Back in the heady days of the early '80s, invoice scams were thought to be one of the reasons for the creation of the Magazine Publisher's Association—and the implementation of a more robust approach to measuring circulation of titles. But despite these measures, such scams are still occurring today, as evidenced by Operation Edit, a major joint enforcement agency operation led by the Serious Fraud Office (SFO) that has led to six arrests.
The operation was conducted with support from the New Zealand Police, the Organised and Financial Crime Agency of New Zealand, the Commerce Commission, New Zealand Customs, and Inland Revenue and search warrants or other activities were undertaken at over 25 locations in the North and South Islands yesterday.
Five accused have been charged with multiple fraud offences and with participating in an organised criminal group. A sixth accused has been charged with participating in an organised criminal group. The arrests were made in Auckland, Picton and Port Waikato with over 60 staff from the various agencies involved in the operation.
The operation targeted an advertising invoice scam allegedly operated by the group that sold advertising in magazines that were either never printed or the number of magazines that were printed and circulated was grossly exaggerated. The magazines were generally titled in a way that suggests worthwhile causes in subjects such as road safety, parenting or drug addiction. It is alleged that the scam has generated up to $1.6 million since 2008, with those out of pocket including Co-op Taxis ($23,000), DHL and car yards, according to a Campbell Live report.
The five-month investigation followed Tristram Clayton's story six months ago and involved covert investigation, detailed analysis of banking records and numerous victim interviews.
"The agencies were able to each contribute specialist skills and achieve a result that none working alone would have been able to," says Simon McArley, acting SFO chief executive. "High volume/low value fraud is particularly difficult to address effectively, and this is a good example of agencies bringing together their skills from within their existing resources to address this.
"Invoicing scams cost New Zealand businesses hundreds of thousands of dollars a year and small businesses and charities are often the target," he says. "While the dollar amount of alleged offending is not huge, taking action in relation to high volume/low value fraud is important. Overall there can be a significant impact on the economy. By tackling this problem we build the business community’s confidence in the market and enhance legitimate economic activity."
MPA executive director John McClintock has dealt with this issue many times before (here's a link to the MPA's advice) and says the arrests are fantastic news.
"The MPA receives numerous calls from smaller advertisers who are approached or receive a scam invoice. Exactly as described, small amounts and normally around a title name that has a social service/support type name."
He says these scammers usually work on a fear factor as well.
"If the invoice is disputed the scammer then puts in process a debt recovery calling system, often operated out of the same office. These calls can become very ugly. It’s gratifying to see that the MPA may have been instrumental in assisting by passing on to the Commerce Commission and other bodies information that has been quietly worked on to produce such great results."
One of the big cases McClintock recalls in the past was against Ashley Guy Rhodes in 1998 where he and four of his companies were fined $130,000 for similar activities outlined above. He was also fined $20,000 for 47 charges of breaching the Fair Trading Act in 2007.
"It is unfortunate that in tough economic times these types of scams succeed. Pressure at the supposed advertiser's office place can mean that small invoices with what looks like a genuine copy of an approved ad can slip past careful scrutiny. Our message has always been 'Please check everything in regard to advertising' and never write back to them including your signature. Scammers will lift that to use to their benefit."
Also sitting in the wings at present, he says, is a suspected scam surrounding events/exhibitions where a publishing entity is claiming to have affiliation to the event/exhibition and is seeking advertising surrounding it.
"Again, due diligence is required in these things ... Way back when the MPA was established by the ‘business title/small publishers’, one of the tenets was to 'provide support to advertisers'. The MPA promoted credible publishing ethics and still does."