By Brian Monroe
bmonroe@acfcs.org
July 28, 2016
In this week’s Financial Crime Wave, find out how DOJ crippled billion-dollar health care fraud, how corruption can infect a large US bank, if Bitcoin can be the money to make money laundering charges stick, and more.
Healthcare fraud
Three Florida residents have been charged in the “largest single criminal health-care fraud case ever brought against individuals” by the U.S. Justice Department — an alleged Medicare fraud and money laundering scheme that netted participants a whopping $1 billion since 2009, prosecutors revealed Friday. The owner of more than 30 Miami-area skilled nursing and assisted living facilities, as well as a hospital administrator and a physician’s assistant were charged in an indictment with conspiracy, money laundering and health-care fraud, the U.S. Attorney’s office in Miami said. An explosive indictment and other court documents filed Friday claim that the massive alleged scam helped wealthy health-care operator Philip Esformes, 47, fund a lifestyle that included private jets, a $600,000 watch, meetings with escorts in hotel rooms, and a private basketball coach for his son. The indictment claims that Esformes, 47, with his co-conspirators, cycled thousands of Medicare and Medicaid beneficiaries through his Esformes Network facilities despite the fact they didn’t qualify for such care. At those facilities, prosecutors said, they also “received medically unnecessary services that were billed to Medicare and Medicaid,” the huge government-run health programs that cover primarily senior citizens and the poor, respectively. “Furthermore, Defendant [Esformes] and his co-conspirators preyed upon his beneficiaries’ addictions by providing them with narcotics so that the beneficiaries would remain in Esformes Network facilities, allowing the cycle of fraud [to] continue,” prosecutors said in a court filing, (via CNBC).
The Centers for Medicare and Medicaid Services (CMS) released a report showing that through predictive analytics, strong federal partnerships and more efficient and effective investigative techniques, the organization has saved some $42 billion tied to potential healthcare scams. In a blog post, CMS stated that investments made in program integrity activities – which include stamping out fraud and deterring and reducing other improper payments – have been paying off. From October 1, 2012 through September 30, 2014, every dollar invested in CMS’ Medicare program integrity efforts saved $12.40 for the Medicare program. Healthcare fraud in the US is estimated to be in the tens of billions of dollars. “This means that all our efforts – making sure health care providers enrolled in our programs are properly screened; using predictive analytics to prevent fraud, waste, and abuse; and coordinating our anti-fraud efforts with our federal and external partners – have resulted in billions of dollars saved in Medicare and Medicaid over the two-year period,” according to the group, (via the Centers for Medicare and Medicaid Services).
Money laundering
Single-family offices are increasing in number as well as in the amount of wealth they control. This is a function of the explosive growth in the ultra-wealthy and the super-rich (net worth = $500 million or more). The billions of dollars they invest, coupled with their worldwide presence and transnational perspectives and business interests, characterize a segment of this population – the global single-family office. “More than ever, global single-family offices are investing in private companies throughout the world. Many times they are co-investing with other single-family offices, pension funds, and even sovereign wealth funds. Also, single-family offices have been shown to be very successful middle-market investors,” explains Angelo Robles, founder and CEO of the Family Office Association. “One of the complications with some of these kinds of deals, considering that they are being sourced from all over the planet and they can be pretty complex, is making sure the companies and the people involved are clean. That is, there are no criminal links between the prospective acquisition or their current owners with criminal behavior,” (via Forbes).
Corporate secrecy
New revelations published this week by the International Consortium of Investigative Journalists (ICIJ), in collaboration with more than a dozen news organizations in Africa, expose fresh details about the misuse of corporate secrecy and hidden wealth in Africa, the world’s poorest continent. Released nearly four months after ICIJ and more than 100 media partners first published what is now known as the Panama Papers, 11. 5 million files from the Panama-based law firm, Mossack Fonseca, these latest investigations include new details about the middleman at the center of a probe into hundreds of millions of dollars in suspected bribes paid for oil and gas contracts awarded in Algeria. The files also reveal the offshore assets, including a luxury yacht and jet, of a Nigerian aviation and oil magnate who is reportedly close to a former oil minister and has recently had some of his assets seized as part of a $1.8 billion probe into oil sales. The revelations published by ICIJ and media partners include investigations from countries that are being examined for the first time, including Tanzania, Burkina Faso, Ghana, Mozambique and Togo, (via the ICIJ).
Compliance
The increasing pressure on financial institutions to more quickly and completely identify and report on potential instances of financial crime will drive the adoption of advanced transaction monitoring systems, according to a new report. Technavios market research analyst predicts the global anti-money laundering (AML) software market to grow steadily at a CAGR of around 11 percent during the forecast period. AML software allows financial institutions and other enterprises to detect suspicious transactions and analyze customer data. The report “Global Anti-Money Laundering Software Market 2016-2020”, has been prepared based on an in-depth market analysis with inputs from industry experts. Its ability to provide real-time alerts and tools to report suspicious events to maximize security and operational efficiency will foster its adoption during the forecast period. An important growth driver for this market is the increasing regulatory compliance requirements, which compels financial institutions to adopt AML software. The growing utilization of predictive analytics to reduce false results and to decrease the compliance cost of AML software is a trend that will impel market growth until the end of 2020, (via WhaTech).
Virtual currency
Bitcoin isn’t money, a Florida judge has declared. Circuit Court Judge Teresa Pooler has dismissed a money laundering case brought against a website developer, ruling that “nothing in our frame of references allows us to accurately define or describe Bitcoin.” It’s a judgment that has been cheered by advocates for the digital currency (or token, or property, or whatever you want to call it), and may set a precedent for how it is dealt with in other legal cases. (We first saw the case over at The Miami Herald, and you can read the full ruling below.) First, the facts. Michell Espinoza was charged with money laundering and acting as an unauthorized money transmitter after selling bitcoin to undercover cops who found him through a bitcoin-selling website, Local Bitcoins. Over a series of meetings, Espinoza sold the undercover agent $2,000-worth of bitcoin, which the agent said would be used to purchase stolen credit card numbers. Espinoza was then arrested after a bogus fourth sale was arranged for $30,000-worth. But Judge Pooler, in an order signed on July 22, has thrown these charges out, (via Business Insider).
Corruption
CompliancEX has a roundup on corruption in various locales, including Ukraine, Argentina, and Afghanistan, noting that even with US soldiers tackling terrorists on the ground, if the government itself is mired in corruption, gains on the battlefield will not be cemented in the long run. In another piece, a Libyan sovereign wealth fund is accusing French banking giant Societe Generale of using a secret code word system, with such zingers as “Pizza” and “Zorro” to allegedly hide corrupt dealings, (via CompliancEX).
Enforcement
Princelings and Patek Philippe watches on junior staffers are more common on Wall Street than many want to believe, according to story looking at a possible corruption-related settlement against one of the largest banks in the country. JPMorgan Chase got into hot water for hiring the children of the international elite, according to a report on Friday, but what the bank is accused of doing is far from unique. Jamie Dimon ‘s bank is facing a $200 million fine for its hiring practices overseas, according to a Wall Street Journal report. Notably, it’s accused of hiring the son of China’s commerce minister, Gao Hucheng, as it simultaneously sought business in that country, the Journal said. According to the Journal’s story, JPMorgan took on more than 200 candidates through a program dubbed the “Sons and Daughters” initiative, although it isn’t clear what the purpose of the program is. JPMorgan declined to comment to CNBC. The Journal report said the bank is expected to admit guilt, but not to be charged criminally. Word of the JPMorgan investigation first surfaced in 2013 , although reports have indicated that the bank believed its plans fell within the bounds of legally accepted behavior, (via HITC).
The U.S. government asked a federal appeals court on Thursday to block the release of a report detailing how HSBC Holdings Plc is working to improve its money laundering controls after the British bank was fined $1.92 billion. In a brief filed with the 2nd U.S. Circuit Court of Appeals, the U.S. Department of Justice sought to overturn an order issued earlier this year by U.S. District Judge John Gleeson to make public a report by the bank’s outside monitor. “Public disclosure of the monitor’s report, even in redacted form, would hinder the monitor’s ability to supervise HSBC,” the government’s court filing said, adding that bank employees would be less likely to cooperate with the monitor if they knew their interactions could be released. HSBC concurred with the court’s finding. “HSBC also argues that the Monitor’s report should remain confidential, as have the Monitor, the UK Financial Conduct Authority, the US Federal Reserve and other HSBC regulators,” HSBC said in a statement. “The effectiveness of the monitorship is dependent on confidentiality.” The filing comes a week after U.S. congressional investigators criticized senior officials at the Department of Justice for overruling internal recommendations to criminally prosecute HSBC for money-laundering violations, (via Reuters).
Fraud
The former manager of a Wells Fargo Bank branch in Glendale has pleaded not guilty to federal charges that he was part of a scheme to launder the proceeds of a “mass mailing scam” targeting holders of U.S. trademarks, authorities said Thursday. Albert Yagubyan, 36, of Burbank, pleaded not guilty Tuesday to the charges in federal court in Los Angeles, the United States Attorney’s Office for the Central District of California said. The indictment charges Yagubyan with one count of conspiracy to commit money laundering, four counts of concealment money laundering, one count of false bank entries and one count of witness tampering, the government said. The government said that Yagubyan was the manager of the bank branch until October 2015. The indictment alleges that from 2013 to 2015, Yagubyan allowed Darbinyan and Hakobyan to open bogus bank accounts at the branch through which proceeds of the trademark scam could be laundered in exchange for a share of the proceeds. It claims that Darbinyan and Hakobyan deposited checks from the victims of the mass-mailing scam into bogus accounts at the bank. Then Yagubyan allegedly instructed employees to approve withdrawals by Darbinyan and Hakobyan, even though the two men were not the signatories on the accounts, according to the indictment, (via the Los Angeles Daily News).
Cybersecurity
Almost six million fraud and cyber crimes were committed last year in England and Wales, the Office for National Statistics said. It estimated there were two million computer misuse offences and 3.8 million fraud offences in the 12 months to the end of March – suggesting fraud is the most common type of crime. Most related to bank account fraud. It is the first time fraud questions have been added to the official Crime Survey for England and Wales. The figures are separate from the ONS headline estimate that a total of 6.3 million crimes were perpetrated against adults in the year to March – a 6% fall in the number of crimes compared to the previous year. The most common types of fraud experienced were bank and credit account fraud, with 2.5 million incidents, followed by “non-investment” fraud, such as scams related to online shopping, the ONS said, (via the BBC).
Card fraud
This story details how a criminal ring defeated the secure chip-and-PIN credit cards using a sophisticated man-in-the-middle attack. Four years ago, about a dozen credit cards equipped with chip-and-PIN technology were stolen in France. In May 2011, a banking group noticed that those stolen cards were being used in Belgium, something that should have been impossible without the card holders inputting their PINs. That’s when the police got involved. The police obtained the international mobile subscriber identity (IMSI) numbers present at the locations where the cards were used and at the times they were used, and then they correlated those IMSI numbers to SIM cards. Using that information, the police were able to arrest a 25-year-old woman carrying a large number of cigarette packs and scratchers, which were apparently intended for resale on the black market. After her arrest, four more members of the fraud ring were identified and arrested. That number included the engineer who was able to put together the chip card hacking scheme that a group of French researchers call “the most sophisticated smart card fraud encountered to date.”
Authorities seized 25 stolen cards, specialized equipment, and €5,000 (approximately $5,660) in cash. Ultimately police said about €600,000 (or $680,000) was stolen as a result of the card fraud scheme, spanning 7,000 transactions using 40 cards. As the US is finally beginning its transition from magnetic stripe cards to these so-called EMV cards, interested parties are watching Europe to see how hackers have taken advantage of the system there. While smart cards are supposed to be more resistant to fraud than the magnetic stripe cards the US has been using, that doesn’t mean they’re hack-proof. In fact, most banks in the US are currently only requiring a signature for transaction verification, rather than a PIN. Clearly, a signature is much more easily forged than a PIN, but the fraud scheme in France and Belgium shows that a PIN spoof was possible for a time, even if EMVCo, the consortium that manages the standard, says the problems that created the hack have now been fixed, (via ARS Technica).