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.