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By Dr. Alexander Gorkin
Editor’s Note: I had the opportunity to meet Dr. Gorkin when I traveled to Moscow in late 1995. A fascinating scholar and a creative investigator, he was running Information Agency Unifile, a unique investigative firm answering the security needs of businesses entering the Russian marketplace. To enter his office building, we passed through a barbed wire perimeter and then by numerous guards armed with LARGE ratatattat submachine guns. Despite the ammunition trauma, both the company and the man proved fascinating; an incredible store of knowledge about a mysterious nation. With this in mind, I am happy to be able to inform the fraud fighting industry that Dr. Gorkin has recently arrived in the United States and is ready, willing and able (in ways most of us have never before even imagined) to assist in our ongoing fight against organized Russian fraud. We’ve asked him to write an introduction to the problem from his own perspective as a native Muscovite and a skilled investigator. We present the following article for your education, enlightenment and enjoyment.
Many challenges face the professional fraud investigators with regard to existing and potential involvement of Russian immigrants in different criminal fraud activities. During the last several years, there has been a dramatic increase of activity in both domestic and international insurance fraud, with greater numbers of people milking the insurance industry for millions of dollars. I would like to give you my perspective on the background and some reasons why we have seen the increase of involvement of Russian immigrants in such activities.
The system of having one state owned and operated insurance company ended when Communism toppled. During the last several years, more than 1,000 insurance companies have developed within Russia. With no exceptions, any individual or group of individuals may, overnight, form an insurance company and begin accepting premiums. There are few restrictions and no centralized authority charged with monitoring their activities. There is little wonder, then, that the vast majority of these 1,000 newly formed companies were established specifically for fraudulent purposes.
The simplest scheme is just to sell the insurance policies, get the money and disappear into the mist. Another was to insure some asset or relationship that, in reality, does not exist at all. The money received in such an instance was actually part of a larger conspiracy here in the USA this function is commonly referred to as money laundering.
Such insurance companies commonly insured the relations between real estate broker and buyer, or between a creditor and a debtor. Many of these companies were specifically designed for the purposes of corruption by mandating the need for coverage of some services that participants in a transaction could not avoid. For instance, a borrower may only borrow money from a lender if he will “insure” the loan at considerable cost, of course from an insurance company conveniently owned by the lender. Many high level people were involved in this totally new sphere of activity.
New times and new economical relations created new possibilities for criminals. Many foreign insurance companies became victims of false transactions or criminal conspiracies of partners involved in trade relations.
Many companies, banks, joint ventures and insurance carriers beginning operations in Russia started their relations with organized crime groups because of security reasons. In the first stage of such relations, it seems that everything is (more or less) okay. But bit-by-bit, the interrelationship becomes closer and closer, and eventually this type of interdependence forces some kind of transformation into criminal enterprise. In some cases, foreign businessmen were forced to leave Russia just to keep their names, lives and remaining money (if it was still possible). Some were not so fortunate, losing one, two or all three in the process.
It was not only the foreign businessmen who were affected by the encroaching criminality. Some Russian citizens also came to the point of no longer being able to accept the situation and reached the difficult decision to emigrate from their homeland.
It is very apparent that international Russian organized crime has become a virtual reality. A special market of criminal goods and services already has a very active Russian branch in this country and in many countries to which Russians have emigrated. These branches deal with insurance and financial frauds, money laundering and other illegal activities. There is a large amount of evidence that many of the new immigrants from Russia, Ukraine, Belorussia and other former Soviet Republics have become involved as “cheap labor” in these new black market enterprises. These same people have no criminal history in their home countries and were honest and law abiding within their own former culture.
But therein lies a clue. They were honest and law abiding within their own culture so let us look at the roots of why certain people with no previous intentions of participating in any criminal activities should suddenly go the alternate route toward criminality. Much of the answer lies in the perception, nation to nation, of what is criminal.
Many years of “Soviet Life” created some special scale of values in the mentality of Soviet citizens. The most valuable possession was an automobile and, because of the exorbitant cost and the low per capita income of the average Soviet citizen, buying a car sometimes required involving a number of people and a combination of all of those individuals and resources. The only thing that was insured the majority of the time was the car. Therefore, there was the potential of fraud activity involving some kind of special relations (like conspiracy) between the agent of the insurance company, the claims adjuster and the vehicle owner(s). It was not considered a crime in the mind of the average person to supplement personal income or services through manipulating the system. For example, one could insure a car after an accident by a bribe to the insurance sales agent. One could get a repair estimate and payment for the repair without any actual repair taking place and then repeat the process many times with great success. Everyone benefited except the insurance company, but one must keep in mind that the Russian insurance company was simply one more form of government subsidy and no Russian citizen thought it was moralistically “wrong” to, by wit or wile, take extra money from the government. It was, in fact, a way of life albeit a different system than that which is in effect here in the US. Such acts often could make the difference between food or no food, shelter or no shelter.
Since health services in Russia were provided for free to all Soviet citizens, then the possibility of medical insurance fraud in many of the ways that are most familiar to US investigators did not exist. However, providing payment for sick days or permanent disability (again, these were also provided by the government, not by private enterprises) created some special relations between doctors in the public clinics and the average person. For a small bribe (maybe just for a bunch of flowers or a small bottle of perfume), one might receive an authorization for at least three days off from work with pay. Sounds like a deal? Remember, the “culture of innocent fraud” was extremely widespread in the USSR because of basic economics and the necessity to survive.
During the time of the Soviet centralized economics system, professional crime and even some organized crime (which was not so well structured yet) was separated from the vast majority of people. But in the transition to the “free market” economy and the destruction of the governmental support of the scientific and medical field, a lot of highly educated professionals were left in a position below the poverty level. There were only two ways to survive either adapt to the developing criminal system of new economical relations (which is always criminal during such a tremendous change in any country) or leave the country.
The decision to leave one’s country of birth is never an easy one, especially for a person who is well established, highly educated, perhaps not so young, and deeply involved in the culture, language and customs.
The majority of people who made such a decision could just not stand the current situation in Russia and expected to start a new life in a new country. In many instances these people are unfamiliar with the culture to which they are going…they only know from where they are leaving. They come to the new country with certain expectations about social, economic, professional and cultural opportunities.
The United States has not developed a system for adaptation for these individuals, one that will utilize their talents and abilities. This leaves the new immigrants in the position of being underemployed and without opportunities to realize themselves in their professional sphere. One segment of the workforce that is often victim to this phenomenon is the health care professionals.
Immigrant medical doctors and dentists have an even greater difficulty integrating in their profession. The problems of language, pharmacological terminology, certification, licensing, financing and a closed medical and dental society make the transition extremely complicated. The vast majority of these specialists are unable to go through the process successfully and eventually must survive by doing absolutely unsatisfying work. There comes a point at which such an individual will understandably become frustrated, dissatisfied and even angry. This creates an environment in which they are susceptible to the influence of professional criminals involved in insurance fraud who can utilize the medical professionals knowledge and experience and also provide much needed money.
The system of medical insurance fraud in the USA was not created outside the American society and the vast majority of experts, who definitely know how to steal money from insurance companies, are American citizens. An integral part of the fraud equation, however, is a middleman, and the experts find a bountiful crop of budding middlemen among the immigrant population.
The professional insurance fraud experts are intelligent, wealthy, well educated, well connected and well organized. They are constantly looking for new ways to expand their opportunities and new methods to more efficiently manage their operations and increase their profits. Without a lot of employment regulations, professional fraud organizers are able to hire and fire anybody. They do not care about language skills, certification, licensing, citizenship or mother’s maiden name as it applies to the people they use. And these organizers are also ready to pay an adequate salary in cash.
The expertise of these new hires takes many forms. Some are adept at using their special knowledge regarding existing geographical diseases in different areas of Russia, the Ukraine and other former Soviet republics. This is because some areas are known for a proliferation, often affecting as many as 90 percent of the adult population, of certain kinds of health conditions.
The result is many fold:
- How to use the long-term professional experience of former Russian doctors, who had dealt with the identification and treatment of these illnesses when in Russia?
- How to use the non-familiarity of American doctors about this problem?
- How to use the situation of the closed non-English speaking elderly community of immigrants, who are most likely to have such diseases?
The answers to the above are all known by the professional fraud organizer, who will identify areas in the US where immigrants with such diseases reside and inculcate a qualified (and quite unemployed) medical professional. The Russian-speaking doctor will infiltrate the recent immigrant population and gain their trust. Then they’ll organize insurance providers for the “proper” people and establish a rehabilitation clinic and a medical supply store with a bilingual staff capable of accepting a variety of insurance plans for overblown billing. Once the doors have opened, the rest follows naturally.
There is an abundance of professional diseases that are common among the Russian immigrant population. Osteoporosis or back pains are very common ailments for professional truckers from all over the former USSR. Not only were the roads in ill repair (compared to the USA), but there were no unions to dictate safety seats, limited hours, mandatory rest periods and the like. If you drove, you were paid. If you balked at the job or the required hours, your family went hungry.
Another common ailment in the USSR one almost unheard of in the USA was the propensity of vehicle owners to develop a specialized gum disease. It occurs as a result of siphoning gas through a hose using your mouth as the siphon. The majority of American educated doctors cannot even imagine such a thing and do not know it when they see it. To a Russian educated doctor, such gum disease is common knowledge. Think of the health care fraud potential!
Within the dental community is the cost incurred when old-fashioned dentures, designed over 50 years ago, must be replaced. These dentures are so completely below American standards that they are unfamiliar to the majority of American dentists.
Once again, we can use the same scenario as in the previous medical examples. Identify the people, inculcate an appropriate (unemployed) dental professional, provide insurance, establish a clinic and open the door. That’s all it takes for the monetary floodgates to part.
With the proper prevention, the majority of such fraudulent activity can be avoided. The answer requires money, time, cooperation and perhaps most importantly changing the way of treating highly qualified professionals from the immigrant community in order to reduce the possibility of their participation in such activities.
The concept of crime to a Russian is somehow different from the concept of crime to someone born and raised in the United States. Understanding the true nature of insurance is somewhat outside the experience of the average person, even within the culture. Having heard many stories from people about receiving large insurance settlements, many newcomers from Russia interpret this as part of the “American Dream. “ This is based on the information received from radio and television and on other personal experiences, which portray insurance as an entitlement. As if this were not enough, this concept of insurance as entitlement is actively implanted in the mind of the average immigrant by professional fraud organizers.
The answer, of course, is education. Primary, is the need to educate our own industry to help them understand the Russian mind and the differing concepts of criminality and fair acquisition. And, while that is being done, perhaps industry should also think about countering the paid advertising messages that are assailing the Russian immigrants every time they turn on their Russian language radio or television stations.
The American insurance industry has much to think about and much to do if they are to gain a foothold against the problem of Russian organized insurance fraud.
Alexander Gorkin has served as a Professor at the National Police Academy in Moscow, conducting scientific studies in the field of criminology and publishing manifests on criminal and law enforcement activities. He was awarded his PhD (Law) in 1990 for creating the prediction paradigm of criminal activities and adequate law enforcement responses in the marketing of illegal services. He’s also been involved in international law enforcement activities against illegal drug traffic, drug smuggling, money laundering and corruption.
Companies in need of consulting services (Russian organized criminal activities) or groups interested in hearing Dr. Gorkin speak, can reach him by phone at (303) 316-4893, by facsimile at (303) 316-0483 or by email at alexgorkin@sprintmail.com
Facts About Russian White Collar Crime
- There are as many as 8,000 separate organized Russian crime factions operating around the globe.
- In 1994, the Russian Interior Ministry stated that 70 to 80 percent of commercial banks and private businesses had been extorted and forced to pay protection money.
- Vladimir Levin, a Russian gangster, achieved one of organized crime’s first forays into computer crime. Levin gained access to New York Citibank’s computer network and helped himself to $12 million.
- Many Russian gangsters bear tattoos that describe their particular brand of crime: assassin, burglar, pickpocket, etc.
- The first Russian immigrant organized fraud to be busted in the US was the “Potato Bag Gang. “The scam, perpetrated against other Russians, was similar to a Gypsy switch. The victim, certain he’d purchased a bag of gold coins, found himself holding a bag of potatoes.
- Today, Russian gangs are most commonly found operating in forgery and gas tax evasion scams, healthcare fraud, insurance schemes and antiquities swindles. They’ve established footholds in the East, West, Midwest and Florida.
Most US based Russian violence has been against other Russians (who are expected to know and not break the rules of organized crime), however experience in the Soviet Union indicates they have no second thoughts about going after elected officials, police officers, or others.
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