How One Man Exposed His Fellow FBI Agent as a Russian Spy

FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President

Here’s the situation. You’re a new FBI undercover field operative. But the bureau has called you into headquarters, put a suit and tie on you, and ordered you to take a desk job as the assistant to a longtime FBI special agent and computer systems expert. You’ll be locked in a soundproof, two-office vault to do one thing: covertly surveil this man suspected of being a master spy for the Russians.

That’s where Eric O’Neill found himself in 2001. He became a loyal assistant to Robert Hanssen — an intimidating, demanding and suspicious boss. The FBI had its eye on Hanssen, but they just needed a smoking gun.

O’Neill, who will be a keynote speaker at the 28th Annual ACFE Global Fraud Conference, June 18-23 in Nashville, watched Hanssen for months, but couldn’t find anything incriminating.

Finally, O’Neill was able to get to Hanssen’s Palm Pilot. O’Neill rushed it to the FBI techies on another floor who decrypted it and found Hanssen’s drop date and location of classified material to the Russians. They had him.

Hanssen was arrested on Feb. 18, 2001, at Foxstone Park, near his home in Vienna, Virginia, where he’d made his last drop. He was charged with selling U.S. secrets to the Soviet Union and then the Russian Federation for more than $1.4 million in cash and diamonds in 22 years.

He pleaded guilty to 15 counts of espionage and was sentenced to 15 life terms without the possibility of parole. The U.S. Department of Justice described his spying as “possibly the worst intelligence disaster in U.S. history.”

I’m impressed that O’Neill was able to gather information on Hanssen, who prided himself on being able to detect any hint of deception.

The story was so dramatic that Hollywood transformed it into the 2007 movie, “Breach,” starring Ryan Phillipe as O’Neill, Chris Cooper as Hanssen and Laura Linney as “Kate Burroughs,” O’Neill’s handler. O’Neill was an onsite advisor for the film.

During the 28th Annual ACFE Global Fraud Conference, O’Neill — who now runs an investigative and security consulting firm, and works for a security protection software company — will be addressing recent changes in fraud and cyberespionage through the eyes of sophisticated attackers.

“I will use elements of the Hanssen investigation as a framework and also to tell an entertaining story,” O’Neill says. “The audience will understand why I say that there are no hackers; there are only spies.”

Bringing Down FIFA: 'The dogged obsession of a single reporter'

FROM THE PRESIDENT

James D. Ratley, CFE
ACFE President

Sports are an obsession for many fans around the globe. Team owners, promoters and gear manufacturers know their customers are loyal (sometimes rabid), unpaid publicists. So we're talking about boatloads of cash coursing through sport systems — and sometimes surreptitiously into fraudsters' pockets.

Andrew Jennings, an independent investigative journalist, has spent more than 15 years laboriously examining the economic intricacies of FIFA (Fédération Internationale de Football Association). His reporting of entrenched FIFA corruption — bribes, kickbacks, vote rigging and ticket scandals — eventually caught the attention of the FBI. In 2015, the U.S. Department of Justice indicted scores of FIFA-related officials under the U.S. Racketeer Influenced and Corrupt Organizations (RICO) Act and the U.S. Travel Act. As of publication, the U.S. had convicted 21 on various racketeering and corruption charges with 42 defendants publicly charged.

Simon Jenkins of the Guardian newspaper wrote that credit for the routing of FIFA "should go to the dogged obsession of a single reporter, Andrew Jennings."

Jennings has been chasing bad guys around the globe for decades. He's investigated corruption in Scotland Yard, the Sicilian Mafia and the International Olympic Committee, among many others.

The inscription on the ACFE's Guardian Award reads: "For Vigilance in Fraud Reporting." That phrase defines Jennings's work. And that is why we're presenting him with the award at the 28th Annual ACFE Global Fraud Conference, June 18-23 in Nashville.

Jennings says that from his teen years, he wanted to become an investigative reporter. He attended university for a couple of years, but he was chomping at the bit to get to his investigations. He worked for some of the U.K. national newspapers, but he was bored. He went to the BBC where he worked on a TV documentary about corruption in Scotland Yard, but the BBC pulled it at the last moment. He quit and went home to write a book about it. And then a public-affairs TV show — "World in Action" — called him and he re-made the film.

From there he made several documentaries and wrote a couple of award-winning books on Olympic corruption, which prepared him for rooting out "the rot," as he calls it, in FIFA.

Even today, at 73, he's still sniffing for bad smells in large institutions. Read more about Jennings in the latest issue of Fraud Magazine.

And, sign up for the 28th Annual ACFE Global Fraud Conference to hear this fascinating man and many other fraud fighters.

Volkswagen Exec Arrested: Dissecting the Fraud Triangle

AUTHOR'S POST

Mandy Moody, CFE
ACFE Content Manager

Steve Morang, CFE, CIA, CRMA, Senior Manager at Frank Rimerman & Co LLP, began his session at the ACFE Global Fraud Conference last June asking attendees to raise their hands if they believed the Volkswagen executives didn’t know anything about the fraudulent emissions tests built into more than 11 million of their diesel cars. Only one person raised his hand. That one person may have a hard time defending himself today since the FBI arrested a Volkswagen executive (a compliance head) on conspiracy charges.

No matter if you think the executives did know about the manipulation or not, there are lessons to be learned from dissecting what could have possibly led to an ethics failure that cost $35 billion in market capital in just five days.

One way to analyze the scandal is to place it into the Fraud Triangle. Identifying the pressures, rationalizations and opportunities, as Morang did, shines a light on the dark areas that plague many companies' ethical cultures.

Pressure
According to Morang, the former CEO’s management style was ruthless. Martin Winterkorn wanted the German car giant to be the No. 1 car maker in the world and that meant making it into the U.S. marketplace with their diesel engine cars. The tone at the top was to get it done and get it done now.

In a 2015 CNBC article, Bernd Osterloh, a supervisory board member for Volkswagen, was quoted as writing in a letter to staff, "We need in future a climate in which problems aren't hidden but can be openly communicated to superiors. We need a culture in which it's possible and permissible to argue with your superior about the best way to go."

The article goes on to reference former company executives describing “a management style under Winterkorn that fostered a climate of fear, an authoritarianism that went unchecked partly due to a company structure unique in the German motor industry.” Upon Winterkorn’s resignation in September of 2015, he said that he was “not aware of any wrongdoing.”

Rationalization
To the people responsible for the manipulation of the engines, Morang said the tampering was done for what the employees under pressure thought was the greater good. They were using the same utilitarian ethics that I described in a previous post. There was a mentality that it was okay to bend the rules so that Volkswagen, and the investors, could come out ahead. In other words, the ends (larger profits, notoriety and reputation) justified the means (fraudulent emissions tests).

Opportunity
When an employee or group of employees (the investigation is still ongoing) discovered that the diesel cars could be wired to cheat emissions tests, the legs of the Fraud Triangle moved quickly into place. By adding the pressure to enter the U.S. market with the rationalization of putting the company above all else, in addition to the opportunity to fool emissions tests, the slippery slope soon looked like an easy path to take.

By understanding the pressures, rationalizations and opportunities that contributed to the actions taken either by a few or many, the top, middle or the bottom, anti-fraud professionals can take away practical tools to use when examining their own company’s ethical culture.

ACFE Conference News Updates: Canadian Fraud Report, Calling all Super Heroes & More

AUTHOR'S POST

Mandy Moody, CFE
ACFE Content Manager

After a few months of toying with the idea to begin reporting on more of our global events, we have officially launched a new, and much improved, FraudConferenceNews.com. We wanted to highlight more conferences, interview more speakers and cover more topics. Basically, we wanted to give you more stuff.

Here are some of the latest updates that you might want to check out:

Fraud Report to Be Released at Canada’s Largest Gathering of Anti-Fraud Professionals
According to the Association of Certified Fraud Examiner’s latest report, Canadian fraudsters were more likely to receive no punishment from their employers than being asked to resign. More than 200 anti-fraud professionals will receive an early-access, exclusive look at this report during the 2016 ACFE Fraud Conference Canada, taking place in Montreal, September 11-14. Read more.

Calling all Super Heroes
We are excited to officially announce that registration for next year's conference is open. Dust off your cape, and maybe your boots, too, and plan to attend the 28th Annual ACFE Global Fraud Conference in Nashville, Tennessee, June 18-23, 2017. Read more.

You Gotta Know When to Hold 'Em...Behind Bars
When you think about Las Vegas, you probably think about the glitz and glamour of dazzling slot machines, beautiful people, spectacular shows, high-stakes casinos and a skyline that most would recognize immediately. What you might not think about is what happens behind the house. According to Sharon Tibbits, CFE, Executive Director, Fraud Control Group at MGM Resorts International, fraud is a concern in many areas of the casino industry. Read more.

How the Media Can Help Preach Fraud Awareness
While fraud examiners usually do most of their work behind the scenes to uncover fraud, they are often forced to turn over evidence and findings to organizations that keep the story of embezzlement under wraps. No company wants to freely admit that wrongdoing happened under their purview; however in order for people to understand the scope of fraud, some stories are best shared with the public. The onus to tell the story lands not on anti-fraud professionals, but another important piece in fraud awareness: the media. Read more.

We hope you enjoy this updated site and please let us know your thoughts! Find more conference news at FraudConferenceNews.com.

All the Advantages of Life Didn’t Stop Roomy Khan From Crossing the Line

FROM THE ACFE GLOBAL FRAUD CONFERENCE

Dick Carozza, CFE
Editor, Fraud Magazine

One question from prosperous hedge-fund trader Raj Rajaratnam changed Roomy Khan’s life: “How’s business?”

In 1997, Khan — who held graduate degrees in engineering and physics — was working in marketing at Intel in Silicon Valley. However, she told attendees at the closing session* of the 27th Annual ACFE Global Fraud Conference last week, she really wanted to become a high-tech stocks analyst on Wall Street, and she saw Rajaratnam — her mentor — as her ticket.  

So she called Rajaratnam who said that he was establishing Galleon Group — a hedge-fund firm in New York — and he was looking for information. Khan said she didn’t have access to any Intel financial data. “But I had marketing data on the top customers for Intel. I used this small piece of information combined with the guidance the company had given him in a previous conference call, and I made a mock Intel income statement for the upcoming statement,” she said. 

“I started sharing this information with Raj,” she said “It seemed wrong but harmless [because] this data on the top customer list changed on a daily basis,” Khan said. “Raj wanted this information and I wanted Wall Street.” However, Intel soon discovered that she was passing information to Rajaratnam and prosecuted. She had to pay a large fine, and was placed on house arrest for a time. Rajaratnam wasn’t touched.

Despite her brush with the law, Khan eventually landed a job at Galleon in Silicon Valley where she was introduced to the serious world of insider trading. She said she was careful to hide her fraud, but years later — after she had begun her own hedge-fund firm — the FBI eventually detected one of her illegal tips and pressured her into becoming a secret informant. Her testimony eventually helped bring down Rajaratnam — who was sentenced to 11 years in prison in 2011— and several of his associates.

When Khan was a young woman her father wanted her “to break the mold of a typical Indian woman, which was to be a housewife,” she said. He paid for her tuition to attend Columbia University for her Master’s in Electrical and Electronics Engineering. “‘That’s your dowry, your down payment for your future,’” she said he told her.

But all the advantages of a rich family life didn’t prevent her from succumbing to an ingrown fraud culture in hedge-fund trading where Rajaratnam expected her to pursue “The Edge”— his euphemism for insider trading.

She said fellow traders rationalized their actions and complained about the unrealistic trading rules. “But disagreeing with the law doesn’t give us the right to break it,” Roomy said.

Khan once lived the big life — a $15 million home, luxury cars, diamonds, designer clothes, expensive artwork. “Excessive spending. The more I spent, the harder I worked,” she said. But most of that is gone now. She speaks to university students, business groups and at conferences to share the insidious nature of insider trading and to warn others that they too can slip into the fraud culture.

“As a girl who grew up in India and came to the U.S. — I went to some of the top schools, worked for some of the best corporations, caught all the breaks that I wanted. … But I am responsible [for my fraud] and no one else,” she said. “The culpability is completely mine. I should have known better. Looking forward, I hope I can now be part of the solution.”

*The ACFE does not pay convicted fraudsters to speak.

Find more coverage from the 27th Annual ACFE Global Fraud Conference at FraudConferenceNews.com.