Legislators aim to crack down on fraud

For years, Al Capone outwitted federal efforts to nail him for murder and other mobster-type crimes. The feds finally took him down with a breathtakingly simple courtroom gambit: tax evasion.

California Capones

Modern-day insurance Capones can expect a similar fate from California prosecutors who use tax fraud to gut their operations. A bill in Sacramento would strengthen their hand: AB 1199 would let prosecutors seize the assets of insurance swindlers convicted under a novel legal strategy of tax fraud. The bill now is in committee, and has solid prospects for clearing both chambers afterward, said the chief of staff for the bill’s sponsor, Assembly member Laura Richardson.

The bill itself is modest. It simply clarifies that prosecutors have asset-seizure power when they convict insurance cheaters for tax fraud. But the measure adds sharp teeth to a courtroom strategy being pioneered against insurance schemers by Al MacKenzie, deputy district attorney in Los Angeles County.

Building a case against complex health schemes, workers’ compensation scams and staged accident rings in court can be numbingly difficult. It can require prosecutors to sort through piles of often cunningly disguised medical bills to build a convincing criminal case.

Yet MacKenzie has nailed dozens of scammers with a fraction of the effort by charging tax fraud. His approach is premised on a simple truth: Insurance swindlers don’t report their blood money on tax returns.

When MacKenzie has a crooked doctor, chiropractor or lawyer in his crosshairs, he asks insurers how much money they paid the suspect in claims. He then compares their total insurance income with the income they reported to the state’s Franchise Tax Board. There almost always is a big difference. Some schemers don’t even bother filing tax returns.

So in short order, MacKenzie can create a simple, but effective tax-fraud case, and AB 1199 would make it clear that prosecutors can strike at insurance swindlers financially through asset seizure. MacKenzie says he’s convicted nearly every insurance swindler he’s charged so far.

He now is pursuing tax charges against at least 300 medical providers in the Los Angeles area who he said have stolen more than $200 million in insurance money. One doctor alone has stolen $23 million in auto-insurance and workers comp money.

In another legislative action, the Assembly Insurance Committee has cleared a bill providing the insurance department more fraud investigators, increasing the annual insurers assessment to help pay for the staffers, and requiring the department to post investigative performance outcomes on its Web site.

Dumping in Arizona

Meanwhile in Arizona, lawmakers are trying to clamp down on miscreants who illegally dump unwanted vehicles for insurance money. The legislature recently passed a bill requiring anyone filing a vehicle theft report to sign an affidavit. Gov. Janet Napolitano has signed it into law.

This reform responds to a fraud problem in Arizona: the so-called owner “giveup.” Sometimes, vehicle owners may suffer financial setbacks or simply get tired of making car payments. So, they dump their vehicle in the woods or a remote desert area, lie that someone stole it and collect an insurance payout. Owners often torch the vehicle to make it appear as if thieves have vandalized it.

Up to 20 percent of reported auto thefts in Arizona are insurance scams, according to a 2004 study by the Arizona Criminal Justice Commission.

Requiring a police affidavit could make potential swindlers hesitate. Owners who dump their vehicles often are normally honest people who see a quick opportunity to profit at an insurer’s expense. Most aren’t career criminals. So the threat of a Class Three felony conviction could make many softer-core scammers back off, rather than risk being ruined. That signed affidavit also creates damning evidence that can help convict schemers.

Hunting in Hawaii

Hawaii’s legislature has just closed down, thus quashing a bill that would have empowered the fraud bureau to hunt down more insurance schemes. Currently, the fraud bureau is only authorized to go after automobile scams, such as staged accidents and owner giveups. Lawmakers agreed the unit needed authority over more lines, but could not agree to what extent the unit should be involved in workers’ compensation scams.

There is widespread agreement that the unit should expand to more lines of insurance. Companion bills have passed the House and Senate, and conferees are ironing out differences over workers’ compensation.

Should the fraud unit go after workers comp swindlers? If so, would that include bogus injury claims, premium swindles by businesses, or both?

A Utah fixture

Utah’s fraud bureau was scheduled to close its doors at the end of this year, but the legislature has made the unit a permanent fixture. Gov. Jon Huntsman Jr. has signed the measure into law.

Oregon crimes

There also is an effort to make insurance fraud a specific crime in Oregon. The state is one of just three without a fraud law (Virginia and Alabama are the others). Prosecutors thus are forced to use laws that don’t always fit insurance crimes. That can make convictions more difficult to achieve, and cases thus less likely even to be prosecuted.

Despite its good intentions, Oregon’s HB 3162 only penalizes bogus claims and is silent about fraud by agents and insurers. The bill thus has little momentum. To have any chance, it needs a facelift between now and the legislature’s shutdown in summer.

Howard Goldblatt has been director of government affairs for the Coalition Against Insurance Fraud since the coalition’s founding in 1993. He also is a former U.S. congressional staffer, and has worked in government affairs for more than 20 years. Web site: www.InsuranceFraud.org.