[HN Gopher] DOJ charges 10 with fraud in global air freight kick...
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DOJ charges 10 with fraud in global air freight kickback scheme
Author : ilamont
Score : 79 points
Date : 2023-04-15 18:47 UTC (4 hours ago)
(HTM) web link (www.aircargonews.net)
(TXT) w3m dump (www.aircargonews.net)
| idopmstuff wrote:
| From what I've heard about a lot of global freight contracting,
| it seems like there's a lot of favoritism - with ocean freight,
| for example, when ships are packed, you're not getting your
| shipments onto them unless you have good relationships with the
| carriers/brokers/other folks in the chain who can make it happen
| for you. I suppose blatantly taking kickbacks crosses the line,
| but it definitely seems like an industry where you'd expect to
| find this kind of thing.
| giantg2 wrote:
| Kickbacks, gifts, favors, or other customary considerations is
| basically how it works in many parts of the world. Just like a
| dowery or haggling is customary in some areas.
| vkou wrote:
| It's like that in local shipping, too. Customers need shit
| shipped, and they need it NOW, and big rainmaker accounts will
| absolutely get the red carpet treatment. Shipping firm account
| reps are middlemen in this arrangement, and work on commission,
| so are strongly incentivized to do whatever it takes to make
| their big customers happy.
|
| If your customer who is responsible for $200,000/year of your
| take-home commission is screaming at you, and you could get
| them what they want with a bribe to the trucking company's rep,
| you have a pretty strong incentive to pay it.
|
| Which is why prosecuting people for corruption is important.
| Everyone would be doing it, otherwise.
| datadeft wrote:
| I would be surprised if there was an "industry" without
| kickbacks.
| PragmaticPulp wrote:
| You can find kickbacks everywhere, but in some industries
| it's so deeply embedded in the culture that it's nearly
| impossible to find any alternatives.
|
| The common theme is that there is usually a bottleneck,
| monopoly, gatekeeper, or government-mandated middleman. This
| is what enables the kickback scheme to work without the
| threat of clean alternatives competing with it.
|
| Ports are ripe for corruption and kickbacks because there
| aren't many of them. If you want to get your cargo in or out,
| you have to go through a nearby port. Trucking the freight to
| a different port is more expensive than any
| bribes/kickbacks/corruption (by design) so people just settle
| and pay it.
| giantg2 wrote:
| And of course the government embraces kickbacks and
| "political horse trading" when it benefits them, just like
| the recent Apple tax thing.
| doryWalnut wrote:
| SCOTUS Justice Clarence Thomas sold his moms house to a
| billionaire. Mom now lives for free and crews show up to
| maintain and update the property.
|
| The word you want is "society".
|
| Give someone authority and they'll build a cottage industry
| of sycophants to insulate their authority.
| metadat wrote:
| Holy unethical kickback batman.
|
| This appears to be true, unveiled only yesterday:
|
| https://nymag.com/intelligencer/2023/04/harlan-crow-
| bought-c...
|
| https://www.propublica.org/article/clarence-thomas-harlan-
| cr...
|
| https://slate.com/news-and-politics/2023/04/clarence-
| thomas-...
|
| Discussed yesterday:
| https://news.ycombinator.com/item?id=35581266
|
| And flagged after 80 comments:
| https://news.ycombinator.com/item?id=35467948
| boeingUH60 wrote:
| I'm pretty sure if the DOJ looks deep into many industries,
| they'll run out of ink to type kickback indictments.
| [deleted]
| kgwgk wrote:
| Related:
| https://www.bloomberg.com/opinion/articles/2023-04-13/twitte...
|
| Bribes
|
| A running theme of this column, which is never legal advice, is
| that if you are going to do bribes you should try to be
| businesslike about your bribes, instead of being cutesy. Like if
| you send your colleague a text message saying "our 'friend'
| expects one million 'chickens' for his 'help' with this
| 'contract,'" that's gonna look really bad to the jury at your
| inevitable criminal trial. But if you send a professionally
| formatted invoice saying, like, "Consulting charges: 80 hours @
| $1,250 per hour plus 45 basis point success fee on $200 million
| contract = $1,000,000 to be paid by ACH transfer to General
| Consulting Services LLC," you might still get arrested, but at
| trial you can say "no that was for consulting, very standard,
| nothing wrong with that."
|
| Yesterday US prosecutors brought bribery charges against 10
| people "in connection with a massive scheme to defraud Polar Air
| Cargo Worldwide, Inc. ('Polar'), a leading cargo airline, of tens
| of millions of dollars" with bribes. Polar is a cargo airline --
| a joint venture of DHL and Atlas Air -- that sold cargo space to
| shippers, and if you wanted cargo space on Polar you allegedly
| had to pay (1) Polar the rates that it charged you plus (2) some
| bribes to the Polar executives who were selling you the space.
|
| The executives included Polar's chief operating officer, its vice
| president of marketing, its vice president of operations and its
| senior director of customer service. "In general," says the
| indictment, "the Executive Defendants often had the ability to
| propose vendors, to advocate on behalf of certain vendors or
| customers, and to exercise significant influence over both
| Polar's selection of vendors and the rates offered to its
| customers." They were the people selling space on Polar's planes,
| and so they could set the rates for that space -- and the rates
| they set, allegedly, included both a payment to Polar and a
| payment to themselves.
|
| But it was all businesslike. From the indictment:
|
| > To conceal the kickbacks and conflicted ownership interests
| from Polar, and thereby to continue the fraud scheme, [they]
| often directed the kickbacks and ownership distributions be paid
| to limited liability companies with non-descript names that were,
| in fact, controlled by the Executive Defendants....
|
| > From in or about 2009 through in or about July 2021, Polar
| contracted with freight forwarders to sell available cargo space
| on behalf of downstream shipping customers, who, in turn, paid
| freight forwarders to secure cargo space and coordinate
| logistics. ... These kickbacks were typically calculated based on
| how many kilograms of cargo the freight forwarders had shipped
| with Polar during a particular period. At no point before the
| discovery of the fraud in or about July 2021 were the kickbacks
| from freight forwarders known to Polar.
|
| "At no point ... were the kickbacks from freight forwarders known
| to Polar" is a weird sentence. Polar is not a person; it has no
| consciousness. The kickbacks were not known to Polar's owners, I
| assume, or perhaps to its chief executive officer. But they were
| known to its chief operating officer, because he was allegedly
| receiving them. This was not some rogue salesperson taking
| bribes; this was a big chunk of the executive team.
|
| And so there is an amazing civil lawsuit filed late last year by
| one of the customers, Cargo On Demand Inc., against Polar,
| complaining that Polar charged it bribes. Cargo On Demand's point
| was, look, if Polar's salespeople and senior managers told it to
| pay these fees as part of the price of cargo, it had to pay those
| fees. From the complaint:
|
| > COD entered into the [Blokced Space Agreement] with Polar
| primarily because Polar's rates on the specific air routes
| relevant to COD's customers were typically lower than the rates
| quoted to COD by any other airlines providing service on the same
| routes.> However, in order to actually utilize its cargo space
| allotment, COD was advised by members of Polar Management that it
| was required to also pay Polar (via Polar Management), and
| certain third-party consulting companies connected to Polar,
| additional "consulting fees" separate and apart from the BSA.
|
| > These consulting fees were charged beginning at the inception
| of COD's relationship with Polar in 2014. ...
|
| > The consulting fees were calculated based on the monthly
| tonnage for all goods that COD shipped with Polar. The amount of
| the fee typically varied between $0.25-$0.50 per kilo of tonnage,
| in addition to the agreed BSA rates.
|
| > The consulting fee requirement was articulated to COD by
| multiple members of Polar Management (which included, without
| limitation, the company's Chief Operating Officer and multiple
| vice presidents and directors) over the course of seven years.
| ...
|
| > COD was advised and instructed by Polar Management that these
| additional "consulting fees" were part of Polar's regular way of
| doing business with all customers that had annual BSA contracts
| with Polar.
|
| > To COD, such fees seemed akin to a hotel "resort fee". In other
| words, a mandatory fee that is not included (or not prominently
| included) in the quoted rate, yet mandatorily charged at either a
| flat amount or percentage basis in the final bill.
|
| Also analogous to a resort fee, the "consulting fee" allowed
| Polar to generate additional cargo revenue by giving the
| appearance of offering lower rates in comparison to competitors
| than if Polar had quoted the full (i.e. all costs and fees
| included) cost.
|
| That is, Polar could advertise low rates, but then tacked on an
| extra fee for bribes. The complaint includes as an exhibit an
| email from Polar's vice president of marketing to the owner of
| Cargo On Demand, saying "bro here is the updated sheet -- pls use
| this for distribution" and attaching an eight-page spreadsheet
| listing dozens of Polar flights, how much cargo Cargo On Demand
| had on each flight, and how much bribe it owed for each one. "As
| directed, COD then made the specified payments for that month via
| ACH wire transfer."
|
| The numbers are in the tens or hundreds of dollars per flight,
| and the entire alleged bribe invoice is for $41,291.93, to be
| distributed among the nondescriptly-named entities of several
| Polar executives. The indictment says that Cargo On Demand paid a
| total of about $1.6 million of kickbacks to Polar executives from
| 2016 through 2021, and if you just wrote a check for $1.6 million
| of bribes that would look bad. But sending monthly ACH transfers
| for detailed invoices measured in pennies per kilogram just looks
| like business.
|
| Of course they got arrested anyway; I must emphasize that nothing
| here is legal advice. Also the owner of Cargo On Demand was
| himself indicted, for paying the bribes, which seems a bit harsh.
| He was dealing with a company, and all the senior executives he
| dealt with told him that he had to pay these fees! He thought
| they were a resort fee!
| IG_Semmelweiss wrote:
| I really wonder which cog exposed the whole scheme, a
| whistleblower from 1) company stumbled on it, or a 2) vendor
| staff did, or, 3) a vendor started asking questions of the random
| invoices, 4) a dispute in the corrupted amounts between both
| (seems likely!) or 5) misreported earnings or high income tripped
| some flag at the irs level.
|
| so many possibilities!
| A_D_E_P_T wrote:
| The article doesn't make it clear what the crime actually was.
|
| I got curious, so I dug up some more details:
| https://archive.ph/gvYFE
|
| And the indictment is here: https://www.justice.gov/usao-
| sdny/press-release/file/1579271...
|
| Long story short, the indicted executives had fly-by-night LLCs
| that they used to accept payments from Polar Freight clients for
| preferential service. (Or for access to Polar Freight's shipping
| services in the first place.) They called this "consulting."
| Like:
|
| > "Here's your invoice from Polar Freight at $2/kg for that
| recent air freight shipment. Oh, and you also owe Nightrunner LLC
| $0.5/kg for Consulting services. Here's a separate invoice for
| that."
|
| Pretty simple scam, described in those terms.
|
| The kicker is that some poor bastard was indicted for paying the
| "consulting" fee!
| PragmaticPulp wrote:
| > The kicker is that some poor bastard was indicted for paying
| the "consulting" fee!
|
| Can you point me to where I can read more about that?
|
| I'm assuming the indicted person knew exactly what he was
| doing, but it's still terrible to be stuck in a business
| situation where the only way to get your job done is to go
| along with something like that.
| A_D_E_P_T wrote:
| It's in the article I linked to:
|
| > "Also the owner of Cargo On Demand was himself indicted,
| for paying the bribes, which seems a bit harsh. He was
| dealing with a company, and all the senior executives he
| dealt with told him that he had to pay these fees! He thought
| they were a resort fee!"
|
| It's also in the indictment. The defendant from Cargo On
| Demand is Patrick Lau, referred to as "Lau" throughout. As
| far as I can tell, there's nothing in the indictment to
| suggest that he was in on the scheme. Also, he had sued Polar
| in a Civil case a while back, which is probably how all of
| this had come to light in the first place! It seems bizarre
| that the Feds charged him.
| cperciva wrote:
| He's indicted, not convicted. "I'm a sucker and didn't
| realize what was going on" is absolutely a possible
| defense; I would assume that the DOJ will lead evidence to
| show that he knew what was going on and willingly
| participated, but that's why there's a trial.
| vharuck wrote:
| Another possibility is the DOJ not intending up take that
| person to trial, but instead offering to reduce or drop
| the charges in exchange for testimony.
| [deleted]
| bsder wrote:
| Yeah, this surprises me a bit. If a company tells me "Pay $X
| to X company and $Y to Y company to get your cargo
| delivered", I'm going to do X and Y unless they actually look
| illegal.
|
| Submitting invoices to two different companies wouldn't ring
| any obvious bells. If you have a company that calls making
| bids/examining cargo/whatever a "consulting fee", I'll roll
| my eyes, file the paperwork and pay the invoice.
|
| I'm assuming the DOJ has emails or somesuch that actually
| acknowledge the scheme. However, that's probably going to be
| held for court.
| babyshake wrote:
| IANAL and not sure of the exact name for this concept, but I
| believe when there's a practice that is very standardized it
| can be used as a legal defense that you're just doing what
| everyone else does.
| tedivm wrote:
| "Paying the consulting fee" is just another way of saying
| "bribing people". The vendor got value out of that bribe, which
| is why they were willing to pay it.
| pc86 wrote:
| > _The kicker is that some poor bastard was indicted for paying
| the "consulting" fee!_
|
| I mean the system works best if people on both sides of the
| equation are punished, right?
| slavboj wrote:
| It aligns incentives on both sides to keep the scheme secret.
| rideontime wrote:
| Or to report the scheme instead of participating in it?
| [deleted]
| [deleted]
| coredog64 wrote:
| Theoretically, what we want is for it to be illegal to
| solicit or offer a bribe. If we can construct a legal
| environment in which people can accept or pay bribes but
| report that in a constructive way, then the negative side
| gets riskier without making everyone involved co-
| conspirators.
|
| Practical example: Tuna boats in the Pacific have onboard
| observers from one of the island nations that own the EEZs
| that are fished. Observers are paid okay for their countries,
| but not really a lot of money in the grand scheme of things.
| It would be a net positive if they could accept a bribe from
| a crooked boat owner and then report it once on shore. Turn
| over the money (with maybe keeping a small finders fee) and
| then that boat's owner gets penalized across the entire
| Pacific. Now there's a very strong incentive not to offer
| bribes.
| 1letterunixname wrote:
| Why did Amazon only get help from Atlas rather than M&A their
| operations totally?
|
| Interesting fact: Atlas Air bought the final 4 747's produced.
| pxeger1 wrote:
| $2M doesn't seem like all that much for a scam running over 12
| years with 10 people involved.
| drstewart wrote:
| It's $52m, not $2m
| boeingUH60 wrote:
| $52mn is the calculated loss to the company...the amount of
| kickbacks was $23mn.
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