Organized Crime on Trial

Most people in the insurance industry are aware of the numbers bandied about for insurance crime and fraud – auto theft costs $600 million a year, a figure that grows to more than $1 billion when police, health and judicial services are factored in. Fraud has an estimated $1.3 billion price tag each year, or roughly 10%-15% of premiums. In Ontario, a study conservatively projected that $330 million in bodily injury (BI) and accident benefits (AB) claims are fraudulent.

The statistics are alarming, but numbing at the same time. Fraud and insurance crime are clearly a huge problem, but what is behind these numbers? Where are the specific threats? And how is the insurance industry fighting crime?

While insurance crime covers a wide spectrum of illegal activities, from fraudulently padding a legitimate claim to stealing a car for joyriding, the industry has set its sights on organized rings in auto theft and staged accidents. These networks are interconnected, mobile and opportunistic in finding provinces and insurance systems that are vulnerable to certain types of crime. Organized crime is generally defined as involving three or more persons in a sequence of multiple claims through multiple insurers over a period of time. Auto theft and staged accidents are typically part of a broader pattern of criminal activities, which often extend to drug trafficking, money laundering, prostitution and terrorism.

HIGH PROFITS

According to Insurance Bureau of Canada vice president of investigative services Rick Dubin, there is a simple reason why organized insurance crime is prevalent in Canada: “The profits are high and the risk of punishment is low. The problem facing us as an industry is tremendous. There is no quick fix to this epidemic,” he observes.

The absence of insurance-crime specific laws, weak judicial sentencing, lack of coordination (and resources) between law enforcement, government and private industry, opening of borders to global trade and the lure of rich AB schedules in some provinces have all played a role in allowing organized crime to spread in Canada. “This [organized insurance fraud] hasn’t been seen as a problem [in the past],” says Bob Whitman, the IBC’s national director of its ring investigative unit. “Police are not keeping statistics, the Centre for Criminal Justice Statistics in Ottawa is not capturing insurance fraud issues. As a result, insurance fraud has dropped off the radar screen for our legislators.”

Bill Cameron, the IBC’s national director of auto theft and vehicle services points out, “from the criminal’s perspective, the risks associated with auto theft are much less than, say, drug trafficking. If you get caught with $50,000 worth of cocaine, you will spend jail time in a federal penitentiary. If you [the criminal] are caught with a $50,000 stolen vehicle, we [insurers] are lucky to get a conditional sentence.”

FOCUSED APPROACH

To address insurance crime as an industry issue, the IBC recently announced a restructuring of its investigative services to concentrate exclusively on auto theft and organized crime. The bureau has discontinued investigation of individual claims as of April this year, but retains an “outsourcing agreement” for these individual files with Forensic Investigations Canada, a private firm.

“This is part of IBC’s focus on industry-wide issues and it particularly makes sense given our status as a special investigative body under the Personal Information Protection and Electronic Documents Act (PIPEDA),” says Dubin.

Cameron says auto theft is “even more of a problem here in Canada than in the U.S.”. The odds of having your car stolen in Canada are one in 99 compared to one in 156 in the U.S., he observes. In this sense, Canada’s incidence of auto theft on a per capita basis is actually 25% higher than in the U.S., according to Statistics Canada. “We know from research that organized crime activity in auto theft roughly breaks down to 50% [being] ‘chop shops,’ 25% for export of vehicles, and 25% due to ‘cloning’, in which the same vehicle identification numbers (VINs) are used for multiple vehicles,” Cameron comments.

Cameron also notes that the insurance industry “has no idea how many chop shops are out there, but we know there are too many”. Notably, in late May, police uncovered what they believe to be one of the largest chop shops in Ontario history at a Hamilton-area farm. Police say they found stolen ATVs, trucks and cars, as well as thousands of auto parts.

In another case, known as “Project Iceberg”, 197 police and civilian staff from several different police forces, government agencies and IBC worked together to take down another large chop shop operation. A tip led three Durham Regional police officers to Helmand Auto Wreckers, a 54-acre site located north of Oshawa. The yard contained hundreds of stolen vehicles and parts. Insurance companies had paid claims of about $2.3 million to the owners of the stolen vehicles. Seven persons were charged with more than 1,000 Highway Traffic Act offences and 1,300 Criminal Code violations earlier this year. The assistant crown attorney is currently seeking jail time ranging from two to three years for the three principal owners.

The growing “auto theft for export” activity perhaps best shows the shifting trends in organized crime. A mere seven years ago, North America’s now booming illegal vehicle export business barely existed. Lower trade barriers, fewer local car dealerships in North America, high tariffs on imported vehicles, a lack of law enforcement resources and lenient laws have attracted sophisticated criminals to the “export” industry.

In the 1960s, more than 90% of stolen cars were eventually recovered. By 1997, that percentage had dropped to 76%. Today, the recovery number is closer to 70%. And the types of cars that disappear now tend to be expensive sport-utility vehicles and luxury cars. High-end vehicles with North American license plates end up in such geographically diverse areas as the Middle East, Africa, Latin America and Eastern Europe.

FOREIGN CONNECTIONS

One recent example in Canada revealed a highly sophisticated network operating out of Panama. In September, 2002, the Panamanian Crown Attorney’s Office recovered several stolen vehicles from Ontario. Further research into this organized criminal operation found that it consisted of persons from Canada, the U.S., Columbia, Venezuela, Panama and Costa Rica. The network dealt in weapons, cocaine, stolen vehicles, counterfeit money, credit card and bank fraud, identity theft and child pornography. The Canadian arm of this organization distributed 60 stolen vehicles from Canada through Panama, Costa Rica, Nicaragua, El Salvador and several Caribbean Islands.

Thieves are also using more creative and sophisticated methods of stealing and reselling vehicles. In particular, the fraudulent use of VINs has grown in recent years. In its work combating auto theft, the IBC has identified an increase in the “cloning” or “twinning” of VINs in which a legitimate VIN from a car is used to change the legal identity of a stolen vehicle of the same make, model and color. Cameron says he personally “recently discovered the same VIN used for six different Ford Explorers, two in Canada and four in the U.S.”.

STAGED ACCIDENTS

Organized insurance crime is not restricted to auto theft. Staged accident rings have also become a serious concern to insurance companies, policyholders and innocent citizens. These complex schemes frequently involve organized criminals and extend to tow truck operators, paralegals, lawyers and registered healthcare providers.

Whitman says there are several types of staged collisions that insurers have documented, such as the “stoop and squat”, “drive down”, “sideswipe” and the “phantom vehicle.” In most cases, the fake accidents involve innocent drivers who are unaware of the scam. Particularly dangerous is the stoop and squat, in which two cars box in an innocent driver, one in front and one at the side. A third car quickly passes in front and then jams on the brakes, forcing the innocent driver to re ar-end one of the staged vehicles. These types of accidents, which occur mainly on highways like the 400 series in the Greater Toronto Area (GTA), are difficult to control and can cause injury and death. “We, the public at large, are being targeted, driven into, driven down, injured and killed,” says Whitman. “We see the same kinds of staged collisions on a regular basis.”

Over the past two years in Ontario alone, there have been 57 projects related to investigating staged collisions, with an estimated exposure of at least $7 million. Thirty-five of those are closed, while 15 are in the hands of police. Twenty-four persons have been arrested, while there have been three convictions to date.

Organized criminal networks are behind many of these staged accident schemes, Whitman believes. “We have documented proof that organized crime syndicates are involved, and that various groups may even be working together, sharing their unique abilities to get their criminal actions past the insurance industry’s frontline adjusting staff, insurance investigators and police,” he adds.

Furthermore, Whitman notes that insurers are seeing the emergence of nearly identical staged accident patterns across North American borders. Organized crime networks are only too willing to spread geographically after staged accident rings have been broken in other regions, he explains. This is particularly true in Ontario, which offers comparatively rich benefits and allows injured victims to select the AB schedule of choice – where they were injured or where they reside.

“We have uncovered organized, large-scale insurance scams perpetrated by persons with direct links to New York crime syndicates,” Whitman says. “Other scams have been linked back to such places as California, Pennsylvania and New Jersey. Organized criminals in professional health disciplines have perfected the implementation of these insurance scams here in Canada.”

MORE ENFORCEMENT

If many of the trends in insurance crime are transnational, insurers say Canada should borrow legal approaches from other countries. There are several examples in the U.S. where laws have been strengthened, fraud investigation bureaus created and dedicated prosecutors for insurance fraud appointed. For example, the majority of states south of the border have classified insurance fraud as a serious crime and provide immunity for those who report insurance fraud.

“To date, the Canadian Criminal Code does not have separate sections for auto theft and medical insurance fraud,” laments Dubin. “We need to insist on changes and tougher legislation.” But, even when cases are thoroughly investigated and charges laid against criminals, insurers are often frustrated at legal delays and lenient sentencing. “There is a need for a more aggressive approach, we must push for stiffer sentences once insurance crime cases reach the courts. We need to hold more trials and offer fewer plea bargains,” he adds.

The idea of dedicated insurance fraud prosecutors has not caught on in the Canadian private sector insurance provinces (B.C. and Manitoba have dedicated prosecutors). While Dubin says the IBC is still pushing for this role, it has taken a different tack in Ontario with information and training sessions for crown prosecutors. Other tactics include providing evidentiary packages for insurance crime cases and offering impact statements.

Whitman recently provided a victim impact statement at the sentencing hearing of Odlanir Bellomo, who was charged with conspiracy to commit fraud in the Project Slip case. This case involved an organized insurance fraud scheme that ranged from fake falls on Toronto Transit Commission (TTC) buses to staged collisions. Justice Brent Knazan sentenced Bellomo in April this year to two years in prison in this precedent setting case. Eight others charged in connection with the scheme await their court appearances.

Beyond the judiciary, insurers say they need to further develop partnerships with police forces across the country. While the IBC has “memorandums of understanding” (MOUs) with several police forces, it is looking for dedicated resources and projects focused on auto theft and staged collisions. For example, a joint project of IBC and Toronto Police Services called “AutoFind” features optical scanning devices attached to the roofs of police cars in Toronto. The device scans license plates as the cars patrol different areas, and automatically references the plates to a stolen vehicle list. Already, more than 1500 vehicles have been recovered as a result of the project, representing an actual cash value in excess of $6.3 million. The program has subsequently been expanded to other cities, including Halifax, Longueil, Quebec and Edmonton and Calgary.

OTHER RESOURCES

The partnership in battling organized crime has to be extended beyond the police forces to other government agencies, such as workers compensation boards, health ministries and regulated health professions and the newly created Canada Border Security Agency, the IBC contends. As such, the bureau is currently in discussions with the latter agency to provide dedicated customs officers for inspecting export containers for stolen cars. “In the past, with the help of Canada Customs and Revenue Agency, we have averaged as many as 200 vehicles being recovered or returned from out of country,” says Cameron. “Without their help, that rate drops to about 50.”

Technology and data sharing also represent key elements in the fight against organized insurance crime. The IBC has a claims information database and various Internet search and submission tools that give adjusters and investigators access to relevant connections between claims people, organizations and other investigations. “VisiCais”, which is fraud detection software that helps the IBC’s full-time crime analyst detect organized crime rings, is another example of technology used to combat fraud.

However, sources say it is also up to insurers themselves to tackle organized crime. Dubin says the emphasis today has to be “on deterrence, as opposed to quick claims settlement. Several insurance companies are taking a tough stance on questionable claims and that is to be commended.”

“To truly address organized insurance crime, we really need a mindset change,” concludes Whitman. “In some U.S. states, such as New Jersey, things only started to change when police, the judiciary, and the public realized what was happening and the extent of insurance fraud. They realized this is not a victimless crime.”