 percent of all identity-theft complaints made to the Federal Trade Commission. In 2013, they represented a whopping 43 percent.


Although identity theft paired with tax refund fraud is relatively new, its effects have been felt by millions of victims across the U.S. Even today, the IRS still cannot distinguish if the individual filing a tax return is the actual taxpayer or a fraudster. However, several controls are currently under consideration, including delaying refund payments until IRS agents can verify payouts with the W2s filed by employers. Also, the U.S. House of Representatives passed a bill last month that would toughen penalties for convicted fraudsters in an attempt to limit losses. The legislation would add tax return fraud to the category of aggravated identity theft, which would add five years to the maximum prison time per conviction. Considering this fraud has cost the U.S. Treasury nearly $21 billion in the last five years, fraudsters should be punished accordingly.


Oh SNAP! Food Stamp Fraud

What is the cost of Supplemental Nutrition Assistance Program (SNAP) – also known as Food Stamps — fraud? At this point it is looking like $858 million a YEAR. While proponents of SNAP programs will argue that the $858 million only amounts to a small percentage of the $75 BILLION spent on Food Stamps per year (as 49 million Americans are now enrolled), that is still a staggering amount, though it is less than losses from Federal Student Aid annually. Eric Schulzke reports below, writing for Deseret News National.

Since 2008, the federal Supplemental Nutrition Assistance Program, popularly known as food stamps, has doubled in size, with 49 million Americans now on the rolls. The cost of the program has also jumped dramatically. The federal government now spends $75 billion a year on food stamps, compared to $36 billion in 2008, according to a new Department of Agriculture report focused on the problem of “trafficking.”

“Trafficking of Supplemental Nutrition Assistance Program (SNAP) benefits occurs when SNAP recipients sell their benefits for cash to food retailers, often at a discount,” the report said.

While the report did not find that the problem was escalating in proportional terms, the enormous growth of the program itself means that relatively small ratios of fraud produce sizable losses for the government. The value of trafficked food stamp cards was estimated at $858 million a year in this study, “up from $330 million annually in the 2006-2008 study.”

The report found that 10.5 percent of participating stores had engaged in trafficking, and that 85 percent of those were small outlets, which are more difficult to police.

The significance of the report lies in the eye of the beholder. Ellie Sandmeyer at the left-leaning Media Matters took Fox News to task for failing to provide context, citing only the raw numbers of increased fraud. “Kilmeade’s misleading report is just another example of how Fox News has shamelessly misrepresented the SNAP program and its beneficiaries in an effort to demonize food assistance and malign low-income Americans,” Sandmeyer wrote.

But Fox News online did note that “despite the increase [in raw numbers], trafficking has declined since the 1990s, when the rate was nearly 4 percent of food stamps, also known as Supplemental Nutrition Assistance Programs benefits.”

Meanwhile, states are struggling to manage oversight on a program grown much larger in scope, such that even percentage-wise small losses become fiscal and political headaches.

Oregon, for example, has established a legislative working group to explore mechanisms to control fraud that are cost-effective and not overly burdensome for the benefit recipient.

Doing God’s Work…or not.

Reportedly a Catholic Priest in Detroit has been charged with fraud. The story can be found here and below. Patricia Montemurri reports:

Detroit Catholic priest Timothy Kane allegedly skimmed money for himself from the Angel Fund charity by conspiring with a state prison inmate, who recruited people to make false requests for aid which Kane then approved, a Wayne County Circuit Court jury was told Wednesday.

Telephone calls between the priest and the prisoner, Fonsha Reid, were taped and monitored by the state Department of Corrections, which notified the Archdiocese of Detroit in July 2012 about suspicious conversations between the two.

The archdiocese then conducted an internal investigation before turning over its findings to the Wayne County Prosecutor’s Office a few months later.

Archdiocese investigator James Smith, a retired police officer who works for the archdiocese’s law firm, testified that Kane, as associate pastor of a trio of Detroit and Highland Park churches, signed off on 10-15 “suspicious” requests from the Angel Fund totaling about $131,000 in 2008-12.

Kane is charged with stealing less than $20,000 in relation to those Angel Fund monies. Kane faces six counts.

Other Kane-approved Angel Fund requests totaling about $381,000 were “absolutely legitimate,” Smith said.

Smith said his interviews with recipients showed that Kane received “kickback money on this fund,” and that the arrangement “seems to be a criminal enterprise.”

Wednesday brought opening statements and testimony in the trial against Kane, the former associate pastor of Madonna and St. Gregory churches in Detroit and St. Benedict in Highland Park.

The Angel Fund was operated by the Archdiocese of Detroit and funded by an anonymous donor, who gave about $17 million between 2005 and 2014 to help urban priests pay for emergency needs such as medical or mortgage bills for poor people.

Prosecutors have reached a plea deal with codefendant Dorreca Marvie Brewer, who they said was Kane’s accomplice in making false Angel Fund applications.

Brewer, who pleaded no contest to three counts involving embezzlement and fraud last month, may testify against Kane. She has not yet been sentenced.

In laying out how the kickback scheme worked, Assistant Wayne County Prosecutor Michael Woodyard alleged that inmate Reid and Brewer recruited people to file false requests from the Angel Fund, which were approved by Kane.

Woodyard also showed an Angel Fund request for $5,000 and a subsequent October 2008 check receipt for Reid, authorized by Kane. According to state records, Reid was serving a 15-year sentence for manslaughter from 1994 to March 2009, and a separate felony firearm sentence from summer 2009 to mid-June of this year, but jurors were not told about his record.

Sister Mary Sylvia Grey, who worked with Kane in parish outreach and volunteered to help him process Angel Fund requests, described how Kane interviewed recipients and then would e-mail information for her to include on the forms.

On the witness stand, she read from the 2008 application for Reid’s Angel Fund request, which described him as being “in excess of $5,000 in rent,” facing an eviction notice and needing an auto transmission to keep a fast-food job.

Prosecutor Woodyard described how Brewer recruited a man to provide identification to file a false request for Angel Fund money, which Kane authorized. When a $1,500 check was approved for him, Brewer kept money for herself and gave some to Kane, while giving the man $300, Woodyard alleged. That man is on the witness list.

In his opening statement, Kane’s attorney Steven Scharg said the Angel Fund gave priests wide latitude. Requirements to receive money were “so bare” and allowed pastors “whatever they want to do with that money,” Scharg said.

Scharg also said there were instances of Angel Fund recipients being “so grateful” that they “wanted to give something back to Father Kane” to help others.

Kane was accompanied by a dozen supporters in court, including the Rev. Norman Thomas, pastor of Sacred Heart and St. Elizabeth churches in Detroit. “I know Tim and he certainly never showed any extravagance,” said Thomas. “He lived a very simple lifestyle. Almost bleak.”