More Allegations of Fraud in Iraq

In the middle of July, I did a post on fraud involving $300 million in arms deals in Iraq.

http://fraudwar.blogspot.com/2005/07/fraud-allegations-on-weapon-purchases.html

In an updated article put out by Knight Ridder, the total amount of the fraud has grown to over 500 million in weapons deals arranged by "middlemen, who reneged on promises after being paid or took huge kickbacks."

The total of the contracts being investigated total over 1.3 billion.

"The Iraqi Board of Supreme Audit, in a report reviewed by Knight Ridder, describes transactions suggesting that senior U.S.-appointed Iraqi officials in the Defense Ministry used three intermediary companies to hide the kickbacks they received from contracts involving unnecessary, overpriced or outdated equipment."

Although, the report states that no U.S. advisors were involved, the contracts were under the supervision of the embassy. The report also indicates that several american diplomats are extremely angry and feel they were duped, although the report is also questioning how american advisors could have been so close to the process and not noticed.

The Board of Supreme Audit published the following findings:

"-Multimillion-dollar contracts were awarded to favored weapons suppliers without a bidding process and without the required approval from the prime minister's office. Investigators wrote that the chief procurer went "beyond his authority" in purchasing equipment.

-Senior Iraqi officials kept little or no record of major purchases, sometimes noting lucrative deals in "undated and unnumbered" memos. Nearly all purchases contained a clause - unusual in international contracting of this magnitude - that required the contract's full value to be paid up front in cash.

-Instead of buying directly from a foreign company or government, Iraqi arms procurers hired third-party companies to negotiate the contracts. When Iraqi leaders later complained about unfulfilled contracts, they discovered they had no recourse to demand a refund because the payments were made to Iraqi middlemen who vanished after receiving the millions. "The undertakings make no obligation ... toward the Iraqi Ministry of Defense," according to the report.

-The sole beneficiary on 43 of the 89 contracts was a former currency-exchange operator, Nair Mohamed al-Jumaili, whose name doesn't even appear on the contracts. At least $759 million in Iraqi money was deposited into his personal account at a bank in Baghdad, according to the report. Internal records incorrectly "indicated that the Ministry of Defense signed contracts with Poland, Arab countries, the United States and Europe, but we discovered that all contracts were signed and executed with Iraqi suppliers," the report said."


Again, allegations, such as these, will do nothing, but inspire the lunatics professing "jihad." Our sons and daughters are in harm's way and some are making the ultimate sacrifice, daily. We owe it to them to ensure that this is investigated and that the people attempting to profit through fraudulent means are brought to justice and severely punished.

For more details on this, click on the title of this post.

How Much Do We Trust Government Agencies?

A lot of us are worried about our privacy, especially in post 9-11 environment. The Ponemon Institute recently did a survey of about 6300 citizens about how much they trust federal agencies with our personal information. The results show that we trust the U.S. Postal Service with our personal information more than the CIA, Department of Homeland Security and the Department of Justice.

According to the study, 83 percent of the people surveyed said that protecting their personal information is important to them. Is there an opportunity for some agencies to show the people they serve that they are trustworthy?

For a copy of the full report you can request it at research@ponemon.org.

For the full article by Dr. Larry Ponemon go to:

http://www.darwinmag.com/read/020104/ponemon.html

Sunbelt Security Discovers a Major Data Theft Case

There are reports of a spyware ring that has been able to access the IT systems of approximately 50 banks, as well as, PayPal and E-Bay information. According to the security firm, Sunbelt Software, the result is that social security numbers, credit card numbers, bank account numbers and account information have been compromised.

Also reported at risk are a large number of personal computers.

Sunbelt Software's president wrote in the company blog that it discovered the identity theft operation while doing research on (CoolWebSearch). Allegedly, the spyware downloads with CoolWebSearch.

Discovered were thousands of computers "pinging" back to a domain in the United States that is registered to an offshore entity. Apparently, this is a very sohisticated attack, which isn't detected by most anti-malware programs. Windows XP users, who have not downloaded the Service-2 pack are considered the most vulnerable.

The spyware/malware (trojan) virus is being compared to the one designed by Michael Haephrati, arrested last month in London. Haephrati designed a trojan virus that enabled private investigators (hired by large companies) to spy on their competitors. Thus far, 18 people have been arrested, including officers of large companies.

Here is a post, I did on this story:

http://fraudwar.blogspot.com/2005/05/industrial-trojan-fraud-espionage.html

The FBI is investigating, but here again is another clear indicator that the way access to financial accounts and sensitive information is "authenticated" needs to be improved. It will be interesting to see how this story progresses.

For Sunbelt's Blog, which has a lot of interesting information on this subject, please click on the title of this post. Please note that they list a lot of free resources to determine, whether or not, your computer might be at risk. I highly recommend reading this blog!

Retail Crime Becoming Wired

I just read an article from Business Week on the state of refund fraud.

According to the article, retail organizations allegedly lost $16 billion to bogus returns in 2003. This figure was presented to the author of the article by King Rogers International, a loss prevention firm catering to the retail industry.

The $16 billion in fraudulent returns allegedly represents about 9 percent of all returns. These statistics are from 2003, which is the latest data available and represents a 23% increase from previous years. Please note that the article is not specific on how these statistics were obtained.

My guess is that these statistics were gathered via a survey. Estimating the root cause of retail losses is very difficult. This is because losses are primarily determined by how much of their physical inventory is missing. Physical inventories at most retail organizations are conducted once, or twice a year. Other major contributing factors like customer theft, employee theft and even poor operational controls contribute to losses. Due to the complexity of a retail business, one can normally only make an educated guess as to which category caused what percentage of loss.


An additional problem with these statistics would be that one shoe doesn't fit all. I would imagine that there are varying reasons at different retailers for losses depending on how they operate, the quality of people they hire and their business controls.

Another expert cited in the article was Read Haynes of the Loss Prevention Research Council at the Universtity of Florida. According to Read Hayes, there are web sites that sell unexpired receipts, which are often used in refund fraud schemes. Hayes also says that gift cards, which are given for returns are often sold on auction sites.

Recently, E-Bay was lobbied by the Retail Industry Leader's Association after performing a study on gift cards tied to fraudulent refunds. E-Bay sellers are now limited to selling one card per week at a maximum of $500.00. Here is another article from E-Pay news on gift card fraud.

Gift Cards May Be A Vehicle For Returns Fraud

Unfortunately, there are other auctions sites and chat rooms, where gift cards are still being sold without regulation. We also need to take into account that a lot of gift cards are purchased with bogus financial instruments, such as checks and credit cards. My guess is that a lot of these circulate via the internet also. There is a link from the article listed above on this very subject.

Regarding the problem of counterfeit receipts, which are used to perform fraudulent refunds. A lot of major retailers now tie receipts to a transaction. This means they have to mirror a transaction in order to be valid for a refund, normally via a transaction number. In the article, Hayes is quoted as stating the reason for the higher losses is that return policies are becoming more generous within the retail industry.

I find this statement odd because as a consumer, I have noted return policies becoming tougher in recent years. The few times I have had to refund anything, I had to provide identification (which was recorded electronically), if I didn't have a receipt. If memory serves me correctly, even with a receipt, my personal information was sometimes recorded. Counterfeit receipts were supposed to be stopped in the late nineties by making them correspond (mirror) a transaction. If these scams are flourishing again, perhaps the cause is an increase in technological prowness of the fraudsters involved?

A very important issue to consider is when personal information is electronically kept, it could be used for identity theft. I would speculate that the professional criminals involved in this are probably very adept at identity theft. They probably already are defeating the systems in place by using multiple identities in addition to counterfeit receipts.

There is also the issue of privacy to be considered for the 91 percent of honest people (based on the statistics cited) of how their personal information might be used. Most people return merchandise because it is defective, or they were sold the wrong item. At a minumum, the cost of obtaining customer satisfaction could be their information being sold to information brokers. At a maximum, the system could be hacked, or even accessed by a trusted insider and their personal information could be used in criminal activity.

If counterfeit receipts are flourishing again, it might be for other reasons. Data theft (intrusions) and insider information obtained by plants seem to be happening everywhere. Retail organizations, which already gather personal information for marketing purposes probably aren't immune to this. The proverbial question is where is the information being obtained that these receipts use and how can repeat offenders be identified if they are using multiple identities?

Also mentioned in the articles is that the National Retail Federation (NRF) is setting up a database to track retail crimes and bar-code data. The Retail Industry Leaders Association is also testing a web database that tracks retail criminal activity. This information will be provided to law enforcement and retailers, who are members. It remains to be seen how effective these measures will be, but it is a start.

The internet is cited in the article as the new flea market, which is true. The difference is that with the internet, the reach is much farther and because of this, more deadly to the bottom line.

It's amazing how a lot of the different scam activities, (retail theft, refund fraud, check fraud, credit card fraud, phishing, pharming, auction fraud, identity theft, or collectively financial misdeeds) tie into so many business sectors of the world economy. There are recurring themes to be considered.

The criminal, who commits these types of crimes, counts on mutating and moving their activity in order to avoid detection. Since it would be safe to assume that their ultimate goal is money, they also might be hitting several different business sectors at the same time. The key to protecting people and business community is awareness, communication and a combined effort by all the different sectors to resolve the loopholes that allow these crimes to flourish.

For the original article in Business Week, click on the title of this post.

Chevron Accused of Tax Avoidance in Nigeria

Chevron Nigeria Limited is being accused of avoiding $10.8 billion in taxes. The allegations are being made by an accounting firm (ABZ Integrated Limited), who are tax consultants to Nigeria's Economic and Financial Crimes Commission.

ABZ is charging that Chevron denied Nigeria $2.7 billion in taxes and should pay this and a fine of $8.1 billion dollars. Chevron is denying the allegations and says it welcomes any investigation.

Interestingly enough, this story is getting little play in the North American, or European press.

The Nigerian government announced a crack down on fraud three years ago and founded the Economic and Financial Crimes Commission (EFCC) in 2002. Since then, this agency has recovered more than 700 million dollars and arrested more than 500 suspects. Currently, there are 100 cases on trial.

The press on the EFCC has been both bad and good. Some are applauding their actions and others are saying that it is a small drop in the bucket with the amount of fraud coming out of Nigeria. Here is a recent article on this:

http://news.yahoo.com/news?tmpl=story&u=/ap/20050807/ap_on_hi_te/internet_scammers_7

Here are a list of charges from an article on OnlineNigeria:

"•In1998 and 1999, the companies diverted $75 million government tax revenue through dividends.

•Evaded tax through claims to unmerited capital allowances, based on fictitious qualifying capital expenditure by $190 million.

•Evaded tax through claims to unmerited tax credits, such as Reserve Additional Bonus (RAB) and Intangible Drilling Cost (IDC) by $222 million.

•Through conspiracy, the companies were assessed to lower amount of tax than expected by $95 million.The tax consultants further claim that Chevron may have been involved in money laundering during the period under investigation because it did not provide details of debtors and creditors amounting to $260 million in each of the years, in its audited accounts, as required by the Companies and Allied Matters Act of 1990.The consultants also alleged that during their defence of the initial reports submitted to the EFCC, very critical issues were raised bordering on.

•Non payment of monthly Petroleum Profit Tax installments. Chevron Oil Nigeria Limited was expected to make 104 installments for eight years to year 2002. The company failed to make 42 installments, while its partner, TOPCON, failed to pay 24 installments. This denied the nation of several millions of dollars.

•Some payments claimed to have been made by the companies were not traceable to the Federal Reserve Bank account for the domiciliation of PPT revenue.

•Use of illegal revisions of their PPT estimates to manipulate their tax liabilities. These were revisions made beyond the statutorily permitted accounting year of December 31 of each year.

•Manipulation of revenue from royalties for which DPR is responsible for determination of liabilities but ironically does not issue receipt to the oil companies for payment; instead, the office of the Accountant-General of the Federation usurped the responsibilities even though it is not a government revenue generating agency.

•Conspiracy between revenue officers and Chevron which led to replacement of Assessment Notice for a higher amount of $21,838,977 with that of $12,005,455. The difference of $9,833,492 denied the federation has been established to be a fraud actualised by duplicating an expense on licences and miscellaneous taxes in 1996.

•There were cases where FIRS credited Chevron with payments which it never made. An example was the $22,400,000 vide Treasury receipt No. PP036337 of August 14, 1997. This suggests fund diversion.The tax consultants also said in their report that in 2002, Chevron claimed to have spent $25.5 million on community development while in actual fact only $249,000 was spent."

According to the article, Chevron has repaid $6.516 million and nothing is being heard from the EFCC, who had earlier threatened to shut down their operations if these charges were found to have merit.

Although, Nigeria is one of the biggest oil producing countries in the world, the general population remains very poor and sees relatively little of the profits spent on improving their lives.

Here is an interesting link to a report from Human Rights Watch on the status of Nigeria and information on how little of the oil profits are used to improve the daily lives of the poor. It cites that the foreign companies making a lot of the money from oil profits bear some of the responsibilty.

http://www.hrw.org/reports/1999/nigeria/Nigew991-01.htm

The article from OnlineNigeria can be read by clicking on the title of the post.

There are a lot of foreign companies making a lot of money in Nigeria. There is also obviously a very small minority in Nigeria getting very rich, while many of their citizens live in poverty. Perhaps this is one of the root causes for all the fraud that comes out of Nigeria?