July 2007 Fraud Terminology Topics
Adduce, Backstop, OLAF, Round-tripping,
Stonewall, Up to Snuff, and Vishing
 

Similar to baseball, a prime bank fraudster uses a backstop to prevent wild pitches from traveling out of the playing field, and allows the game to continue.
 

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

 

Adduce
To cite pertinent examples, persuasive reasons, or conclusive information. To provide additional evidence or analysis as a means of proof in a case or argument. Adduce is a Middle English adaptation of the Latin verb “adducere” that means to lead to, or to seduce.
       The Russian navy sold a training ship built in 1965 to Greek interests for use as a floating bar and discotheque. After the Greek bar went bankrupt, the vessel was resold to Russian interests in 1998 for use as a casino. The new Russian owners insured the vessel for US$1.8 million, and the value was to be raised to US$2.5 million when the casino opened. The ship sank in 1999 after an explosive device was detonated below the vessel’s waterline. The ship owners sued the marine insurance company for US$1.8 million. In 2004, a justice in the High Court of London found that at least three of the documents adduced by the owners as proof of value weren’t genuine. The real value was between US$100,000 and US$150,000. The insurance company didn’t have to pay the claim because the valuation presented by the ship owners was a material misrepresentation.
Hugo Tiberg, “Fraud and Sinking Ships in Marine Insurance,” Juridicum, Department of Law, Stockholm University, Sweden, 2005,
www.juridicum.su.se/transport/Forskning/artiklar/
HTs%20bidrag%20till%20Bills%20festskrift.pdf, April 28, 2007.

 

Backstop
A cover story used by a fraudster that can be verified by a paper trail or phone call. A backstop is created as a barrier to prevent detection. A backstop might include false business addresses, phone numbers, and references to keep the cover believable when it is checked out. A backstop is a precaution that can be used in case of an emergency when anything in the scam goes wrong.
       Many prime bank fraudsters are career cons who have been convicted previously convicted of fraud. Prime bank scammers seem to operate within an extensive network, using each other to broker or solicit investments in high-yield investment program (HYIP) schemes, to backstop some fraudulent claim, or to help create a “plausible deniability” defense. Fraudsters use the term “prime bank” in their solicitations to deceive investors into believing one of the top 100 international banks is participating in the deal. The U.S. Securities and Exchange Commission actively investigates and prosecutes prime bank fraud as securities fraud.
       Sometimes fraudsters create backstops to commit mortgage fraud to finance the purchase of residential or commercial property.
       Undercover investigators, informants, and corporate espionage specialists might use a backstop while they are gathering information about a case.
       In the sport of baseball, a backstop is a fence or barrier behind home plate. It prevents wild pitches from traveling out of the playing field, and allows the game to continue.
F. W. Rustman, Jr., CIA Inc.: Espionage and the Craft of Business Intelligence, Brassey’s Inc., Washington, D.C., 2002, page 203.

 

 OLAF
The European Anti-Fraud Office is an independent investigation service that fights fraud and cross-border crime. OLAF is an acronym of its French name, Office européen de Lutte Antifraude. Created in 1999, OLAF is funded by European taxpayers and is based in Bruxelles, Belgium.
     OLAF covers activities concerning the detection and monitoring of fraud in the customs field, misappropriation of subsidies, and tax evasion. It fights against corruption and any other illegal activity harmful to the financial interests of the European Community (EC). OLAF isn’t a “secret service” or a police force, but it has been useful in uncovering large-scale smuggling and fraud in areas in which lucrative sources of illicit profit exist, such as cigarettes, alcohol, and olive oil.
     In one case, OLAF investigators cooperated with Italian law enforcement from 2005 to 2007 to detect citrus fruit fraud and arrest 45 suspects. The fraudsters received 50 million euros in financial aid from the European Union to remove fresh lemons, grapefruit, oranges, mandarins, and clementines from the market and process the fruit into concentrated juice. Most of the fraudsters’ fruit was fictitious. One of the suspect juice processors claimed to have sold large quantities of the juice to firms in Spain and France; however, the buyers were nonexistent. The buyers’ addresses listed on the company records turned out to be apartment blocks, a museum, a parking lot, a hardware store, and a retired farmer who never received any juice.
OLAF, http://ec.europa.eu/anti_fraud/index_en.html, April 28, 2007.

 

Round-tripping
A practice that involves a swap of services or products between companies, and the swap has no real economic benefit for either company. Round-tripping also is known as a “Lazy Susan Deal,” a “hollow swap,” or a “wash.” In a round-trip deal, company A invests in company B, but at the same time, company B buys products or services from company A.
       The U.S. Attorney’s Office filed charges against executives of Suprema Specialties, Inc. in New Jersey for generating US$700 million in round-tripping revenue from 1998 to 2002. False paperwork created sales of cheese products to the customer, then from the customer to the vendor, and finally from the vendor back to Suprema.
     Global Crossing Ltd., a telecommunications company, used round-tripping from 1997 to 2001 to sell assets and then buy them back to pump up its revenue by several hundred million dollars. Global Crossing filed for bankruptcy in 2002.
       The U.S. Securities and Exchange Commission (SEC) brought charges in 2002 against former officers of Unify Corp., a computer software company in Sacramento, California. Unify engaged in round-tripping repeatedly by providing funds to customers, so they could purchase products from the company with no reasonable expectation that the customers would ever repay the funds. The transactions produced no economic benefit to shareholders, and were done solely to inflate Unify’s reported revenue and deceive investors. Unify overstated revenue by 61 to 150 percent per quarter. The chief executive officer sold his shares of stock for an $8.2 million profit and failed to promptly disclose the stock sales. In the first two months of 2002, the SEC opened 49 new cases about financial reporting problems.
“SEC Brings Financial Fraud Charges Against Executives at Three Northern California Software Companies,” May 20, 2002, www.sec.gov/news/press/2002-71.htm. Special thanks to James Feldman in San Diego.

 

Stonewall
To hold up the progress of an investigation by supplying distorted testimony, evasive answers, denials, innuendo, or irrelevant information. To persistently refuse to cooperate with an investigation. To refuse to testify. To refuse to handover requested material until every available legal challenge has been exhausted. To create obstructions or employ delaying tactics. Stonewall is a late 19^th century term meaning to put up an immovable barrier.
       Many of the targets of the 1989 skimming and inventory fraud investigation of the Crazy Eddie consumer electronics stores chose to stonewall the investigation by lying to government investigators in depositions and interviews.
     In the early 1970s, U.S. President Richard Nixon stonewalled and refused to cooperate when he realized the plot of the Watergate investigation was being uncovered by journalists for The Washington Post - Bob Woodward and Carl Bernstein.
Jay Robert Nash, Dictionary of Crime: Criminal Justice, Criminology, & Law Enforcement, Paragon House, New York, 1992, page 370.

 

Up to Snuff
A person who is sharp and not easily fooled. A person who is knowledgable, keen and wise. In this phrase, snuff is an English adaptation of the Norwegian adjective “snu,” that means cunning, crafty, or shrewd. Up to snuff implies the person is capable and efficient. A person who is up to snuff is in good condition mentally and physically.
     Today, up to snuff is used to describe anything that is at an acceptable level of quality. The phrase is used often in a negative sense, such as, “The company’s financial records and disclosures aren’t up to snuff and might be a symptom of fraud.”
John Mordock and Myron Korach, “Common Phrases and Where They Come From,” The Lyons Press, Guilford, Connecticut, 2001, page 140.

 

Vishing
A scam that obtains private information by using a Web-based telephone service, VoIP (Voice over Internet Protocol). The fraudster sells the information, holds it for ransom, or uses it to make unauthorized cash withdrawals or purchases.
     Vishing starts with a fraudster sending an urgent e-mail to thousands of prospective victims. The e-mail appears to come from a real financial institution, credit card issuer, or other business. The e-mail provides a phone number for customer service and asks the recipient to call. When the number is dialed, it leads the caller through a series of bogus voice-prompted menus that ask the caller to enter their account number, password, Social Security number, personal identification number (PIN), and other personal information over the phone.
     The fraudster can be located in another country. A majority of phishing scams are linked back to Eastern European countries. Vishing scams might follow the same pattern. Some callers might be reluctant to provide information to someone with a foreign accent, so the fraudster might use an acceptable voice, generated by computer software or recorded voice samplings.
     Some vishing fraudsters contact prospective victims directly by telephone instead of e-mail. To give the “vics” a false sense of security, the phony calls might be initiated by “live” persons who already have a few bits of personal information about the customers.
     VoIP service is inexpensive for the fraudster, especially for global long distance calls. To thwart caller ID services, a fraudster can mask the VoIP number he’s calling from, so it’s hidden or has the proper phone number prefix for a legitimate business. Unlike telephone landlines, anonymous VoIP accounts can be quickly set up and canceled. Fraudsters also can hack into computers and use the VoIP accounts of legitimate users. It is difficult to track the fastmoving fraudster.
     Consumers can protect themselves by ignoring the vishing e-mails and hanging up on unsolicited phone calls. Consumers should only call the security or customer service numbers provided on their real bank statements or credit card statements.
      A phishing scam also starts by sending an e-mail to potential victims, but the phish-mail instructs them to click on a hyperlink, that connects the victims to a fraudulent copy of Web site and asks them to key in personal information.
“Something Vishy: Beware Aware of a New Online Scam,” Federal Bureau of Investigation, Feb 23, 2007, www.fbi.gov/page2/feb07/vishing022307.htm.

 

ã Copyright 2007 Larry C. Adams. All rights reserved.
 

 Magazine Article Archive
Fraud Dictionary
Free update service