Insurance fraud is a growing global phenomenon.
In the United States alone, it is estimated that insurance fraud is an $80 billion dollar industry, second only to narcotics trafficking. Not surprisingly the two are often connected.
According to the Coalition Against Insurance Fraud, there has been an increase in organized transnational crime rings using insurance fraud as a vehicle to fund illegal activities. Compounding matters, it appears that terrorists are also capitalizing on these crimes to make a quick profit.
According to the coalition, growing symbiotic connections among cartels trafficking drugs, terrorists, cyber thieves, mob syndicates and organized insurance fraud are using one another’s skill sets to profit in the belly of the underworld.
These syndicates often base their operations in Third World nations with broken laws and corrupt officials where they can have unfettered access to a lawless environment. Insurance fraud, even in developed countries, provides a relatively easy, low-risk and highly profitable means by which international drug cartels and terrorist organizations can make money to fund other enterprises.
An article in Fraud Magazine stated, “There is a significant link between insurance fraud and terrorist activities. The threat of terrorism has become the principal security concern in the United States since 9/11. Some might perceive that fraud isn’t linked to terrorism because white-collar crime issues are more the province of organized crime, but that perception is misguided. Terrorists derive funding from a variety of criminal activities ranging in scale and sophistication — from low-level crime to organized narcotics smuggling and fraud.”
The thriller, Swoop & Squat, provides a firsthand look at the impact of fraud on society because it is based upon real life claims experiences. In a recent investigative article, the Florida Times-Union used the book as a backdrop to expose the very real problem of insurance fraud in the Sunshine State. The reality is that fraud is not a fictional topic and comes in all shapes and sizes, from credit card and wire fraud to identity theft and insurance scams.
During a recent meeting, a global claims leader asked just how these frauds are perpetrated. While there are a number of ways, here is the basic process for pulling off a scam and laundering funds in a post-9/11 world.
The cost of terrorism
The first thing to recognize is that criminal enterprises have expenses. The National Commission on Terrorist Attacks Upon the United States has estimated that the 2005 London bombings cost about $15,600. The 2000 bombing of the USS Cole is estimated to have cost between $5,000 and $10,000. Al-Qaida’s entire 9/11 operation cost between $400,000 and $500,000.
Both drug cartels and terrorist organizations require significant funds to create and maintain an infrastructure of organizational support. To give the appearance of legitimate activities, these criminal syndicates will often set up shell companies in order to launder proceeds.
The key to gaining the upper hand is to recognize how these frauds are perpetrated. A simple example of a fraud may be a vehicle owner giving up a vehicle and then claiming it was stolen. In this scenario, the person receiving the vehicle may either chop it up for parts or send it overseas with an altered vehicle identification number. These types of claims are hard to prove and insurers often end up paying the policyholder the value of the vehicle. On the other end of the deal, the buyer could range from an unsuspecting customer purchasing a car for less than retail to someone who has more sinister intentions.
In more complicated schemes, there may be rings of associates who perpetrate staged accidents. In these scenarios, there is often a capper involved. The capper is the person who orchestrates the accidents, provides the cast of low-paid participants to play accident victims with scripts, and then brokers the claims to unscrupulous lawyers and medical providers.
Related: The staged insurance loss
In a simple scenario, two cars are brought together in a vacant parking lot or alley. They may be run into one another, or they may have previous damage. There will be one person who will play the role of the insured. This individual will have a policy, which is usually new and often an assigned risk. The other car will then have three or four occupants who will all claim injury. Each person is given a script of what to say to the insurance company.
The occupants who feign injury are paid a paltry sum for their cooperation. The capper gets a larger sum, and the unscrupulous attorney can retain what is left over. Some or all of these funds may find their way into bank accounts that funnel money to more sinister operations involving narcotics, terrorism or both.