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Background Check Myth – SSNs Not Important As You Might Think

 

SSN, Social Security Number

Today, virtually every United States citizen has been issued a Social Security Number (SSN), a unique nine-digit number that is used for a variety of things such as filing taxes, obtaining a driver’s license, and opening bank accounts.  SSNs are also used by many employers to document and identify their employees.  Employers may also provide a candidate’s name and SSN to an investigations firm to conduct a pre-employment screening.

However, among those outside of the background screening industry there is a big misconception about the use of SSNs when conducting background checks.  There is an assumption that the sole use of a candidate’s name and SSN will identify any and all jurisdictions, and by extension, criminal records for an individual.   Speaking from experience, that assumption is not only inaccurate, but can have dire consequences.

To begin with, as we have mentioned in previous blog posts, there is no publicly available national criminal database.  Products labeled as a “nationwide (or national) criminal background check” are misnomers, inasmuch as they do not cover every jurisdiction within the United States, and may not have the most up-to-date records available.   While the National Crime Information Center (NCIC) exists, and is maintained by the Federal Bureau of Investigations (FBI), this database is not available to the public and reportedly has issues of its own.

So What's The Problem?  

As an industry best practice when conducting a criminal check, investigative firms should search both county/municipal level court databases as well as state maintained criminal repositories.  It is important to note that a majority of these court databases and criminal repositories do not allow you to search by SSN.  In most cases, these tools will only allow you to search by name and/or date of birth.  

You would be correct in thinking that a name and date of birth are not unique identifiers the way a SSN is unique, however, there are methods you can employ to verify the identity of your subject. Depending on the state or jurisdiction, address identifiers may be included in the results, which can assist in verifying that the defendant named in the criminal record is the same individual that is being investigated.

There are other considerations to take when looking for criminal records.  Since these checks are essentially a name search, what happens if an individual has previously been known by a different name?  If you are only conducting a background check on the name provided by the applicant and not accounting for AKAs, you are potentially overlooking criminal records that were filed under an alias or maiden name

Take the example of a hyphenated dual surname – In New York, a Criminal History Record Search through the New York Office of Court Administration for a Mary Johnson-Smith with a date of birth of May 25, 1977 will not identify criminal records for a Mary Johnson with the same date of birth.  Flip the search terms around and the same concern arises; searching for a Mary Johnson will not identify criminal records for a Mary Johnson-Smith.  In order to conduct a complete background check on this individual you would need to check both names in New York.  

Do SSNs Have a Role in Criminal Checks?

It is not to say that a SSN is irrelevant when conducting a background check. A SSN can assist with identifying an individual in public record databases.  This search is most commonly called a SSN Trace and allows investigators to identify jurisdictions where an individual has previously resided along with any aliases that the individual may not have disclosed.

Furthermore, there are many instances where a public reporting agency will provide limited information as to the identity of the defendant on record. 

This is a particular issue when searching for criminal records at the federal level.  The one and only public source for federal criminal records is through the Public Access to Court Electronic Records (PACER) database.   While other databases allow for a name and date of birth search; this database can only by searched by name.  This is a great concern when an individual has a common name.  Investigators will often times sift through court documents that are available online through this database, in order to search for an additional identifier.  However, in many cases these identifiers are not recorded in court documents, or the court documents may not be available.

It is then up to the investigator to follow-up with court clerks and probation and parole offices to verify that defendant’s identity.  Depending on the jurisdiction and their protocols it may be possible to verify with a clerk or supervision office a defendant’s last four digits or even full SSN, in addition to other identifiers that they may have on record.

Speak With Your Provider

If you were under the impression that a criminal record search is conducted primarily using a subject’s SSN you may find it worthwhile to speak with your background screening provider regarding the use of aliases.  While searching for aliases may be more costly, due to running additional name searches, the benefit of conducting a comprehensive search is immeasurable.

 

Ricky Tong is a Coordinating Investigative Analyst with MSA Investigations.  To learn about our background screening services contact us today.

 

Photo Credit Flickr

Anti-Money Laundering: Quality Control on a Global Scale

 

Every company wants to grow; whether its a start up or a well-established name within an industry, progress is a primary goal.  However it is important to remember that growth can be more complicated than it seems, and can more often than not lead to chaos in one form or another. Take the banks for example.  The wrap many institutional banks are getting these days is that they are too big to accurately monitor transactions. Many of these banks are in, or have been through, lengthy and costly money laundering court cases.

The latest of the big banks to fall victim is Citibank, which is now embroiled in a $400mimagesCAMXO6F8 resized 600 fraud investigation in Mexico. Banco Nacional de Mexico, known as Banamex, Citigroup's Mexican unit, is trying to recover money from Oceanografia, an oil contractor based in Mexico City. Oceanografia is the largest contractor utilized by the state-owned oil conglomerate, PEMEX. However, due to recent events Mexican Attorney General, Jesus Morillo Karam, began to suspect that money laundering may have been occurring within Oceanografia and Banamex. 

PEMEX has a long-standing relationship with Oceanografia, which has won over $2B in domestic and international bids since 1999. Yet, Oceanografia's CEO, Amado Yanez, reported just $50M in the company's accounts earlier this year and further indicated that they were going to default on loan payments to Banamex. According to media reports, Banamex apparently loaned Oceanografia the nearly $400 million based on falsified invoices to PEMEX.  Once Oceanografia was unable to pay down the debt it had been accruing since 2008, authorities took notice.  As a result, Citigroup began to investigate its financial ties to the company and found that "only $185 million of the collateral backing $585 million of loans could be verified", according to a statement from the company obtained by Bloomberg News.  They then had to adjust their 2013 profit to reflect the missing money, from $13.91B to $13.67B. 

It has been reported that Oceanographia has been suspended from bidding on government contracts for almost two years as a result this violation; contracts with Penmex amount to approximately 97% of their revenue.  Oceanografia has also had their assets seized by Mexican law enforcement officials.

The International Business Times quoted Mr. Karam as saying  “money laundering can start with the initial crime of fraud, but it does not stop there.” As evidenced by this case and reiterated by Mr. Karam, the effects of money laundering are more far-reaching than we may think. The day Citigroup announced the over $250M hit to its 2013 profit, shares dropped $.06. While this may not seem like a lot, it could make a very large difference to an investor who is heavily leveraged. Other significant consequences of money laundering can be (and certainly were in this instance):

  • Deterioration of legitimate businesses
  • Erosion of the financial sector
  • Reduction in government revenue
  • Increased crime and corruption

Though the investigation is just getting under way and all the facts have yet to come out, it should go without saying that a good way to help mitigate future headaches, such as lawsuits and loss of income, when engaging in large-scale business transactions is to do your due diligence. This would include making sure a prospective client or partner meets the following criteria:

  • Good Standing
    • A company is in good standing if it complies with the rules of its charter.
  • Quality Financial Situation
    • Entering into a transaction with an individual or entity in the midst of financial trouble could have a negative financial or reputational impact on your business.
  • Sufficient Assets
    • When entering into a sizable transaction it is extremely important to gauge the value of assets (as well as any debts) held by the other party, in the event they are needed as collateral.
  • Operates with All Required Licenses and Permits
    • Most businesses need licenses and permits to legally operate. These should be current and have no disciplinary or regulatory sanctions noted.
  • Positive Financial and Legal History
    • An individual or entity with significant legal (civil and criminal) or negative financial history would require further investigating.
  • Insurance Coverage
    • It is always best to enter into a transaction with an insured business.
  • No Derogatory Articles and/or Publications
    • Conducting media searches regarding a potential partner can only assist you when entering into a massive business deal.  Oftentimes information contained within the media can lead to discoveries where you may not have thought to look.

 John Maguire is an Investigative Analyst with MSA Investigations.

Tax Fraud: 12 Scams You Should Beware of in 2014

 

Tax FraudLast week, the Internal Revenue Service (“IRS”) issued its annual “Dirty Dozen” list of tax scams, reminding taxpayers to use caution during tax season to protect themselves against a variety of schemes. Identity theft and telephone scams top this year’s list as it did in 2013 and 2012. The IRS warns that many of these cons peak during filing season as people prepare their returns. According to the latest report, more identity thieves are looking for ways to get their hands on personal information.  Once the information is obtained, they will file a tax return as the unsuspecting victim and claim the refund for themselves.

The following Dirty Dozen tax scams were identified for 2014:

1.      Identity Theft

This occurs when someone uses your personal information, such as your Social Security number, to file a fraudulent tax return.

2.      Telephone Scams

Callers pretending to be an IRS representative solicit personal information in hopes of stealing money or identities from victims.

3.      Phishing

Victims will receive an unsolicited email from what appears to be the IRS. The email will direct recipients to a dummy website posing as a legitimate IRS site in an attempt to lure potential victims and get them to provide valuable information.

4.      False Promises of “Free Money” from Inflated Refunds

Posing as tax preparers, offenders entice their victims by promising large federal tax refunds; using flyers, advertisements, and phony store fronts to lure their victims. Perpetrators will often prey on low-income individuals, the elderly, and non-English speakers.

5.      Return Preparer Fraud

This is similar to the “False Promises” scam; however, the tax preparers are legitimate, just not ethical. It is important to choose carefully when hiring an individual or firm to prepare your return. Taxpayers should use preparers who sign the returns they prepare and enter their IRS Preparer Tax Identification Numbers (PTINS).

6.      Hiding Income Offshore

While there are legitimate reasons to have financial accounts in offshore banks, there are reporting requirements that need to be fulfilled. U.S. taxpayers who have such accounts and do not comply with the reporting requirements are breaking the law and risk significant penalties and fines.

7.      Impersonation of Charitable Organizations

Following a natural disaster, it is common for criminals to impersonate charities in an effort to get money or private information from taxpayers. Perpetrators will use a variety of tactics. Some operating bogus charities will contact individuals by phone or email to solicit money or financial information. They will even go as far as contacting the disaster victims and claim to be working for or on behalf of the IRS to help victims file casualty loss claims and get tax refunds.

8.      False Income, Expenses or Exemptions

The taxpayer willfully engages in this scam. This includes such things as claiming unearned income or listing false expenses in order to maximize a refund. In some cases, taxpayers will inflate the number of dependents to get the tax credit for each.

9.      Frivolous Arguments

This occurs when taxpayers make unreasonable or outlandish claims to avoid paying the taxes they owe.

10.  Falsely Claiming Zero Wages or Using a False Form 1099

Again, this is a scam taxpayers commit, in which they claim that wages paid by a company are not in fact “wages,” but something else, such as reimbursements for expenses paid out of pocket or a loan. The claim is often made that the company who paid wages is at fault and refuses to correct the W-2 for fear of IRS retaliation.

11.  Abusive Tax Structures

This scam is very complex and is usually benefits taxpayers in the highest tax brackets. By using limited liability companies, limited liability partnerships, and other similar entity formations, in a non-traditional way, the scammer sets up a structure which attempts to create a “tax-neutral” entity. Unsuspecting victims are encouraged to buy into these arrangements, with the promise of eliminating or substantially reducing their tax liabilities.

12.  Misuse of Trusts

Trusts are commonly used in tax and estate planning, and when done properly are completely legal. However, the IRS also sees a lot of abuse when questionable transactions are placed in trusts alongside legitimate ones. Another example of misuse is an attempt to use a trust illegally, to transfer wealth from one generation to the next without incurring taxes.

To avoid becoming a victim of tax fraud, file early; never provide personal information such as your social security number over the phone; don’t click on links within an email that you think are suspicious; and conduct your due diligence when selecting an accountant.  Make sure you use tax preparers who sign the returns they prepare. To learn more about ways to protect yourself from becoming a victim, visit the IRS website for more information.

Melissa Rodriguez is a Senior Investigative Analyst at MSA Investigations.

Photo Credit: taxsoftware.com

Financial Fraud: The Case of Calvin Darden Jr.

 

In 1996, businessman John Spano, a man of relatively modest wealth (reportedly several hundred thousand dollars), attempted to purchase the New York Islanders hockey team.  He was able to convince the NHL and several financial institutions, one of which loaned him $80 million that he was worth upwards of $200 million.  “I set it up so other people couldn’t talk to other people, or they didn’t have enough knowledge to put two and two together. The guy at the bank knew one thing. The guy at the NHL knew another. My attorney knew something else. If they would have all got together, they would have realized something wasn’t right,” Mr. Spano said at that time. He very nearly pulled it off and was almost allowed to purchase the Islanders.

Recently, a former Wall Street broker who, in 2006, pleaded guilty to stealing more than $4 Carl Darden Jrmillion from a client and spent a little over two years in prison, almost purchased Maxim magazine for nearly $30 million through a clever series of deceptions and appeared to take a page out of the John Spano manual on how to perpetrate a fraud.  Calvin Darden Jr., the accused, has been charged with stealing several million dollars from a number of lenders to assist in his purchase of Maxim.  Mr. Darden was also charged with convincing a company in Taiwan, which paid him $500,000, that he could arrange an exhibition game in Asia involving the NBA’s New York Knicks.  He did all this by claiming to be his well-known and very prominent father.

Calvin Darden Jr., the son of Darden Media Group Chairman Calvin Darden Sr., surrendered to the U.S. Secret Service following the filing of multiple federal charges against him in U.S. District Court in lower Manhattan.  In announcing the arrest of Calvin Darden Jr., U.S. Attorney Preet Bharara said: “As alleged, Calvin Darden, Jr., sought to mislead and deceive his victims at virtually every opportunity, and he used the full spectrum of fraudulent devices, including false documents, ‘spoofed’ emails, and outright impersonation. This Office has zero tolerance for those who allegedly engage in this type of conduct, especially when it is to the tune of millions of dollars.”

Calvin Darden Jr., according to published media, has enjoyed the world of celebrity having managed the money of Cheryl “Salt” James of the hip hop group, Salt ‘N Pepa, former NBA star Latrell Sprewell and Cornell Haynes Jr., better known as rapper, “Nelly,” in his days as a Wall Street broker.  In 2003, Mr. Sprewell was reportedly fleeced by Mr. Darden out of $300,000 and Nelly lost $950,000, when Mr. Darden’s debts became overwhelming. Ms. James was fortunate to have her money returned.  Mr. Darden’s father, Calvin Darden Sr., was a self-made man who started out as a package handler for United Parcel Service (UPS) where he rose to become senior vice president of U.S. operations.  Darden Sr. had become one of the most well-respected African-American businessmen in the nation, serving on the boards of directors at both Target and Coca-Cola.  Calvin Darden Sr.’s sudden success, when UPS went public in 1999, elevated Darden Jr.’s profile and opened doors to such notable firms as Salomon Brothers, Merrill Lynch, and Smith Barney, who signed him with a reported bonus of $344,000.  Things appear to have only gotten better for Mr. Darden as he began traveling in professional sports and entertainment circles.  A $2.85 million mansion, a Lamborghini Murielago (estimated worth: $225,000), a Mercedes-Benz 600 and a Porsche Turbo all seemed to come with the territory.

In 2003, life in the fast lane came to a sudden standstill following charges that Mr. Darden stole $4.1 million from several of his Wall Street employers, coupled with the $1.2 million from Latrell Sprewell and “Nelly.”  He even reportedly swindled an 87-year old woman.  Following his conviction, Mr. Darden spent two years in prison.

In the latter part of 2013, a deal to purchase Maxim magazine with Mr. Darden began to take shape and in September, Maxim’s parent company, Alpha Media, issued a press release saying that “a definitive purchase agreement” had been reached.  Mr. Darden, according to court documents, had immersed himself in an elaborate scheme “to fraudulently induce several companies to provide millions of dollars of financing for the…attempted purchase of Maxim.”  This scheme included bogus emails, fabricated financial statements, and false representations, all while impersonating his father, Calvin Darden Sr.

As part of his plan, Mr. Darden requested and received more than $8 million from two lenders, of which $4.9 million was obtained by Mr. Darden’s use of a Russian-hosted email “spoofing” service.  “Spoofing” is a tactic quite commonly used by cyber fraudsters, whereby they transmit a phony communication by falsifying data.  In this instance, the email sent by Mr. Darden appeared to originate from the lender’s account and purported to authorize the release of the $4.9 million.  

For the remainder and the bulk of the funding for the proposed deal, Mr. Darden meticulously orchestrated a series of ruses in hopes of securing an additional $20 million.  As an inducement for the funding, Mr. Darden pledged to the lender that he was working in cooperation with a cable company to establish a cable channel, based, in part, on Maxim.  A bogus email, purportedly from the president of the cable company was forwarded from Mr. Darden to the lender and expressed an interest in creating a cable channel based around Maxim.

In late November 2013, Bob Guccione Jr. (son of Penthouse magazine founder Bob Guccione Sr.) insisted that the deal was still on and that he was prepared to take over as CEO of Maxim and partner with Mr. Darden.  By the end of December, Mr. Darden missed a series of deadlines for providing the necessary funding of approximately $10 million, which began to spell the end of his deception.

Given the cunning and shrewd manner in which Mr. Darden orchestrated these series of ruses to obtain the necessary funding to purchase Maxim, it is difficult to speculate whether the normal “Why didn’t you conduct your due diligence?” adages apply in this case.  True, Calvin Darden Jr. did have a checkered past, which a basic Internet search would reveal, but, in this instance, the parties believed they were dealing with Mr. Darden’s successful and very prominent father and not the  son who had been convicted of prior fraud.  Given the significant amounts of money on the table however, one has to question why there were not face-to-face meetings with the actual person with whom Maxim, its parent company, and the private equity investors believed was the ultimate purchaser. As John Spano was quoted as saying earlier, “If they would have all got together, they would have realized something wasn’t right."

Neil Moran is Vice President of MSA Investigations. 

The Japanese Beethoven: Fraud Revealed

 

mamoru samuragochi 2404692 jpg 2066134 resized 600
Does fraud know no boundaries or limitations?  Of course not, but just when you think you have heard every scheme possible as it relates to fraudulent behavior, something amazing like this emerges.  Recenty we learned that a celebrated Japanese composer, who the media described as a “musical genius” and the “Japanese Beethoven” was, in fact, a fraud.  Mamoru Samuragochi, age 50 and purportedly deaf, had enjoyed considerable fame in Japan for the past 18 years. He claimed to have written over 20 pieces of classical music, including Symphony No. 1 “Hiroshima,” named after the dropping of the first atomic bomb during the latter part of World War II.  It was reported that the Japanese public united behind Symphony No. 1 “Hiroshima,” following the devastating 2011 tsunami, which killed more than 230,000 people.

The Japanese were stunned yesterday when the “ghost-writer” of all of Mr. Samuragochi’s works, Takashi Niigaki, came forward to disclose that he, not Mr. Samuragochi, had composed the music; and that he received payment of approximately $70,000.  To make matters worse, Mr. Niigaki also disclosed that Mr. Samuragochi is not deaf (as was Ludwig van Beethoven, hence the moniker, Japanese Beethoven) and has been feigning this malady to elicit public sympathy.  Mr. Niigaki explained that he had feelings of guilt over the years for participating in this arrangement and had wanted to go public; however every time he hinted at doing so, Mr. Samuragochi   threatened to commit suicide.  Recently, Mr. Niigaki learned that Japanese Olympic figure skater Daisuke Takahashi, scheduled to compete in the Sochi Winter Olympics, was going to use one of Mr. Samuragochi’s works in his short program and decided that he could no longer be a party to the cover-up.  “I could not bear the thought of skater Takahashi being seen by the world as a co-conspirator in our crime,” he said.  

As was the case in the life of Ludwig van Beethoven, who lost his hearing at around age 35, Mr. Samuragochi claimed to have become deaf as a result of a degenerative condition and that he overcame this disability to achieve considerable recognition in the world of music.  He described his hearing loss as “a gift from God,” and, in 2001 told Time magazine, “I listen to myself.  If you trust your inner sense of sound, you create something that is truer.  It is like communicating from the heart.”

As a result of these revelations, the mayor of Hiroshima has threatened to take away a citizen’s award, the city bestowed on Mr. Samuragochi for promoting the city’s opposition to nuclear weapons.  “We are aghast,” the mayor was quoted as saying.  A major Japanese news daily, Asahi Shimbun, had an interesting take on the admission, holding the media partially responsible and wrote: “We want him to explain his behavior, but the media must also consider our own tendency to fall for tear-jerking stories.”

Fraud can come in many shapes in sizes and does not necessarily need to deal in tangibles, such as money or valuables, which would seem to be the case in this instance.  The deception perpetrated by Mr. Samuragochi was of a more immaterial nature, but was no less fraudulent than the acts of someone who created a Ponzi scheme or misappropriated funds.  It could be argued that Mr. Samuragochi caused more damage by taking advantage of people’s goodwill and compassion than those who defraud for financial gain.

Neil Moran is Vice President of MSA Investigations.

Why Colleges Are Using Background Checks

 

Harvard resized 600
Harvard University

As most college-bound students already know, applying to a top ranked school is a highly competitive and selective process.  These prestigious institutions attract prospective students from all corners of the world.  Administrators will seek the best of the best, as these future leaders will represent the institution’s program and enhance its reputation.

The rigorous screening process typically takes into consideration: past grades, test scores, education and employment history, recommendations, interviews, essays, and aspirations.  Additionally, schools are increasingly performing criminal background checks on their prospective entrants.

Approximately two-thirds of all employers perform a criminal background check on new hires, and with educational institutions as, if not more, selective than big name companies such as Google, Facebook, Apple, and Goldman Sachs, there is no reason why they shouldn't use this additional method of vetting candidates.   The reasons to utilize this check are the same:  to avoid the risk of tarnishing an institution’s hard-earned reputation and with alarmingly frequent school shootings, to provide a level of protection to their faculty, staff and students.

Highly reputable institutions and companies attract the most ambitious and intelligent applicants; however, they are also the target of dishonest individuals, who will stop at nothing to achieve their goals.  Intelligence and charm does not exempt a person from being a criminal.  In fact, those very qualities can be found in many con artists.  For an institution to expect that a candidate would disclose adverse information in accordance with an established “code of honor” would be unwise, especially when those with checkered pasts have nothing to lose.

Even those with an impressive resume and recommendations from reputable and influential sources cannot often be trusted.  Take for example the case of the former CEO of Yahoo who resigned in 2012, when it was revealed that a computer science degree, which he claimed to have earned, was in fact, never awarded.  

In another instance, a former Harvard University student, Adam Wheeler, schemed his way into the school in 2007 as a sophomore transfer, by providing fraudulent letters of recommendations and falsely claiming that he had earned a perfect SAT score, attended MIT as a freshman, and graduated from Phillips Academy, a prestigious high school in Massachusetts.   According to published media, his scheme was discovered during his senior year and he subsequently pleaded guilty to “20 misdemeanor and felony counts of larceny, identity fraud, falsifying an endorsement or approval, and pretending to hold a degree.”  He was sentenced to 10 years of probation and ordered to pay a restitution of $45,806 to the school.

In more recent news, it was revealed that former SAC Capital fund manager Mathew Martoma, who has been convicted in what U.S. Attorney Preet Bharara called "the most lucrative insider trading scheme ever," had a track record of being dishonest dating back to his days in law school.  In 1999, Martoma was expelled from Harvard Law School when it was discovered that he had falsified his academic transcripts, changing B grades to As, when he applied for several judicial clerkships. Following his expulsion, Martoma legally changed his name from his birth one of Ajai Mathew Thomas in 2001, and was accepted into Stanford Graduate School of Business in the same year.  It's unknown whether Stanford was aware of Martoma's history at Harvard; however, it is assumed that had this disclosure been made, he would not have been admitted into their MBA program.

From these anecdotes, it is clear that even the best institutions can make a mistake and grant admission to an unqualified candidate.  It is somewhat encouraging though that our institutions have learned from these oversights; whether it's for a MBA or PhD program, schools are increasingly conducting a more thorough due diligence.  In West Virginia, lawmakers have even proposed a bill that would give institutions of higher education the power to obtain a criminal background check on both prospective and current students that apply to reside on-campus housing, as well as allowing students to conduct a background check on another student. 

 

Ricky Tong is a Coordinating Investigative Analyst at MSA Investigations.  To learn about our background screening services, please contact us today.

Photo Credit: harvard.edu

Dumping and Its Effect on Background Screening

 

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Edward Snowden should be far less infamous, or famous, depending on how you view the NSA leaks. That is the sentiment of the United States Department of Justice (DOJ). Last week, the DOJ joined a lawsuit accusing USIS, formerly U.S. Investigations Services, Inc. of "dumping" hundreds of thousands of government sponsored background checks. USIS is the largest contracted background screening company employed by the government. They have been conducting background investigations for the government for over five years and are currently in the early stages of a new five year contract, signed this past August.

Dumping is the practice used by USIS, and other unscrupulous background screening companies, of completing a report or giving high level access or security clearance to an individual, or consumer, without conducting any of the research. Some reasons for this despicable practice could be the pressure to meet deadlines, expanding profit margins and/or sheer laziness. Allegedly USIS habitually waited until the last minute to complete reports and became serial offenders of dumping these reports to the Office of Personnel Management (OPM), which acts as a human resource department for the United States government. Furthermore, according to USIS, all of the investigations went through a quality control review prior to being "dumped" on OPM for adjudication. Many of these background checks were supposed to be conducted on candidates for positions and security clearances with the Department of Defense, Central Intelligence Agency (CIA), Homeland Security and other highly secure government organizations.

An applicant can be adjudicated in several different ways. For example, if the agency requesting the background investigation has varying degrees of security clearance the applicant might be adjudicated as "high", "medium", "low" or just not provided any access. Another type of adjudication might be a simple "yes" or "no" in regards to the employment of a certain individual. The US Government was basing its security clearances and employment of individuals in highly sensitive positions on background investigations that were, in some cases, not even started.

Approximately 40 percent of USIS' business was funded by OPM. USIS was the largest contracted company performing background checks for the government. Among the backgrounds performed by USIS was Edward Snowden, who has leaked numerous highly classified NSA files and is in possession of many more; and Aaron Alexis, the Washington Navy Yard shooter. NBC News reports that a letter was sent by Frank Montoya, National Counterintelligence Executive, to OPM stating the background check regarding Snowden "revealed several areas of incomplete coverage" and "did not present a comprehensive picture of Mr. Snowden." This implies that although Edward Snowden had no criminal background to speak of, clearly the report was lacking information and perhaps there were some red flags that were overlooked which might have have shed some light on his true intentions. Aaron Alexis, on the other hand, was arrested for shooting out the tires of a co-worker prior to his being investigated by USIS. Allegedly the background screener relied on Mr. Alexis' word that he had simply let the air out of the tires by hand. He received a secret security clearance which he used to gain access to the premises and murder 12 people.

Fraudulent background screening is not easy to detect.  Audits can be performed, however they are costly and time consuming. Also, they are not guaranteed to detect wrong-doing. The government audited USIS annually and instead of uncovering the dumping they found no irregularities and awarded USIS bonuses worth millions of dollars. It is unclear whether or not USIS will lose its contract with the United States government, after these incidents, but OPM is taking steps to try to ensure a scheme of this magnitdue does not reoccur. Along with increasing audits and on-site inspections OPM is reassessing their contract and the USIS employees responsible for this audacious operation have been relieved of their duties. These are all quality initiatives in attempting to remedy this situation, but when researching background screening companies it is imperative to take their reputation and record into account.

John Maguire is an Investigative Analyst at MSA Investigations. Please contact us with any background screening questions or concerns.

Tax Identify Fraud on the Rise

 

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Tax identity theft is the most common form of identity theft reported to the Federal Trade Commission (FTC). In 2010, about 15 percent of all identity theft complaints to the FTC dealt with tax returns. In 2013, that percentage increased to 43 percent. According to attorney Steve Poporoff of the FTC, complaints relating to tax identity fraud crimes have tripled since 2010. Last year, tax identity fraud made up almost 44 percent of the total number of consumer complaints the commission received. Tax identity theft happens when someone files a phony tax return using your personal information, such as your Social Security Number (SSN), to get a tax refund from the Internal Revenue Service (IRS). It can also happen when someone uses your SSN to get a job or claims your child as a dependent on a tax return.

Tax identity theft is a top priority for the IRS, as it takes “new steps and strong actions to protect taxpayers and help victims of identity theft and refund fraud.” Last year, the IRS launched 1,492 criminal investigations into identity theft, a 66 percent increase from the year before. According to the IRS, it has flagged 14.6 million suspicious tax returns since 2011, blocking more than $50 billion in fraudulent returns.

Identity theft and refund fraud is a lucrative and relatively easy crime to commit. In a common scam, identity thieves use stolen Social Security Numbers to file tax returns early in the filing season so they can claim refunds before legitimate taxpayers file their returns. The IRS often sends out refunds before it receives documents verifying wages and other income from employers and financial institutions, allowing this scam to go off without a hitch. A recent inspector general’s report said the IRS is stepping up efforts to fight identity theft but thieves are getting more aggressive. For example, the IRS issued $4 billion in fraudulent tax refunds in 2012 to people using stolen identities. According to the inspector general’s report released in November, the IRS sent a total of 655 tax refunds to a single address in Lithuania, and 343 refunds went to a single address in Shanghai. In the United States, more fraudulent returns went to Miami than any other city. Other top cities were Chicago, Detroit, Atlanta and Houston. The IRS said it has since improved its computer filters to flag suspicious refunds, including cases in which many refunds go to the same address.

While you can’t prevent tax-related identity theft, there are a number of things you can do to lower your risk of becoming a victim. The following is a list of preventive actions you can take to protect yourself: 

  • File your tax return early in the tax season.
  • Protect your personal information, especially your social security number. Do not keep your social security card in your wallet.
  • Shred all documents containing personal information, including date of birth, account numbers etc. In addition, shred copies of your tax return, drafts, or calculation sheets you no longer need.
  • Research a tax preparer thoroughly before you hand over your personal information.
  • If you file your tax return by mail, do it at the post office, not from an unlocked mailbox in front of your home.
  • If you file your tax return electronically, use a secure computer on a secure network.
  • If your SSN is comprised, contact the IRS Identity Protection Specialized Unit.
  • Check your credit report at least once a year for free at annualcreditreport.com to make sure that no other accounts have been opened in your name.
Image Credit: http://www.ci.woodburn.or.us/?q=content/income-tax-fraud

 

Avoiding Charity Fraud

 

Charity Fraud

Charity fraud is the act of using deception to get money from people who believe they are making donations to charities. Following major disasters and tragedies, scam artists impersonate charities to steal money or get private information from well-intentioned donors. Fraudulent schemes involve solicitations by phone, social media, email or in-person. If you’re thinking about giving to a charity, you should investigate the organization first to avoid fraudsters who may try to take advantage of your generosity.

In June 2013, a Farmingville, New York man defrauded residents for a charity event that didn’t exist. He told residents he was raising money for a walk to benefit the Multiple Sclerosis Foundation, an event that never took place.  He was arrested and charged with second-degree scheme to defraud. In 2010, the same man was arrested for felony fundraising fraud for allegedly misrepresenting the Leukemia-Lymphoma Society.

In January 2014, a man in Savannah, Georgia was arrested for defrauding donors that gave to his non-existent charity. He claimed the organization would benefit low income and homeless women. He is now facing a list of charges after being indicted by a grand jury. There are at least 16 charges which include seven charges of theft and deposit fraud and nine charges of theft by services and theft by deception. More than a dozen women complained they had paid fees up-front but received no services.

Also, in January 2014, two New Jersey men were arrested for running a phony 9/11 charity that claimed to benefit 9/11 victims’ families or other 9/11 foundations. None of the money donated went to the victims’ families or to organizations as promised. Prosecutors recommend the defendants receive a county jail sentence of nearly a year as well as a probation term. As a condition of probation, the defendants must comply with the terms of a civil consent judgment filed by the state’s Consumer Affairs Division. It calls for them to pay more than $120,000 in fines and investigative costs, which includes repaying the money they improperly received.  The judgment also permanently bars them from working for any charitable organization in New Jersey.

Before making a donation to, volunteering with, or accepting a position with a non-profit organization it’s wise to investigate the organization to determine if the entity is trustworthy or even exists. If the organization is a legal entity such as a corporation, partnership, or limited liability company, checks can be made with the Secretary of State, Department of State, Attorney General, or Consumer Services Department to verify date of incorporation and status of the entity.

If the entity is a nonprofit organization that is tax-exempt, it must provide financial disclosure documents to the IRS in a Form 990. Form 990s contain information about a nonprofit entity, such as its chief contact person, its street address, board members, staff members, compensation, its mission, programs, and finances, including grants received and donation recipients.

Numerous websites publish information on nonprofits, such as GuideStar, Citizen Audit, Charity Navigator and Charity Watch. The IRS also publishes a database of tax-exempt entities as well as a list of tax exempt revocations.  Reputational checks can also be conducted for a nonprofit using traditional media, social media, Internet searches and the Better Business Bureau.

Fraudulent nonprofit organizations exploit the generosity of others for monetary gain. One must be vigilant and conduct the necessary due diligence checks on such entities before making donations. MSA Investigations provides thorough investigative reports of entities, board members, executives and employees of such organizations. With these required checks in place, one can ensure that money donated gets to the causes it was intended to support.

Photo Credit: http://scammer419.files.wordpress.com/2012/12/scammer419.jpg

 

Massive CityTime Fraud: Red Flags Were Ignored (Part 2)

 

This is Part 2 of 2 of a mini-series on the epic fraud committed right under the noses of the public and the City of New YorkRead Part 1 here.

As discussed in Part 1, this $700 million scandal could not have been possible if it were not for a few key players and their ability to influence, authorize, and conceal illegal activities. Once these individuals laid the groundwork to defraud the City they began recruiting others to aid in the scheme.

The Schemes

According to court documents, around 2003, Gerard Denault (SAIC’s Program Manager on the CityTime project) and Carl Bell (SAIC's Chief Systems Engineer in New York City) recommended that SAIC (the lead project developer on the CityTime project) hire TechnoDyne LLC, wholly owned by Reddy and Padma Allen (CEO and CFO respectively) as a subcontractor to assist in the CityTime project.  In turn, the Allens agreed to pay Denault and Bell each $5 for every hour worked by a CityTime consultant hired by or through TechnoDyne, and thus these kickbacks created an incentive for the perpetrators to increase the project labor as much as possible.

fed court mark mazer citytime

Mark Mazer

Perhaps as a method to create another layer of concealment, around 2005, Mark Mazer (a third party consultant and subject matter expert on the CityTime Project) and Denault, among others, caused the Allens and TechnoDyne to hire D.A. Solutions, Inc. as a sub-subcontractor on the CityTime project. The owner of D.A. Solutions was Dimitry Aronshtein, Mark Mazer’s uncle. This familial relationship was apparently not disclosed to project officials. 

The following year, Mazer and Denault, among others, caused the Allens and TechnoDyne to hire yet another sub-subcontractor, Prime View, Inc., whose owner was Victor Natanzon.  Both of these sub-subcontractors agreed to pay kickbacks to Mazer.  Initially, Natanzon agreed to pay Mazer 80 percent of Prime View’s profits on CityTime.  Perhaps not satisfied with this deal, over time, Mazer demanded an even larger share of the profits. 

With these two sub-subcontractors in place and with illegal proceeds flowing into Mazer's and the Allen's pockets, prosecutors allege that Mazer and the Allens agreed to pay Denault an additional $2 for every hour billed by D.A. Solutions and Prime View.

In or about 2005 and 2006, Mazer and Denault, among others, used their influence to recommend an amendment to SAIC’s CityTime contract, in which the City agreed to change the agreement from a “fixed price” contract, which SAIC would bear “the responsibility of absorbing cost overruns,” to a “fixed price level of effort” contract, “so that the City, and not SAIC, would largely become responsible for future cost overruns.”

According to court documents, after the contract amendment, the co-conspirators allegedly upped the ante and significantly increased the staffing on the project. In 2005, less than 150 consultants worked on the project.  In 2007, the number of consultants increased to more than 300; most of them hired by TechnoDyne. This hiring spree occurred in spite of an internal memo by Denault that indicated that the program "was staffed adequately to meet both current and projected contract needs.”

Based on interviews with former employees, investigators claim that the scheme also extended to fraudulent time sheets and ghost employees.  In one interview, a former employee claims to have witnessed time sheets, which were submitted to the City for billing, that were fraudulently completed for work conducted, when in fact the consultant in question was on vacation or had been already terminated. The same former employee alleged that when he/she was notified of his/her termination, Aronshtein, owner of D.A. Solutions forced the employee to sign two weeks' of new time sheets in order to receive severance pay.  Investigators believe these blank time sheets with the employee's signature would subsequently be completed and submitted, following the employees' termination, for work that had not actually occurred.  Mazer and a colleague, Scott Berger, purportedly acted as supervisors and knowingly approved these fraudulent time sheets.

fed court citytime

Gerard Denault

The Concealment

Prosecutors allege that conspirators withdrew cash through ATM transactions at multiple banks for amounts under the threshold for which a currency transaction report needs to be completed, avoiding possible anti-money laundering detection; transferred their illegal proceeds to foreign banks in India and Latvia; and deposited kickbacks to shell companies formed by the perpetrators and their family.  Prosecutors accused Mazer's wife and his mother of forming some of these shell companies that received kickbacks to add layers of complexity to the fraud and to further conceal Mark Mazer's involvement.

In total, between 2003 and 2010, TechnoDyne allegedly received at least $450 million in connection with the CityTime project. Sub-subcontractors, D.A. Solutions and Prime View reportedly received $55 million between 2005 and 2010 and $20 million between 2006 and 2010 respectively. Prosecutors stated, "virtually the entirety of the well over $600 million that the City paid to SAIC on the CityTime Project was tainted, directly or indirectly, by fraud."

Denault is reported to have received $9 million in kickbacks and Bell $5 million. Dimitry Aronshtein of D.A. Solutions and Victor Natanzon of Prime View allegedly paid Mark Mazer $25 million in kickbacks.

Red Flags

So how was this fraud allowed to continue for nearly seven years, even when the original budget for the project ballooned to an absurd number? Perhaps performing some very basic due diligence and exercising tighter internal controls may have uncovered the scheme sooner. 

According to court documents, D.A. Solution's revenue from the CityTime Project represented almost 100 percent of the company's income and Prime View's portion totaled 75 percent, after they were hired and up until the scheme unraveled.

News outlets reported that in 1994, Mark Mazer was investigated by the FBI while working at City’s Administration of Children’s Services division after millions of dollars went missing in the division he supervised. The media claimed that foster-care checks were being issued without proper supporting documents and approximately $2 million went missing. Mazer was never charged; however, he was barred from the room that wrote the checks and his salary was lowered from $43,925 to $34,537.

In 1995 and 1996, allegations against Mazer were made for sexual harassment. The victims eventually received payment from the City.  Mazer was again under investigation when two city laptops were stolen in 1998, though he was not charged. The media also reported that he was arrested on petty larceny charges in 1999, though the case is sealed.

SAIC, a Fortune 500 company and a major government contractor, receives billions of dollars in revenue from its contracts, so how did they allow TechnoDyne to be hired as their major subcontractor for this project?  Court documents show that upon Denault's recommendation and denial of any conflict of interest, TechnoDyne did not have to undergo any competitive bidding process to win the contract and was retained as a "sole source" contractor.

In one damning piece of evidence, according to court documents, in 2005 SAIC received a whistle blower complaint alleging that subcontractor TechnoDyne was receiving an inordinate amount of work from SAIC on the CityTime project and claimed contract mismanagement and allegations of Denault receiving kickbacks. Despite SAIC's internal investigation, TechnoDyne continued to reap a large amount of the work, about 74 percent of the overall total paid to SAIC for the CityTime project, compared to 14 percent to all the other subcontractors and vendors combined.

City officials are also partly responsible for ignoring the warning signs  According to published media, during Bill Thompson's tenure in office as city comptroller from 2002 to 2009, he failed to audit the CityTime program despite the program's growing costs.  Instead, on seven ocassions he authorized amendments to the program's contract allowing the program to use more and more of the taxpayers' money.

In July 2008, the OPA internally audited the program and discovered several instances where consultants had been collecting paychecks weeks after they had been terminated, costing taxpayers $145,000.  According to news articles, Thompson's office was aware of the OPA audit and had been requested to investigate further.  However, no further action was taken until 2010, when Thompson was succeeded as city comptroller by John Liu.  As discussed in Part 1 of this series, the subsequent audit found that the program was mismanaged.

 

alg reddy padma allen split jpg

Reddy and Padma Allen

Discovery

Eventually, the scheme was discovered in June of 2010, when a former consultant on the CityTime project came forward and informed the City's Department of Investigation that the consultant was being paid by D.A. Solutions rather than SAIC and TechnoDyne. DOI then learned that D.A. Solutions did not have contractual rights to receive payment for the CityTime project, which led to several interviews with other former consultants and eventually revealed the fraudulent time sheet scheme.

On November 22, 2013, Mazer, Denault, and Aronshtein were convicted as have all of the defendants that have been charged in the CityTime scandal. The Allens have fled to their native India, where, with the $39 million it is believed that they embezzled, will be quite comfortable as fugitives. News articles report that at their sentencing in March 2014, both Mazer and Denault will face life in prison.

Although SAIC paid back $500 million this was a huge embarrassment for the City and officials.  A project meant to create efficiency and prevent waste and fraud turned into a decade long debacle resulting in one of the largest fraud cases in New York history.  One can only hope that the City has learned from its mistakes and will conduct its own due diligence to prevent future recurrences.

 

Ricky Tong is a Coordinating Investigative Analyst at MSA Investigations.  To learn about our fraud investigation and due diligence capabilities, contact us today.

Photo Credits: NY Daily News
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