Filed Under:Claims, Investigative & Forensics

Organized Criminal Empires’ New Bag Of Tricks

Mobsters Shift from Drugs to Staged Crashes, Medicare Heists, Bogus Clinics

Editor's Note: This article has been contributed by Dennis Jay, the executive director of the Coalition Against Insurance Fraud (CAIF). For more information, visit the CAIF website, www.insurancefraud.org.

Mikhail Zemlyansky was nothing if not ambitious. The Russian native masterminded a sprawling crime empire that bled New York auto insurers with seeming impunity. His gang made at least $400 million in dirty crash-injury claims, federal prosecutors say. That audacious money haul is nearly the team value of the Baltimore Orioles. It was the largest auto-fraud scheme in U.S. history until the gang was broken open this past winter. 

Data are in short supply, but the anecdotal case is building. Investigators frequently say they’re seeing more gangs of larger scope, often tighter hierarchical organization and discipline, and well-oiled looting ability. Several nine-figure fraud sprees have surfaced just in the last few months alone. But whether the curve is way up, somewhat up or even flat, the fact is that organized crime maintains a dominant presence in the insurance-fraud business.

Organized crime itself is a slippery term. There’s no easy definition; call them fraud gangs or cartels. Whatever the name, they’re large, complex and often-insular operations that can be devilishly hard to penetrate. Some are homegrown; some are franchises of overarching mafias back in the home country. Some rings are quite large; others are smaller but still highly organized enough to be called organized crime.

Russian mobsters and those from former Soviet bloc countries are an especially forceful criminal presence in the U.S. The fall of the Soviet Union in 1991, for example, spawned numerous powerful crime gangs loosely known as the Russian mafia. They had learned little respect for government in the old Soviet Union and had developed acute survival skills by learning how to steal from the government. These mobsters exported those talents to the U.S. and are putting them to work against insurance systems. The FBI even has a task force solely for Eurasian crime—and it played a large role in Zemlyansky’s takedown.

Shifting Scams
In fact, drug dealers and other mobsters are switching to insurance because they perceive this crime as more lucrative, less-dangerous and possessing lower odds of being caught (refer to the chart).

Regardless of nationality, the better-mobilized fraud operations can lodge claims for hundreds of millions of dollars before they’re busted. Many more gangs may be trolling silently underneath the investigative radar.

Lawrence Duran was nailed with a whopping 50 years in federal prison last year for masterminding an attempted $205 million ransacking of the federal healthcare safety net for seniors. A crony received 35 years. 

Physicians, Lawyers Get Their Cut
Doctors also were on the take. They were paid to act as illegal straw owners of clinics actually dominated by gang members. Lawyers sued insurers, coaching the crash victims on what to say when auto insurers interviewed them.

The stolen insurance money was laundered through shell corporations and corrupt check-cashing services, officials say. These defendants used the money to finance princely lifestyles—including vacations in Mexico and Atlantic City; bling from Louis Vuitton, Chanel and Saks Fifth Avenue; plus expensive jewelry and limos.

A Sinister Underworld
Insurance fraud thus links into a larger and more sinister crime world. Syndicates that bilk auto insurers often engage in banking and credit card fraud, drugs and other crimes. Stolen insurance money could be helping finance these other crimes.

Rings also may be franchises of, or at least tied to, larger mob organizations back in their home countries. Insurance fraud then becomes an integral part of larger spider webs of global corruption and deceit. North Korea even has resorted to insurance fraud to help finance its crumbling economy, according to news reports.

An Expanded Fraud Menu
Unfortunately insurance fraud was only part of AP’s alleged portfolio. Identity theft, banking fraud, extortion, kidnapping, drugs, guns and other crimes were on the menu. In one kidnapping scheme, several AP members allegedly seized a victim and forced him to pay ransom. Several defendants targeted another victim in an extortion scheme lasting several months. They threatened the victim and his family to extract repeated payments, the FBI alleges.

AP also deals directly with high-level Armenian/Russian organized crime figures, both within the United States and abroad, the FBI says.

Bleeding The Medicare System
Karazianis also specialized in bleeding Medicare, a favorite target of fraud rings. He masterminded one of the bigger attempted Medicare heists in history—$163 million in false claims.

Many clinics were sham. No patients came for treatment, and no doctors were on staff. He simply invented patients and treatments and then slid the bills through Medicare’s payment system. One “clinic” in New York was merely a small office over an auto-body shop in Coney Island.

Some 22 of his gang members were convicted after an eight-year romp that stole at least $500,000 in insurance money. Chukwueke also illustrates another principal: Many organized crime gangs are smaller than their blimp-sized brethren but are still quite effective.

Florida’s fraud bureau, for instance, recently launched an ongoing takedown called Operation Dark Horizon. It’s the state’s largest no-fault auto-insurance bust in recent years.

Organized crime gangs are multitasking across lines of insurance. The same gang may be fleecing Medicare and running medical mills connected to staged-crash rings. But we don’t know how big the problem is because fraud fighters in different lines don’t often compare notes.

The days of investigators operating in silos are numbered—auto insurers tackling crash gangs, health insurers chasing down health gangs, and workers’ compensation insurers hunting their medical mills.

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