July 2005 Topics
Involuntary Churn, Curro, Megawatt Laundering
(Ricochet Purchasing, Death Star Transactions),
Snake-check, Missing Trader VAT Fraud (Carousel Fraud), Untraceable Fleet, Oszustwo, and Spim
 

Death Star schemes increase energy prices.
 

Fraud In Other Words
Professional Jargon and Uncensored Street Slang
by Larry C. Adams, CFE, CPA, CIA, CISA

 

Involuntary Churn
“Involuntary churn” refers to customers who are disconnected by a telecom operator, typically for bad debt or fraud reasons. Involuntary churn was 45 percent of all churn in 2003 for DIRECTV, a broadband satellite network for television, video, and data broadcasts. For wireless phone companies, involuntary churn skyrockets when customers don’t have a mechanism to check their running total of minutes used, and the service provider doesn’t adequately monitor credit-risk customers. Service deactivations for reasons of non-payment of accounts or fraud can be analyzed using modeling and data mining to modify credit policies and credit qualification models. In the telecommunications industry, churn is the term used to describe customer attrition or loss. Typically it's calculated by dividing disconnects by the net subscriber base. “Voluntary churn” refers to customer disconnects at the customer’s choice, such as switching to a competitor, canceling service, or moving outside the service area. “Internal churn” refers to customers who move to a different product or payment method with the same telecom operator, such as moving from a contract for wireless service to a pre-paid plan.
"Jargon Dictionary," Info Insight, www.infoinsight.co.uk/
dictionary.htm, June 17, 2002.

 

Curro
Argentine slang for a rip-off, scam, fraud, deception, dirty business, or illegal arrangement. Un curro has this special meaning in Rioplatense Spanish, the dialect spoken in the most populated areas of Argentina and Uruguay. Currar is the corresponding verb, meaning to engage in graft or corrupción. Engrupir is a Rioplatense verb, meaning to deceive, usually by using nice words, to get someone to buy into a not-so-good idea. Truchada means a fake, forgery, scammer, or pirated software. Truco is a word for trick or deception.  Argentina's national card game, Truco, involves bluffing, facial expression signals, and challenges.
Pablo David Flores, “Argentine Slang: Dictionary,” Rosario, Argentina, www.angelfire.com/ego/pdf/
ng/argentina/arsp_slang_dict.html, Mar. 3, 2005.


 

Megawatt Laundering
(Ricochet Purchasing, Death Star Transactions)
Improper trading strategies used by energy brokers to exploit California’s market design for electricity and rapidly increase the wholesale power prices on the West Coast of the United States. “Ricochet purchasing” is a form of arbitrage. Enron Corp. bought power in the California “day-ahead market” at a price below the maximum price cap for California and sold it to an entity outside of the state for almost five times the price. Then Enron repurchased the power from the out-of-state entity and resold it in California as “imported power” at a higher price, not subject to the cap. Enron scheduled Ricochet purchases simply to collect higher prices from the transfers. Enron used “Death Star transactions” to manipulate the California ISO’s (Independent System Operator) congestion management computer program and collect millions of dollars in congestion relief payments. Enron scheduled northbound “counterflows” on congested transmission paths in California to collect congestion relief payments from the ISO, while simultaneously scheduling southbound return flows on transmission paths outside the control of the ISO. With the same amount of power scheduled to flow north and south back to the point of origin, power didn't actually flow and no congestion was relieved. Death Star transactions were profitable for Enron because the congestion relief payments from the ISO exceeded the scheduled cost of transmission. Consumers got stuck with needlessly higher electricity prices resulting from the megawatt laundering schemes and they filed lawsuits to recover the funds. The Death Star strategy was named after the moon-size battle stations equipped with powerful weapons in the "Star Wars" movies.
"Trading Activities by Portland General Electric, PacifiCorp, and Idaho Power Company during the Western Electricity Crisis of 2000-01,” Oregon Public Utility Commission, www.puc.state.or.us/elecnat/invest/
tradrpt.pdf, June 12, 2003, pages 1 - 48.

 

Snake-check
To anticipate expected results and avoid unintended consequences by closely examining from different points of view all the implications of a plan in advance of its implementation. Fraud prevention plans and fraud cases should be examined from different points of view as well. Alexander Haig, a four-star General and U.S. Secretary of State, explained the origin of the phrase. “When awakening from a night bivouac (in a temporary camp), a soldier must snake-check his boots, which may have provided a warm home for a small snake during the night.” Managers, investigators, and attorneys want to avoid being surprised or attacked, too. Snake-check is a term taught to students majoring in business management and public administration. Scorpion-check is a similar term used by Canadian legislators and military personnel with experience in the Far East countries of Asia.
William Safire, “Necking It Down,” The New York Times Magazine, Nov. 30, 2003.
Photo by Harry Short, flatrock.org.nz/topics/ animals/
snakes_in_art.htm.

 

Missing Trader VAT Fraud
A scheme to sell goods at prices that include a Value Added Tax (VAT), and subsequently not pay the VAT to tax authorities. Every member state of the European Union (EU) has a Value Added Tax. It ranges from 15 to 25 percent of the price of each successive stage of commercial activities involving the production and distribution of goods and the provision of services. Missing trader VAT fraud often involves high value, easily transportable goods such as cell phones and computer components. A fraudster becomes a trader by obtaining a VAT registration to acquire goods for a “VAT free price” from other member states. The fraudster then sells the goods to his customers for a “VAT inclusive price.” The fraudster disappears quickly without remitting the VAT collected from customers to the tax authorities. The trader is missing by the time the tax authorities follow up on the registration with their regular assurance activities. For the United Kingdom (UK), missing trader VAT fraud results in a tax loss up to 2.6 billion British pounds per year. Acquisition fraud is one type of missing trader VAT fraud. Acquisition fraud, for example, is when goods are imported from the EU into the UK by a trader who disappears without completing a VAT return or Intrastat declaration. The fraudster sells the goods to a buyer in the UK and the goods are available on the home market for consumption. Intrastat, introduced in 1993, and Extrastat are two statistical systems that compile data on foreign trade. An Intrastat declaration is a paper or electronic statistical report of goods traded between EU member states. It replaces the discontinued customs document SAD (Single Administrative Document). An Extrastat declaration is a statistical report of goods traded between EU member states and non-member countries. Carousel fraud is the dominant type of missing trader VAT fraud. It's similar to acquisition fraud in the early stages, but the goods aren't sold for consumption on the home market. The goods are moved in a carousel or roundabout pattern as they are sold through a series of companies in the UK and then re-exported to another member state. The intermediary companies help to increase the VAT collected, obscure the path of the goods, and conceal the fraud. Carousel fraud is also called MTIC fraud (Missing Trader Intra-Community fraud).
David Ruffles, Geoff Tily, David Caplan, Sandra Tudor, “VAT Missing Trader Intra-Community Fraud: The Effect on Balance of Payments Statistics and UK National Accounts,” UK Office for National Statistics, www.statistics.gov.uk/articles/economic_trends/ETAug03Ruffles.pdf, 2003, pages 1 – 20.

 

Untraceable Fleet
A fraudulent sales scheme to keep smugglers supplied with vehicles to transport undocumented immigrants and drugs north from the U.S.-Mexico border. First, a smuggler pays cash for a car, van, or enclosed truck at a used-car dealership. Then, the unscrupulous dealer puts a false name on the vehicle title and creates a fake lien. If the vehicle is seized by law enforcement near the border, it's returned to the car dealer because of the lien, instead of being impounded by the state. The car dealer secretly returns the vehicle to the smuggler, who pays a “recovery fee” to the dealer. Gradually purchasing additional vehicles creates an untraceable fleet for the smuggler. The scheme is less expensive and less dangerous for the smuggler than relying on rented or stolen vehicles. Some dealerships increase their revenue 500 percent by creating untraceable fleets for smuggling organizations. A tip about an untraceable fleet scheme led to a two-week crackdown in Arizona and authorities seized 400 vehicles. Car dealers and smugglers were arrested for conspiracy, fraud, money laundering, and participation in a criminal syndicate.
Donald González and Yvonne Wingett, “21 Indicted in Used-car Sting,” Arizona Republic, Oct. 5, 2004, pages A1 and A2.

 

Oszustwo
Oszustwo [o-shoost-vo] is a Polish word for fraud, deceit, hoax, cheat, or dupery. Oszust [o-shoost] means a swindler, cheater, bilker, imposter, or crook. Oszust also refers to a mountebank, a traveling huckster who stands on a platform and sells quack medicines by appealing to his audience with storytelling. Cygan [tsi-gan] is a Polish word for a liar, fibber, gypsy, or swindler. Hochsztapler refers to a fraudster or a tinhorn, a person who pretends to be wealthy, influential, and important, but isn’t. Matactwo [ma-tats-vo] means legal trickery or deception. Nieuczciwy handel [ne-ooch-chee-vi khan-del] is the phrase for unfair commerce or fraudulent trading. Defraudacja is the Polish term for embezzlement or conversion of funds. Kuglarstwo refers to fraud by juggling or sleight-of-hand. Szalbierstwo [shal-byer-stvo] and nabranie are other Polish words for fraud. A fraud examiner who knows two or more languages has an advantage for identifying clues, facts, and solutions.
"Language Teacher English-Polish Dictionary,” www.poltran.com, May 8, 2005.
ACFE Poland chapter, www.acfe.pl/pl/index.php.
Illustration: www.upontheseboards.org.

 

Spim
Spim or spIM is a contraction for spam sent through instant messaging (IM). A spimmer is the individual or organization responsible for sending the spim. Spim is perpetuated by spimbots, automated software programs that harvest IM screen names from the Internet, generate random screen names, and simulate a human user by sending spim to the harvested screen names. Spim usually contains a link to a Web site the spimmer is trying to market. These unsolicited attacks pitch everything from fraud scams to offshore gambling to knock-off prescription drugs. Computer users can’t avoid spim because most IM software has no filtering options yet to reject spim. Spim bogs down computer networks and causes security problems by transmitting viruses, malware, and spyware. In February 2005, a student attending college in Buffalo, New York became the first person arrested for spimming. He allegedly sent more than a million pieces of spim and threatened to share his methods with other hackers if a Los Angeles-based company didn’t sign an exclusive marketing deal with him. The LA company offers chat forums, e-mail, Web logs, matchmaking, and IM services to its members. The U.S. Secret Service was part of the investigation team. The teenager could face 18 years in prison for violating the U.S. CAN-SPAM Act of 2003 (Controlling the Assault of Non-Solicited Pornography and Marketing Act).
www.webopedia.com/TERMS/S/spim.html, Mar. 3, 2005.
Image: www.pcworld.idg.com.au, May 13, 2005.

 

ã Copyright 2005 Larry C. Adams. All rights reserved.
 

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