and wire fraud to identity theft
and insurance scams.
During a recent meeting, a
global claims leader asked just
how these frauds are perpetrated. While there are a number of
ways, here is the basic process for
pulling off a scam and laundering
funds in a post 9/11 world.
The cost of terrorism
The first thing to recognize is
that criminal enterprises have expenses. The National Commission upon
Terrorist Attacks on the United States has
estimated that the 2005 London bombings cost about $15,600. The 2000 bombing of the USS Cole is estimated to have
cost between $5,000 and $10,000. Al-Qa-ida’s entire 9/11 operation cost between
$400,000 and $500,000.
Both drug cartels and terrorist organizations require significant funds to create
and maintain an infrastructure of organizational support. To give the appearance
of legitimate activities, these criminal
syndicates will often set up shell companies in order to launder proceeds.
The key to gaining the upper hand is
to recognize how these frauds are perpetrated. A simple example of a fraud may
be a vehicle owner giving up a vehicle
and then claiming it was stolen. In the
vehicle give up, the person receiving the
vehicle may either chop it up for parts or
send it overseas with an altered vehicle
identification number. These types of
claims are hard to prove and insurers often end up paying the policyholder the
value of the vehicle. On the other end of
the deal, the buyer could range from an
unsuspecting customer purchasing a car
for less than retail to someone who has
more sinister intentions.
In more complicated schemes, there
may be rings of associates who perpetrate staged accidents. In these scenarios, there is often a capper involved. The
capper is the person who orchestrates
the accidents, provides the cast of low-paid participants to play accident victims with scripts, and then brokers the
claims to unscrupulous lawyers and
In a simple scenario, two cars are
brought together in a vacant parking lot or
alley. They may be run into one another,
or they may have previous damage. There
will be one person who will play the role
of the insured. This individual will have
a policy, which is usually new and often
an assigned risk. The other car will then
have three or four occupants who will all
claim injury. Each person is given a script
of what to say to the insurance company.
The occupants who feign injury are
paid a paltry sum for their cooperation.
The capper gets a larger sum, and the unscrupulous attorney can retain what is left
over. Some or all of these funds may find
their way into bank accounts that funnel
money to more sinister operations involving narcotics, terrorism or both.
The drug cartel-terrorism
The connection between drugs and insurance fraud has long been established.
Now there is a growing body of evidence
adding terrorism to this criminal trifecta.
According to Judicial Watch, Mexican
drug cartels are smuggling foreigners,
including members of ISIS, from countries with terrorist links into a small, rural Texas town near El Paso, and they’re
using remote farm roads — rather than
interstates — to elude the Border Patrol
and other law enforcement barriers according to sources on both sides of the
borders, including the Texas Department
of Public Safety.
While there are defense mechanisms,
such the Office of Foreign Asset Control
(OFAC), in place to flag potential terrorists and drug lords, the high-profile
persons who might get flagged often use
lower level associates for whom there are
A Department of Justice Report stated
that a number of steps have been
taken at the federal level since
9/11 to combat fraud through the
enactment and modification of
laws and rules, such as the USA
PATRIOT Act, Border Security
and Visa Entry Reform Act, and
several federal fraud statutes.
All of these legal vehicles deal
with crimes that have been tra-
ditionally referred to as white-
collar crimes, including money
laundering, identity theft, credit
card fraud, insurance fraud, immigration
fraud, illegal use of intellectual property
and tax evasion. The reasons behind this
approach to counter-terrorism include
the belief that terrorist activities require
funding, not only for weaponry, but also
for training, travel and living expenses.
These activities require various acts of
deception, such as the creation and use of
Even though the nexus between fraud
and terrorism is undisputed, there’s concern at the state and local levels that law
enforcement professionals lack specialized knowledge on how to detect the
fraud-terror link because they are more
apt to investigate and prosecute violent
crimes. This is also a potential challenge
for claims professionals tasked with investigating insurance fraud.
Hard & soft fraud
Fraud comes in two types: hard fraud and
soft fraud. Hard fraud is an outright and
orchestrated fraud. It may be a staged
accident, an owner giving up a vehicle
or a faked death. This type of outright
fraud accounts for about 10 percent of all
claims in the United States. Soft fraud involves legitimate claims that are exaggerated and affects an even larger percentage
of claims. On the personal injury side,
this type of fraud costs insurers an estimated $4.8 billion to 6. 8 billion annually.
This often includes inflated medical bills,
charges for services not rendered and deceptive billing practices such as upcod-ing, unbundling or modifier abuse. These
claims can be very difficult to identify and
even more difficult to prosecute.
How does the typical soft fraud work?
An unscrupulous attorney will refer a patient to a corrupt provider who will per-