Tag Archives: USDOJ

Who Runs Things?

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James Petrozzello

The tone at the top of an organization is vitally important. If the people running things are behaving in an unethical manner, how can one expect the rest of the firm to operate any better? If you are working at a company and you get the message that leadership is for those who operate without regard to the rules, then wouldn’t the probability be high that you would either leave or start breaking the rules yourself? Often when a leader of a company is caught breaking the law, stories follow about a culture of bad behavior at that company.

Craig Haber became a partner, based in New York, at Grant Thornton in 1993. In 2004, he opened a business checking account in the name of a company with a name very similar to Grant Thornton. Then, between 2004 and July 2012, Haber deposited $3.97 million in checks made out to Grant Thornton into the fraudulent account that he had opened. That is eight years of funneling almost $4 million in company funds into his personal account. How Haber managed to do this shows how he got the opportunity to take advantage of weaknesses in the Grant Thornton control system in order to perpetrate his fraud.

When Grant Thornton sends out bills to its clients, it attaches a page to the bill with instructions on how to either wire money into their account or send a check to their Chicago office, which is where their head office and billing department are located. Beginning in 2004, Haber would send billing statements to some clients and, instead of the usual payment instruction sheet, Haber instructed the clients to send payments to “Craig B. Haber”, in care of Grant Thornton, at the Grant Thornton New York offices. He also sent these payment instructions to some clients via email. When he received these payments, he deposited the bulk of them into the fraudulent account that he had opened. He got around the discrepancies by telling Grant Thornton that he had collected lower fees than what he actually collected.

It appears that Craig Haber had too much access to the billing system. In a company, seniority is no reason for reduced controls. Seniority should be a greater incentive for implantation of controls. Because it tends to be more difficult for an employee to say no to a higher up in a company, it is important that a system is built that says no on the employee’s behalf. All bills should have come from the billing department and the billing department should have sent clients billing statements detailing a running balance detailing payments received over a period of time. If that had been the case, some clients would have contacted Grant Thornton to find out why some of their payments were not reflected on their statement.

Grant Thornton should also have worked to limit what payments went to the partners, instead of being sent directly to the billing department. It is a challenge, but an occasionally reminding a client to send payments to the Chicago office may have gone a long way in reducing how much was stolen by Haber.

The fraud of almost $4 million translates into many billing hours that Haber was short on. I am not sure how he explained this shortfall but there should be a way to verify this for partners, in the same way that, I am sure, there is a way to verify billable hours for other employees of Grant Thornton.

Craig Haber received the Grant Thornton payments, which he then redirected to his personal account, via the US Postal Service. Therefore, when Grant Thornton discovered the fraud and reported it, the investigation was carried out by the US Postal Inspection Service and headed by Postal Inspector Melissa Atkin. True to the elements of the fraud triangle, Haber claimed that he started defrauding Grant Thornton because of financial pressure and, as you can see, he took full advantage of the opportunity to take money from the company. Haber was charged with and convicted of mail fraud and faces both a fine and prison time.

Being at the top in his firm did not stop Haber from committing fraud and perhaps being at the top of his firm meant that he was able to perpetrate his fraud without detection for longer. The Association of Certified Fraud Examiners (ACFE) has found that fraud by those higher up in an organization tends to be greater in value and to go on for a longer period of time. Being a CPA, who is supposed to practice according to a Code of Professional Conduct and uphold certain ethical standards, makes Haber’s crime even more disappointing. He stands to lose his CPA license, in addition to the jail time and fines. I would not be surprised if Craig Haber’s behavior had ripple effects among those that he supervised and dealt with, including a decrease in morale, cynicism about adherence to the code of conduct for CPAs and perhaps even bad behavior. If the people in charge are not minding the store, who will?

UPDATE

On March 12, 2014, Craig Haber was sentenced to 4 1/2 years in prison for stealing almost $4 million from Grant Thornton. During the time he was stealing that money, he earned nearly $6.9 million. Just goes to show that some people never have enough money. Now he gets to think about whether those millions were worth it. I, personally, would say no.

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It’s In The Mail

ImageIn one of my previous lives, I worked for a company that, among its various business ventures, owned a mailboxes service. I would pop in occasionally to see how this and other nearby businesses were doing and, on one such visit, I found myself in the middle of an adventure. In the morning, shortly after the store opened, a man walked in and flashed his very impressive-looking badge. He explained that a woman was going to come in later in the day to pick up a package and that he needed to be present when this happened. Unsure what was going on, yet thoroughly impressed by the badge, the store’s staff agreed to let the man set himself up behind the counter, in wait for the woman. In no time, the man had settled himself in a chair, opened up a newspaper and blended into the scenery. A short while later, the store’s phone rang and one of the store’s employees answered a call for the woman they were waiting for. She asked if her package had arrived. Upon hearing that it had, she requested that someone bring it out to her car, as she was waiting outside the store. The employee explained that it was the store’s policy that all customers come in to pick up and sign for their own packages. After a short back and forth, he hung up the phone and a few minutes later a small woman in massive sunglasses walked in. The agent paid her no notice and appeared, instead, to be engrossed in a phone conversation with a friend. The woman signed for her package and turned to leave with it. As she did so, the agent whispered urgently into his phone and, suddenly, the mailboxes store turned into a scene straight out of the movies. Men in dark glasses, holding guns, burst in through the door, our agent behind the counter surged forward and, in no time, the woman was under arrest and her box was in their custody. Before he left, the agent explained that this woman was one of a group of people shipping some drug along the lines of PCP. Suffice to say, we were all pretty speechless and the most amazing thing of all? These guys worked for the US Postal Service. Yes, those folks who will let “Neither snow nor rain nor heat…” keep them from delivering your mail will not let crime hang out in their system either.

The United States Postal Inspection Service, founded by Benjamin Franklin, is the primary law enforcement arm of the US Postal Service and one of the oldest federal law enforcement agencies in the United States. Their goal is to protect against those who  “attack our nation’s postal system and misuse it to defraud, endanger, or otherwise threaten the American public.” You would be amazed how many criminals use the postal service as a conduit for perpetuating their crimes (using services such as UPS and FedEx for crimes that cross state lines is also covered by these laws). When Charles Ponzi was arrested for taking people’s money in a giant fraud that came to be known by his last name, the Ponzi Scheme, he was arrested by the US Postal Inspection Service because he had used the mail system to write to his investors, encouraging them to reinvest their funds.  He was charged with and went to jail for mail fraud.

If a person sends you mail in order to ensnare you in some kind of scam, to make an illegal delivery or to otherwise commit a crime, that is mail fraud. Conversely, if someone has scammed you and you end up sending that person money or some other item of value, that too is also considered mail fraud and that person can be prosecuted for it. Since a lot of mail fraud involves financial schemes, the work of financial forensics experts is quite important in the crime fighting work of the US Postal Inspection Service. If, for example, a person were running a pyramid scheme that involves people mailing in funds to invest in the scheme, a forensic accountant would be needed to track and follow the money trail and build a case against the criminal carrying out the scheme. Also, say you received a solicitation to send money to a fake charity and you sent payment in the mail. A forensic CPA’s skills would go a long way in exposing and putting a stop to the bad deeds of the fake charity.

The US Postal Service provides a very important service. It is well known that stealing mail is a federal crime but few realize just how far the US Postal Service and its law enforcement agents go to maintain the integrity of the postal service. Much trust is placed in those blue boxes and this is because of the work of these agents.

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Mmmm… Mmmm… Good!

ImageA few months ago, I voiced my opinion about how it would be great to have a forensic accountant as an option to run the Securities and Exchange Commission (SEC). I can’t deny it, it’s right here, written in Internet stone. The reason I spoke about it was that a new head of the SEC had just been announced and, yet again, it was a lawyer. I believed that having a CPA, credentialed in financial forensics, might shake things up or at least lead the SEC to think of new ways and methods to protect investors. I still believe that a qualified forensic accountant would make an excellent candidate, but it seems that, in the case of Mary Jo White, the new head of the SEC, I may have been haste in my criticisms.

When he nominated Mary Jo White to head the SEC, President Obama said, “You don’t want to mess with Mary Jo”. Apparently it wasn’t just talk. Mary Jo White has said, in an interview, “I think financial statement fraud has always been important to the SEC”, and that she has committed substantial resources to the detection and investigation of fraud in accounting and financial disclosures seems to back that statement. On 2 July, the SEC announced three new Division of Enforcement initiatives; the Financial Reporting and Audit Task Force (FRATF), the Microcap Fraud Task Force (MFTF) and the Center for Risk and Quantitative Analytics (CRQA). These are fancy sounding names, for sure, but what are they and why are they encouraging with respect to the SEC’s goals?

First, the FRATF’s focus is detecting and investigating fraudulent or improper financial reporting and engaging in enforcement actions related to accounting and disclosure fraud. The MFTF’s goal is to target abusive trading and fraudulent behavior in securities issues by microcap companies. Microcap means that the company’s market capitalization, which is the share price multiplied by the number of outstanding shares of that company, is between $50 and $300 million. This task force will pay particular attention to microcap companies that do not regularly issue public financial results, since the lack of regular publicly available reports means that potential investors have limited access to information about the company. This, in turn, increases the risk that the investors may be fed fraudulent information that they cannot sufficiently verify. Finally, the CRQA will, as its title suggests, specialize quantitative data and analytics. This is the high-tech innovation of the SEC. Here the SEC will work to identify risks and potential threats to investors, be a part, along with other agencies, of risk-based investigations and come up with ways to identify possible illegality. The CRQA will employ various data technologies to achieve this goal. Of course, the usefulness of quantitative data analytics is only as good as those who use it. There is a lot of data out there but you need to know how to work with it in order to get the information that you are looking for.

What is encouraging about the announcement of the initiatives is not only that the SEC has declared a focus on the proactive detection and investigation of possible fraud, it is also not just that the SEC is stepping up its use of technology and data analytics in its endeavors, it is in large part about the manpower that they say they are going to employ for these initiatives. The SEC has announced that they will include enforcement attorneys and accountants, which is a great idea. The successful pursuit of financial fraud requires the expertise of people who know the books and people who know the law. In particular, the collaboration of attorneys and forensic accountants can lead to a formidable fraud fighting force. Certified forensic CPAs not only understand financial records, they also know how to look for potential fraud in those financial records and this information must be of a standard suitable for a court of law. Working with attorneys, the forensic accountant can put together information and provide appropriate litigation services in cases that the SEC decides to pursue.

Yes, it is true; I did voice my dissenting opinion about the appointment of another in a long line of attorneys to head the SEC. I have not changed my mind that a well-credentialed forensic CPA would be a wonderful choice for this position. However, I do concede that it is apparent that Mary Jo White understands the importance of both legal and financial expertise when it comes to policing the financial markets. Vital roles are played by all parties in the investigation and prosecution of financial crime and in the protection of investors. So, as these initiatives go into action and work towards achieving their stated goals, I shall eat at least some of my words. As long as fewer parties are getting away with their financial misdeeds, I shall enjoy every mouthful.

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Nothing To See Here, Move Al… Wait!

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JPMorgan Chase has been in the news quite a bit lately. Just last week, two employees were charged in connection with the adventures of the London Whale (though the indicted former coworkers may be seeing him as more of a rat than a whale right now). On Sunday, I opened the paper to read about a bribery investigation that the SEC has launched. As I have discussed before, bribery of foreign public officials by US companies is illegal and it appears that the SEC is looking into whether this has happened with JPMorgan’s China business.

JPMorgan hired the children of officials of state-controlled companies. Hiring someone, even if their parents have very important jobs, is not wrong in and of itself. However, if it is found that these children were hired, not on the strength of their qualifications but, so that JPMorgan could get business with the companies that their parents worked at then JPMorgan may very well find itself in trouble. That JPMorgan hired these children and then received lucrative contracts from the companies where the fathers of these new employees were high-ranking officials raises red flags, so it is no surprise that the SEC is investigating the matter.

You can see here that bribery of government officials comes in various forms and is not always as straightforward as a bunch of cash in an envelope, slipped over to a congressman. Any actions taken to influence officials and gain unfair advantages in business dealings is likely to be considered a bribe. What has happened here as well is that the definition of a government official is not just a political government representative. In the case of nations, such as China, where a lot of large enterprises are state-controlled, officials at these enterprises are seen as government officials. This means that, where JPMorgan may have hired the child of a private enterprise and received lucrative deals without the SEC batting an eyelid, because the entities in question are governmental enterprises, the rules are different.

It is important to note a few things:

  • That the SEC is investigating this matter does not imply that these children were not qualified for the jobs that they held. In fact, this may not matter. If they were hired in order to get cushy deals that JPMorgan may not have received otherwise, then JPMorgan may face FCPA violation charges.
  • Right now the investigation is merely that – an investigation. The SEC has not accused JPMorgan of wrongdoing. What has happened is that they have noticed red flags – the hiring followed by the lucrative deals – and they are looking into this matter to ensure that laws were not broken.
  • That the SEC is investigating this matter is the way it should be. When red flags are raised, one should look into the matter and even if it is found that nothing of concern happened, it was not a wasted effort.  The knowledge that red flags will be investigated serves as a deterrent for some who consider breaking the law.

Some may be rolling their eyes about this story. The offspring of the very privileged – high ranking corporate officials or famous people – probably get hired because of who their parents are all the time. It’s like that person in the grocery story taking their very-full-of-way-more-than-10-items shopping cart into the express checkout lane. It’s not right but it doesn’t appear that it will ever stop. However, the story here is in the nuance –

  • We are dealing with state-controlled enterprises, not private companies here.
  • Because they are state-controlled, officials at these enterprises are considered public officials
  • Therefore, the FCPA makes it illegal for companies to give favors to these de facto public officials in exchange for sweet deals.

In the past, the Justice Department has not been aggressive about investigating these cases but things may be changing. So we shall just watch this case and see how JPMorgan fares and if hiring practices will become a focus of the SEC. Just because everyone is doing it, it doesn’t make it okay and, if it is illegal, you may just turn out to be the unlucky one the law decides to come after. Remember that when you have your cart with 20 items and you think about using the “10 Items or Less” lane.

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Step Away From The Dice

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I just spent a lovely weekend in Atlantic City, celebrating a friend’s birthday. During this time I ran past several casinos, I walked through a casino but, happily, I did not spend any time at all gambling at the casino. I say happily because I am a terrible gambler. The mere thought of gambling fills me with anxiety because I have no idea what I’m doing out there. The only thing I do know is that the odds are stacked against me, more so because I don’t know what I am doing. I never learned how to play poker, beyond yelling “big money, big money” I don’t know the rules of roulette and even when sitting in front of a one-armed bandit, I am pretty sure that I am not quite doing it correctly.  The one thing I do know, when I am in a casino, is who to NOT consult for help. The pit manager. Because the allegiance of pit managers is to the casino so I know that helping me win money is not a priority for them. In fact, in order for the pit managers to keep working, we the gamblers need to lose more than we win.

This brought to mind an article I read about Philip Ramatlhware who walked into a Philadelphia Citibank branch to open a regular bank account where he could deposit the proceeds from a settlement with Greyhound. He had been injured in a bus accident and received $225,000 and wanted to keep his money safe. All he wanted was a savings account but he was referred to a broker who assured Mr. Ramatlhware, a man with limited English skills and without a college education, that his money was going into “guaranteed” funds. Instead, in less than six months, he lost $40,000. This is not an isolated case. Digging into the archives of the Financial Industry Regulatory Authority (FINRA), which is an independent regulator of security firms doing business with the public, you can find several cases where individuals walked into commercial banks, seeking a safe, FDIC insured place to put their savings and ended up losing money through risky investments that they could not understand. That they could not understand the risky investments was not only because these investments were complex ones but also because the brokers they met with misrepresented the risks involved and was not clear about where the money was going. It is, to a certain extent, understandable that these customers were easily misled – they believed they were going to a commercial bank and not an investment bank.

Back in 1933, the Banking Act of 1933 was enacted and it included four provisions that are what is generally meant when people speak of  the Glass-Steagall Act. The provisions served to, in essence, separate commercial banking and investment banking. They kept commercial banks from dealing in securities for their customers. The funds that customers deposited into commercial banks, as I mentioned before, were insured by the FDIC and were not to be used for speculation. They were to be considered safe by the banks’ customers. Conversely, risk-taking investment banks were not to take in deposits. So, you may be wondering how, with Glass-Steagall in effect, Mr. Ramtlhware and walked into a commercial bank and ended up investing with an investment bank broker. This is because Glass-Steagall was repealed in 1999, leaving banks able to deal in both commercial and investment banking at the same time. This means that investments that are complicated and very risky and should be reserved for so-called sophisticated investors are being marketed and sold to people who think they are dealing with the relatively safe offerings of a commercial bank, do not fully comprehend what they are getting into and who generally cannot afford to lose the money they end up investing in risky offerings.

As long as the wall between commercial and investment banks continues to be virtually non-existent, potential customers walking into commercial banks are going to have to start asking more questions at the bank:

  • Is my deposit insured by the FDIC?
  • Are you a broker?
  • If I am just depositing money into a risk-free guaranteed account, why does it come with all of this complicated paperwork?

Should you find that you have been taken for a ride by your bank, know that you have resources you can turn to in order to have your case heard. FINRA offers advice to investors that probably will not turn you into a sophisticated investor but may go a long to helping you recognize some of the strategies an unscrupulous broker may employ. Also you can take your case to FINRA or, in the case of fraud, the Department of Justice. Though you may believe that you are walking into a commercial bank and dealing with a customer service representative who wants to help you, you should be careful in the banks for sometimes you may come across a pit manager who is trying to make as much money as possible for the investment bank casino.

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All Over This One

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In the United States, bribery of a public official is illegal. Public officials, on a state, local or national level, tend to hold a lot of power. It would not be right to allow those among us with deep pockets to use the contents of said pockets to get unfair benefits, such as no-bid contracts, tax breaks and “get out of jail free” passes. In 1977, the Foreign Corrupt Practices Act (FCPA) made it illegal for U.S. persons, companies and their subsidiaries to bribe foreign government officials. The FCPA was further amended in 1998 to apply to foreign people and companies whose payments pass through the United States. The FCPA also applies if a foreign party authorizes a bribe via an email that is stored on a server in the United States. It is a far-reaching law with two main provisions – an anti-bribery provision that is generally enforced by the U.S. Department of Justice (DOJ) and accounting and record-keeping provision that is generally enforced by the Securities and Exchange Commission (SEC).

A huge incentive to not violate the FCPA is the severity of the punishment. The criminal and civil fines for violating the FCPA apply to companies and individuals alike. Companies can be fined up to a maximum of twice the benefits sought by the bribe. For individuals, fines can be up to $5 million and 20 years in jail. Fines and jail time can apply for either the corrupt payment or violation of the books and records provision. In addition to the fines, companies may also receive sanctions such as the loss of export licenses and disqualification from U.S. government contracting. For example, in 2008, Siemens was fined more than $1.3 billion by the DOJ, the SEC and German regulators and, more recently, Walmart is under investigation for bribery of officials in Mexico, China and elsewhere.

To avoid the fines and jail time, individuals and firms must comply with both provisions of the FCPA. The first, bribery, seems straightforward but I shall go over it so we are clear.

  1. Do not make payments to public officials in order to get special favors. An officer at state-owned entity is also considered a public official. It is safest, and ethical, to not pay bribes to anyone. However, be mindful of the fact that bribes of public officials will get you into the most trouble.
  2. If you invite public officials on a trip to show off your business or to a conference, do not throw in extras, such as a trip to Disneyland for their family. Keep it all above-board and about business.
  3. “Gifts” such as watches that costs thousands of dollars or a suitcase of cash are taboo.
  4. Payments related to the political campaigns of foreign governments are also not allowed.

The accounting provisions are where the forensic accountant is very active, working for both the companies and for the DOJ and SEC. Corporations covered by the FCPA are required to make and maintain books and records that accurately and fairly reflect their transactions and to devise and keep a sufficient system of internal controls. This is so that government agencies inspecting the books and records of the corporation will be able to easily see that the corporation is in compliance with the anti-bribery laws. The controls are so that the employees of the corporation do have the opportunity to commit fraud or bribery. When companies and individuals are paying bribes to public officials, it is highly likely that they will try to hide these transactions in their ledgers so they are not immediately identifiable as illegal transactions.

Companies with international operations will often have a department that review the books and internal control systems to ensure that they are complying with FCPA provisions. From time to time, the company may call in a forensic accountant to perform an internal investigation. This may happen either because the company suspects that untoward behavior has occurred or as a periodic review of their books and systems.

The DOJ and SEC will also employ the services of forensic accountants when they investigate companies and individuals that they suspect of violating the FCPA. When cases like this happen, there will be forensic accountants working for both the government agencies and the entity being investigated. In addition to discovering whether or not bribery has occurred, the company and the government agencies seek to determine the extent of the violations and determine the value of the gains realized and, therefore, the fines and other penalties to be levied by the government and avoided by the corporation. These investigations can be very extensive and span several continents, depending on the size and reach of the corporation. Financial forensic experts are instrumental and very involved in these investigations, tracing payments and working diligently to find what the corporation has tried to hide both on and off its books.

Often, an element of a FCPA settlement is the appointment of a multi-year monitor. This happens after the investigation and is an area where forensic accountants can use their expertise to examine the company’s control environment and record-keeping and assess the progress the company has made toward compliance with the law.

In recent years, the DOJ and the SEC have become very aggressive about enforcing the FCPA. In addition to this, other nations have enacted their own anti-bribery laws; the U.K. Bribery Act of 2010 has been in force since July 2011 and criminalizes bribe payments to private individuals as well as government officials. Also, there is more and more international cooperation in the investigation and enforcement of this law. Through it all, the work and expertise of financial forensic experts are extensive and vital. A lot of big firm lawyers think of the FCPA when they think of forensic accountants. It is indeed one of the many places you will find the financial forensic expert.

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So Fresh And So… Not Clean

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Last week, online currency exchange, Liberty Reserve, was shut down, several individuals were arrested and an indictment was filed by the United States Justice Department in New York. filed and indictment accusing six individuals of, among several other things, money laundering. Media outlets all over keep throwing out that term but how exactly does money laundering happen?

In the United States, money that is earned, whether by legal or illegal means, is subject to taxation. Al Capone went to jail, not for the many (as I gather from watching Boardwalk Empire) people he killed and his unlawful business ventures but for tax evasion. When the government sees you spending money and you do not give them a reasonable reason for your having that money, they will work hard to find out just where your money is coming from. However, if they find out that this money comes from illegal sources, they can arrest and prosecute you for your unlawful activities. This is where money laundering comes in. People who make money via illegal methods, find ways to make their money look clean, as though it came from lawful sources. How does this happen?

  1. The first step in money laundering is referred to as placement. At this stage, money is put into the financial system. This can be risky as US banks are required to report large cash deposits, and wires and checks contain the payer’s information and are, therefore, quite traceable. This is where Liberty Reserve was very handy. First of all, the only honest information Liberty Reserve required from an account holder was an email address. Although they requested a name and birth date, none of that information was verified. This gave the account holders anonymity. Also, Liberty Reserve did not accept money directly from users. Instead, users took their money to approved exchangers who then issued LR currency, Liberty Reserve’s currency. These exchangers were located in countries with little or no oversight over their financial systems, such as Malaysia and Vietnam, so questions were not asked about where the money came from. This LR currency was then deposited into the users’ Liberty Reserve accounts with no clear path to where the money originally came from.
  2. The second step in money laundering is layering. During this phase, money is moved around, through many different sources, in an attempt to make the money difficult to trace. Under ordinary circumstances this involves moving funds from one bank account to another, generally in different countries and in varying amounts, buying expensive items and then selling them and changing money from one currency to another. The goal is to make the money’s path as complicated and difficult to trace as possible. Liberty Reserve made this relatively simple. Money going into a Liberty Reserve account holder’s account was already pretty anonymous and difficult to trace. Funds could then be moved, as LR currency, between various anonymous Liberty Reserve accounts. The sources of the funds became near, if not totally, impossible to trace, without having to go through the complications of multiple bank transfers through different countries and bank accounts.
  3. The final step in money laundering is integration. Here, the money re-enters the economy, disguised as coming from a legitimate source. The funds are transferred into a business that is probably a front for the illegal business but now that its origin has been disguised, it appears to be coming from a legal source. In the case of Liberty Reserve, the LR currency was transferred to money exchangers who converted the LR currency back to US dollars and then moved that money to wherever it was the Liberty Reserve account holder requested.

It is pretty clear just how handy Liberty Reserve was to those involved in illegal business and wanting to launder money so that it looked clean. By removing identification and making money transactions anonymous, placement and layering of dirty money a far less complicated endeavor than it tends to be. It is not surprising that Liberty Reserve had over a million users, 200,000 of which were in the United States, and that over $6 billion went through its system.

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Look Out Now!

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A friend of mine, who works at a law firm, called to tell me about several clients who had come into the law offices in a panic. While searching for information online, they had clicked on a link. Instead of bringing up the search result they expected, pornography popped up on their computer screens. Moments later, before they had time to react to the unexpected images on their computers, their computers froze and the image above appeared. According to the notice, the Department of Justice had suspended their computers “on the grounds of the violation of the law of the United States of America”. To unlock their computers and “avoid other legal consequences”, the screen read, each one of these people was to pay a “release fee” of $300. Apart from the terrible grammar in the notice, there are several red flags to look out for, in order to protect yourself from scams like this:

  • If the Department of Justice suspects you of breaking the law, either by viewing child pornography, using illicit software or anything else, for that matter, they will not send you an online notice. They will show up at your door.
  • If the Department of Justice believes that you are breaking the law, they will not ask for a payoff so they don’t investigate the alleged crime. That type of behavior is commonly recognized as bribery and that in itself is not legal.
  • Just because a website posts pictures of a camera and microphone, informing you that both are on and recording you, it does not automatically mean that you are being recorded. It is important to realize that if you do not have a camera or microphone on your machine, there is no way for anyone to record you. Generally, too, especially with the video recorders on machines, there are lights and other indicators to show that they are on and recording.
  • There is no such thing as the Department for the Fight Against Cyberactivity. The first signal that this is not a real department is that Cyberactivity is not a real word. It is also a department that has never been mentioned by any government official. If you receive a notice and it refers to a government department that you are not familiar with, a search of the usa.gov directory of U.S. government departments and agencies will help you determine if the department is real or made up.
  • If any department or agency of the United States government requires you to pay a fine, it will never ever tell you to pay it via MoneyPak at your local Walmart, pharmacy or 7-Eleven. Never. Payments to government departments and agencies are made directly to the department or agency in question. For example, when you pay your taxes, you pay them to the Internal Revenue Service and when you pay for your driver’s license, you pay that money to the Department of Motor Vehicles. Never follow instructions to pay via MoneyPak, a wire to a provided account number or anything other than a valid government website. If you are unsure whether a notice is real, do not click on the link provided. Instead, open your own website and type in the department’s web address yourself. In this way, you avoid clicking on a link that may take you to a fake website.

If you are a victim of a crime like this, you should report it to the FBI or to the Internet Crime Complaint Center (IC3). In this way, the government is made aware of the scam and can go about warning people and trying to track down the perpetrators. Also, it is important to keep your computer operating systems and software up to date. This helps prevent attacks on your machine. Finally, should your machine be attacked, even with updated systems and software, contact a reputable computer repair expert as your machine may be infected with a virus that will seek personal information on your machine. This personal information may then be used to commit credit card or other financial fraud.

It may seem like a lot but taking these small steps and remaining aware and alert can go a long way to keeping you from being attacked and keeping your money in your pocket should some nefarious party try to take it.

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