ROME: The head of the Vatican bank is under investigation for suspected money laundering and police have frozen 23 million euros ($30.21 million) of its funds, Italian judicial sources said on Tuesday. Neither Ettore Gotti Tedeschi, who has been at the helm of the bank for a year, nor the Vatican spokesman would comment immediately on the case, which involves alleged violations of European Union money laundering regulations.
The sources said Gotti Tedeschi and another executive of the Institute for Religious Works (IOR), as the bank is officially known, had been put under investigation by Rome magistrates Nello Rossi and Stefano Fava. The sources said Italy's financial police had preventively frozen 23 million euros of the IOR's funds in an account in an Italian bank in Rome.
Two recent transfers from an IOR account in the Italian bank were deemed suspicious by financial police and blocked. One was a transfer of 20 million euros to a German branch of a U.S. bank and another of 3 million euros to an Italian bank. Gotti Tedeschi, a devout Catholic who has taught financial ethics at the Catholic University of Milan, is a close adviser to Treasury Minister Giulio Tremonti. He is currently also head of an Italian unit of the Spanish Banco Santander, according to its website, and serves on the board of several major Italian banks.
The IOR principally manages funds for the Vatican and religious institutions around the world, such as charity organisations and religious ordes of priests and nuns. It was involved in a worldwide scandal in 1982 when it was embroiled in the fraudulent bankruptcy of Banco Ambrosiano, then Italy's largest private bank. The IOR held a small stake in Ambrosiano, whose president Roberto Calvi was found hanged under London's Blackfriars Bridge the same year. Several investigations failed to determine whether Calvi, known as God's Banker, had been killed or committed suicide. At the time the IOR was headed by American Archbishop Paul Marcinkus, who died in Arizona in 2006. The Vatican denied any responsibility for the collapse of Banco Ambrosiano but made what it called a "goodwill payment" of $250 million to Ambrosiano creditors.
Source: The Times of India, Sept 21,2010
Wednesday, September 22, 2010
Tuesday, September 14, 2010
Violence against whistleblowers in India prompts calls for laws to protect them
IN NAYAKANPETTAI, INDIA When police found Vaidyalingam Balasubramanyam's body dumped beside a road in this southern Indian village recently, his family said that telling the truth had cost him his life. The hand-loom weaver turned whistleblower had been fighting corruption in the local weavers' cooperative for the past three years.
"We suspect some people kidnapped him, forced open his mouth to pour in poison or pesticide and threw him out of a moving vehicle," said his son Shanmugan Vel, 25 , as he sat on the floor next to his father's framed, garlanded photograph at his home in the sari-weaving district of Kancheepuram, in Tamil Nadu state. "My father spent all his time investigating the office files for corrupt practices. He sent dozens of complaints to the top officials and leaders."
His father had been warned of the risks he was running, Vel said, but had responded that the documents "contained the explosive truth that will clean up the system."
Eleven people have been killed or found dead in mysterious circumstances in India this year after exposing corruption in schools and public utilities, illegal mining and unauthorized water and electricity hookups, according to activist groups.
Hundreds of others have been attacked, threatened or harassed for similar crusades. In July, about 500 whistleblowers marched in New Delhi to protest the deaths and demand effective anti-corruption and whistleblower-protection legislation in a country where graft is more the norm than the exception.
The demand for such a law began six years ago after a national outcry over the killing of a 30-year-old engineer who had exposed a corruption scandal in highway construction.
Last month, the Indian government finally introduced landmark draft legislation - titled the Public Interest Disclosure and Protection to Persons Making the Disclosures Bill - that proposes a system for dealing with corruption allegations and a three-year jail term for officials who disclose whistleblowers' identities.
"It has been felt that the persons who report the corruption or willful misuse of power or willful misuse of discretion, which causes demonstrable loss to the government . . . need statutory protection," said Prithviraj Chavan, minister of state for personnel, public grievances and pensions, while introducing the bill.
Despite recent rapid economic growth, the expansion of the middle class and the spread of education and mass media, India was ranked 84th out of 180 countries last year in the annual corruption perception survey conducted by the global watchdog Transparency International. Of the various Indian departments analyzed, the police force emerged as the biggest offenders.
Since 2005, anti-corruption crusaders have used a law mandating the right to information to access official files and expose malfeasance. Balasubramanyam had collected hundreds of official documents indicating that a single family held a monopoly over the cooperative management, according to Vel, who showed a reporter photocopies of the documents. The files also showed evidence of embezzlement.
"Due to heavy rainfall last year, the government sent compensation money to hand-loom weavers. But I did not get any of it, even though the records in the cooperative showed that all the weavers had been paid," said Sukha Lingam, 40, a weaver in Nayakanpettai. "The managers ate up all the money meant for the poor."
Balasubramanyan always carried with him a yellow cloth bag containing files he had accessed. The bag is now missing. The police registered a case of "suspicious death" after his killing and sent his body for examination.
Analysts say public intolerance of corruption has grown in recent years, spurring the push for stronger laws to combat it - but also inviting violent reprisals.
"For many decades, Indians kept saying, 'What can we do?' But now corruption has reached a level that it is difficult to look the other way," said Sumaira Abdulaali, a member of the Movement Against Intimidation, Threat and Revenge against Activists, an independent coalition. "When illegal activities take place on such a major scale, then we can be certain that the entire system of politicians, officials, police and criminals are mixed up in it."
Many activists say, however, that the new whistleblower bill is still inadequate. It covers only the government bureaucracy and not the military or the corporate sector. It is silent on those exposing corrupt politicians. The bill empowers a body called the Central Vigilance Commission to investigate cases, but the government is not bound to follow its recommendations. It also says anonymous complaints will not be accepted.
"It is just a showpiece legislation," said Arvind Kejriwal, head of Parivartan, a New Delhi-based group that campaigns for transparency. "The entire emphasis of the bill is in keeping the name of the whistleblower a secret. That is the last concern of the people who blow the whistle. What they want is swift, guaranteed investigation and action on their complaint so that they are not vulnerable to physical threats and professional harassment."
The ministry has invited activists to comment on the draft legislation by the end of September.
Last month, the Delhi High Court ordered the government to pay compensation to Mahendra Kumar Tyagi, 65, who was harassed at work for complaining against his bosses' corrupt activities in the state-owned oil company. For 10 years, Tyagi said, nobody spoke to him at the office and he received no promotion.
"I was made an outcast and a prisoner in my office cubicle. It was like slow poisoning," Tyagi recalled.
Last month's court order hailed him as "courageous."
"I have been vindicated," he said. "But at what cost? I ruined my life, my health and my peace of mind. Today I tell my son, 'Don't be honest. You will get nothing but trouble. In India, the honest are punished, the corrupt are rewarded.' "
Source: The Washington Post, By Rama Lakshmi, Dt. September 11, 2010
"We suspect some people kidnapped him, forced open his mouth to pour in poison or pesticide and threw him out of a moving vehicle," said his son Shanmugan Vel, 25 , as he sat on the floor next to his father's framed, garlanded photograph at his home in the sari-weaving district of Kancheepuram, in Tamil Nadu state. "My father spent all his time investigating the office files for corrupt practices. He sent dozens of complaints to the top officials and leaders."
His father had been warned of the risks he was running, Vel said, but had responded that the documents "contained the explosive truth that will clean up the system."
Eleven people have been killed or found dead in mysterious circumstances in India this year after exposing corruption in schools and public utilities, illegal mining and unauthorized water and electricity hookups, according to activist groups.
Hundreds of others have been attacked, threatened or harassed for similar crusades. In July, about 500 whistleblowers marched in New Delhi to protest the deaths and demand effective anti-corruption and whistleblower-protection legislation in a country where graft is more the norm than the exception.
The demand for such a law began six years ago after a national outcry over the killing of a 30-year-old engineer who had exposed a corruption scandal in highway construction.
Last month, the Indian government finally introduced landmark draft legislation - titled the Public Interest Disclosure and Protection to Persons Making the Disclosures Bill - that proposes a system for dealing with corruption allegations and a three-year jail term for officials who disclose whistleblowers' identities.
"It has been felt that the persons who report the corruption or willful misuse of power or willful misuse of discretion, which causes demonstrable loss to the government . . . need statutory protection," said Prithviraj Chavan, minister of state for personnel, public grievances and pensions, while introducing the bill.
Despite recent rapid economic growth, the expansion of the middle class and the spread of education and mass media, India was ranked 84th out of 180 countries last year in the annual corruption perception survey conducted by the global watchdog Transparency International. Of the various Indian departments analyzed, the police force emerged as the biggest offenders.
Since 2005, anti-corruption crusaders have used a law mandating the right to information to access official files and expose malfeasance. Balasubramanyam had collected hundreds of official documents indicating that a single family held a monopoly over the cooperative management, according to Vel, who showed a reporter photocopies of the documents. The files also showed evidence of embezzlement.
"Due to heavy rainfall last year, the government sent compensation money to hand-loom weavers. But I did not get any of it, even though the records in the cooperative showed that all the weavers had been paid," said Sukha Lingam, 40, a weaver in Nayakanpettai. "The managers ate up all the money meant for the poor."
Balasubramanyan always carried with him a yellow cloth bag containing files he had accessed. The bag is now missing. The police registered a case of "suspicious death" after his killing and sent his body for examination.
Analysts say public intolerance of corruption has grown in recent years, spurring the push for stronger laws to combat it - but also inviting violent reprisals.
"For many decades, Indians kept saying, 'What can we do?' But now corruption has reached a level that it is difficult to look the other way," said Sumaira Abdulaali, a member of the Movement Against Intimidation, Threat and Revenge against Activists, an independent coalition. "When illegal activities take place on such a major scale, then we can be certain that the entire system of politicians, officials, police and criminals are mixed up in it."
Many activists say, however, that the new whistleblower bill is still inadequate. It covers only the government bureaucracy and not the military or the corporate sector. It is silent on those exposing corrupt politicians. The bill empowers a body called the Central Vigilance Commission to investigate cases, but the government is not bound to follow its recommendations. It also says anonymous complaints will not be accepted.
"It is just a showpiece legislation," said Arvind Kejriwal, head of Parivartan, a New Delhi-based group that campaigns for transparency. "The entire emphasis of the bill is in keeping the name of the whistleblower a secret. That is the last concern of the people who blow the whistle. What they want is swift, guaranteed investigation and action on their complaint so that they are not vulnerable to physical threats and professional harassment."
The ministry has invited activists to comment on the draft legislation by the end of September.
Last month, the Delhi High Court ordered the government to pay compensation to Mahendra Kumar Tyagi, 65, who was harassed at work for complaining against his bosses' corrupt activities in the state-owned oil company. For 10 years, Tyagi said, nobody spoke to him at the office and he received no promotion.
"I was made an outcast and a prisoner in my office cubicle. It was like slow poisoning," Tyagi recalled.
Last month's court order hailed him as "courageous."
"I have been vindicated," he said. "But at what cost? I ruined my life, my health and my peace of mind. Today I tell my son, 'Don't be honest. You will get nothing but trouble. In India, the honest are punished, the corrupt are rewarded.' "
Source: The Washington Post, By Rama Lakshmi, Dt. September 11, 2010
Tuesday, September 7, 2010
Attack on China whistleblower shows risk of unveiling corruption, fraud
China whistleblower Fang Zhouzi was mugged after his criticism of a Chinese hospital. 'I’ve had threatening phone calls and e-mails before, but this was the first time I have been attacked,' he says.
Beijing
A bungled attack on a whistleblower famous for his exposés of fraud and pseudoscience has drawn fresh attention to the vexed issues of academic dishonesty and popular gullibility in China.
Fang Zhouzi, a popular science writer and blogger, was assaulted by two men as he walked to his Beijing home Sunday evening; one sprayed a chemical in his face, the other beat him with a hammer. He was only slightly injured and was released from hospital later Sunday night.
“I’ve had threatening phone calls and e-mails before, but this was the first time I have been attacked,” Mr. Fang said in a telephone interview.
The anticorruption activist has been involved recently in a number of high profile cases, most notably questioning a claim by a former president of Microsoft China that he had earned his PhD from the prestigious California Institute of Technology.
Tang Jun, who had listed his degree as an achievement in a book recounting his success in business, later acknowledged that his PhD actually came from Pacific Western University in California. That institution was a diploma mill that sold academic credentials and required no classroom instruction, according to a 2004 report by the US Government Accountability Office.
In a number of recent blog posts, Fang also poured skepticism on celebrity Taoist sage Li Yi, who claims extraordinary feats of prowess and counts pop stars and business luminaries among his disciples. Mr. Li stepped down from his public positions Saturday, in the wake of accusations against him of rape and tax evasion.
Who attacked Fang?
Fang’s lawyer, Peng Jian, said he thought the attack was most likely ordered by a private hospital in Zhengzhou, the capital of Henan Province, which specializes in a controversial operation on the nervous system to control urinary incontinence.
A Chinese journalist who had written an article raising doubts about the operation’s efficacy was assaulted last June. Fang, in a blog posted three weeks ago, cited an article in a US magazine criticizing the operation. A court in Zhengzhou is due later this month to hear a malpractice suit brought by Mr. Peng against the hospital on behalf of a group of patients claiming the operation did them more harm than good.
More to be done on fraud in China
Last year the Ministry of Education urged universities to weed out plagiarists from their faculties. This meant reporting plagiarists, denying them research funding, sacking them, and possibly suing them. The measures were designed to “keep the academic field clean,” an official said at the time.
New scandals this year however, including plagiarism accusations against an internationally respected political science scholar Wang Hui and the dismissal of a top professor of energy and power studies found guilty of over 30 cases of plagiarism, led the state-owned “China Daily” to editorialize last month that “it is by now evident that the nation needs better regulations to counter the practice in academia.”
"The government is not doing enough," agrees Fang.
Academia is not the only field to be plagued by plagiarism, nor the only one reluctant to face up to it. Last January, Sang Yuzhu, the winner of China’s highest photography award, was stripped of his medal and his post in the Chinese Photographers’ Association when it was shown he had submitted other photographers’ work to the competition.
The CPA did not acknowledge the plagiarism, however. Officially he was accused only of “joint collaboration” with the two other photographers, in violation of competition rules.
Source: The Christian Science Monitor
Beijing
A bungled attack on a whistleblower famous for his exposés of fraud and pseudoscience has drawn fresh attention to the vexed issues of academic dishonesty and popular gullibility in China.
Fang Zhouzi, a popular science writer and blogger, was assaulted by two men as he walked to his Beijing home Sunday evening; one sprayed a chemical in his face, the other beat him with a hammer. He was only slightly injured and was released from hospital later Sunday night.
“I’ve had threatening phone calls and e-mails before, but this was the first time I have been attacked,” Mr. Fang said in a telephone interview.
The anticorruption activist has been involved recently in a number of high profile cases, most notably questioning a claim by a former president of Microsoft China that he had earned his PhD from the prestigious California Institute of Technology.
Tang Jun, who had listed his degree as an achievement in a book recounting his success in business, later acknowledged that his PhD actually came from Pacific Western University in California. That institution was a diploma mill that sold academic credentials and required no classroom instruction, according to a 2004 report by the US Government Accountability Office.
In a number of recent blog posts, Fang also poured skepticism on celebrity Taoist sage Li Yi, who claims extraordinary feats of prowess and counts pop stars and business luminaries among his disciples. Mr. Li stepped down from his public positions Saturday, in the wake of accusations against him of rape and tax evasion.
Who attacked Fang?
Fang’s lawyer, Peng Jian, said he thought the attack was most likely ordered by a private hospital in Zhengzhou, the capital of Henan Province, which specializes in a controversial operation on the nervous system to control urinary incontinence.
A Chinese journalist who had written an article raising doubts about the operation’s efficacy was assaulted last June. Fang, in a blog posted three weeks ago, cited an article in a US magazine criticizing the operation. A court in Zhengzhou is due later this month to hear a malpractice suit brought by Mr. Peng against the hospital on behalf of a group of patients claiming the operation did them more harm than good.
More to be done on fraud in China
Last year the Ministry of Education urged universities to weed out plagiarists from their faculties. This meant reporting plagiarists, denying them research funding, sacking them, and possibly suing them. The measures were designed to “keep the academic field clean,” an official said at the time.
New scandals this year however, including plagiarism accusations against an internationally respected political science scholar Wang Hui and the dismissal of a top professor of energy and power studies found guilty of over 30 cases of plagiarism, led the state-owned “China Daily” to editorialize last month that “it is by now evident that the nation needs better regulations to counter the practice in academia.”
"The government is not doing enough," agrees Fang.
Academia is not the only field to be plagued by plagiarism, nor the only one reluctant to face up to it. Last January, Sang Yuzhu, the winner of China’s highest photography award, was stripped of his medal and his post in the Chinese Photographers’ Association when it was shown he had submitted other photographers’ work to the competition.
The CPA did not acknowledge the plagiarism, however. Officially he was accused only of “joint collaboration” with the two other photographers, in violation of competition rules.
Source: The Christian Science Monitor
Retail fraud management is need of the hour
India, for the fourth time in five years, has been ranked as the most attractive country for retail investment among 30 emerging markets, according to the Eighth Annual Global Retail Development Index (GRDI) 2009 by A T Kearney. Retail accounts for a significant portion of the country’s GDP, with organised retail accounting for around 5% of the total retail market. Organised retail is expected to grow at a CAGR of 20–30% over the next few years.
However, with rapid growth in the sector, the associated perils and issues are also coming to the forefront. The shrinkage or fraud in retail is a key issue that is becoming a cause of concern for Indian retailers. Shrinkage is the “loss in inventory on account of a combination of employee theft, shoplifting, vendor fraud and administrative error.”
According to the Global Retail Theft Barometer (GRTB) 2009, India recorded a shrinkage of 3.2% of the total size of the country's retail industry (including the unorganised sector), amounting to about $2.6 billion. This is very high compared to other global markets like the US (1.6%), the UK (1.4%), and China (1.1%). In India, customer theft contributed around 44.7% of shrinkage losses, employee theft contributed 23.7%, as compared with 8.4% by suppliers/vendors, while administrative errors accounted for the rest.
In India, thefts are typically targeted on small and easily-concealed, expensive and branded items that have considerable popular appeal and are easily re–sellable such as electronic games, DVDs, iPods/MP3 players, clothing, cosmetics, perfumes and alcohol. The designer garments topped the list of things stolen in 2009.
In the past, it has been observed that hypermarkets, departmental stores and books & music formats experience high inventory losses because of the size of their products and product value. In mom-and-pop stores, the owners do not feel the impact as it is believed that manning the store themselves is vigilant enough. In large-format stores, however, it is difficult to check as wares are spread out.
Various categories of fraud constitute a major component of the shrinkage. Among the factors responsible for shrinkage losses, employees and vendors are critical factors that need to be managed by retailers. Employees may resort to direct theft, under invoicing in collusion with customers, stealing cash, etc., whereas vendors can under-deliver in terms of number, size or quality of items as against the bill invoice.
The growing motivation among employees to lead a luxurious life, high reliance on skilled resources, thereby leading to weaker internal controls, and overdependence on existing systems and processes give rise to increased risk of fraud in retail sector. While marketing fraud, inventory theft and return fraud (observed in product exchanges) are common instances of fraud in the sector, other frauds such as cash skimming and skim and fall also exist.
With potential risks and marked instances of fraud and theft, it is imperative for retail companies to:
a. Adopt robust internal controls backed by strong data analytics to mitigate key fraud risks and to raise red flags at early stages.
b. Devise a whistle blower policy allowing employees, customers and vendors to report malpractices directly to the management.
c. Determine policies pertaining to prevention, detection and investigation of frauds and to have action plans defined for conducting investigation if an incident occurs.
d. Set up dedicated team–internal/external–to handle stock checks at each of the stores periodically.
e. Collate an end-to-end study of material movement from source to destination, including counter checks and cross tallying.
With rising challenges in the sector, the key to success is staying competitive without compromising on the quality of services. Cost effectiveness is necessary to achieve this, and it is here where an effective fraud risk management will help companies to identify potential leakage points and opportunities to save
Source: Arpinder Singh, Partner & National Leader & Anurag Kashyap, Associate Director - Fraud, Investigation and Dispute Services, E&Y published in Economic Times dt. Sept 7, 2010
However, with rapid growth in the sector, the associated perils and issues are also coming to the forefront. The shrinkage or fraud in retail is a key issue that is becoming a cause of concern for Indian retailers. Shrinkage is the “loss in inventory on account of a combination of employee theft, shoplifting, vendor fraud and administrative error.”
According to the Global Retail Theft Barometer (GRTB) 2009, India recorded a shrinkage of 3.2% of the total size of the country's retail industry (including the unorganised sector), amounting to about $2.6 billion. This is very high compared to other global markets like the US (1.6%), the UK (1.4%), and China (1.1%). In India, customer theft contributed around 44.7% of shrinkage losses, employee theft contributed 23.7%, as compared with 8.4% by suppliers/vendors, while administrative errors accounted for the rest.
In India, thefts are typically targeted on small and easily-concealed, expensive and branded items that have considerable popular appeal and are easily re–sellable such as electronic games, DVDs, iPods/MP3 players, clothing, cosmetics, perfumes and alcohol. The designer garments topped the list of things stolen in 2009.
In the past, it has been observed that hypermarkets, departmental stores and books & music formats experience high inventory losses because of the size of their products and product value. In mom-and-pop stores, the owners do not feel the impact as it is believed that manning the store themselves is vigilant enough. In large-format stores, however, it is difficult to check as wares are spread out.
Various categories of fraud constitute a major component of the shrinkage. Among the factors responsible for shrinkage losses, employees and vendors are critical factors that need to be managed by retailers. Employees may resort to direct theft, under invoicing in collusion with customers, stealing cash, etc., whereas vendors can under-deliver in terms of number, size or quality of items as against the bill invoice.
The growing motivation among employees to lead a luxurious life, high reliance on skilled resources, thereby leading to weaker internal controls, and overdependence on existing systems and processes give rise to increased risk of fraud in retail sector. While marketing fraud, inventory theft and return fraud (observed in product exchanges) are common instances of fraud in the sector, other frauds such as cash skimming and skim and fall also exist.
With potential risks and marked instances of fraud and theft, it is imperative for retail companies to:
a. Adopt robust internal controls backed by strong data analytics to mitigate key fraud risks and to raise red flags at early stages.
b. Devise a whistle blower policy allowing employees, customers and vendors to report malpractices directly to the management.
c. Determine policies pertaining to prevention, detection and investigation of frauds and to have action plans defined for conducting investigation if an incident occurs.
d. Set up dedicated team–internal/external–to handle stock checks at each of the stores periodically.
e. Collate an end-to-end study of material movement from source to destination, including counter checks and cross tallying.
With rising challenges in the sector, the key to success is staying competitive without compromising on the quality of services. Cost effectiveness is necessary to achieve this, and it is here where an effective fraud risk management will help companies to identify potential leakage points and opportunities to save
Source: Arpinder Singh, Partner & National Leader & Anurag Kashyap, Associate Director - Fraud, Investigation and Dispute Services, E&Y published in Economic Times dt. Sept 7, 2010
Monday, August 30, 2010
Undisclosed Stanford Loans Prove Fraud, Examiner Says
Stanford International Bank Ltd.’s $1.7 billion in undisclosed loans to its owner, indicted financier R. Allen Stanford, are proof of the bank’s involvement in fraud, an examiner said in a U.S. court trial in Houston.
“There’s a complete disconnect between what the bank is saying, that it has fully liquid, short-term, fully monetized assets, and the fact a third of these assets are loans to the shareholder,” fraud accountant Mark Berenblut said today.
Berenblut, testifying for a second day in a civil trial over whether Lloyd’s of London Underwriters will have to cover Stanford’s legal defense costs, said there was a gap between the claimed assets and what Stanford International Bank had on hand when regulators seized it.
“That money went somewhere, and very likely to the primary shareholder,” said Berenblut, who was asked to testify by Lloyd’s.
Lloyd’s is arguing that Stanford’s companies’ alleged criminal conduct voids the directors’ and officers’ they bought.
Berenblut said his examination showed two large loan balances on Stanford International Bank’s books -- one for $1.7 billion to Stanford himself and another for $1.8 billion to Stanford-related companies. The examiner testified both items should have been disclosed to investors and were not.
Accounting Entries
Stanford’s lawyers have repeatedly claimed Berenblut is misinterpreting the accounting entries. They say the two loan balances refer to the same money, because Stanford claims he assumed personal responsibility for loans the bank made to the related companies, which then recorded the funds on their balance sheets as capital contributions from Stanford.
“You’re making the assumption that whoever recorded it did it wrongly,” Berenblut said today, when asked about the two balances by Kirk Kennedy, one of Stanford’s lawyers.
Robert S. Bennett, another attorney for Stanford, challenged Berenblut’s testimony that many parts of the bank’s financial records included “fictitious information.”
“Have you seen any direct communications from Allen Stanford to Kuhrt, Lopez, Davis or Holt that you consider to be fictitious information?” Bennett asked, referring to Stanford’s co-defendants.
“No,” Berenblut replied.
Antiguan Bank
Investors bought more than $7 billion in certificates of deposit from the Antiguan bank, which Stanford controlled as sole shareholder until the U.S. Securities and Exchange Commission sued the financier in February 2009, and seized his businesses.
Stanford and three other executives were indicted by a federal grand jury in Houston in June 2009 on charges they had run fraud scheme centered on the certificates of deposit. They pleaded not guilty.
Investors were told the bank’s portfolio consisted of conservative, highly liquid investments that offered above- market returns.
Forensic accountant Alan Westheimer, who was hired by comptroller Mark Kuhrt and chief accountant Gilbert Lopez to examine Stanford’s financial statements, testified today that Berenblut was wrong that there were separate loans outstanding to Allen Stanford and to the related companies.
‘One Basket’
“There’s one basket, not two,” Westheimer said. “And there’s a number of documents that support that conclusion.”
U.S. District Judge Nancy Atlas told the lawyers she was less concerned with the number of loans to Allen Stanford than that the size and nature of them weren’t disclosed.
“It wasn’t consistent with the investment promotional materials for the CDs,” she said.
The Stanford defendants claim they can’t afford to hire defense lawyers without the Lloyd’s proceeds because their assets were frozen by court order when the SEC filed suit.
Lloyd’s last year rejected the executives’ pleas for coverage under the $100 million worth of insurance bought by the business after Stanford Group Cos. Chief Financial Officer James M. Davis pleaded guilty to charges he aided in the scheme.
Atlas today said she would admit into evidence part of Davis’s plea agreement with prosecutors.
”I am really only accepting Davis’s statements against his own conduct,” not what he says about others he claims were involved in the scheme, she said.
The trial, now in its third day, will continue tomorrow.
The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).
Source: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com & Andrew M. Harris in Chicago at aharris16@bloomberg.net.
“There’s a complete disconnect between what the bank is saying, that it has fully liquid, short-term, fully monetized assets, and the fact a third of these assets are loans to the shareholder,” fraud accountant Mark Berenblut said today.
Berenblut, testifying for a second day in a civil trial over whether Lloyd’s of London Underwriters will have to cover Stanford’s legal defense costs, said there was a gap between the claimed assets and what Stanford International Bank had on hand when regulators seized it.
“That money went somewhere, and very likely to the primary shareholder,” said Berenblut, who was asked to testify by Lloyd’s.
Lloyd’s is arguing that Stanford’s companies’ alleged criminal conduct voids the directors’ and officers’ they bought.
Berenblut said his examination showed two large loan balances on Stanford International Bank’s books -- one for $1.7 billion to Stanford himself and another for $1.8 billion to Stanford-related companies. The examiner testified both items should have been disclosed to investors and were not.
Accounting Entries
Stanford’s lawyers have repeatedly claimed Berenblut is misinterpreting the accounting entries. They say the two loan balances refer to the same money, because Stanford claims he assumed personal responsibility for loans the bank made to the related companies, which then recorded the funds on their balance sheets as capital contributions from Stanford.
“You’re making the assumption that whoever recorded it did it wrongly,” Berenblut said today, when asked about the two balances by Kirk Kennedy, one of Stanford’s lawyers.
Robert S. Bennett, another attorney for Stanford, challenged Berenblut’s testimony that many parts of the bank’s financial records included “fictitious information.”
“Have you seen any direct communications from Allen Stanford to Kuhrt, Lopez, Davis or Holt that you consider to be fictitious information?” Bennett asked, referring to Stanford’s co-defendants.
“No,” Berenblut replied.
Antiguan Bank
Investors bought more than $7 billion in certificates of deposit from the Antiguan bank, which Stanford controlled as sole shareholder until the U.S. Securities and Exchange Commission sued the financier in February 2009, and seized his businesses.
Stanford and three other executives were indicted by a federal grand jury in Houston in June 2009 on charges they had run fraud scheme centered on the certificates of deposit. They pleaded not guilty.
Investors were told the bank’s portfolio consisted of conservative, highly liquid investments that offered above- market returns.
Forensic accountant Alan Westheimer, who was hired by comptroller Mark Kuhrt and chief accountant Gilbert Lopez to examine Stanford’s financial statements, testified today that Berenblut was wrong that there were separate loans outstanding to Allen Stanford and to the related companies.
‘One Basket’
“There’s one basket, not two,” Westheimer said. “And there’s a number of documents that support that conclusion.”
U.S. District Judge Nancy Atlas told the lawyers she was less concerned with the number of loans to Allen Stanford than that the size and nature of them weren’t disclosed.
“It wasn’t consistent with the investment promotional materials for the CDs,” she said.
The Stanford defendants claim they can’t afford to hire defense lawyers without the Lloyd’s proceeds because their assets were frozen by court order when the SEC filed suit.
Lloyd’s last year rejected the executives’ pleas for coverage under the $100 million worth of insurance bought by the business after Stanford Group Cos. Chief Financial Officer James M. Davis pleaded guilty to charges he aided in the scheme.
Atlas today said she would admit into evidence part of Davis’s plea agreement with prosecutors.
”I am really only accepting Davis’s statements against his own conduct,” not what he says about others he claims were involved in the scheme, she said.
The trial, now in its third day, will continue tomorrow.
The case is Laura Pendergest-Holt v. Certain Underwriters at Lloyd’s of London, 4:09-cv-03712, U.S. District Court, Southern District of Texas (Houston).
The criminal case is U.S. v. Stanford, 09-cr-00342, U.S. District Court, Southern District of Texas (Houston). The SEC case is Securities and Exchange Commission v. Stanford International Bank, 09-cv-00298, U.S. District Court, Northern District of Texas (Dallas).
Source: Laurel Brubaker Calkins in Houston at laurel@calkins.us.com & Andrew M. Harris in Chicago at aharris16@bloomberg.net.
Wednesday, August 11, 2010
Medicare's private eyes let fraud cases get cold
By RICARDO ALONSO-ZALDIVAR (AP)
WASHINGTON — They don't seem that interested in hot pursuit. It took private sleuths hired by Medicare an average of six months last year to refer fraud cases to law enforcement.
According to congressional investigators, the exact average was 178 days. By that time, many cases go cold, making it difficult to catch perpetrators, much less recover money for taxpayers.
A recent inspector general report also raised questions about the contractors, who play an important role in Medicare's overall effort to combat fraud.
Out of $835 million in questionable Medicare payments identified by private contractors in 2007, the government was only able to recover some $55 million, or about 7 percent, the report found.
Medicare overpayments — they can be anything from a billing error to a flagrant scam — totaled more than $36 billion in 2009, according to the Obama administration.
President Barack Obama has set a high priority on battling health care fraud and waste, hoping for savings to help pay for the new law covering millions now uninsured.
Medicare's private eyes don't seem to be helping much.
Sen. Charles Grassley, R-Iowa, questions whether taxpayers are getting good value from for-hire fraud busters. His office, which is investigating the contracting program, obtained Medicare data for the last four years on how long it took to refer cases to federal agents.
"Medicare is already a pay-and-chase system when it comes to fraud, waste and abuse," said Grassley. "Providers are paid first, then questioned if there's a problem. Add to that mix contractors who sit on cases of ongoing fraud when they should be referring them to law enforcement, and you have a recipe for disaster."
As ranking Republican on the Senate panel that oversees Medicare, Grassley is trying to find out why it takes the contractors so long, and how much the government is currently paying the companies. In 2005, taxpayers paid them $102 million.
At least seven private companies Medicare calls "Program Safeguard Contractors" are working to detect fraud, part of a program that dates to the late 1990s. They oversee specific areas of jurisdiction, and some have more than one contract with Medicare.
The contractors investigate allegations of wrongdoing, acting as scouts for the government's criminal investigators. And they're also supposed to conduct "proactive" analysis to spot emerging fraud trends. For instance, they can use sophisticated computer models to scan millions of Medicare records for suspicious patterns to identify dishonest providers.
In practice, their performance has been uneven. The contractors have widely different track records. One identified $266 million in overpayments in 2007, while another found just $2.5 million, the Health and Human Services inspector general said in May.
Earlier, the inspector general found gaping differences in the number of new cases the contractors generate for law enforcement. Some had hundreds of cases, while others were in the single digits. Most were doing a poor job at spotting new fraud trends, with "minimal results from proactive data analysis," the inspector general concluded.
The Obama administration says it's aware of the problem and is close to completing a reorganization of the contractors, to consolidate their work, define their jurisdictions more clearly, and help them coordinate better with claims processors and law enforcement.
The private sleuths will now be called "Zone Program Integrity Contractors" — or ZPICs for short.
"By using these new contractors that can review claims across multiple providers and benefit categories, we will be better able to identify cases of waste, fraud or abuse," said Medicare spokesman Peter Ashkenaz. "And, we will be better able to monitor both the ZPICs' overpayment and collection efforts to make sure that they are performing their own oversight responsibilities."
In fairness to the contractors, the low collection rate may not just be their fault. Investigators say that when Medicare notifies a provider about a disputed payment, the fraudulent ones often just close up shop and move on.
Copyright © 2010 The Associated Press. All rights reserved.
WASHINGTON — They don't seem that interested in hot pursuit. It took private sleuths hired by Medicare an average of six months last year to refer fraud cases to law enforcement.
According to congressional investigators, the exact average was 178 days. By that time, many cases go cold, making it difficult to catch perpetrators, much less recover money for taxpayers.
A recent inspector general report also raised questions about the contractors, who play an important role in Medicare's overall effort to combat fraud.
Out of $835 million in questionable Medicare payments identified by private contractors in 2007, the government was only able to recover some $55 million, or about 7 percent, the report found.
Medicare overpayments — they can be anything from a billing error to a flagrant scam — totaled more than $36 billion in 2009, according to the Obama administration.
President Barack Obama has set a high priority on battling health care fraud and waste, hoping for savings to help pay for the new law covering millions now uninsured.
Medicare's private eyes don't seem to be helping much.
Sen. Charles Grassley, R-Iowa, questions whether taxpayers are getting good value from for-hire fraud busters. His office, which is investigating the contracting program, obtained Medicare data for the last four years on how long it took to refer cases to federal agents.
"Medicare is already a pay-and-chase system when it comes to fraud, waste and abuse," said Grassley. "Providers are paid first, then questioned if there's a problem. Add to that mix contractors who sit on cases of ongoing fraud when they should be referring them to law enforcement, and you have a recipe for disaster."
As ranking Republican on the Senate panel that oversees Medicare, Grassley is trying to find out why it takes the contractors so long, and how much the government is currently paying the companies. In 2005, taxpayers paid them $102 million.
At least seven private companies Medicare calls "Program Safeguard Contractors" are working to detect fraud, part of a program that dates to the late 1990s. They oversee specific areas of jurisdiction, and some have more than one contract with Medicare.
The contractors investigate allegations of wrongdoing, acting as scouts for the government's criminal investigators. And they're also supposed to conduct "proactive" analysis to spot emerging fraud trends. For instance, they can use sophisticated computer models to scan millions of Medicare records for suspicious patterns to identify dishonest providers.
In practice, their performance has been uneven. The contractors have widely different track records. One identified $266 million in overpayments in 2007, while another found just $2.5 million, the Health and Human Services inspector general said in May.
Earlier, the inspector general found gaping differences in the number of new cases the contractors generate for law enforcement. Some had hundreds of cases, while others were in the single digits. Most were doing a poor job at spotting new fraud trends, with "minimal results from proactive data analysis," the inspector general concluded.
The Obama administration says it's aware of the problem and is close to completing a reorganization of the contractors, to consolidate their work, define their jurisdictions more clearly, and help them coordinate better with claims processors and law enforcement.
The private sleuths will now be called "Zone Program Integrity Contractors" — or ZPICs for short.
"By using these new contractors that can review claims across multiple providers and benefit categories, we will be better able to identify cases of waste, fraud or abuse," said Medicare spokesman Peter Ashkenaz. "And, we will be better able to monitor both the ZPICs' overpayment and collection efforts to make sure that they are performing their own oversight responsibilities."
In fairness to the contractors, the low collection rate may not just be their fault. Investigators say that when Medicare notifies a provider about a disputed payment, the fraudulent ones often just close up shop and move on.
Copyright © 2010 The Associated Press. All rights reserved.
Sunday, August 1, 2010
Hack makes ATMs spew out cash
July 30, 2010
A hacker has discovered a way to force ATMs to disgorge their cash by hijacking the computers inside them.
The attacks successfully targeted standalone ATMs, but they could potentially be used against the ATMs operated by mainstream banks.
Criminals have long known that ATMs aren't tamperproof.
There are many types of attacks in use today, ranging from sophisticated to foolhardy: installing fake card readers to steal card numbers, hiding tiny surveillance cameras to capture PIN codes, covering the dispensing slot to intercept money and even hauling the ATMs away with trucks in the hopes of cracking them open later.
Computer hacker Barnaby Jack spent two years tinkering in his Silicon Valley apartment with ATMs he bought online. These were standalone machines, the type seen in front of convenience stores, rather than the ones in bank branches.
His goal was to find ways to take control of ATMs by exploiting weaknesses in the computers that run the machines.
He showed off his results at the Black Hat conference in Las Vegas, an annual gathering devoted to exposing the latest computer-security vulnerabilities.
His attacks have wide implications because they affect multiple types of ATMs and exploit weaknesses in software and security measures that are used throughout the industry.
His talk was one of the conference's most widely anticipated, as it had been pulled a year ago over concerns that fixes for the ATMs would not be in place in time. He used the extra year to craft more dangerous attacks.
Jack, who works as director of security research for Seattle-based IOActive, showed in a theatrical demonstration two ways he can get ATMs to spit out money.
Jack found that the physical keys that came with his machines were the same for all ATMs of that type made by that manufacturer. He figured this out by ordering three ATMs from different manufacturers for a few thousand dollars each. Then he compared the keys he got to pictures of other keys, found on the internet.
He used his key to unlock a compartment in the ATM that had standard USB slots. He then inserted a program he had written into one of them, commanding the ATM to dump its vaults.
Jack also hacked into ATMs by exploiting weaknesses in the way ATM makers communicate with the machines over the internet. Jack said the problem was that outsiders were permitted to bypass the need for a password. He didn't go into much more detail because he said the goal of his talk "isn't to teach everybody how to hack ATMs. It's to raise the issue and have ATM manufacturers be proactive about implementing fixes".
The remote style of attack is more dangerous because an attacker doesn't need to open up the ATMs.
It allows an attacker to gain full control of the ATMs. Besides ordering it to spit out money, attackers can silently harvest account data from anyone who uses the machines. It also affects more than just the standalone ATMs vulnerable to the physical attack; the method could potentially be used against the kinds of ATMs used by mainstream banks.
Jack said he didn't think he'd be able to break the ATMs when he first started probing them.
"My reaction was, 'This is the game-over vulnerability right here,'" he said of the remote hack. "Every ATM I've looked at, I've been able to find a flaw in. It's a scary thing."
Kurt Baumgartner, a senior security researcher with anti-virus software maker Kaspersky Lab, called the demonstration a "thrill" to watch and said it was important to improving the security of machines that can each hold tens of thousands of dollars in cash. However, he said he does not think it will result in widespread attacks because banks don't use the standalone systems and Jack did not release his attack code.
Jack would not identify the ATM makers. He put stickers over the ATM makers' names on the two machines used in his demonstration. But the audience, which burst into applause when he made the machines spit out money, could see from the screen prompts on the ATM that one of the machines was made by Tranax Technologies, based in Hayward, California. Tranax did not respond to email messages from The Associated Press.
Triton Systems, of Long Beach, confirmed that one of its ATMs was used in the demonstration. It said Jack alerted the company to the problems and that Triton now had a software update in place that prevents unauthorised software from running on its ATMs.
Bob Douglas, Triton's vice-president of engineering, said customers could buy ATMs with unique keys but generally do not, preferring to have a master key for cost and convenience.
"Imagine if you have an estate of several thousand ATMs and you want to access 20 or so of them in one day," he wrote in an email to the AP. "It would be a logistical nightmare to have all the right keys at just the right place at just the right time."
Other ATM manufacturers contacted by the AP also did not respond to messages.
Jack said the manufacturers whose machines he studied were deploying software fixes for both vulnerabilities, but added that the prevalence of remote-management software broadly opened up ATMs to hacker attacks.
Source: Sydney Morning Herald
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