Computer hacking, boiler rooms, insurance fraud, Internet scams, intellectual property theft, stealing of corporate trade secrets. In the world of white-collar crime, no FBI office is busier than the one in L.A.
The top local FBI official in charge of white-collar crime is Richard Wade, who oversees 185 agents devoted to conducting investigations over a seven-county area stretching from Santa Maria to Santa Ana and east to Palm Springs.
A 24-year veteran of the bureau, Wade, 54, supervised ILLWIND, the single largest white-collar crime investigation ever conducted by the FBI. He also ran the white-collar crimes office in Washington, before coming to the L.A. field office in 1994 as assistant special agent in charge of the White Collar Crime Division.
Question: Is L.A. really the scamming capital of the nation, if not the world?
Answer: Yes, I would say that in many respects, we are the capital of the world for white-collar crime. Just look at bankruptcy fraud: 20 percent to 25 percent of all the filings in the nation are filed in the what we call the greater L.A. area, which spans seven counties from Santa Maria on the north to Palm Springs on the east to Santa Ana on the south.
Then look at credit-card fraud. MasterCard has indicated that 28 percent of worldwide losses are in L.A., while Visa says about 20 percent of its worldwide losses are in L.A. Some of these could be legitimate, where people actually find themselves in adverse circumstances and do not have enough money to pay off the charges. But many charges are made with no intention of ever paying them off. We don’t have the resources to check out just how many of each there are.
Q: How do you decide which cases to pursue and which to defer?
A: When a complaint or case comes in, we assign it to one of our nine squads, which include telemarketing fraud, health care fraud, environmental crimes, financial institution fraud, etc. The squad supervisor then looks at the information and makes the initial decision as to whether the case actually is in our jurisdiction and whether we decide to work the case.
We use several criteria in making that decision. The amount of the loss is one factor, but by no means the only factor. We also look at the impact that the crime has on the public. For example, in bank fraud, if there is an indication of insider involvement, we view that as a larger problem for society than fraud aimed at banks from the outside. We then look to see if there is a pattern. Is it organized? If so, we give it greater weight and put that at the top of the list.
Q: What happens to the cases that you decide not to investigate? Do the alleged perpetrators get off scot-free?
A: Well it’s true, some cases come in that we don’t have the resources to handle. Then we take the complaint and index it. We give it a score for its relative importance and impact and put it in a file for unaddressed work. That allows us to prioritize the unaddressed work as we get more resources.
Sometimes we put one case on the index and then another case comes in involving the same individual or group of individuals. Then the case becomes much more important.
Q: So you’re essentially forced to practice a sort of “triage,” where schemes that fall below a certain point, say $1 million, are ignored or passed off to other agencies?
A: I think this triage thing is a perception the bad guys have. They have the idea that we only prosecute big cases. They don’t think we will prosecute fraudulent checks for, say, $800. But we know they will write 1,000 or more bad checks of this size. We have ways of tracking that.
Our view is that there are no safe harbors. Obviously, we have to utilize resources. We do put the majority of resources on the most significant crimes, but we do address crimes at all levels. There may be crimes or crime rings with seven or eight agents on them, but we may also have one agent handling 50 smaller cases.
Also, I don’t want to give the wrong impression that it’s just the FBI agents out in the field taking on all of Southern California. The overwhelming majority of cases we work up are joint cases with other agencies, either law enforcement or other public agencies.
Q: But even with help from other agencies, doesn’t this volume of white-collar crime completely overwhelm a small unit like yours?
A: We don’t have enough resources to combat all of the white-collar crime there is out there. We realize that we will never be able to arrest all the offenders. I would say, though, that you would see a dramatic escalation of white-collar crime if there was absolutely no law enforcement there.
In some areas, we try to maximize the impact we can have. For example, there are an estimated 6,000 boiler rooms in the greater L.A. area. These telemarketing fraudsters use what we call “mooch lists” of former victims. We obviously can’t arrest everybody. But when we do arrest people, we try to use the media to get widespread publicity to have a deterrent impact.
Q: With white-collar crimes so sophisticated these days, what type of training must FBI agents have to combat scam artists?
A: We are constantly training, both in-house and with outside organizations. For example, we just had a nationwide in-house training session on money laundering at our facility in Quantico, Virginia. And we just had an extensive training session put on by the National Healthcare Anti-Fraud Association. I would say that we do have to provide our agents more training than we used to, especially with respect to computers.
Q: But hasn’t the need for more highly trained agents altered the FBI’s recruiting practices as well? Don’t you need to recruit more MBAs, more CPAs, more computer experts?
A: We do recruit and have historically recruited people with CPA, legal and bank backgrounds. Now we are looking for more people with computer backgrounds. That’s really a state-of-the-art field where we need to be on the cutting edge.
Q: Why hasn’t L.A. been able to shake its distinction as the world’s fraud capital?
A: There are a lot of people here and there is an awful lot of money here. The bad guys go where the money is. But there’s more to it than that. People here are so creative when it comes to white-collar crime. Many of the crime schemes we see here in L.A. today we will see in other parts of the country a year or two from now. Staged or phony auto accidents are an example that comes to mind. We don’t have a clue why people here are so creative; perhaps it’s just the flipside of the entrepreneurial spirit this region is so well known for.
Q: What is the impact of all this fraud on the people who live and work here?
A: The impact is significant, but it is mostly a hidden cost. Very few white-collar crimes really impact directly on individuals. With the major exception of telemarketing and other related fraud schemes, the vast portion of the impact is on business. In most cases, the impacted businesses pass those costs on to their customers. All you have to do is look at your bank statements. When you see all those charges, a big reason for those charges is they have to recoup the billions of dollars in fraud they experience each year.
Q: Are we seeing more white-collar crime in L.A. than we did a decade ago?
A: We really don’t know if more white-collar crimes are being committed now. What’s happening is that more and more white-collar crimes are being reported. Much of this crime had always existed, just never been caught. We’ve put more and more resources onto this area; once you start looking for something, you find it. But because we have no starting point, we don’t have numbers to say whether white-collar crime is increasing or decreasing.
Q: What are the fastest growing types of white-collar crime?
A: Street gangs and organized groups of individuals who were not involved with white-collar crime are now becoming involved. That’s because the jail sentences are less and the money being made from fraud is more. It’s also a less-violent type of crime, so there is less risk to the perpetrators. The types of crimes they are committing run the gamut, from check and credit card fraud to health care fraud to insurance fraud and even the gas-selling business.
Q: Gas selling?
A: About a year ago, we investigated a massive fraud scheme in which several groups of individuals were not paying the taxes on the gasoline they would sell. They would then launder the money through numerous shell companies.
These groups were also involved in many other criminal activities. White-collar crime was supplementing their repertoire (of street crimes).