ACCOMPLISHMENTS OF THE TORONTO STRATEGIC PARTNERSHIP 2000 — 2007 MINISTRY OF GOVERNMENT SERVICES JANUARY 2008 Accomplishments of the Toronto Strategic Partnership February 2000 – September 2007 I. Nature and Extent of Cross-Border Fraud The 1990s saw heightened attention to the burgeoning problem of cross-border fraud. In response to that challenge, in 1997, Canada and the United States created a Binational Working Group to examine the serious and growing problem of cross-border telemarketing fraud.1 Since then the problem of cross-border fraud has grown dramatically. Rapid advances in global trade and information technology appear to have increased the speed with which cross-border crimes are committed. With the advent of the Internet, the introduction of Voice Over Internet Protocol phone systems, and cheaper long distance phone rates, it has become increasingly easy for scam artists in one country to target consumers in another. No longer limited to telemarketing and with new tools at their disposal, scam artists are taking advantage of the full panoply of methods by which to communicate with consumers. With perpetrators using classified advertising, telephones, direct mail, and the Internet, the problem truly is more appropriately referred to as Mass Marketing Fraud. The Binational Working Group’s Five-Year Report on Mass-Marketing Fraud noted substantial increases from 1997 to 2002 in the areas of fraudulent lottery schemes, loan offers, and fraudulent low-interest credit card offers. Data, gathered since the issuance of the Five-Year Report, confirms the continued growth in cross-border fraud. For example, in Calendar Year (CY) 2000, the FTC received 8,306 complaints from U.S. consumers against companies operating in Canada. By CY 2006, that number had grown to 24,573. Complaint data over the last decade also show that two categories represent the great majority of complaints: 1) advance fee loans and 2) prizes and sweepstakes. Complaint data, however, tells only part of the story.2 For example, the FTC’s 2004 survey of 2,500 randomly chosen consumers found that nearly 25 million adults – 11.2 percent of the adult population – were victims of fraud during the year studied. The most frequently reported type of consumer fraud was advance-fee loan scams, in which consumers pay a fee for a “guaranteed” loan or credit card. Four and a half million consumers – 2.1 percent of the U.S. adult population – paid advance fees but did not receive the promised loan or card. In fact, some consumers reported that more than once during the last year they paid fees to get loans or credit cards they did not get. 1 Binational Working Group on Cross-Border Telemarketing Fraud, United States- Canada Cooperation Against Cross-Border Telemarketing Fraud: Report to President Bill Clinton and Prime Minister Jean Chrétien (November 1997). 2 As the August 2004 FTC Fraud Survey, Consumer Fraud in the United States: An FTC Survey, noted, only “an estimated 8.4% of consumers complained to ‘an official source’ – a local, state or federal government agency or a Better Business Bureau.” Thus, the complaint data reflects only a small fraction of the total amount of fraudulent activity. Most of those perpetrating these advance fee loan frauds are located in the Greater Toronto Area where they engage in two distinct types of fraud. There are the larger, more traditional boiler room operations that cold-call telemarket nonexistent credit cards, and there are a large number of smaller operations that advertise the availability of loans and request a fee before loan proceeds can be paid to the consumer. These smaller scammers tend to operate out of a large number of small sales rooms that open and close in rapid succession, hoping to avoid detection. While they initially used traditional classified advertising to reach their potential victims, these operations have recently turned to marketing through web sites on the Internet. Regardless of the means by which it is perpetrated, what is clear is that Mass Marketing Fraud harms consumers in both countries. U.S. and Canadian citizens have lost billions of dollars to these frauds. Even where a fraudulent enterprise is located in Canada and only targets consumers in the United States, Canadian citizens also are affected as the perpetrators often are criminals who regularly commit other crimes in Canada. In at least one instance, a search of a fraudulent Canadian-based telemarketing operation found machine guns and drugs, for example, that presumably were used for illegal activity in Canada. Early on the Binational Working Group recognized the value of forging strategic partnerships between U.S. and Canadian law enforcement partners to confront the challenges of cross-border Mass Marketing Fraud. The Toronto Strategic Partnership, forged in the wake of a telemarketing fraud conference held in Toronto in February 2000, was one of a number of such partnerships created to address these very real problems affecting U.S. and Canadian consumers. This report describes the Toronto Strategic Partnership and its members and summarizes its most significant accomplishments from its inception in February 2000 through September 2007. II. Partnership as a Means of Combating the Problem of Cross-Border Fraud Because the effects of Mass Marketing Frauds are geographically dispersed, they are not solely the responsibility of any one law enforcement agency or even any one country. Both Canadian and U.S. law enforcement have a significant interest in halting such scams and punishing the perpetrators. Moreover, records and other key pieces of evidence are frequently located in more than one country. Thus, not surprisingly, the 1997 Binational Working Group recommended that regional task forces be encouraged to cooperate across the border and, to the maximum extent possible, share available legal tools to fight U.S. – Canadian cross-border Mass Marketing Fraud. The Toronto Strategic Partnership was formed in February 2000, with its member agencies adopting a Memorandum of Understanding in May 2000. At its inception, the Partnership included the Toronto Police Service, the Ontario Ministry of Consumer and Commercial Relations (now the Ministry of Government Services), the Competition Bureau Canada, the U.S. Postal Inspection Service and the U.S. Federal Trade Commission. Although other Partners have joined or dropped out over the years, this critical core group has remained. Important new additions include the Ontario Provincial Police, the Royal Canadian Mounted Police and the United Kingdom’s Office of Fair Trading. 2 The Partnership’s success depends on the ability and willingness of the Partners to work together and on accumulated trust at both an individual and institutional level. Moving ahead effectively requires a commitment of resources from all levels of each Partnership agency, from the investigators, through their managers, to the heads of the agencies. All members of the Partnership have been fortunate to enjoy full support from top managers. The Toronto Strategic Partnership is efficiently designed and as a result has enjoyed success in addressing both large, well-organized scams, as well as the smaller, more fragmented operations. Each type collectively costs consumers millions of dollars. The Partnership has brought a number of cases against sizable operations, while executing large numbers of arrests and issuing warrants with respect to the smaller, more transitory operations. The Partnership’s efforts have included bringing both civil and criminal cases against the malefactors, as well as conducting consumer education, undertaking efforts to encourage newspapers to review questionable advertisements before printing them, and other initiatives. Partnership members have worked together on all Partnership initiatives. For example, the U.S. Federal Trade Commission has helped with investigations, interviewed consumers, and flown witnesses to Canada. The Postal Inspection Service has obtained statements from consumer victims and gathered data from Commercial Mail Receiving Agencies and electronic money transfer services to support Canadian law enforcement actions. Postal Inspectors have worked with United States Attorneys’ Offices to facilitate grand jury investigations to recover evidence in the United States and to seek mail and wire fraud indictments. All Partners share information within the confines of the laws and regulations that apply. Importantly, the U.S. SAFE WEB Act, which was signed into law in December 2006, gives the FTC new and expanded powers that will allow it to cooperate more fully with foreign law enforcement authorities in the area of cross-border fraud and other practices harmful to consumers that are increasingly global in nature, including spam, spyware, misleading health and safety advertising, privacy and security breaches, and telemarketing fraud. Specifically, the U.S. SAFE WEB Act gives the FTC enhanced authority in four key areas that are essential to cross- border enforcement cooperation: (i) information sharing; (ii) investigative assistance; (iii) confidentiality of information from foreign sources; and (iv) enforcement relationships. It also contains new provisions that will affect how the FTC investigates and litigates both domestic and cross-border matters. The Toronto Police Service Fraud Squad At the core of the Partnership are the investigators and staff housed at the Toronto Police Service. Although the Toronto Police Service Fraud Squad’s Mass Marketing Unit is headed up by