Several indictments in recent years outline how organized crime has infiltrated publicly traded U.S. businesses. Various criminal groups have executed a variety of schemes to defraud investors and government agencies out of hundreds of millions of dollars.
Among the criminal organizations named in these indictments are the Italian Mafia, the Russian mob and an Armenian-American organized crime ring.
A federal indictment in New Jersey accuses a group with Mafia ties of taking over a publicly traded Texas company and pillaging it into bankruptcy. The alleged conspiracy involved threatening board members to seize control of the company and then using various methods to defraud investors of $12 million.
Individuals linked to organized crime have to stay behind the scenes from business transactions likely to be scrutinized by internal and external accountants. The criminals often hide their involvement by setting up a maze of easily formed shell companies.
Organized criminals often have a thorough understanding of audit procedures and know how to disguise their fraudulent activities in company financials. One of the most popular tactics is to set up a shell company that is paid through a consulting deal with the company being looted. It’s difficult to quantify whether consulting or other services have been rendered.
CPAs performing accounting services for a company, including preparing a company’s financial statement, may identify signs of possible fraud, such as vendors or other entities that the company has paid but that list post office boxes as their addresses.
CPAs who encounter suspicious transactions in the financials may determine to ask questions of management and others to find out the crucial details of the deal. Who approved the transaction? What services were rendered or products purchased? What documentation is there to show that the transaction was legitimate?
Organized crime specializes in spotting CPAs and other professionals who have a personal vice, such as a gambling problem, or who are willing to compromise their ethics in certain situations. The criminals then use the threat of exposure or even physical harm to push the professional to act as an inside agent who helps execute and hide illegal activities within the victimized business.
Randal A. Wolverton (randal.wolverton@gmail.com) is a retired FBI special agent who owns Randal A. Wolverton CPA LLC in Kansas City, Mo.
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