In January 2015, a man using a fake name purchased at least two vehicles online from Louisiana dealers with the intention of shipping them overseas.

In January 2015, a man using a fake name purchased at least two vehicles online from Louisiana dealers with the intention of shipping them overseas.

When the Internet department at Mansfield Auto World closed a deal this past January with an out-of-state customer for a 2012 Toyota Venza, staff didn’t expect the dealership to end up on the hook for the car’s $16,900 selling price. But they were even more stunned when the dealership’s brush with fraud ended when the vehicle was discovered on a cargo ship bound for Nigeria.

On Jan. 26, U.S. Customs and Border Protection (CBP) agents seized the car from a vehicle carrier called the Morning Calypso, which had just docked in the Port of Philadelphia — more than 1,300 miles from the Louisiana dealership where the vehicle was purchased with stolen credit cards. The perpetrator, who bought the car using a false name and address, is still at large.

“All our checks and balances failed us,” says John Adams, Mansfield’s co-owner and general manager. “This guy was brazen.”

Mansfield’s Venza was just one of 272 stolen vehicles seized by customs at U.S. ports in the first quarter of 2015. And according to a CPB agent who worked the case, the majority of those vehicles were acquired via financial fraud.  

“We don’t see vehicles on these ships because of carjacking,” says Supervisory CBP Officer Timothy Walinskas. “They are most likely there due to some kind of fraudulent purchase.”

Dangerous Trends
Last October, the National Insurance Crime Bureau launched an initiative to highlight a growing trend in auto theft: financial fraud. Stats from the nonprofit agency indicate that auto theft has been on the decline for decades, but NICB Director of Public Affairs Carol Kaplan points out that financial crime doesn’t fall under the traditional auto-theft umbrella.

“It’s not like somebody goes and smashes a window and hot-wires a car to steal it,” she explains. “They are stealing it through financial means, so when the statistics for stolen cars are submitted, they do not include cars that have been stolen through this method.”

The NICB’s initiative was spurred by a multistate scam that came to a close at the August 2014 sentencing of 54-year-old Verita Hines-Flagg and her nephew, 29-year-old Benjamin Hines. The pair had leased five luxury vehicles worth more than $300,000 from dealerships using stolen identities — crimes NCIB Senior Special Agent Mike Kelso calls “the tip of the iceberg.”

“There were other people involved,” says Kelso, who worked the case in conjunction with the police department in Brown Deer, Wis. “We couldn’t get the rest of them charged.”

In fact, Hines-Flagg and her nephew managed to lease vehicles across several states without being apprehended. It wasn’t until the pair opened a line of credit at a Kohl’s department store in Wisconsin and immediately purchased $1,000 worth of merchandise that police were alerted.

Since 2010, customs agents have seized more than 3,000 stolen vehicles in U.S. ports, the majority of which were stolen via financial fraud.

Since 2010, customs agents have seized more than 3,000 stolen vehicles in U.S. ports, the majority of which were stolen via financial fraud.

When officers arrived on the scene, they found a brand-new Lincoln sedan valued at more than $50,000. The vehicle, which was retagged, had been fraudulently leased and payments had never been made.  

New Auto Theft
Off the top of his head, Kelso can list dozens of cases in which a fraudster was able to walk into a dealership with fake identification and walk out with a car. “This is the new auto theft,” he says. “In the early 2000s, it was cloning cars. Now it’s this.”

As recently as mid-May, customs agents seized a stolen 2008 Nissan Quest from a ship headed to the West African country of Benin. The vehicle was purchased from a dealership in Paducah, Ky., using a stolen credit card. And from 2010 through the first quarter of 2015, customs has seized 3,128 stolen vehicles in U.S. ports bound for other countries. Many of those cars were headed to Africa or Eastern Europe, which comes as no surprise to the NICB’s Kaplan.

“In some of these countries — and in Africa in particular — it’s just not possible to buy some of these vehicles over there,” she says. “So let’s say they get somebody to purchase a vehicle here and they ship it out of the country, they can sell it for three times the value that it would get in the United States.”

In the same month the NICB launched its initiative highlighting financial fraud in the automotive industry, credit and fraud risk solutions provider ID Analytics issued a white paper addressing a type of fake credential called “synthetic identity.” The company’s chief analytics and science officer, Dr. Stephen Coggeshall, says that using synthetic identities is now “the dominant mode of identity fraud,” overtaking other methods like identity theft and identity manipulation.

Synthetic identities are incredibly difficult to trace, because they don’t lead back to a real person. Fraudsters use a combination of elements such as a fabricated Social Security number, name, date of birth, address or phone number, and then establish that identity by applying for credit cards or a cellphone.

“For credit agencies, it’s hard to tell that applicant from an immigrant — someone who is new to the credit-granting system, and they just haven’t seen them before,” Coggeshall explains. “And there’s a rule some of [the credit agencies] use: They decline the application the first two times, but on the third try they will say, ‘It’s probably somebody we’ve never seen before, so we’re going to let it through.’”

Once the identity is established, the fraudster will often spend long periods of time building up his or her credit line by paying off small purchases. Then the fraudster will “bust out” the entire credit line by using it to secure vehicle financing with no intention of paying it off.

Mansfield Auto World employees were stunned when a 2012 Toyota Venza they sold to an Internet customer turned up on a ship bound for Nigeria. The vehicle was purchased using stolen credit cards.

Mansfield Auto World employees were stunned when a 2012 Toyota Venza they sold to an Internet customer turned up on a ship bound for Nigeria. The vehicle was purchased using stolen credit cards.

“It’s actually not that hard to establish the validity of a synthetic identity,” Coggeshall says. “And once you’ve done that, you can start doing all sorts of things.”

Data from ID Analytics shows that roughly 2% of new credit card and cellphone account applicants from 2010 to 2013 were actually synthetic identities. The firm also found that synthetic fraud was about four times more risky than other types of fraud.

“Dealers’ exposure to fraud continues to increase,” Coggeshall notes. “They need to be serious about protecting themselves.”  

Fraud Online
The rise in synthetic identities was spurred, in part, by a change in how the U.S. Social Security Administration generates Social Security numbers. In 2011, the agency switched to a randomized system, making it easier for fraudsters to create potentially valid Social Security numbers.

But another major contributing factor was the advent of the Internet and advances in digital technology, Coggeshall says. The anonymity the Internet provides allows identity thieves to easily and quickly carry out scams from remote locations.

And that could be bad news for today’s dealers, who are contending with an increasingly web-centric customer base. An April 2015 study from technology consulting firm Accenture found that 80% of car buyers are using some form of digital technology to research vehicles, while 62% are initiating the car buying process online. And 75% of consumers polled said they’d consider conducting the entire transaction over the Internet.

Mansfield Auto World’s Adams is no stranger to the online car buyer. The dealership, he says, sells at least three vehicles to out-of-state Internet customers each month. So when the Internet department received an email inquiry for the 2012 Venza from a shopper in Florida, employees thought nothing of it.[PAGEBREAK]

“[The customer] had questions about the vehicle, requested more information about it, and my person took extra pictures and texted them to him,” Adams says. “He spoke on the phone to my sales and F&I managers. He asked if we could work with the price. It sounded like a normal transaction that we go through with any consumer.”

Initially, the customer put the vehicle’s down payment on a Discover card and arranged for the dealership to deliver the car to his address in Florida. Mansfield Auto FedExed the necessary paperwork and within the week, the customer put the balance of the vehicle’s price on a second credit card.

But right before Christmas 2014, the customer called to say he was spending the holiday in Chicago and would arrange for a transport truck to pick up the car.

“We weren’t going to be in front of him at the end of the transaction; something that is covered in our normal policies,” Adams explains. “Too many managers got involved and nobody asked the right questions. One manager thought he was only OK’ing a deposit on a credit card, when it was actually for the balance. It just missed everybody’s radar.”

Case Closed
Two days after a transport truck arrived to pick up the Venza, Adams received a rude awakening: a letter from a credit card company stating that the transaction was in dispute. An investigation by the Mansfield Police Department revealed that the credit card numbers used in the purchase actually belonged to account holders in New Jersey and Texas.

The detective working the case, Sgt. Billy Locke, says the suspect put a fake name on credit cards bearing real numbers — and even sent the dealership a fraudulent Florida driver’s license. And when he reached out to customs, Locke discovered that the Venza had already been cleared for departure out of the Port of Jacksonville, Fla., as it appeared to have been legitimately purchased.  

“The vehicle had already shipped out of Florida, but as far as we knew at that point, it was headed overseas,” Locke says. “But because the ship stopped in Pennsylvania, customs was able to get the vehicle back here.”  

Customs seized 272 stolen vehicles in U.S. ports in the first quarter of 2015. The cars were bound for countries where they could be sold for an inflated price.

Customs seized 272 stolen vehicles in U.S. ports in the first quarter of 2015. The cars were bound for countries where they could be sold for an inflated price.

Mansfield Auto World counts itself lucky. Just a few hours away in Jefferson Parish, La., the same suspect purchased a vehicle online from a second dealership. That vehicle was never recovered.   

“That’s the typical pattern,” the NICB’s Kelso says. “They come up with either stolen IDs or synthetic identities, and then they’re going to hit as many dealerships as they can before it catches up with them.”

New Policies
Identity fraud is not a new challenge for dealerships. In 2008, the Federal Trade Commission passed the Red Flags Rule, which required creditors and financial institutions — including dealerships — to develop and implement identity theft prevention programs. Enforcement of the rule went into effect at the end of 2010.

But ID Analytics’ Coggeshall thinks that programs developed under the Red Flags Rule can only go so far.

“Those programs can catch the first instances, such as if a name and Social Security number don’t go together,” he says. “But a fraction gets through, and that’s why people are doing it — because it works in enough cases to make it worthwhile.”

Sgt. Billy Locke

Sgt. Billy Locke

And thanks to more advanced scams like those involving synthetic identities, identifying potential red flags could be even more difficult. Coggeshall recommends that dealers consider fraud prevention software that uses algorithms to determine the validity of a customer’s credentials. But he warns that even if the dealership catches a fraudster in action, they might not catch the fraudster — thanks to the proliferation of Internet buying.

“Any transaction that takes place in a faceless environment online has a lot higher potential for fraudsters for a number of reasons,” Coggeshall notes. “It’s much easier to misrepresent yourself — who you are — in a faceless transaction. But also, the odds of you getting caught are a lot smaller. You’re not physically at a dealership.”

For this very reason, Mansfield Auto World has tightened up its policies and procedures related to Internet leads. Adams says staff can take a deposit via credit card, but unless the customer is taking delivery in person, the balance cannot be paid the same way.  

But it wasn’t all bad news: Not only did the Venza come back in perfect condition, it was sold 10 days later to a local customer who wasn’t deterred by the vehicle’s derailed overseas trip.

“We’ve been working the Internet hard and heavy for the past seven years,” Adams adds. “But this is the first time something like this has happened. I’ve never seen anything like this.”

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