Fight against financial crime seeks on-going support

Northwestern Financial Review, Dec 15-Dec 31, 2004 by Hilgert, Jackie

The task force that pooled resources from financial institutions, law enforcement agencies and retailers to take a big bite out of financial crimes in the Upper Midwest, is about to lose its teeth. The Minnesota Financial Crimes Task Force (MNFCTF), the name given the alliance formed in 2000, stands to lose funding in six months unless the Minnesota legislature steps in. If the loss of funding occurs, it will come just as MNFCTF efforts are beginning to pay off for banks.

"The funding absolutely will end," said John McCullough, executive director of Retailers Protection Agency (RPA) and MNFCTF liaison. "We need recurring legislative funding to keep this going, and we need bankers' help in getting it."

McCullough's group, RPA, was formed in 1997 to give retailers a way to share information as they battled merchandise theft, which at the time was their great nemesis. Today, merchandise losses have been eclipsed by financial crimes and banks bear an increasingly larger burden of those losses, McCullough said.

Rural and small town banks are especially vulnerable. "In the Twin Cities, the big banks and big retailers have spent a lot of money fighting fraud," McCullough said. "Crooks are looking at small towns as soft targets."

The Upper Midwest Automated Clearing House Association formed an alliance with RPA to allow its members to benefit from task force efforts. "We wanted to give our member banks a tool to manage their fraud losses," said Fred Laing, UMACHA president. Many fraud crimes are regional and so are we, Laing said.

Financial institutions, retailers and law enforcement agencies that participate in the alliance use a webenabled tool to browse or share data on fraud activity. Data aggregated on the RPA web site, www.theftreporting.com; includes incidents of identity theft, counterfeiting of checks, ATM frauds, worthless checks, closed-account checks, credit card fraud, and other theft related schemes. The web site currently has 500,000 incidents posted with 30,000 more records being added each month.

Members receive alerts via email as new data gets posted to remind them to make periodic checks. "This way, a banker can scroll through the headers and choose which items are of interest," McCullough said. "We've made it fluid and dynamic to help financial institutions make the most of it."

McCullough said his experience with the data has led to some big catches. "Sometimes you pull on a thread and a whole criminal organization will unravel," McCullough said. The task force has found that 80 percent of all fraud crimes are perpetrated by the same 20 percent of criminals, with most using crime to support methamphetamine production.

"A key component for us is our operational plan to catch criminals and move their prosecution forward," McCullough said. The group operates a pre-trial diversion program to help move cases, such as habitual overdrawing of accounts, through the judicial process. They work cross-jurisdictionally, so regardless of where the incident occurred, they can move perpetrators through the court system toward sentencing. Average cases prosecuted by MNFCTF have resulted in sentences of 40 months.

Together, Laing and McCullough tout the good work that they insist can't come to an end next June. In 2003, the Federal Trade Commission reported 9.9 million incidents of identity theft, an increase of 4 percent over a year earlier. The same year in Minnesota, McCullough said, identity theft incidents dropped 19 percent and financial fraud overall fell between 25 percent and 30 percent. Task force efforts also have led to more than 150 arrests in 2003 and McCullough said two financial institutions have cut their fraud losses by 50 percent by working with the task force.

McCullough and Laing believe banking will suffer if the task force's funding is allowed to dry up. They're working to draft legislation to bring to the capitol, and are searching for victims, both individuals and bankers, willing to testify about their experience with fraud.

By Jackie Hilgert