That “Nigerian Prince” e-mail scam? It’s as old as the hills.

scamsMost people I know have received at least one of them over the years:  a heartfelt plea to help some poor soul in a foreign land who is in need of assistance.

And if you help, you’ll be duly rewarded – with enough cash that you can quit your job and retire early.

… All this for simply delivering a few thousand dollars in funds up-front.

It’s amazing that people fall for these sorts of scams – but they do.  Some folks can’t see beyond their dreams of avarice, no matter how sketchy the premise.

And the fact that these schemes have been pumped into seemingly every e-mail inbox in existence over the past 15 years or so proves that they work on some level.

It turns out that this isn’t just some phenomenon of the e-mail era, where mass solicitations can be done for practically no out-of-pocket cost.  (Or even in the FAX era before that.)

In fact, this “advanced fee” swindle – and variants of it – dates back half a millennium.

… To the year 1588, to be precise.  That’s when the so-called “Spanish Prisoner” scheme appeared for the first time.  Here’s how it went:

A fraudster sends someone a letter purportedly on behalf of some wealthy aristocrat who is imprisoned under a false name in a Spanish jail cell.  The letter-writer claims that he can bribe the guards to allow the prisoner to escape – but needs money up-front to pay the bribe.  The letter recipient is asked to provide a specific amount of funds for the jailbreak – with the assurance that the freed nobleman will repay ten-fold the funds later.

scam letter
Appealing for advance fees: Same old scam, but in an earlier era …

Despite the 500-year span, this story doesn’t sound much different from the “Nigerian Prince”-type appeals most of us have received in recent years.

Proving how resilient the swindle is, in 1898 the New York Times reported on a particularly scurrilous scam that was circulating in the United States at the time.  The March 20, 1898 edition of the newspaper described the scheme as follows:

“A man in the country receives a letter from a foreign city … The letter is written on thin, cross-lined paper such as is used for foreign letters, and is written as fairly well-educated foreigners write English, with a word misspelled here and there, and an occasional foreign idiom.  The writer is always in jail because of some political offense.  He always has some large sum of money hid, and is invariably anxious that it should be recovered and used to take care of his young and helpless daughter by some honest man …”

There was even a short story written on this very topic by mystery author Arthur Train which appeared in Cosmopolitan Magazine in 1910.

How did the “Spanish Prisoner” story migrate to Nigeria by way of New York?

The answer has everything to do with the end of colonial rule in the former French and English colonies of West Africa.

Immediately following Nigeria’s independence in 1960, the highly corrupt successor regime plunged the country into political and economic chaos – there’s really no other way to describe it.

Even the discovery of offshore oil riches did little to alleviate the country’s ills (and in fact may have contributed even more to the sky-high levels of corruption and malfeasance).

Then, in the early 1980s the oil boom fizzled, leaving in its wake a shattered economy and a population in desperate need of money.  Soon, the “Spanish Prisoner” saga morphed into the “Nigerian Prince” story — and we were off to the races.

Other nations in the region weren’t immune to the same impulses:  Ivory Coast, Senegal, Gold Coast/Ghana, Upper Volta/Burkina Faso all experience similar growing pains as young countries, with the attendant social strife.

Sometimes the scam stories took on different permutations:  romance scams, lottery schemes, work-from-home swindles … and they were perpetrated in two languages (French and English), with FAX machines (and later e-mail inboxes) targeted in the United States, England, Canada, Australia, France and elsewhere that were inundated with appeals.

But Nigeria was – and continues to be – the modern-day epicenter of such frauds.

In fact, the very term the U.S. government uses to identify these advanced fee schemes is “Nigerian 419 scam,” which refers to Section 419 of the Nigerian criminal code.  It was added by the Nigerian judiciary to cover fraudulent activities of this type once they became so ubiquitous.

Human nature being what it is, advanced-fee scams like the “Spanish Prisoner” or “Nigerian Prince” will never die.  As long as there are people longing to “get rich quick” – on both sides of the bargain – we’ll see it continue to pop up.

It’s proof yet again that despite the technological leaps we’ve made in communications over the centuries – from couriers and pages to postal delivery, FAXes and e-mail – basic human impulses remain the same.  You can scam in any language … use any technology … and find a “useful fool” no matter where and when.

Fraud and Abuse in Government Programs: It’s Really Not About Politics

Medicare and Medicaid Fraud and Abuse ... It's PervasiveMalcolm Sparrow, esteemed author and professor at Harvard University’s Kennedy School of Government, has been alerting us recently about the problems with various government programs like Medicare and Medicaid.

He’s painting a pretty bleak picture, actually. And the issues have little or nothing to do with ideology, but of competence.

Dr. Sparrow’s main argument is that the seemingly endless stream of horror stories about Medicare and Medicaid scams proves that many people are using these programs as “personal tills.” The number of cases that have come to light in recent years runs into the hundreds and involve millions of dollars – and there are likely many more incidences that have not ever been uncovered.

Seeking to find common threads between the many cases of fraud and abuse, Dr. Sparrow has concluded that the system’s vulnerability comes not from how it is designed, but because of the payment mechanisms the federal government has chosen to utilize.

It turns out that most Medicare and Medicaid funds are paid out automatically in response to electronic claims received from a slew of healthcare providers. Most of these claims are processed using rules-based systems – with no human interaction at all.

What this means is that fraudsters need only learn the rules, and then proceed to submit hundreds or thousands of bogus claims electronically – with little risk of detection.

And here’s a real kicker: If someone makes a mistake in their submission, the government returns a computer-generated message explaining the error(s) – thereby enabling the fraudulent activity to continue!

In short, those who are gaming the system find it nearly effortless to receive payments for fabricated claims … all because the systems check for billing “correctness” but not for “truthfulness.”

Dr. Sparrow’s conclusion: “The simple rule for getting rich quick through health care fraud is [to] bill your lies correctly.”

The thing that makes this state of affairs doubly distressing is that the government has been aware of the propensity for abuse for years now.

Dr. Sparrow quotes one Medicaid fraud investigator back in 1995 warning about the fraud risk of electronic claims processing: “Thieves get to steal megabucks at the speed of light, and we get to chase after them in a horse and buggy. No rational businessman would ever invent a system like this.”

But did this realization make a difference in “business as usual”? Nope.

Why? Dr. Sparrow believes it’s because the processing efficiencies of such payment systems are so obvious and tangible. But the problem with such an approach is that it becomes a sitting duck for fraud. Dr. Sparrow sets up the scenario like this:

“The recipe for disaster is now clear. Whatever the nature of the payments … pay them electronically. Set up the system with honest claimants in mind. Allow claims to be submitted electronically. Set the administrative budget low enough that the bulk of the claims have to be paid without verification.”

He then proceeds to conjecture how these programs make it so far down the road with so little in the way of critical evaluation:

“To make things really dangerous, add a degree of urgency to the public purpose … Urgency tends to trump caution and raises policymakers’ perception of the ‘business-acceptable risk.’ And if it’s a really ‘valuable’ program, supporters and officials will be loath to hear any criticism of it, and to discount reports of fraud.”

After painting such a bleak picture, Dr. Sparrow does not leave us without a path forward to a possible solution. He notes that fixing vulnerabilities in Medicare, Medicaid and other federal programs would offer good promise for long-term deficit reduction – an action that both political parties could support. But there needs to be the political will to make major structural and procedural reforms to the programs in order to meet the objective.

Call me a curmudgeon, but I’m a bit less optimistic than Dr. Sparrow; much as I’d love to believe that these changes could happen with everyone on board with the program, I’m not holding my breath waiting for them to happen anytime soon.

Insurance Fraud: The $80-billion Elephant in the Room

Insurance FraudIn all the debating about health insurance over the past two years, issues of consumer access and allowing pre-existing conditions have been at the forefront of the discussion.

One aspect that’s been much less reported is the issue of insurance fraud. Recently, I read some eye-popping statistics from the Coalition Against Insurance Fraud (CAIF). This not-for-profit organization estimates that the level of annual insurance fraud amounts to the equivalent of ~$950 for each household in the United States.

Moreover, the Insurance Information Institute estimates that fraud accounts for ~10% of the losses in the property and casualty insurance segments, while the National Health Care Anti-Fraud Association reports that ~3% of the U.S. health care industry’s expenditures are due to fraudulent activities.

So we’re not talking chump change.

Insurance fraud to the tune of $80 billion per year doesn’t happen just because of a few bad apples out there. What’s happening is far more serious than that. Indeed, there are highly organized fraud rings operating throughout the country engaging in everything from staging dangerous accidents to setting up bogus medical services.

The problem goes beyond merely the added cost being borne by consumers. CAIF contends that lives can be endangered, too, due to staged auto accidents, arson incidences, and “medical procedures” being performed by phony physicians.

Is it any wonder that insurance companies like GEICO have well-staffed special investigations units devoted to ferreting out illegal insurance activities wherever they can find them.

Insurance fraud has surely been a problem since the dawn of time, because at its heart is the opportunity for financial profit. In response, a plethora of national and state laws aimed at controlling fraudulent activities have been on the books for years (although surprisingly, insurance fraud is a crime in just 48 of the 50 states – what is it about Virginia and Oregon, I wonder?). Most states maintain their own fraud bureaus as well.

But like so much else the government tries to control or influence, all of these earnest efforts to stem fraudulent activities don’t seem to be adding up to much or getting us closer to a fraud-free world.

Now here’s an idea: Let’s pass some more anti-fraud laws!