FBI: Watch Online Account Openings
An FBI lead investigator suggested financial institutions step up efforts to prevent fake online account openings following the announcement of a fraud scheme authorities said involved hundreds of credit unions and banks.
Michael Thoreson, the FBI special agent in charge of the Pittsburgh-based case, told CU Times the investigation is expected to lead to new charges against more suspects after five people were indicted last month.
The FBI said at an April 23 news conference that five people were indicted for allegedly stealing the personal IDs of thousands of people – including credit union members and employees.
The five-person ring used stolen IDs to open more than 1,000 bogus accounts at hundreds of banks and credit unions across the nation, the FBI said. The defendants, who have all pleaded not guilty, used those accounts to deposit more than $10 million in fraudulent federal income tax returns since 2005. Some of those funds had been transferred to Nigeria, authorities alleged.
Although nine credit unions from seven states and the District of Columbia were named in court documents detailing the nationwide fraud, few CEOs are acknowledging their cooperatives were affected, while others said their credit unions weren't involved at all.
Thoreson said because of the FBI's limited resources not all of the credit unions referenced in the indictment were contacted. The credit unions named in the court documents were randomly selected in the FBI's efforts to show that the fraud was occurring nationally and not just on the East Coast where the accused five were living, Thoreson said.
He added that he has seen what he called “irregular activity” occur related to this fraud case even after it had been publicly exposed.
While financial institutions do a very good job at detecting fraud every day, Thoreson said, criminals have figured out a way to answer questions during the online account opening process that help credit union determine membership eligibility. Online account applicants are asked questions that presumably they would only be able to answer.
But that apparently is no longer the case.
“These guys (the accused) have figured out how to answer those questions,” Thoreson said. “I don't want to reveal how they have figured it out. I have seen hundreds and possibly thousands of credit reports these people have run and have gotten information from. They are really that organized and they are really that good.”
Because of this, Thoreson recommended financial institutions review their fraud detection systems to see if they can take additional steps to prevent fake account openings.
Read more: Some credit unions dispute the FBI's victims list ...
The $4.1 billion Pennsylvania State Employees Credit Union, one of the nine cooperatives named in court papers, processes about 3,000 online account applications every month.
Even though the Harrisburg, Pa.-based credit union invests in expensive fraud detection technology, at least one bogus account related to the FBI case was opened. In April 2011, the credit union noticed the account was receiving more than $41,000 in federal tax returns, said Gregory Smith, president/CEO of PSECU.
PSECU reported the fraud to the IRS, a year before the $252 million Widget Financial FCU in Erie, Pa. reported 10 suspicious accounts to the FBI in December 2012. Federal investigators credited Widget Financial's tip for cracking the fraud case wide open.
“I never want to rain on anyone's parade and Widget Financial Credit Union deserves credit for what they did,” Smith said. “We filed our Suspicious Activity Reports with the IRS in 2011 as we typically do when we uncover these types of scams. We were able to seize $11,000 of that ($41,000) and returned it to the IRS.”
Smith said the credit union also blocked five other accounts associated with the fraud, but its impact on PSECU was negligible.
In addition to Widget Financial and PSECU, court documents named the $169 million Treasury Department Federal Credit Union in Wash., D.C., the $361 million Air Force Federal Credit Union in San Antonio, the $581 million Red Canoe Credit Union in Longview, Wash., the $78 million Rutgers Federal Credit Union in New Brunswick, N.J., the $3 billion Lake Michigan Federal Credit Union in Grand Rapids, Mich., the $83 million Winward Community Credit Union in Oahu, Hawaii, and the now-merged CWA Long Island FCU.
The CEOs of Air Force Academy and Red Canoe said their credit unions were not involved in the case.
“It's news to us being named in the indictment,” said Jim Spaulding, president/CEO of Red Canoe. However, it is conceivable that the credit union took a loss of an account or two but didn't know they were attached to the massive fraud case, he added.
“I checked with my staff,” said Bob Glenn, president/CEO of Air Force FCU. “We are not the credit union referenced in the indictment.” He suggested federal investigators may have meant Air Academy CU in Colorado Springs, Colo.
“We don't see anything that ties us to that whole (fraud) thing,” Air Academy FCU President/CEO Glenn L. Strebe said.
Other credit unions declined to comment when contacted by CU Times.
“I have nothing to add to what has already been published,” said Alfred Scipio, president/CEO of Treasury Department FCU.
Rutgers FCU, Lake Michigan FCU and Winward Community CU did not return phone calls and emails.
Paul Young, COO and security officer at Island FCU, said he was not aware that the fraud case involved CWA Long Island FCU. That small cooperative merged into Island FCU in July 2013.