Coupon Redemption Fraud

In the United States, hundreds of public and private corporations and manufacturers offer coupon discounts for products sold in retail stores. Coupons are found in newspaper inserts, magazines, mail solicitations, school and charity fund-raising booklets, in store aisles, and through Internet sites. According to NCH Marketing Services, which claims to be the largest clearing and processing agent for retailers and manufacturers worldwide, the total number of manufacturers? coupons printed and distributed in 2001 was 239 billion.9 Legitimate coupon redemption generates billions of dollars in transactions each year. There is also the potential for criminals to abuse the coupon redemption system.

In February 2003, the United States Attorney for the Eastern District of Wisconsin and law enforcement officials with the FBI, United States Postal Service and the former U.S. Immigration and Naturalization Service10 announced the indictment and arrests in five states of 16 individuals allegedly involved in a coupon redemption fraud and money laundering scheme that resulted in losses exceeding $4 million. According to the announcement, some of the proceeds were sent to the West Bank and Jordan. The FBI is continuing to investigate the overseas financial transactions and other aspects of the scheme.11

As a result of this announcement, as well as testimony presented before the House Financial Services Oversight and Investigation Subcommittee in March 2003 concerning the possible nexus between the crime of coupon redemption fraud and the movement of the illicit funds to countries where terrorist organizations operate,12 FinCEN reviewed SARs submitted from financial institutions related to coupon redemption fraud.

A search of the SAR database (April 1996 to present) revealed only two SARs related to activity described as coupon redemption fraud.13

• In 1998, a bank submitted a SAR to report the deposit of a $14,290 counterfeit check drawn on an account for a national coupon redemption service. Check Fraud was listed as the violation.
• In June 2002, a large depository institution located in several northeastern states submitted a SAR to report frequent deposits of large, even dollar checks issued by a coupon redemption clearinghouse and frequent, large, incoming wire transfers from the same originator, totaling $297,200. The funds were credited to a personal checking account at the bank. All checks and wires originated from an account held by the coupon redemption clearinghouse at another financial institution which was located in the same general area of the United States. The reporting bank had filed three previous SARs for structured cash deposits into the same personal account and a business account for the suspect. The June 2002 SAR listed the violation as BSA/Structuring/Money Laundering.

To better assist financial institutions in identifying suspicious activity related to coupon redemption fraud, the following information is being provided:

• A description of a legitimate coupon redemption process;
• A description of the activity associated with coupon redemption fraud; and
• Examples of the types of financial transactions which may be related to coupon redemption fraud schemes.
  
  

The information about legitimate and illegal methods stem from various case studies, industry information, and from Congressional testimony in March 2003 and earlier, during a hearing on ?Foreign Terrorists in America: Five Years after the World Trade Center.?14 That testimony related the planners of the 1993 terrorist attack in New York to persons involved in coupon redemption fraud.

9 NCH Marketing Services press release, dated March 15, 2002.
10 In March 2003, the Immigration and Naturalization Service (INS) transitioned from the Department of Justice to the Department of Homeland Security. Immigration enforcement services are now the responsibility of the Bureau of Immigration and Customs Enforcement (ICE).
11 News Summary release from the U.S. Department of Justice, United States Attorney, Eastern District of Wisconsin, dated February 26, 2003.
12 Testimony before the House Committee on Financial Services Subcommittee on Oversight and Investigations Hearing on ?Progress Since 9/11: The Effectiveness of U.S. Anti-terrorist Financing Efforts,? March 11, 2003.
13 Three SARs were identified during the search of ?coupon fraud? but the SARs reported food coupon fraud, commonly called food stamp fraud, a type of criminal activity separate from coupon redemption fraud.
14 "Consumer Coupon Networks in the United States ? the Terror Connection" presented by Ben Jacobson before the Senate Judiciary Subcommittee on Technology, Terrorism and Government Information, February 24, 1998.

Excerpted from SAR Activity Review Issue 6, page 14