DOJ Unravels a Decade-Old Scheme that involved Kickbacks, Money Laundering, Sham Shell Companies, and Fake Invoices

Dummy or Sham companies (shell companies) are fictitious entities created for the sole purpose of committing fraud; usually involve an employee making fraudulent payments to the dummy company.

DOJ

According to evidence presented at trial, Aleksandr Pikus, 45, of Brooklyn, New York, and his co-conspirators perpetrated a scheme through a series of medical clinics in Brooklyn and Queens over nearly a decade.  The clinics employed doctors, physical and occupational therapists, and other medical professionals who were enrolled in the Medicare and Medicaid programs.  In return for illegal kickbacks, Pikus referred beneficiaries to these health care providers, who submitted claims to the Medicare and Medicaid programs.

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Practice Note

Rather than using shell companies as vessels for (over)billing schemes, some employees generate fraudulent disbursements by utilizing the invoice of non-accomplice vendors. For example, perpetrators using this scheme may double-pay an invoice. By intentionally paying some bills twice and then requesting the recipients to return one of the checks, the perpetrator keeps the returned check. Another related scheme is to deliberately pay the wrong vendor and then ask for the payment to be returned. Or, a dishonest employee might intentionally overpay a legitimate vendor and ask for a return of the overpayment portion.

Not all shell companies are used for nefarious means; there are legitimate uses for these entities, such as using one as a holding company or creating a shell company (in name) to preserve future business rights or opportunities. Not every shell is involved in a criminal conspiracy, so it’s important to understand why someone might use a shell for unlawful purposes. The primary goal is like any other basic fraud scheme: to conceal. This may include the nature, origin, or destination of misappropriated funds or concealment of the real owners and decision-makers of a criminal act or conspiracy.

triangle of fraud action

Triangle of Fraud Action

Investigating

Again, the primary purpose of using a shell is concealment, which is an element of the Triangle of Fraud Action and part of the Advanced Meta-Model of Fraud (See Below). So, tracing and tracking shell companies to their owners isn’t always easy, but it’s not impossible. The following tools and techniques can significantly help you in verifying a shell, or at the very least, help uncover that one piece of information that could unravel an entire shell network.

Web History – Fraudsters who want to establish shells, of course, must-have websites to create the appearance of legitimate companies. Sometimes bad actors get sloppy and put too much information on a website or list information that can then be linked to other entities that they control or oversee. There are a few useful tools.  The Wayback Machine, located at archive.org, takes snapshots of most websites on the Internet. Even if the website has changed or is no longer being hosted, you may find useful available historical information. These snapshots may help verify known information or point you in a new direction.

Use of Public Records –  Public records can be an essential key to identifying owners and tracking to known associates.  They can also be used to help link entities and individuals together. Public records sources are great, and some require paid subscriptions – Common services include LexisNexis, TLO, www.Opencorporates.comICIJ Database, and CompanyCheck for the U.K.

As you uncover information, you should continue tracing the shell to all known associates to help discover and map the network. Continue to chase down and cross-reference all leads, contacts, and sources to get the complete picture.

Map the Network – An essential task for tracing and tracking shell companies and contacts is to be able to document the linkage between all the information uncovered.

Map every piece of information — no matter how small. An address or phone number could be the key to finding the shell network. Search online for various combinations of phone numbers and addresses. Pay attention to ownership; things should make sense.

‘Whois lookup,’ for domain ownership, IP addresses – Shell incorporators might have been vigilant in concealing public records’ information on involved entities. Still, they may have been careless when setting up the corresponding website addresses.

Using “Whois lookup” search engines, you can discover – Domain ownership; IP addresses; Physical addresses of website; Website administrators and their contact information; Website creation dates.

Hundreds of Whois websites are available. One site, whoisology.com, uncovers deep domain connections by linking all websites in its database based on characteristics, names, and fields. Want to know how many websites are located at the shell incorporation hot spot address of “103 Sham Peng Tong Plaza?” As of April 2014, Whoisology reports that there are more than 900.

Evaluating online presence – Shell incorporators have a hard time faking an active and robust online presence because these companies technically don’t exist. What constitutes a robust online presence?

  • The existence of a well-designed website
  • The presence of other online content
  • Periodic and regular updates of information
  • Contact email addresses that are linked to a legitimate website address, not free email accounts

Legitimizing the Shell

How do shell incorporators try to get over this hurdle and make their business look more legitimate? Here a few things to consider.

  • They often post company and contact info on numerous free sites.
  • They might create placeholder websites to get domain-specific email addresses, such as brad.johnson@placeholder.com.
  • They often create fake social media profiles for the company and its “employees.”

Closing

As you vet an entity, ask these questions:

  • No online presence whatsoever is a BIG RED FLAG.
  • Is the amount of online information available consistent with the goods/services that the entity says that it’s engaged in?
  • Is there too much free online posting of information on the company?

I welcome your thoughts, comments, and suggestions.

Best!

Jonathan Pic

Jonathan T. Marks, CPA, CFF, CFE

Attribution:
ACFE – Shell Games by Hubbs
DOJ
Steve Albrecht

 

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