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- ODOMETER ROLLBACK SCHEMES
-
- By
-
- James E. Scripture
- Special Agent, FBI
- Boston, Massachusetts
-
-
- With the expense associated with purchasing a new motor
- vehicle and the proliferation of leased and rental cars in
- recent years, odometer tampering has become a very lucrative
- criminal activity. This is why this activity is now recognized
- as a serious form of white-collar crime. Odometer tampering
- involves reducing the high mileage figure on used vehicles and is
- often accompanied with title laundering. Prime targets are
- formerly leased, high-mileage vehicles that are 1 to 2 years old
- and still retain a polished appearance. (1)
-
- Odometer rollback schemes represent a pervasive fraud that
- costs consumers billions of dollars annually. In fact,
- statistics compiled by the National Highway Traffic Safety
- Association (NHTSA) conservatively estimate the aggregate annual
- wholesale loss in the United States as a result of these
- schemes at approximately $3 to $4 billion. This calculated
- dollar loss is based on fraudulent, wholesale markups and not
- retail sales. Also, increased repair, maintenance, and safety
- costs associated with rollback vehicles are not included in the
- estimates. (2)
-
- Surprisingly, the commission of odometer fraud is not
- limited to the stereotypical American used car dealer. The
- monetary incentives associated with turned back odometers and
- laundered automobile titles entice individuals at every level of
- the automotive industry. Participants may include automobile
- auction operators, new car franchise holders, registry of motor
- vehicle (RMV) officials, and new car manufacturers.
-
- Furthermore, these offenses can be extremely difficult to
- detect, investigate, and prosecute; they are generally
- perpetrated by intelligent individuals who develop elaborate,
- highly organized, and complicated schemes. Yet, some rollback
- operations uncovered by investigators were elementary and
- amateurish.
-
- THE VARIETY OF SCHEMES
-
- Falsifying Titles
-
- One of the most primitive odometer rollback schemes occurs
- when a dealer purchases a high mileage vehicle in the name of the
- automobile dealership and subsequently resells it with a
- falsified, reduced odometer reading. This is accomplished merely
- by altering the high-mileage figure noted on the title or by
- obtaining a new automobile title with a false mileage figure
- before reselling the vehicle.
-
- The major disadvantage to altering only the odometer figure
- on the title is discovery. In most cases, these simplistic
- alterations are of poor quality and can be easily detected at
- automobile auctions by RMV officials who diligently examine title
- documents.
-
- Altering Titles
-
- This odometer rollback scheme is perhaps the most efficient.
- In this scam, the offending dealer employs a professional
- calligrapher or an artist to perform superior quality title
- alterations, which are often very difficult to detect with the
- naked eye.
-
- Reassigning Titles
-
- In most States, licensed automobile dealers can accept and
- transfer vehicle titles without reregistering them in the
- dealership's name. This is done by attaching an automobile
- dealer's reassignment of title form to the original automobile
- title. Numerous title reassignments may accompany an original
- title, as well as the washed title.
-
- Also, offending dealers often manufacture phony title
- reassignments for a rollback vehicle in an attempt to avoid
- culpability. An offending dealer may also discard, rather than
- alter, prior reassignments of title, making it difficult to
- trace ownership of the vehicle. The practice of discarding
- and/or destroying title reassignments is called stripping a
- title.
-
- Title Laundering
-
- Another type of odometer roll-back scheme occurs when
- offending dealers attempt to circumvent the problems associated
- with title alterations by purchasing title documents issued in
- the names of out-of-state automobile companies. This method
- involves surrendering an automobile title that contains a reduced
- mileage figure to an out-of-state registry of motor vehicles
- (RMV). The vehicle is then reregistered in the name of a
- company or dealership in another State, and the issued title,
- which contains the reduced mileage figure, is reassigned back to
- the offending dealer, creating a phony paper trail.
-
- This false title history creates an unaltered title that
- distances the offending dealer from the odometer rollback. This
- new automobile title is referred to as a clean, washed, or
- laundered title. Because offending dealers always maintain
- physical possession of the vehicles in question until they are
- sold, geography is never a concern. In most cases, the only
- items that cross State lines are the phony title documents.
-
- ROLLBACK OPERATIONS
-
- Odometer Clockers
-
- Initially, an offending automobile dealer makes minor
- cosmetic improvements to a vehicle, such as washing and waxing
- it. In addition, items such as brake pedals, tires, and floor
- mats, which are subject to noticeable amounts of wear and tear,
- are replaced. Then, the dealer usually pays a mechanic or
- another individual, referred to as a clocker, to turn back the
- odometer.
-
- The price for each turn back varies, depending on the degree
- of difficulty associated with each vehicle. A proficient clocker
- can complete a rollback job in a matter of minutes by using such
- common tools as picks, wires, or screw-drivers. This enables the
- clocker to service a large number of vehicles in a relatively
- short period of time. These vehicles are subsequently sold on a
- retail basis directly from the offending dealer's lot, or more
- commonly, transported to one of numerous automobile auction
- houses in the United States.
-
- Automobile Auction Houses
-
- An automobile auction house is an integral part of many
- scams. Auction houses often encourage offending dealers to
- purchase high mileage vehicles from them in order to realize
- larger profits from high volume sales. An individual who intends
- to alter the odometer reading of a high mileage, attractive
- vehicle will frequently pay these wholesale automobile
- distributors or auction houses a price in excess of fair market
- value in order to secure the product. Appearance is important
- because the odometer will be altered and the vehicle sold at a
- commensurately higher price. Thus, the offender can afford to
- outbid legitimate automobile dealers for the same automobile
- because the higher cost is tempered with an illegal profit. Many
- auction houses even underwrite the sale.
-
- The auction house serves as a commissioned broker during
- these transactions and rarely takes title to the vehicles. This
- method makes it extremely tempting for an auction house to
- transact business with known or suspected offending dealers who
- routinely negotiate high volume wholesale transactions.
-
- In addition, auction houses that allow the dealer to take
- physical possession of formerly leased vehicles usually do not
- demand payment until they are sold. However, an auction house
- tries to protect its investment by maintaining possession of the
- title to each vehicle until payment is received from the dealer.
- This arrangement is possible because auction houses allow
- licensed dealers to sell automobiles at auction without
- immediately conveying the title to the purchasing dealer. This
- practice is referred to as selling a vehicle ``title attached,''
- meaning that the title transfer generally lags behind the
- physical transfer of the vehicle anywhere from a few days to 2
- weeks.
-
- Straw Dealerships
-
- Title laundering schemes can involve the creation of
- dealerships under someone else's name. These businesses are
- commonly known in the automobile industry as straw dealerships.
-
- Straw dealerships are used at strategic positions in a
- vehicle's title chain to deflect the criminal activity away from
- the offending dealership. The straw dealership usually does not
- maintain a vehicle inventory on its lot and operates in name
- only. Often, depending on the dealer registration and automobile
- titling requirements of the State where the title will be washed,
- the dealership's address may actually correspond to a vacant lot,
- a residence, a post office box, or a telephone answering service.
- Rarely, if ever, will the straw dealership take physical
- possession of the automobiles involved in the rollback scheme.
-
- Straw dealerships almost never maintain records, such as
- odometer statements and sale documents, which are required to be
- maintained under Federal law for a period of 4 years. These
- dealerships will eagerly pay the fines associated with
- noncompliance of required record keeping rather than maintain
- documentation that would implicate them in criminal activity.
-
- Straw dealerships usually operate only for a few months
- before they are dismantled and moved to a different city or State
- under a new business name. This mobility makes it difficult for
- law enforcement authorities to identify those responsible for the
- scheme. In addition, an offending dealer may further complicate
- the vehicle's title history by using multiple straw dealerships
- in a series of fabricated transactions. A dealer can also pay a
- straw dealer to assume all of the risks from purchasing high
- mileage vehicles to selling them with falsely reduced mileage.
- In this case, the user's name appears on none of the related
- paperwork, and the offending dealership does not appear to take
- possession of the rollback vehicles at any time.
-
- APPLICABLE FEDERAL LAWS
-
- In 1972, in recognition of the magnitude of the odometer
- rollback problem, Congress enacted the Motor Vehicles Information
- and Cost Savings Act (MVICSA), (3) seeking to eliminate odometer
- tampering. This act established certain safeguards to protect
- consumers because they often rely heavily on the odometer reading
- to determine the vehicle's value, safety, and reliability. The
- act made it a Federal violation to disconnect, reset, or replace
- an odometer for the purpose of disguising a vehicle's true
- mileage. (4)
-
- Depending on the circumstances, the primary Federal
- statutes that may be used in odometer-related prosecutions are
- Title 18, U.S. Code, Section 2314, Interstate Transportation of
- Stolen Property (ITSP) and Title 18, U.S. Code, Section 513,
- Possession of Forged or Altered Securities. Section 513
- contains two extremely desirable features, the first being that
- the interstate transportation of the forged, altered, or
- counterfeited document is not a requirement for prosecution
- (unlike section 2314); rather, it makes the mere possession of
- such a document illegal. It defines forged and counterfeit
- documents as any which purports to be genuine but is not because
- it has been falsely made, falsely altered, or falsely completed.
- The Federal statutes contained in Title 18 of the U.S. Code
- pertaining to Mail Fraud, Section 1341; Conspiracy, Section 371;
- False Statements, Section 1001; and Fraud by Wire, Section 1343,
- are also cited in the indictments.
-
- In October 1986, the Truth in Mileage Act of 1986 (TIMA)
- was signed into law, modifying MVICSA. (5) The primary features of
- TIMA dealt with title security, mileage disclosure, lease
- vehicle disclosure, dealer record retention, and lessor and
- auction record retention. It also increased the criminal and
- civil penalties applicable to MVICSA.
-
- The Racketeer Influenced and Corrupt Organizations (RICO)
- Statutes (6) were originally intended for use in organized crime
- prosecutions. However, the RICO statutes can be interpreted to
- also include odometer rollback and title laundering activity.
- (7) Sections of the statutes contain offenses that Congress
- defined as constituting acts of racketeering and are the primary
- statutes traditionally used to prosecute odometer crime. (8)
-
- The combined provisions of MVICSA, TIMA, and RICO
- legislation and other traditional criminal statutes form an
- intimidating platform from which to base antiodometer fraud
- strategy. These statutes allow for substantial civil and
- criminal penalties against, and/or forfeiture from, those dealers
- who continue to engage in such criminal enterprises.
-
- CONCLUSION
-
- Today, rollback and title laundering schemes can range from
- crude to brilliant. They are limited only by the criminal's
- imagination. Neither geographical barriers nor titling
- requirements pose insurmountable obstacles to individuals who are
- committed to carrying out their schemes.
-
- Unfortunately, years may pass before consumers realize that
- they have been the victim of odometer rollback crime, if they
- ever do. In the rare instances where dealers are caught, they
- usually enthusiastically negotiate a financial settlement with
- the customer in order to avoid negative publicity and potential
- civil or criminal proceedings.
-
- At best, this means detection by law enforcement agencies is
- difficult, time consuming, and expensive. For the criminal,
- odometer tampering represents a relatively low-risk method of
- achieving substantial personal wealth.
-
-
- FOOTNOTES
-
- (1) U.S. Senate, Hearing on S.1407, pp. 32-33.
-
- (2) U.S. Department of Transportation, National Highway Traffic
- Safety Administration, Final Rule Implementing the Truth in
- Mileage Act, April 1, 1988, pp. 78 and 82.
-
- (3) Motor Vehicles Information and Cost Savings Act (MVICSA),
- 15 USC sec. 1981-1991.
-
- (4) 15 USC sec. 1984.
-
- (5) Public law 99-579.
-
- (6) The Racketeer Influenced and Corrupt Organizations (RICO)
- Statuts contained in 18 USC sec. 1961-1968.
-
- (7) The Racketeer Influenced and Corrupt Organizations (RICO)
- Statutes, Sections 1341 (Mail Fraud), 1343 (Wire Fraud), and 2341
- (ITSP) contain offenses which Congress defined as constituting
- acts of racketeering activity.
-
- (8) Ibid.
-