Early in June, the U.S Justice Department announced further arrests in Costa Rica resulting from investigations into so-called call center “boiler room” scams targeting elderly U.S residents. Investigations into these scams in Costa Rica have continued pretty much unabated since the initial investigations in 2005. Despite ongoing initiatives to curb such scam operations, new “boiler rooms” with new scams seem to keep popping up from places like Costa Rica, making the whole process, as one journalist put it, like a continuous game of Whack-A-Mole.
The call center scams take a familiar format: targets in the U.S are called and informed that they have won a sweepstakes prize, but before they could claim the prize they needed to “wire, via Western Union, thousands of dollars for a purported ‘refundable insurance fee’ to a so-called ‘insurance entity’ in Costa Rica,” according to the Department of Justice.
The location of the scammer was obscured through the use of Voice over IP (VoIP), which made it appear that the call originated in the United States. In the case of recent prosecutions, scammers made reference to Lloyd’s of London of Costa Rica to provide additional legitimacy to the call. According to reports, victims lost on average over $1,000 each. The total value of the fraud has been pegged at about $20 million.
Interestingly many of the scammers identified are U.S ex-patriates living in Costa Rica.
The complexities of cross-border investigations combined with the differences in legislation in Costa Rica make stamping out these sorts of scams nigh on impossible. Justice Department spokesperson Peter Carr told Nearshore Americas that technology allows criminals to carry out these scams from any location, and the Justice Department has conducted a series of investigations that have lasted more than a decade. “The current investigation involving Costa Rica remains ongoing, and to date we have brought charges against more than 40 individuals,” Carr said.
He added that the first prosecutions were brought in Buffalo, New York, and later in San Diego, California, and Las Vegas, Nevada. “Since then, telemarketers running these scams have gone offshore to various places, including Costa Rica. The Justice Department has appreciated the assistance of multiple Costa Rican authorities in this investigation, including the national police, prosecutors and judiciary,” he said.
Despite talk of co-operation with foreign authorities and increasing numbers of arrests and convictions, new iterations of the scams remain problematic. Andrew Stoltmann, a Chicago based securities attorney who has handled dozens of boiler room cases in the U.S, explained that many of these outfits organizing the boiler rooms have moved overseas because U.S. securities regulators have done a nice job of stamping out these types of frauds in the U.S. “Like cockroaches, these scammers have moved into other parts of the world. Costa Rica has become a landing spot for many of these scammers because Costa Rican regulators are about as strong as a wet noodle,” he said.
Stoltmann added that these cross border cases are very hard for the SEC to pursue, doubly so with a country with weak securities regulation, like Costa Rica. “The countries that have the weakest relationship with U.S. regulators tend to become landing spots for boiler room operators. Right now, Costa Rica is a hot spot,” he said.
William Byrnes, Professor and Associate Dean, Special Projects at Texas A&M University School of Law, said that Costa Rica, at least as regards its general legal system, is not unique in facilitating the problem. “It’s a small Central American country with much less investigatory resource than the USA, and a poorly paid federal justice department,” he said. “Bribery aside, probably when confronted by a US agency, like the US Department of Justice, the Costa Rican authorities want to assist as best they can.”
Byrnes investigated his first ‘Bank Guarantee’ financial fraud scam, also known as a ‘Guarantee Rollover” financial fraud, in 1994. It was “fax” and “letter” based. “Nigerian 419 financial fraud scams and dead relatives scams have flourished since communications technology has evolved. First it was the telephone. USA telephone based boiler rooms have been around since before the depression. Those still exist. Wolf of Wall Street genre,” he said.
Byrnes explained that then came fax communication, which reduced the cost of criminals in foreign countries to prey upon Americans with fax machines. “Also, state police, even federal departments in different states and on different coasts, have a difficult time coordinating prevention efforts. It is do-able, but requires some effort. And that is within the USA,” he said.
Byrnes noted: “Add a foreign country to the scam, where the foreign government language is not English, and resources are much less than within the USA, and the criminals have a real advantage.”
Email and modern communications technologies like VoIP have made it even easier to set up and run these types of scams. Using these technologies from foreign countries like Costa Rica make it even more difficult for authorities to crack down on them.
According to Stoltmann, the securities laws in Costa Rica are famously soft on securities violators. “Costa Rica is where the U.S. was in the 1920s when it comes to securities protections,” he said. “The biggest problems have to do with extradition. Since securities fraud is not a violent crime, Costa Rica has been notoriously lax, and outright unwilling, to co-operate with the U.S government when it comes to extradition. This doesn’t appear to be changing any time soon.”
The Department of Justice was not willing to comment specifically on Costa Rica as a site of these scams, but Carr did note that cases are increasingly global in nature. “Since nearly all criminal cases have international implications, investigating these cases requires the Justice Department to embrace technology, cooperate with foreign partners, and understand and navigate foreign laws, many of which are very different from our own,” he explained.
Carr added: “The Justice Department’s Criminal Division has personnel in more than 45 countries around the world who, among other responsibilities and in conjunction with the Criminal Division’s Office of International Affairs, help facilitate the collection of evidence from abroad through collaboration and cooperation with our international law enforcement partners.”
Statements from the Department of Justice on specific arrests and prosecutions do point to co-operation from Costa Rica’s government, however. As Byrnes explained, it is often a case of lack of resources.
He noted: “Focusing on governments is not going to protect US persons from these scams, or lead to getting funds returned. Some countries, the US government alleges, are perpetrators of financial crime. The US DOJ alleges that elements of the Russia and China government have been complicit with allowing cyber crime and financial fraud against US persons. For other countries, it’s a problem of lack of resources — and focus.”
But, Byrnes said, each crime requires a bank to first send the funds, and a bank to receive them. “So focus on the banks, and use the regulation in place along with the courts, to hold them accountable. Good banks can drive bad banks out of the financial system by refusing to do business with them, like host correspondent accounts,” he said. “Once US banks take a stand and get out of the ‘bad’ business of ‘turning a blind eye’, which the evolving law is considering complicity, the criminals will be driven to find other means to gather funds from unsuspecting persons.”