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APPLYING THE LESSONS OF HISTORY
By Joseph D. Serio, PhD
The story of the Russian “mafia” as told by most will be limited in scope to the late 1980s and 1990s, but it may be that, ultimately, the more important story is the organized, semi-organized, and disorganized fraud engendered by the system, a legacy received, as Andrei Dmitriev said, “with one mother’s milk.”
That fraud touches us in numerous ways, for many from the Russian Federation (as well as the former Soviet Union) have taken what they’ve learned in their warped political and economic system and exported it to numerous countries around the world. It is true that most former Soviets coming to our shores want nothing more than to live good productive lives, and steer well clear of breaking the law. Others, though, while not necessarily gangsters, thugs, or members of any “mafia,” frequently use well developed skills in manipulating systems in order to make money out of thin air, in much the same way as was seen throughout Russian and Soviet history.
For example, in 1983, a group of about two dozen people organized by two Soviet-trained doctors established “rolling medical laboratories” offering free or low-cost medical testing around the United States. The group worked the system thoroughly, filing countless fraudulent medical insurance claims for services supposedly rendered. Because most insurance programs covered only testing and treatment that was medically necessary, the group falsified the diagnosis on bills and patient medical records so as to create the false impression that the patient was suffering from an illness or injury and that the doctor had prescribed the medical testing as a medically necessary treatment. In fact, most of the patients were in normal physical health and had no need for extensive testing: the patients had come to the lab sites only to receive “free exams,” for which they had been solicited by telephone. Over the course of almost ten years, the group ran up $1 billion in fraudulent medical billings and raked in more than $80 million. According to the agent in charge of the investigation, the group perpetrated “the largest health insurance fraud ever prosecuted in the United States … More than 800 government programs, health insurance companies, and employee benefit plans were victimized by the scheme.” They were finally stopped in 1993 by the U.S. Postal Inspection Service working in concert with no fewer than seven other major law enforcement and health-related agencies.
Likewise, profits were generated by others through staged auto accidents. In one U.S. city alone, about 200 staged crashes were organized by one former Soviet to collect insurance money for “soft tissue” injuies. Lieutenants of the ringleader would recruit accomplices — often recent immigrants with poor language skills and a need for quick cash — to help stage their crashes. In the scam, as many as three cars would box in a late model car that was likely to have good insurance coverage. One car pulls in front of the target, one behind, and sometimes one to the side, leaving no escape. The lead driver slams on the brakes, forcing the victim to hit him. The driver and the passengers then file injury claims against the victim’s insurer, claiming an array of soft tissue injuries.
Claims per accident reportedly averages about $50,000, although the conspirators typically received about a third of that. The leader of this particular network was found with a suitcase containing $263,000 in cash and law enforcement documented at least $4 million in false claims. He had set up a string of chiropractic clinics and law offices to help bill for the fraudulent injury claims. This may not seem like much but consider that there are groups filing thousands of claims of this type.
In a presentation prepared by the Coordinated Law Enforcement Unit of British Columbia for a three-day closed-door law enforcement conference on Russian organized crime in April 1999, the representative presented the Unit’s research findings on the extent and impact of Eastern European Organized Crime (EEOC) in British Columbia. The material noted a noticeable growth of EEOC activities of a transnational nature that were increasingly sophisticated and diverse, and involved previously unknown groups and individuals. Groups from the former Soviet Union were entering Canada using the country’s business entrepreneur/ investment program. As in other parts of the world, these groups were believed to be engaged in money laundering, drug trafficking, extortion/protection, smuggling, gaming, credit card fraud, prostitution, auto theft, weapons trafficking, and securities fraud. Remember that they go where the money is and will engage in virtually any activity in which money can be made. It’s not surprising to find drug traffickers engaging in insurance fraud.
In 1997, I gave a presentation in North Carolina about the Russian “mafia” to an audience of more than 500 insurance investigators from around the country. At the end of my session, I was approached by a number of audience members with their own tales to tell. Each of them, regardless of the part of the country they came from, made the same statements, “I’m from Baltimore and I have a problem with Russians” “I’m from Washington, D.C., and I have a problem with Russians.” I wasn’t too surprised to hear such things from these locations. Many major cities, such as New York, Los Angeles, Chicago, and Miami, could claim a reasonably large population of former Soviets, and their activity in fraud was a wellestablished reality in these places. What took me aback were the next two comments. “I’m from Alabama and I have a problem with Russians.” “I’m from Louisiana and I have a problem with Russians.” Their references really were to “Soviets” of course, but the point taken: former Soviets were active in various parts of the country perpetrating frauds using much of the homegrown knowledge derived during the Communist era. In a private conversation during the conference, an FBI agent showed me a map marking the U.S. states that had reported a “problem with Russians.” Nearly every state was shaded, leaving fewer than a handful blank. Of course, the claim shouldn’t be taken at face value. There was no indication of the concentrations of former Soviet citizens in each of the states. There was no sense of how many people or how many crimes constituted “a problem.” Far more research would have to be conducted to get a sense of what is occurring around the country. But the point was made that there seemed to be a fairly widespread occurrence of fraud by former Soviets across the country.
These examples may strike some as ancient history, but do not be lulled into thinking that they are anomalies or that such activity has ceased to exist because the media generally has moved past this story. Consider that the behaviors we’re talking about existed in Russia and the former Soviet Union for hundreds of years. Are they likely to stop now? In the post 9/11 world, with the attention of federal law enforcement primarily directed toward terrorism, this very well may be the golden age of fraud. (Just ask the insurance companies who are at a loss about how to address these issues.) The FBI did issue an unclassified information bulletin in June 2007 to all FBI field offices indicating a Massachusetts-based Russian physical therapist engaged in billing fraud and staged automobile accidents through his clinic. His colleagues previously had been convicted of health care fraud, mail fraud, wire fraud, and money laundering. They were also said by the FBI to have ties to Russian organized crime. This is the tiniest of drops in an ocean of fraud. The point that needs to be appreciated is that such activity is happening across the United States.
The questions, as always, remain: are groups from the former Soviet Union a different breed or have they simply joined the numerous other national and ethnic groups involved in defrauding the system? Do they seem worse than the others because of the media attention focused on them in the 1990s or are they in fact ultimately worse because of the manipulative ways they internalized back in the former Soviet Union?
New Jersey-based police investigator, Eugene Troyansky, gives a piece of advice to his law enforcement colleagues: “In deciding whether to indict or investigate a particular Russian businessman for tax evasion, racketeering, and so on, the law enforcement official has to ask himself: Would I do it if he were Irish or black or Chinese?” In discussing the nature of the threat in the U.S., Troyansky indeed echoes the fraud point made many times: “They set up companies and run financial schemes. When stakes become too big and you can’t bribe someone, well, then it (violence) becomes unavoidable. (But) in his mind, he didn’t commit a crime.”
This is a point that law enforcement needs to take to heart. If the vast majority of their activity is financial and their activities are entwined in legal and illegal businesses, the law enforcement tools needed to counter them go well beyond search warrants, handcuffs, and guns. Forensic accountants, specialists in finance, and computer experts are more appropriate weapons in this fight. Beyond that, cultural intelligence may be the most critical element. Knowing the history of the Gulag and Soviet prisons generally may give police interrogators a clue that threats of incarceration may not yield much information. The good cop/bad cop approach to eliciting information also frequently produces little. While detailed prescriptions for dealing with informants, suspects, and criminals from the former Soviet Union are entirely different subjects for a different article, suffice it to say that former Soviets have seen far worse circumstances and far tougher law enforcement approaches than we could believe in the United States.
It comes as little surprise that the Russian “mafia” story of the 1990s in the United States was misinterpreted by some. For example, then Director of the FBI’s Russian Organized Crime Squad in New York, Raymond Kerr, noted that Russian organized criminals “have not managed to institutionalize themselves in America. Big organizations like Cosa Nostra don’t exist. It has not taken off the way that many feared.” This perception was based on the mistaken assumption that the violence being perpetrated in the former Soviet Union and the vast organizations that seemed to exist over there were somehow normal features of post- Soviet organized crime. In reality, there was no reason whatever for that behavior to transfer to places like the U.S.; the environment of the former Soviet Union in the 1990s dictated the mode of behavior. That is, virtually the entire economy was up for grabs in a period of dramatically declining social and political control. There was no need to transfer these activities to the U.S. because fraud, deception, counterfeiting, forging, and a host of other activities in a stable economy were quite satisfactory to reach the ultimate goal: to make money out of thin air. This is a Russian criminal’s dream come true.
While the threat the FBI was anticipating may not have “taken off the way that many feared,” it has indeed taken off in other, more subtle, more insidious ways. The Russian and Soviet need to (and have a penchant for) manipulating systems, whether it was through the black market production of goods, diversion of consumer goods, or sleight of hand with documents, is underscored by their history. This is not about to end in the foreseeable future…
Dr. Joe Serio is the author of the critically acclaimed book, Investigating the Russian Mafia. He was director of the Moscow office of Kroll Associates, a global corporate investigation and business intelligence firm.