News

The Cornerstone Report

Safeguarding America Through Financial Investigations

Volume VI: No. 3 • Summer 2009

Financial Fraud and Cross-Border Crimes

In 2006, the ICE Special Agent in Charge Office in Buffalo, N.Y., initiated an investigation into Integrated Check Technologies Inc. (ICT), a payment processor linked to a previous financial fraud investigation involving telemarketing activities. The investigation revealed ICT had knowledge that the telemarketers for whom they provided payment processing services had been committing fraud and were involved in a complex money laundering scheme exploiting the U.S. financial system through telemarketing.

ICE learned the state of Ohio's Attorney General's Office had an on-going civil investigation of ICT for processing payments for fraudulent telemarketing companies, and other states were pursuing or had pursued action against the company. A review of 57 telemarketing companies that ICT processed payments for revealed that each had a high return rate for unauthorized debit transactions, and the majority of those companies had complaints filed against them for fraud.

The international telemarketing fraud ring included Thomas J. Cimicato from Columbus, Ohio. Cimicato was the president, secretary, treasurer, director and primary shareholder of Check Free Recovery, Inc. d/b/a ICT. This financial fraud scheme involved the use of U.S. bank accounts to launder millions of dollars in fraudulently obtained wire transfers and was designed to extract money from victims' bank accounts on false pretenses or without authorization.

Individuals located in Canada and the United States, opened U.S. bank accounts in order to debit unsuspecting U.S. bank account holders' checking accounts by either Automated Clearing House (ACH) transactions or by depositing fraudulent draft checks through demand drafts. ICT, in business since 1998, began processing payments for telemarketing companies in March 2005. A review of the bank records indicated that the deposits by ICT substantially increased after ICT began processing payments for telemarketing companies.

Between March 2005, and January 2006, ICT deposits totaled more than $54.3 million. The bank where the deposits were made contacted a number of the account holders who were listed on the draft checks and inquired whether the debits on the draft checks were authorized. All the account holders who were contacted informed bank representatives that they did not authorize the withdrawals and the majority of the account holders who were contacted were elderly, living on limited incomes. In addition, some of the account holders were debited more than once, via draft checks, without their authorization by ICT and by other payment processors. Through a variety of fees for services rendered, ICT retained approximately $19.9 million of the $54.3 million total.

Using victims' bank account information, ICT printed (or caused to be printed) demand drafts, drawn from victims' accounts. ICT deposited the demand drafts into their bank account, causing debits to victims' bank accounts, and corresponding credits to ICT's bank account. Based upon a review of multiple telemarketing companies that ICT processed transactions for, ICE learned that more than half of the transactions processed were reversed or returned due to various reasons, including insufficient funds, account closed, stopped payments and unauthorized/fraudulent transactions. ICT willfully ignored countless complaints lodged against ICT and/or its clients by victims of telemarketing fraud.

ICT generated fees from this type of activity by generally charging a business the following recurring fees: a monthly minimum charge per account, a monthly administrative fee, a debit item origination fee, a credit item origination fee, a return fee for all items that did not clear, charge back fees, an item upfront decline fee, a reversal file created fee, a reversal file item origination fee, wire fees, and other fees, including a discount rate based on underwriting criteria and a risk management fee for settlement reserve.

The fraudulent telemarketing schemes, included unsolicited telephone calls, commonly known as "cold calls", made by foreign and domestic telemarketers to vulnerable consumers residing throughout the United States. During the cold calls, victims were induced, through misrepresentations and false promises of goods and services of value, to provide the telemarketer with personal bank account information. The telemarketer then transmitted the personal bank account information, using the United States mail and/or wires, to ICT.

Fraudulent telemarketers and their accomplices often trade in lists of prospective victims, including repeat victims who are likely to become a victim of another fraudulent scheme. These telemarketers also have been known to use these lists in order to debit victims' financial accounts without ever contacting the individual or offering a service or product. This is commonly known as "slamming a list" or "running a database".

ICE was able to obtain seizure warrants for monies in two third party payment companies' bank accounts, resulting in the seizure of eight U.S. bank accounts totaling approximately $3.1 million dollars, more than $2 million of which was from ICT. Only after Cimicato was contacted by law enforcement and consumer protection agencies did he take action against some of the telemarketing companies his company had processed payments for. To date, numerous State Attorney Generals have filed civil actions against various companies previously identified by ICE to impede these businesses from doing business within their respective jurisdictions.

Red Flag Indicators

• The bank of initial deposit for draft checks shows many draft checks deposited followed by wire transfers out of the account to both foreign and domestic bank accounts, with a large number of the transactions returned as unauthorized or fraudulent.
• Accounts set up to receive wire transfers from the payment processor have many wires for large amounts of money that are deposited and subsequently wired out in a relatively short period of time.
• Wire transfer of funds to commercial accounts with no logical relationship or connection to the sender of the funds.
• Third-party service providers have a history of violating Automated Clearing House (ACH) network rules, generating illegal transactions, or processing manipulated or fraudulent transactions on behalf of their customers.
• ACH transactions for larger amounts of money often originate from non-bank customers for which the bank has no or insufficient due diligence.