08 Sep

Sentences Handed Down in International Multimillion-Dollar Fraud Scheme

Thomas Huddleston Jr. – Corporate Counsel at Law.com

A lesson for would-be criminal masterminds: When looking for victims to scam, try someone other than the U.S. government.

A group of Kenyan nationals learned that the hard way Aug. 19 when U.S. District Judge John Copenhaver, Jr. doled out jail time ranging from 9-72 months for co-conspirators in a multimillion-dollar, international fraud and money-laundering scheme that targeted state governments.

In Charleston, W. Va., Robert Otiso, 36, of Elk River, Minn., was sentenced to 72 months in prison for conspiracy to commit mail and wire fraud; Paramena Shikanda, 35, of Minneapolis, Minn., received a 46-month sentence for conspiracy to commit money laundering; and Collins Masese, 21, of St. Paul, Minn., got 9 months for conspiracy to commit money laundering.

In a statement released by the Department of Justice, U.S. Attorney from the Southern District of West Virgina R. Booth Goodwin II praised the work of investigators and prosecutors working on the case, which he called “a victory for taxpayers.”

“When the state itself is defrauded, we all suffer,” he said in the statement. “Money taken from the public treasury is money not available for schools, roads, and police and fire departments.”

According to a release from the DOJ, the sentencing follows a joint federal investigation that came about after the defendants pulled off a scheme that resulted in the diversion of $3.38 million from the states of West Virginia, Kansas, and Ohio, and the Commonwealth of Massachusetts to bank accounts controlled by the Kenyan nationals.

The group targeted vendors who regularly receive payments from those states — including Deloitte Consulting LLP; Unisys Corporation; Accenture LLP; and Electronic Data Systems, Inc. — and wired more than $770,000 to bank accounts in Kenya before the accounts were frozen.

The defendants in the U.S. created entities with names similar to the vendors’ and then started bank accounts in the names of the targeted vendors. Fake direct deposit authorization forms were doctored and mailed to the states with voided starter checks from the fraudulent accounts.

The direct deposit authorization forms claimed that states could pay electronically for goods and services provided by the vendors. As a result, the states in question routed payments to the fraudulent bank accounts controlled by the defendants.

The multi-jurisdictional investigation began in May 2009 and incorporated the Secret Service; Internal Revenue Service; Postal Service; and Immigration and Customs Enforcement. State and local law enforcement agencies from North Carolina, Minnesota and West Virginia all played roles as well.

“It really was a testament to a lot of law enforcement agencies cooperating,” Goodwin said when reached for comment.

Tracy Coenen, a forensic accountant and fraud investigator, said these schemes are easy to set up based on the fact that banks cannot possibly keep up with every transaction that goes through. Also, because law enforcement agencies often are more focused on matters like violent crimes and homeland security, she said actual prosecution and convictions in fraud cases can be rare.

“So, for them to actually take on a financial fraud is heartening for me, although I know that it doesn’t happen nearly enough,” she said.

Goodwin — who said that he has prosecuted many fraud cases over the years — admitted that co-conspirators located abroad are normally difficult to apprehend, but he believes that all parties involved within the U.S. are now in custody. “If they were in the United States, we rounded them up,” he told CorpCounsel.com.

Most of the defendants signed plea agreements, and therefore are not eligible for the appeal process, according to Jack Tinney, of the Charleston-based Tinney Law Firm, which represented Otiso. However, because Otiso pleaded directly to the first count in an 8-count indictment, but did not sign a plea agreement because it was too restrictive, Tinney said they would likely seek an appeal to his sentence.

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