C + M + O = F

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The crime of fraud is an equation. It consists of pieces. This criminal plus that method plus an element of opportunity equals a fraud.

The solution to the problem of fraud is also an equation. This fraud minus detection, deterrence and a team prosecution effort equals a solution.

A simplification, to be sure, but illustrative of the fact that there is no single element to either the perpetration of fraud or the prosecution of the crime. Bringing the fraudster to justice involves the processes of identification, dissection and follow-up action. It is a rare case that any person or agency handles solo. Instead, combating the problem is a team effort, one that combines the talents of many players.

Because of the magnitude of the problem, it is difficult for any of us to know, in full, the tools in our fraud-fighting arsenal. What weapons do we have? Who are the players? How does each piece fit into the big picture?

In this issue and in future issues of The John Cooke Financial Fraud Report, we will bring you a single piece of the large puzzle. We’ll delve into it as deeply as space permits, each time introducing a piece of the overall equation.

In this issue we concentrate on the US Postal Inspection Service. Who are they? How do they help? What kinds of cases are they looking for? How can we contact them?

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The Postal Inspection Service is one of our country’s oldest federal law enforcement agencies. Each one of the 2,400 US Postal Inspectors is a federal law enforcement agent with the authorization to carry a firearm and make arrests. Benjamin Franklin was the first Postal Inspector.

The mail statute was enacted in 1872. In essence, it allows the investigation of suspected fraud, misrepresentation, deception and deceit by individuals who use the US mails to obtain goods or services from the unsuspecting public.

The statute was expanded effective September 13, 1994, via the Violent Crime Control and Law Enforcement Act of 1994 to incorporate a more technologically modern definition of mail. Today, the definition has expanded to include “any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier.” Prior to the statute expansion, crooks would often carefully avoid the use of the US mails – they’d use UPS, Fed-Ex or other private carriers to make their demands or receive their booty, thereby avoiding prosecution. That avenue of avoidance evaporated when the law was revised.

Within the Postal Inspection Service, there are 29 US Postal Inspectors who serve as credit card coordinators throughout the US, each heading up a team of investigators. The Los Angeles Division, working out of a location in Pasadena, is headed by Randy DeGasperin. And with credit card crimes on the increase, DeGasperin and his investigators are busy night and day.

The Postal Inspection Service’s Los Angeles credit card team was formed in 1993 in response to the burgeoning problem. Similar units throughout the US were formed at about the same time. The postal inspection units comprise one of the three primary federal law enforcement agencies that address financial crimes. The Secret Service is the primary agency when the case deals with counterfeiting or with fraud by the unauthorized use of an access device (i.e. a credit card account number); the Postal Inspection Service deals with any type of mail theft or mail fraud; the Federal Bureau of Investigation (FBI) assumes investigative control when the banking fraud statutes have been challenged, ie. loan fraud or check-kiting schemes. More commonly than not, two or more of these agencies work together, often in a task force, to deal with problems.

The Unabomber case poses an excellent example of a joint investigation effort. In this case the Bureau of ATF also figured into the equation because an act was perpetrated with explosives. The Postal Inspection Service was involved because items were being sent through the US mails and the FBI joined in because the motive of the criminal activities appeared to be terrorism.

Another reason more than one federal agency may be involved is that each division has its own laws and statutes under which prosecution can take place. The FBI has the most resources and statutes of all the federal enforcement groups, so it is commonly involved in many types of investigations.

Many organized ring cases also attract the attention of more than one investigative agency. “It allows each agency to leverage its limited resources,” says DeGasperin, “and that translates to working smart.”

The Postal Inspection Service receives leads from many sources. Referrals may come from the Better Business Bureau, the Consumers Affairs Department, the various District Attorneys, the Attorneys General, the media, informants, victims, bank investigators and more. It is up to the Complaints Section of the US Postal  Inspection Service to receive and monitor all correspondence, then to computerize and forward it to inspectors all over the US. The key is in gathering the follow- up information: information that will determine the next step in the investigative process.

Each US Postal Inspection field division office has many teams of investigators. There are teams that deal with mail fraud, credit card fraud, internal theft (ie. by postal employees), external theft (ie. stealing mail out of mail boxes, assaults, robberies, etc.), and prohibited mailings. The latter includes narcotics, both internal  and external.

“The most common cases my teams see are in the area of financial identity frauds,” says DeGasperin. “Somehow an individual’s financial information has been compromised by a suspect. This particular type of crime is certainly on the upswing.”

While such frauds are certainly not limited to any one ethnicity or group of people, organized Nigerian crime rings keep the credit card teams hopping. Those cities hardest hit are Los Angeles, Washington DC, New York, Atlanta, Houston, Boston and Chicago. The rings are not picky about locations; they’ll move anywhere an opportunity presents itself.

Recently, there’s been a heavy increase in cross-country fraud schemes. “They’re hoping to throw a dog leg into the investigative process by moving around to various parts of the country,” says DeGasperin, “but we’ve countered by having specific national credit card coordinators in each division office.”

In 1992, in response to the growing credit card fraud problem, a meeting was held between the US Postal Inspection Service and the banking industry. In response  to concerns voiced by the banking industry, the divisional credit card coordinator program was set up. This provided a primary contact in each of the field division offices. Prior to this meeting, if a bank called the divisional office for help, it might reach any one of dozens of investigators. The result was that the right hand did not know what the left hand was doing. Once the new process was in place, things began to happen quickly and new methods were instituted  that allowed a more unified and effective fight against this type of financial crime.

One of the weapons in the arsenal is the Credit Card Mail Theft newsletter that is sent to banks and security departments all over the country. It provides summaries of significant investigations in each reporting period.

Prevention has become a priority. The Postal Inspectors meet with the major security people at least three times a year. Communication is the key. DeGasperin cites the example of a major issuer readying a huge volume mailing that was to be sent over several weeks. “When First Interstate introduced a new product, a Visa debit card, they mailed one to every customer who currently had a First Interstate ATM card. We knew that a high volume of credit cards was going to pass through the system, so we took certain precautions to assure the mail would not be tampered with during the process of mailing or delivery. This is an example of our working with the banks, not just in an investigative capacity, but in a preventative capacity as well.”

Industry is always trying to find methods to lessen the impact of fraud. The process of card activation has had a positive impact because some crooks, at least the little ones, just don’t think about the process before they leap headlong into it. When the card thief makes a call to activate the card (because these thieves often have access to the necessary information), he doesn’t realize that the phone number of the phone he’s calling from may be captured when the activation call is placed  – depending on the risk factor of the cardholder’s address. The system of card activation will also deter the amateur thief who does not have access to the social security number of the card holder.

The length a company is willing to go to will vary by the area being serviced. For instance, more stringent deterrents are in place in the New York City metropolitan area than in the middle of Iowa or Nebraska.

It is estimated that over a million credit cards are in the mail every single day. The amounts have increased dramatically because of bank mergers, bank expansions and new types of credit card programs.

Each month, banks report electronically to the US Postal Inspection Service. This system allows a head start on investigations in cases when the NRI (non-received issued) count is abnormally high. While a small percentage may be entirely normal, a higher number can be suggestive of a problem.

What happens when an audit suddenly comes through that pinpoints a large percentage of missing cards. The information alone is just a small part of the puzzle. Much work must be done by the Credit Card Core Unit, charged with analyzing the available information. By looking at things like the date of original mailing, the location of the mailing, the route the mail took, etc., these investigators attempt to determine where the theft took place.

Part of investigating such a situation is the ability to analyze the information and determine where the loss actually took place. The investigator must keep an eye open for trends and patterns. If the loss numbers are high, the likelihood is high that the problem occurred someplace internally. It might have been within a post office or at a third party processor’s location or an airport. To identify the exact point of the problem, certain items must be closely scrutinized. If a single center processes mail for a certain series of zip codes – and the major portion of the problem is in those specific zip code areas, it’s a good bet that the theft occurred within that processing center. Alternatively, if it’s a wider band, the investigator might head for the airport that handled the major portion of the mail. Once the analysis has been completed, the next step is to investigate.

Organized crime rings seem to concentrate on obtaining large numbers of cards. The best way to accomplish this, they’ve found, is to recruit people to work within the system. The biggest cases and the largest cumulative losses have occurred through internal thefts. Airports and distribution centers are a favorite target for crooks because there’s a higher volume of cards passing through these locations.

Recently, a 60-member credit fraud organization was broken up through the joint efforts of US Postal Inspectors and the Attorney General’s Office. The five leaders of the ring, Onowhuzo Michael Okeh, Joel Okeh, Prince Williams Okuweh, Prince Bright Okeh and Akinola Bankole, have been charged with organizing a credit fraud scheme by which postal employees in Los Angeles, Atlanta, Seattle, Houston and other US cities would steal hundreds of credit cards from the mail. The five leaders would first activate the credit cards by telephone. The five would then manufacture counterfeit identification documents, which they gave to “runners.” The runners, in turn, obtained cash advances at banks throughout the United States. Most ring members have already pled guilty to charges including conspiracy to possess stolen mail, wire fraud and fraudulent use of credit cards. The five main organizers each face a maximum possible prison sentence of five years and a fine of $2,500,000.

Unfortunately, this case points out one of the problems inherent in the prosecution process: prison sentences that many feel are too light for the financial ramifications of the crime. In the above case, the government estimated that the Okeh organization defrauded financial institutions of more than $2.5 million over a three-year period. What message does a five-year maximum sentence send to the criminal community at large? To remedy this dilemma, meetings with the Department of Justice are now taking place in an effort to increase the sentencing guidelines for financial crimes.

Another problem is with the thresholds for prosecution – it’s tough to get a US Attorney to accept the case on a little guy where the amount of the theft is not extreme. This varies by jurisdiction, but the answer is often to take this type of case to local law enforcement and let the District Attorney prosecute instead.

Yet another problem that has plagued the investigative industry is the use of mail drops. For a low monthly fee, a credit card thief can assure anonymity by renting an address. Such an address may look valid to the untrained eye – 123 Main Street, Apartment 203, Anytown, USA – but in actuality the address is a 3-by-5 box, rented with a minimum of identification. “A favorite joke around the Postal Inspection Service office,” says DeGasperin, “is that instead of special parking places in front of these places being set aside for handicapped parking, they ought to label them for law enforcement parking.”

One way to combat this is to access the Issuers Clearing House for MasterCard and Visa, which assists issuers to identify bad addresses. Another is to obtain a list of mail drops in a particular area. Yet another is to access the e-mail network of the International Association of Credit Card Investigators (IACCI) – that is, IF you are a member of the organization. The network provides secured information sharing. It is only available to law enforcement, banks and the Feds. There’s also an investigator’s chat line where on-line discussions are held relative to ongoing and recently solved crimes.

There are two predominant kinds of credit card frauds. The first is referred to as friendly fraud – where the perpetrator is someone with easy access to information. This might involve, for instance, a relative of the cardholder with access to household mail who lifts the new credit card. This type of fraud results when the perpetrator knows the victim, often via a close relationship. Unfortunately, these kinds of frauds often do not form the basis for a criminal case.

The other kind is organized fraud; this type comprises the high percentage of cases that lead to federal prosecution.

The media has been carrying stories of identity fraud lately, almost as if it’s a new phenomenon. The same scams were occurring in the 1980s, but at that time it was referred to as credit card application fraud and the media pretty much ignored it. Television has recently zeroed in on this type of fraud and had christened it with a new name: identity fraud.

When such cases are referred to the Postal Inspection Services, the victim’s name and address are logged in and the customer is contacted by letter. The victim is advised to contact the three major credit bureaus to report a compromise of his or her financial information. As soon as a crime is confirmed, the mail drop box is shut down. Then, by monitoring incoming mail to that same address, other similar frauds are usually discovered. And while industry often thinks that all the Feds have to do is stand around the mail-drop offices and wait for the criminals to appear, it just doesn’t work that way. “They’ve become far more sophisticated,” relates DeGasperin. “They have moved away from using mail drops. In some instances they use actual addresses, such as a rented apartment.”

In cases of identity fraud where a mail drop is used, the information listed on the application is generally not valid. This leaves very little in the way of a paper trail for the investigator to follow. If a phone number is listed, it often belongs to a cellular phone. The home address listed is probably just another mail drop. Today’s technology has made the crook’s job so much easier. The list of prefixes assigned to cellular phones, however, is generally easily obtainable from the servicing phone carrier.

Education plays a big part in the eventual solution. The average officer on the street has not had a lot of training in the area of credit card fraud. When a police officer stops a car and finds an embossing machine and a bag of mail in the back seat, it might translate to a problem. And if the driver is carrying a stack of credit cards, each with a recent issue date, it could be one heck of a good indication that the cards were stolen from the mails.

The Postal Inspection Service wants to help. Investigators are readily available to participate in seminars to law enforcement groups, banks or anyone else involved in the fight against financial fraud. And while this agency, as is the case with most Federal law enforcement agencies, tends to pay more attention to the large cases, the investigators are willing to look at any and all cases. Some of the largest busts have begun with a single referral. Obviously, the better a case is put together, the more chance it has to be scooped up. Good records are of the utmost importance. “We not only want industry to bring us their cases,” summarizes DeGasperin, “we also want them to learn from the process and to be able to prevent future frauds from occurring. We do not want to be thrust into the role of policemen – we want to participate in a partnership.”

© Copyright 1996 Alikim Media