The Cartel Connection: Linking Insurance Fraud, Drug Cartels and Terrorism

Insurance fraud is a $400 billion dollar industry in the United States—second only to narcotics trafficking. Without a doubt, the two are often linked. According to the November issue of Claims Magazine, the Coalition Against Insurance Fraud reports a dramatic increase in organized transnational crime rings involving drug cartels, terrorists, cyber thieves, and mob syndicates using insurance fraud as a way to fund their illegal activities.

Most syndicates often base their operations in third-world nations rife with broken laws and corrupt officials. But even in developed countries insurance fraud provides a relatively easy, low risk, and highly profitable means by which international drug cartels and terrorist organizations can make money to fund other unscrupulous enterprises.

Let’s look at the basic process in which scams and laundering funds are pulled off in a post 9/11 world:

Criminal enterprises require significant funds to create and maintain their infrastructure. One example of fraud involves rings of associates who perpetrate staged vehicle accidents. The occupants who feign injury are paid a small sum for their cooperation, while the capper—the person who orchestrates the whole scenario—gets a larger sum and the unscrupulous attorney can retain what is left over. Some or all of these funds may be used to pull off more sinister operations involving narcotics, terrorism or both.

There is a growing body of evidence that terrorism can also be included in the connection between drugs and insurance fraud. Terrorist activities require funding, not only for weaponry, but also for training, travel, and living expenses. For that reason there have been many steps taken at the federal level to combat fraud through the enactment and modification of laws and rules, such as the USA PATRIOT ACT and the Border Security and Visa Entry Reform Act, which deal with crimes such as money laundering, identity theft, credit card fraud, immigration fraud, illegal use of intellectual property, and tax evasion.

Soft fraud—involving legitimate claims that are exaggerated, such as personal injury claims—cost insurers an estimated $4.8 billion to 6.8 billion annually. This often includes inflated medical bills, charges for services not rendered, and deceptive billing practices—claims that can be very difficult to identify and even harder to prosecute. The expenses incurred by organized insurance fraud rings trickle into the public domain, as premiums go up, embedded taxes on goods and services are added due to rising costs associated with merchant fraud, and consumers are forced to pay hidden litigation taxes for the cost of frivolous litigation.

As insurance fraud continues to rise, it is vital that there be a collective effort between the insurance industry, consumer groups, elected officials, and federal, state, and local law enforcement to bring about meaningful and effective change to stem this global problem. Contact Kompani Risk & Insurance Solutions, Inc. for all of your insurance needs.

Are You Prepared For Employee Theft?

Employee TheftNo matter what kind of business you run, employee theft will always be a risk. According to the article “They’re Robbing You Blind” from September’s issue of Claims Magazine, a typical business can expect five percent of its revenue to be lost through the fraud and embezzlement of their own employees. That’s a staggering amount that can affect the bottom line of any organization, and could easily cause a small business to fold.

Many employers are shocked to find that their employees might be causing such a loss within their company, and are unaware of the many ways it can manifest. Sophisticated schemes of merchandise theft and illicit reselling exist alongside small, long-term thefts from payroll or check fraud schemes. In some cases, employee theft can go on for years and never be caught because of the blind trust placed in a single individual within a company. Businesses have lost hundreds of thousands, or even millions of dollars this way, often only realizing the damages long after the responsible party has disappeared.

The impact of employee theft is huge – globally, it’s calculated at approximately 3.7 trillion per year. An average loss is almost $850,000. You might think those numbers would be skewed by large-scale fraud in the financial industry, but even the median damage of employee theft is $280,000. Few businesses can easily afford such a loss.

There are several ways to guard against employee theft, and options to insure yourself against damages from embezzlement and fraud. Our CEO R. Glenn Matsen would be happy to discuss your business and your options directly on his personal extension at 916-306-5902. Kompani Risk & Insurance Solutions, Inc. offers insurance and consultation in 27 states, and the core of our business is making sure that you feel safe with yours.

Insurance Fraud Knows No Boundaries

Agencies of all kinds have been cracking down on insurance fraud, and it’s time for this trend to continue to expand through national and international channels to fight fraud at all levels. Insurance fraud doesn’t just siphon money away from faceless corporations: the pinch will be felt even by everyday consumers as their premiums rise to compensate. September’s issue of Claims Magazine elaborates on some of the extensive fraud rings that have been busted recently in “From Pasha to Prisoner: The Story of Mikhail Zemlyansky”.

Insurance fraud often grows to encompass multiple different areas of theft and false claims. In Zemlyansky’s case, his New York crime ring included doctors, lawyers, auto repair shops, and more, all pushing false claims related to staged crashes, workers’ compensation bills, private healthcare, and Medicare-Medicaid benefits. As the largest no-fault auto scheme ever charged, it represents a growing trend in insurance fraud: a shift from small, mainly ethnic fraud rings to larger, more organized multinational outfits capable of stealing outrageous sums of insurance money.

Naturally, auto insurance, private health, workers’ comp, and Medicare have shared interest in disrupting these schemes. One new alliance, the Healthcare Fraud Prevention Partnership (HFPP), is helping to fight fraud rings by encouraging its members to collaborate and share intelligence and successful strategies. By working together, members including the Department of Justice and various anti-fraud organizations can help catch crime rings earlier in their operations, cutting off their access to more fraudulent funds. Federal courts are also taking fraud cases very seriously, handing out stiff penalties and jail terms to convicted fraudsters. By working together, law enforcement, private insurers, and other agencies can take an effective stand against would-be fraud rings, protecting themselves as well as, ultimately, the everyday people who are their clients.

Kompani Risk & Insurance Solutions, Inc. takes fraud very seriously. Our CEO, R. Glenn Matsen, is a seasoned insurance broker who keeps a sharp eye out for any fraudulent activity and is committed to fighting fraud right at the source to protect his reputable clients. He works with clients directly and can be reached at 415.692.3464, ext 103. Give us a call or fill out our online contact form today to make sure your insurance services are being handled by a trustworthy broker.