Why should Americans care about fraud outside the U.S.?

By Tim Harvey, CFE, JP; and Richard Hurley, Ph.D., J.D., CFE, CPA
richard-hurley-80x80.jpg   tim-harvey-80x80   Global Fraud Focus: Examining cross-border issues

Think of the U.S. as one very big sweet shop. Bad guys from all over the world will go to great lengths to steal that candy. They will hatch plots and commit crimes in far-flung foreign countries, but the target will be America. 

Perhaps, many Americans (and a handful of fraud examiners) may think that they should only be concerned about fraud within their borders. However, many fraud schemes are hatched overseas for U.S. consumption. Here we list just a few frauds that originated outside the U.S. but targeted Americans. Use this information when your U.S. friends are feeling a bit insular about fraud.


The global post reported in May that Peru had overtaken Colombia as the top producer of false U.S. dollars with some 17 percent of all fake bucks in circulation. 

These aren’t poor-quality photocopies but high-grade, offset-printed counterfeits. Though many of these counterfeit greenbacks are destined for the U.S., they’re also headed for the black markets of Argentina and Venezuela, which have currency controls and poor economies. These false dollars greatly affect the U.S. and world economies. (See “Peru: Counterfeit currency king,” May 28, global post.)


The New York Times reported that Carlos Garcia was sentenced to 13 months in prison for illegally importing into the U.S. an ozone-depleting coolant gas made in China. In three separate operations, he arranged for the routing of gas through the Dominican Republic by telling smugglers how to fake invoices and get the gas past customs. (See “As Coolant is Phased Out, Smugglers Reap Large Profits,” by Elisabeth Rosenthal and Andrew W. Lehren, Sept. 7, 2012.) 

Reuters reported the U.S. and China joined forces in a month-long operation that resulted in the seizure of 243,000 counterfeit electronic goods, some of which carried fake Apple and Blackberry brands. (See “U.S., China team up to seize counterfeit goods in joint operation,” by Deborah Charles, Reuters, July 31.) 

Theft of intellectual property rights could cost U.S. businesses more than $300 billion a year — equivalent to the annual value of U.S. exports to Asia, according to a report by the Commission on the Theft of American Intellectual Property. “The exact figure is unknowable, but private and governmental studies tend to understate the impacts due to inadequacies in data or scope,” according to the report.  


In February, USA Today reported that the U.S. Justice Department had cracked an international credit card fraud case, which raked in more than $200 million. The ring apparently started small but grew to involve 28 states and eight countries. By 2012, the criminal gang had created more than 7,000 false identities to obtain more than 25,000 credit cards. Millions of dollars were wired to Pakistan, India, the United Arab Emirates, Canada, China and Japan. (See “U.S. cracks international credit card fraud ring,” by Gary Strauss and Christine Dugas, February 5.) 


The U.S. Securities and Exchange Commission’s Cross-Border Working Group reported that it had charged a China-based company and its CEO with fraudulently misleading investors. This is the latest in more than 65 foreign issuers or executives against whom fraud cases have been brought.

This company began falsely reporting significant increases in business operations almost immediately after becoming a publicly traded company, according to the SEC. U.S. investors rely daily on information provided by publicly traded companies. There’s a worrying trend that some foreign companies appear to be providing false information to increase money from stock sales and so mislead American citizens. This case also involved corruption; the CEO attempted to pay off a senior accountant assigned to investigate the case. (See “SEC Charges China-Based Company and CEO in Latest Cross-Border Working Group Case,” June 20, SEC press release.) 


In May, the U.S. arrested the founder of Liberty Reserve, a virtual currency exchange based in Costa Rica, and five employees. They’re facing charges including conspiracy to commit money laundering and operating an unlicensed money transmitting business. (See “Cyber crime: without a trace,” by Kara Scannell, ft.com, May 31.)  Preet Bharara, the U.S. Attorney for Manhattan, alleged the “black market bank” has laundered $6 billion in criminal proceeds in six years. 


Now, The Financial Times reports that U.S. authorities are cracking down on other virtual currencies in a fear that U.S. citizens are using them to evade tax. Some of these currencies can be traded anonymously, which means they may be used to hide money from the Internal Revenue Service. (See “US to crack down on virtual currency tax fraud,” by Kara Scannell, ft.com, June 10.)  

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