College Scandal Highlights Payments Fraud

Payments and commerce fraud comes in a variety of rancid flavors and uses a variety of tactics, many of them increasingly sophisticated, mobile and digital. But sometimes payments-related fraud comes down to old-fashioned methods, and that was the case on Friday afternoon (Sept. 13) in the college admissions bribery case involving multiple sets of wealthy parents – including a mother who was the first to be sentenced in this scandal.

Actor Felicity Huffman was sentenced to 14 days in jail for her role in the scandal. (She could have received a month in prison, according to the recommendation of the federal prosecutor attached to the case.) In May, according to The New York Times, Huffman pleaded guilty to “one count of conspiracy to commit mail fraud and honest services mail fraud.” Huffman, in fact, “is the first of the nearly three dozen wealthy parents charged in the scheme to be sentenced, and her sentence (was) being closely watched as an early sign of whether the penalties will be significant.”

Scope of the Scandal

Broadly, prosecutors have said this scandal involved parents paying bribes to college officials and engaging in other under-the-table acts to secure prime college spots for their offspring. According to the charges filed against Huffman, “when a college counselor warned her that her elder daughter’s SAT score would be too low to be considered by top-performing arts schools, she listened to what he suggested next: She should pay him $15,000 to cheat on the test,” according to the Times account.

Bribery almost seems quaint in this era of ID theft, hacks, data breaches, ransomware and other such digitally-focused scams. But “almost” means just that – this college admissions scandal is a reminder that bribery is still a common, costly and often very risky way to go about business and personal affairs. Indeed, some major players in the world of digital payments and commerce probably know that better than anyone else.

Take Walmart, for instance. Just a few months ago, news emerged that the retail chain would pay a total of $282 million to settle with the U.S. Department of Justice and the Securities and Exchange Commission (SEC) on charges that it bribed an intermediary to obtain construction permits and went against the Foreign Corrupt Practices Act (FCPA). The SEC will get $144 million and the DOJ will get $138 million to settle the criminal bribery charges.

An investigation was launched after The New York Times wrote a series of pieces in 2012 outlining how Walmart may have paid for permits to build stores. The DOJ started a wide-reaching investigation of Walmart companies around the world, including India, Brazil, Mexico and China.

According to court filings, from 2009 to 2010, Walmart Brazil intentionally and knowingly fed false information to its parent company, which was aware of the malfeasance. The faulty information was then displayed on Walmart’s financial statements.

Filings also say Walmart Brazil paid $527,000 to an intermediary in exchange for construction permits. Walmart Brazil would call the intermediary a “sorceress” and “genie” for its ability to magically make permits appear.

The SEC found that Walmart violated the FCPA.

More Bribery

And back in May, Stephen Calk, the founder of the Federal Savings Bank of Chicago, a mortgage lender and a former economic adviser to President Trump’s 2016 campaign, was charged with bribing Paul Manafort, Trump’s former campaign chairman. According to a report in The Washington Post citing the indictment, which was unsealed in the Southern District of New York, Calk approved $16 million in loans to Manafort in exchange for getting a job with the Trump administration. Calk ignored internal standards at the lender and lied to regulators in order to approve the loans. He also provided Manafort with a list of jobs he would like at the White House, including treasury secretary and ambassadorships in 19 locations. Calk was interviewed for the undersecretary of the Army, but didn’t get the job.

Bribery is still used to grease many wheels, even in this 21st-century era of sophisticated digital fraud attacks.

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