Dennis Jones is a Jamaican-born international economist, who has lived most of the time in the UK and USA, and latterly in Guinea, west Africa. He moved back to the Caribbean in 2007. This blog contains his observations on life on this small eastern Caribbean island, as well as views on life and issues on a broader landscape, especially the Caribbean and Africa.







**You may contact me by e-mail at livinginbarbados[at]gmail[dot]com**

Thursday, April 17, 2008

Fraud everywhere? What do we do?

A friend and I have been having discussions about frauds in the region--particularly surrounding Jamaica's so-called "unregulated investment schemes". In that regard a case is pending against possible fraud by Cash Plus and its found, Carlos Hill, who before his foray into this venture in Jamaica in 2002 had previously done a bit of jail time (10 years) for another series of frauds in the US. However, my eyes had hit upon a series of major "corporate" frauds--meaning by organized groups or companies--as I scour the newspapers in recent months. Here are a few cases from the UK and USA.

Britain's Office of Fair Trading names 112 building firms in bid-rigging scandal, [April 2008] alleging that they participated in cartel-type activity in bidding for thousands of public sector construction contracts, worth £3 billion, including tenders for schools, universities and hospitals (see report in The Times).

Severn Trent (a water company) admits fraud and fined £35.8m, [April 2008] after Britain's Serious Fraud Office brought charges alleging that the company manipulated water leakage data in its annual reports to the regulator in 2001 and 2002 (see report in the The Times). This was a first for a regulated utility company. The same report notes that in February 2008, the Water Services Regulation Authority (Ofwat) confirmed that it had fined Southern Water a total of £20.3 million for backdating letters to customers and deliberately misleading regulators.

Mortgage fraud is funding terrorism, say police [March 2008] (see
report in The Times): An intelligence report by the Association of Chief Police Officers said that terrorists and criminals are conning British banks out of £700 million a year to help to finance their illegal activities, alleging that organised crime groups used mortgage fraud to generate income and launder money from the proceeds of their operations, such as drugs, human trafficking and prostitution.Fraudsters can con lenders out of money by using corrupt surveyors to issue false valuations. This allows them to apply for a loan that is larger than the value of the property. On a larger scale, solicitors can assist criminals to secure mortgages illegally. The buy-to-let market is particularly vulnerable to mortgage fraud, whether through new-build apartment complexes or large-scale renovation projects. [I highlight some respected professional practioners who apparently support these frauds.]

Largest health care fraud in US, (see US Department of Justice report): HCA Inc. (formerly known as Columbia/HCA and HCA - The Healthcare Company) agreed to pay the United States US$ 631 million in civil penalties and damages arising from false claims the government alleged it submitted to Medicare and other federal health programs.

My reading of local papers in Barbados and Jamaica has located very few cases of what could be referred to as corporate fraud. I have seen more cases with allegations against individuals. Barbados' PM recently stated that price gouging exists in Barbados and I wait to see if this statement unfolds into any form of legal action against companies. Some have commented on the recent fine imposed of PriceSmart (a shopping club), for selling chicken wings at a huge margin above the regulated price, and being fined B$3,000 for that. As someone mentioned yesterday on the radio, that seemed like a slap in the face for the consumer. We often read of allegations against high ranking politicians, misappropriating state funds. For example:

Antiguans learned ([2002] that for years government officials treated the state insurance fund, the Medical Benefits Scheme like a personal checking account. Instead of paying for medical services, evidence shows that money deducted from workers' salaries went for lavish parties, foreign travel for government cronies, kickbacks to the program's accountant, cosmetic surgery overseas for officials and even toys for the children of fund administrators. Add to this that in the midst of the public outcry, the government issued an astonishing statement revealing that since 1978 it had failed to contribute the equivalent of 120 million Eastern Caribbean dollars, or US$ 48 million to the insurance fund to cover government workers' salaries. (see report). During the case there were also allegations of rigged bidding for supplying government, and of government ministers awarding contracts to their associates.

We can often find cases of Caribbean individuals (in or of the islands) being involved in frauds, such as the current case against Barbadian, Seibert Phillips, executive director of the Evelyn Douglin Centre, Brooklyn NY, which works with children and adults suffering from mental disabilities, who is suspected of giving a friend a US$ 250 000 "no-show" job; and allowing a close relative to run up almost US$20,000 in petrol charges on the centre's credit card; making illegal political campaign contributions to a member of the New York State Assembly; and using the agency's funds on an array of high-priced items, ranging from luxury automobiles and flat screen television sets to travel for himself and staffers (see report in The Nation).

Advance fee (or "419" or "Nigerian") scams also seem to be prevalent in the region. [The 419 refers to the relevant section in the Nigerian Penal Code that deals with fraud, and many of them originated in that countryin the early 1980s as the oil-based economy declined. Several unemployed university students first used this scam as a means of manipulating business visitors interested in shady deals in the Nigerian oil sector before targeting businessmen in the west, and later the wider population.] The fraud usually involves a scammer (often claiming to be a high ranking official) offering his victim a large amount of money. In order to access the money, the victim must pay a fee in advance. And then another fee because something has gone wrong. And then another one … until he/she realizes it is a scam. Most of us are aware of these scams through spam or unwanted e-mail solicitations (Ironically, my work e-mail address cannot filter these out and I get on average about 20 such solicitiations a day. I've won the UK National Lottery about 5 times today already. My private e-mail addresses recognize and trash such messages. I hope my employer is not in cahoots.) Despite publicity and warnings about advance fee scams, estimates are that US$ 100 million is scammed every year from Americans alone. (For more details of what this scam can look like and the terms used see the Crimes of Persuasion site. There is a daunting list of possibilities.)

Caribbean countries do not have large diverse economies that would allow a wide range of shady tricks to dupe people. Our sense of familiarity with each other does open the door to certain kinds of confidence tricks, as may be happening with pyramid schemes in Jamaica. We also lack some of the widespread private sector systems that would allow for the kind of scams operated by corporations as reported in the UK and US. We have large public sectors (major employers and contractors) and often see monopoly suppliers or only a few suppliers in the private sector. This facilitates certain corrupt practices between the public and private sectors through rigged bidding, and preferences in awarding contracts and procurement, or other forms of misappropriation of public funds. Our regulatory bodies tend to be weak and underresourced. We also have a legal system that has not adapted well to changing economic and social realities. Politicians tend to be held in awe and are often not challenged as much as they should be to account properly for what they and the administrations they run do.

Scope for ripping off and being ripped off exists everywhere. We take certain kinds of "abuse" without much real protest in most of the region--not just corruption and fraud. Most of the people in most of the region's countries show little tendency to react--Haiti is an exception, where people rioted last weekend over food price increases; it is a very poor country with a long history of violent civil strife. In Barbados, the protests about rises in flour and petrol prices has been largely verbal; it's a wealthier country known for its conservatism. In Jamaica (where murder rates are amongst the world's highest), individuals are more likely to attack each other for transgressions but leave corprorations and government alone, so no surprise that investors with Cash Plus calmly stand around wondering if they will ever see their money again. Certainly, people have shown little tendency to act in the region. But we are not so different from people elsewhere when it comes to responding to acts that cause us personal loss. In the US, those who suffered from the sub-prime mortgage crisis are mainly hoping for some kind of government help so that they can hold on to their homes. Those who sold the loans fraudulently are mainly gone into the wind. Some who helped finance the deals are faltering and the eventual costs are mounting.

So, we seem to be in about the same state as people in bigger countries and economies. We get taken for a ride and we tend to accept it.

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