My interest in fraud here in New Zealand dates back to September 2010 when I watched (in disbelief) a news item on Michael Swann's six-year long, $16.9 million false invoice fraud. The end result of which is the (now rewritten) six chapters of "Anatomy of Fraud" you'll find on this Blog. I must say a special thanks to my patient reviewer: Mark Piper. I hope you enjoy reading them as much as I did writing them.
Chapter 1: Benefit Fraud - Wayne Patterson
Over a three year period, Wayne Thomas Patterson (born November 1958) created 123 false identities.
The latter, involving a spreadsheet, will be covered later.
Beginning in June 2003 he used these to fraudulently receive Sickness, Unemployment and Emergency Benefits, and New Zealand Superannuation payments from the Ministry of Social Development (MSD).
In all, he managed to steal over $3.4 million before his arrest in October 2006.
In November 2006, Patterson pleaded guilty to fraudulently receiving money from the MSD, and was sentenced in October the following year to eight years in prison.
Character's Background
Of the nine fraudsters' covered in this book, Wayne Patterson's the only one who can be described as a 'career criminal.' Originally an electrician by trade, he had a long history of dishonesty, theft and fraud stretching back to at least his teens. Released from the first of many stints in prison in 1983, aged 23, Patterson decided to go 'international,' leaving New Zealand for Australia. Where he was arrested two years afterwards and charged with 36 counts of fraud. A 'dry-run' for his later, larger MSD fraud this, as it was reported he'd assumed 43 false identities and conned the then Australian Social Security Department out of $500,000 AUD.
Sentenced to eight years prison, Patterson was extradited back home after only serving three. A pattern sadly repeated a few years after his 1988 release. Where, in the United States this time, he was arrested for felony larceny, felony fraud, and grand theft. But he'd certainly gone up in the world, this time around he'd stolen $2 million US.
Once more sentenced to eight years, again serving only three, he was deported back to New Zealand in 1994.
Four years later, Patterson was arrested while attempting to return to the United States on a false passport.
Then, in July 2002, following his third extradition, he was arrested by the New Zealand authorities for offences committed here before he'd left the country in 1998. Unfortunately, the author's [Andrew Kelly] been unable to find out what those offences were.
Regardless, sentenced to home detention, he was freed in June 2003.
Not wasting any time, Patterson's latest - last? - fraud began within days.
What Was He Like?
So what was Wayne Patterson like as a person? He was certainly a man with a mission: One Department of Corrections probation report refers to him, as a child, telling his father he wanted to be a millionaire. Personality wise, we have his next door neighbour stating: "He was a gentle fellow, kind of shy but pleasant and neighbourly. There wasn't an unkind word you could say about the fellow."
A feeling backed up by Patterson's landlord who said he was 'gobsmacked' after the arrest of a man he considered 'Mr Perfect.' Going on to state: "He's such a nice guy. Everyone liked him."
But then not everyone was such a fan. After his sentencing in October 2007, MSD Chief Executive Peter Hughes stated: "His chief pleasures appear to be tropical fish and gardening. With no friends, in a rented unit fortressed by high-tech security, his primary contact with the outside world was via internet chat-rooms."
To be fair, except for that 'high-tech security' comment, Hughes could be describing the lives of a fair number of people living in any big city.
Then Hughes went on to state Patterson: "Lived a lonely life few would envy." And maybe he was more on the money there?
During his summing up, the Judge had stated: "You appear from the information available to me to have little willingness to accept responsibility for your behaviour."
Which perhaps comes closest to summing up the real man behind a $3.4 million benefit fraud.
Patterson's System
So how do you fool the MSD into paying you over $50,000 a fortnight? This is the $3.4 million question.
Well, for a start, it helps if you aren't who you say you are. And you do that by proving you're someone else. Which is precisely what Wayne Patterson did when he provided the MSD with all the proof they asked for when he applied for each and every benefit. And his system, like most outlined in this book, while ingenious, was also straightforward.
MSD Chief Hughes saying each false identity created was supported by an extensive array of equally fake paperwork. For a start, each had its birth certificate, one 'issued' from the correct office it would've been issued from, with a serial number from the series allocated at that time. Each used the correct period typeface, even the paper feeling and weighing entirely as it should.
Springing to his department's defence here, Hughes stated: "Our staff are trained to scrutinise these documents. They know to look for certain things, but they were very, very high-quality forgeries." This according to him anyway.
Now at first, Patterson applied for Sickness and Unemployment Benefits, before switching to Superannuation payments. Why the switch? Because sickness beneficiaries require doctors' visits, and the unemployed face regular face-to-face interviews. Whereas, for the pension, you're not expected to front up on anything like a regular basis.
A good example was covered by the trail Judge, who told the court that in July 2003, Patterson, using the alias 'Paul Wayne Lancaster,' applied for the pension at the Work & Income New Zealand (WINZ) office in Panmure, Auckland. To support his application, he'd handed over a birth certificate and a Community Services Card. The latter helping with the costs of health care and, in this case, obtained from the MSD the previous month.
'Lancaster' got his pension and, along with supporting allowances, these were paid into a Kiwibank Limited (Kiwibank) account under that name. 'Lancaster' continued to be paid right up until Patterson's arrest in October 2006. Which, of course, implies he'd had to, and had, managed to fool banks' into opening accounts as well.
Just in case, he varied the ID's he presented. Using everything from forged Temporary Driver's Licences, real Inland Revenue Department (IRD) cards, and bank statements, to false Tenancy Agreements. At the time of his arrest, the following were uncovered at his flat: 137 Automated Teller Machine (ATM) cards, 125 IRD cards, 102 forged birth certificates, 79 Superannuation Cards, and 56 Community Service Cards. All helping to ensure Patterson was who he said he was. And not himself.
The Various Companies Involved
It's worth taking the time here to look at the companies set up by Wayne Patterson: Companies directly involved in his $3.4 million fraud.
New Zealand Companies
Patterson had set up two locally: Rodney Securities Limited, incorporated in October 2005, and United Gold Limited, incorporated in November 2005. Of the two, Rodney Securities is the most interesting.
It had two directors and shareholders: Patterson himself, and Graham Robert Johnstone.
And on all the official Companies Office forms, Johnstone's address is given as Gardener Avenue in New Lynn, Auckland. Now there's a Gardner Avenue in New Lynn, but no 'Gardener Avenue.'
And that's anywhere in Auckland.
Certainly no expert, but the author reckons the signatures for both Patterson and Johnstone were done by the same person. There's another Graham Robert Johnstone listed on the Companies Office website, but their signatures don't match at all.
Even more damning is the fact Patterson's neighbours, and his landlord, all knew him as 'Graham Johnstone.' So it's a pretty much given that both of Rodney Securities directors' were one and the same person.
Which begs the question: Why bother using a false identity when you're already using your own name?
Answers on the back of a postcard please! United Gold appears much more straightforward: Patterson its sole director, and he a joint shareholder with Rodney Securities.
Despite this intrigue, Patterson had both companies struck off in January 2006. Only three and two months, respectively, after he'd set them up.
The most likely reason? He'd decided to go offshore instead.
Offshore Companies
After reckoning 'local' wasn't the way to go, Patterson decided to go international.
In all, he'd register four offshore companies. Three of them, and their associated foreign bank accounts, set up with the help of Maritime International Limited.
A company based on the West Indian island of Antigua, Maritime Internationalisn't shy about offering: "The most complete and comprehensive selection of offshore companies, offshore asset protection and professional financial services available."
Patterson first contacted them through their website in April 2006: Three months after deregistering Rodney Securities and United Gold, and seven before his arrest.
The company's Wealth Management Director, Laura Mouck, said they'd requested a copy of his passport and proof of his address before setting up the companies, and that he'd been checked through an international database meant to flag criminals. And he'd come up 'clean.'
In addition to the three set up with Maritime International's help, Mouck said she was aware Patterson had set up a fourth company, independently, in Panama.
Mouck stating Patterson had: "Deposited funds into the [Austrian and Swiss] accounts personally, via wire transfers ... from New Zealand bank accounts."
In all, he'd set up four offshore accounts, and it's known he wanted to set up a fifth.
Invoices subsequently found in Patterson's flat detailed the purchase, and subsequent on-sale, of gold. Monies received were then transferred onto those foreign bank accounts.
Nothing more than a form of money laundering then.
Anything Unusual?
Besides the intriguing question of Graham Johnstone and Rodney Securities Limited, certainly another aspect of Wayne Patterson's fraud differed from all of the others covered in this book. All of 'his' money was obtained as cash. Physical dollars, that is.
Using those ATM cards the police found hidden, in a recess above his shower, as it happens, he withdraw monies from a string of ATM machines across Auckland city.
As a for instance here, when arrested, it's claimed he had around $13,000 in his Nissan Primera motorcar. Therefore, while others enjoyed their free time, Patterson was driving about the place withdrawing money from ATMs. This the single biggest 'downside' of his operation: Because he ended up with more cash than he appeared to know what to do with.
Shortly after his arrest, the media would be, and gleefully, reporting how 'stacks of cash' and gold ingots were found squirreled about his flat. And how more dollars were later discovered plastic-bagged up, and buried in Patterson's flowerbeds.
It's known he used makeup and disguises to exaggerate his age when forced to visit MSD offices. One policeman saying they'd found 'old man's clothes' in his flat.
Also discovered were approximately 100 PO Box keys, from locations all over New Zealand. This because, while MSD forms' specify applicants must supply a street address, you can supply a mailing address, and that could be a PO Box.
So all Patterson had to do then was fill out a form, pay a few dollars, and any mail sent to a PO Box would instead be forwarded on to a physical address. His own in Colwill Road, Massey, West Auckland as it happens.
So what did Wayne Patterson do with 'his' $3.4 million then?
For one thing, he didn't spend it on buying property, like false invoice fraudster Michael Swann would do. Instead, throughout his fraud, Patterson lived in this $230-a-week, two-story, rented flat. Albeit plain-and-ordinary looking on the outside, its interior would be described as 'mansion-like'. Then again, he also had a 'lavish' ornamental garden.
That 'mansion-like' interior featured such indulgences as a top-end white leather lounge suite, and home theatre system, a marble ensuite, a ceiling mounted projector with a 3.6 metre screen, a home gym, and more art than he had places to hang it.
Patterson also spent an estimated $50,000 on his garden. Which included many rare and exotic plants, in addition to marble seats and imitation Easter Island statues.
Inside his rental, including that $13,000 found in his Nissan, the police discovered another $184,000 in cash.12 one- kilogram and 62 10-ounce gold bars and ingots were also discovered. And, out in that extravagant garden, police dug up a stash of plastic-wrapped cash to the value of $684,000. In $50 notes.
As an aside, it's never been adequately explained how the police knew to dig in the garden.
Anyway, in all, around $1.2 million was initially recovered.
And the other $2.2 million? It later transpired Patterson had invested the bulk of this in those offshore bank accountsassociated with the four overseas companies he'd set up.
MSD Chief Hughes perhaps summed it up best, stating: "With more money than he knew what to do with, Patterson began [in late 2005] dealing in gold to launder the cash in an attempt to conceal assets in foreign companies and bank accounts."
Now, besides dealing in precious metal, Patterson had also purchased a number of Apple Computer Incorporated, now Apple Incorporated, shares through his offshore companies.
A 'wise' investment, as we'll soon see.
Did Patterson have any longer-term goals? Yes. Apparently he was thinking seriously about buying a cabin on The World cruise liner. This luxury liner serving as a sort of floating residential community for the wealthy. Now for that, Patterson would've needed some serious coin, as even a small-ish studio apartment would've cost him around $600,000 US then. With another $20,000 US a month in charges on top of that.
The MSD said documents found in his flat showed he apparently planned to stop defrauding when he got to $10 million. In December 2011, Patterson had been declared bankrupt. Not because of his fraud: But over $3.1 million he owes, in unpaid taxes, to the IRD.
Okay…
Missed Opportunities
With 20/20 hindsight, prior to Wayne Patterson's arrest in October 2006, were any real opportunities to catch him out earlier missed?
Yes. At least three: One before this, latest, fraud actually began; another shortly afterwards; and the third after his fraud had been exposed.
The first missed opportunity came when Patterson was placed on probation after his home detention ended in June 2003, when his Probation Officer had reported there was a 'high risk' he'd reoffend.
But no one had bothered to follow up on this. At all.
This was very unfortunate, especially in light of MSD Chief Hughes' later statement about what would happen after Patterson's release: "We will watch him closely. He will be under scrutiny like no one else in the country."
Perhaps prior would've been best. To the tune of $3.4 million.
The second missed opportunity came early on in his fraud when the MSD stopped a payment to one of Patterson's false identities due to some unreported discrepancy.
In common with so many other cases handled by them, it was thought that doing so would prompt the errant beneficiary to front up to a WINZ office.
But Patterson hadn't. And when he hadn't, no follow-up investigation was carried out. In the first case, a report that should've been followed up wasn't. In the second, an assumption had been made, but with no follow-through, a good opportunity was missed.
How Was He Caught Out?
So what tripped up Wayne Patterson in the end? The happy outcome of a vigorous MSD fraud sweep? Can we put it down to a sharp-eyed internal auditor? Or did a diligent front-of-office WINZ employee note some inconsistency?
None of the above as it happened: An unsung Kiwibank employee noticed a pattern. A pattern of unusual transactions relating to 14 differentbank accounts into which benefits were being paid.
It was reported all were linked to a single, or perhaps two, 'Internet Protocol' (IP) address. An 'IP address' being a computer's physical address on the Internet. Where it sits, if you like.
And Kiwibank, obligated to report this to the MSD under the Financial Transactions Reporting Act 1996, did exactly that.
This'd been on September 26 2006. An important date this. An official MSD statement released over a year later stated: "Within a week [of September 26], the Ministry ... established that the [14] accounts related to false identities." Using the characteristics of these 14, within another 48 hours the MSD had uncovered the majority of Patterson's later total of 123 false identities.
All good then. But why's September 26 important? Because, although it took more than a year after his arrest to come out, the MSD had missed a clear opportunity to get their hands on Patterson earlier: By seven days.
A failurethat ended up costing the taxpayer $56,000. Because a further fortnight's payouts had to be made to ensure Patterson's suspicions weren't raised.
All of this only came to light in October 2007. When, in Parliament, then-opposition Member of Parliament (MP) Judith Collins had formally asked Steve Maharey, Acting Minister for Social Development and Employment, why it'd taken from September 26 until October 3 2006 for the MSD to act upon Kiwibank's report.
When no meaningful reply had come back, Collins said it'd been because the MSD's Senior Fraud Investigator had received a phone call fromthe Department of Internal Affairs (the DIA,) six days after the Kiwibank report, offering assistance with the fraud investigation.
But that the investigator had hadto admit she didn't know what he was talking about, because she hadn't been able to open the spreadsheet attached to the Kiwibank email! The spreadsheet that'd listed those 14 accounts. Which, of course, nicely explains why that MSD statement began with: "Within a week..."
Now, for some inexplicable reason, this never rated even a mention in passing by the media.
But, despite the above, at least the MSD were now aware a substantive fraud had been committed.
What they didn't know, though, was the perpetrator's real identity.
Got You
So how did they finally get their hands on Wayne Patterson? A year after his arrest, MSD Chief Hughes had said once he'd been notified of a substantial fraud, he'd established an MSD-led taskforce: "Drawing on the expertise from a range of organisations, we had assembled extensive information about the offender within a few days." Good and positive action.
But there were initial setbacks. For example, the fraudster wouldn't be caught out through the covert surveillance of three ATM machines he was now-known to have used regularly.
This was tried, but the end result had been: "A security photo of the disguised offender." Patterson was no fool then.
Now that 'range of organisations' Hughes mentioned included the Police, The DIA, IRD, the Crown Law Office, several trading banks, and a forensic accounting firm.
Notable by their absence was the Serious Fraud Office (SFO). More on this coming up. The taskforce's breakthrough finally came 23 days after that Kiwibank email.
On October 19 2006, a bank account used by their target for his day-to-day living expenses was discovered.
And the next day, the perpetrator used an Eftpos card linked to that account to make a purchase at a petrol station. Security camera footage, this time, led to a vehicle registration andfrom that, they got a physical address.
Patterson was then put under close surveillance for the following six days, during which he was observed withdrawing large amounts from ATM machines, after which he returned home.
From that, it was surmised he must have large amounts of money hidden about his property.
On October 26 2006, the police executed a search warrant at Patterson's Colwill Road flat. The MSD finally had their man.
Sentencing And Prison
Wayne Patterson, $3.4 million benefit fraudster, had been arrested then. Initially held in Mt. Eden Prison, Auckland, in November 2006, he appeared in District Court charged with four counts of forgery, four of using forged documents, and one each of using a document with intent to defraud, and of dishonestly using a document.
Thankfully for the taxpayer here, Patterson pleaded guilty to all charges laid by the police.
Due to be sentenced by the same court in March 2007, this was later, inexplicitly, switched to the Auckland High Court, and set down for May.
However, May 2007 came and went, with no explanation ever being offered as to why sentencing didn't and couldn't happen then either.
Given what transpired later, the most likely reason was because the MSD were seeking further reparations from Patterson under the Proceeds of Crimes Act 1991.
And what of those assets? As MSD Chief Hughes would later state: "Within weeks [of his arrest] we had traced and frozen assets with overseas banks." This, of course, was just the beginning of a long convoluted process.
Anyway, Patterson was finally sentenced on October 12 2007. 11 months after his guilty pleas, and a full year after his arrest.
Regarding sentencing, the Crown wanted the starting point to be somewhere between nine years and a decade. Patterson's lawyer, meanwhile argued for nine.
The Judge, however, had other ideas: Deciding 11 years, six months was a more suitable starting point. The Judge going on to say he wouldn't be giving Patterson any 'discount' for remorse. But that he was entitled to a 30 percent sentence reduction due to his early guilty pleas.
Eight years then, with a non-parole period on the high side: Five years.
After sentencing, Hughes stated Patterson was: "A very, very skilled man and if you could trust him I would hire him. You can't, and I won't." Okay…
The Parole Board also shared Hughes' view: Patterson being declined parole in July 2012. They labelling him an 'arrogant, egocentric man,' stating he saw: "The life of a big-league parasitic fraudster as more rewarding than the drudgery of ordinary honest toil." The Board went on to say he was likely to continue as a fraudster if paroled. His next Board hearing is set for July 2013.* If parole continues to be denied, Patterson won't be due for release until July 2015.
Now he initially served his time in the minimum- to low-security Tongariro/Rangipo Prison, in the central North Island. A facility he was sharing with 'Ponzi scheme' fraudster, Stephen Versalko.
One interesting episode worth mentioning here: In April 2009, Patterson appeared in Taupo District Court on one charge of attempting to escape, and one of actually escaping, from custody. The police said he'd slipped out of a holding cell while they were occupied with another prisoner, but had been recaptured 'within minutes.' Pleading guilty to both charges, he was sentenced to three and six months respectively: Sentences cumulative on his prison term. Now whether it was due to this escape attempt or not, it appeared he was then moved to the minimum- to high-security Whanganui Prison. And at the Whanganui Prison, Patterson remains(2013).
Media Reporting
As expected, Wayne Patterson's $3.4 million benefit fraud made the headlines. So how did the media report on this case?
Initially their focus was very much on the 'bizarre life' of the man who'd been defrauding the MSD out of over $50,000 a fortnight.
Not unnaturally, a lot of column and screen centimetres were given over to the $539,000 in cash and gold the police found squirreled abut in Patterson's flat, and that further $684,000 found buried in his garden.
Then there were all those false identities Patterson had created. The hundreds of ATM, IRD, Superannuation and Community Service Cardsand, of course, those 102 forged birth certificates.
All facts that became a common thread throughout the short time Patterson's fraud was reported in the media.
'Short' time because in the full year between his arrest in October 2006, and his sentencingin October 2007, very few new details were made publically available by the MSD. They simply refused to comment until after Patterson's sentencing.
For example, after his arrest MSD Chief Hughes said he'd only be making a 'full disclosure' of the facts following Patterson's sentencing, stating: "This is a serious matter and the Ministry recognises it needs to be accountable. We will be accountable immediately after sentencing."
So, despite being labelled by the New Zealand Heraldas: "The biggest benefit scandal in New Zealand's history", when compared to other large frauds Patterson's was very much 'under-reported.'
His case only made the headlines during two periods: For less than a week following his arrest, and for just over a week following his sentencing.
The only statements made by the MSD between these two periods were reassurances that this case was unique, and that there were no holes in their systems. The media simply reprinting these almost verbatim.
Despite the MSD being wrong on both counts: The size of Patterson's fraud about the only 'unique' factor here, and there had to have been holes in their systems, otherwise we wouldn't have been reading about him.
As stated, following his sentencing, the man made the headlines once more. Even rating a mention on the BBC news website. It was then details of his criminal past emerged, the politicians got involved, and some difficult questions were finally asked. But never really answered.
It was at that time that both the MSD and the media began to paint a picture of an intelligent, misguided, lonely soul who'd somehow managed to fool the system but who was ultimately tripped up by his own greed.
A common theme when reporting large-scale fraud in New Zealand. And the MSD went into full 'damage control mode': Them and Hughes issuing a number of press releases and associated sound bites. Hughes, for instance, happily pointed out the hurdles faced by his Ministry, and the successes achieved, when uncovering and prosecuting benefit fraudsters.
The statistics also coming thick and fast here. Followed up by the 'putting it into perspective' viewpoint so often used by organisations who'd found themselves the victims of large-scale fraud: "The money stolen by Patterson represented 0.008 percent of New Zealand's total benefit-spend," and so on.
One thing very much in the MSD's favour here was that they could announce the government would actually be making a 'profit,' due to this fraudster's 'astute' investments. More on this soon.
So, during that week following Patterson's sentencing, the MSD tried to seize the moral high ground.
It has to be said: They mostly succeeded. Due in no small part to no hard questions being asked of it by the media. For instance, that embarrassing spreadsheet debacle? This wasn't followed up by any major media outlet at all.
Interest did briefly revive following TV3's December 2009 Inside New Zealanddocumentary entitled "Catching the King of Benefit Cheats." However, besides this, the reporting of a number of failed appeals and, of course, his name being mentioned every time benefit fraud's an issue?
Interest has pretty much waned in Patterson.
A Missed 'Conspiracy Theory'?
Anytime's a good time for a conspiracy theory! Now it's a matter of record that in 1998, Wayne Patterson had been arrested attempting to enter the United States on a false passport.
It should therefore come as no surprise then, that the media initially reported a 'number' of New Zealand passports had been found when his flat was searched by the police on October 26 2006.
One of which was said, by unnamed 'officials' at the scene, to be in the name of 'Geoffrey Patterson,' with a photo of the man known to his neighbours as 'Graham Johnstone.'
Now shortly after Patterson's arrest, the Department of Labour, which administers the DIA, announced it'd be beginning a 'probe' into how he'd obtained these passports.
Then, 10 days after his arrest, the DIA announced no passports had, in fact, been found.
Intrigued by this turnaround, in July 2012 the author put in a formal Official Information Act 1982 request to the DIA requesting details of this 'probe.'
The Passport Office General Manager responded, saying while the media may've reported a number of local passports had been found, they weren't aware of any such thing.
And that, in mid-October 2006, prior to his arrest then, the MSD had provided the DIA with a list of 'suspicious identities' used by Patterson in his offending. But a check by the Passport Office had found none issued under any of them. Okay then.
The author next approached the New Zealand Police. In their case an Official Information Act 1982 request asking for a listing or report of what the search warrant executed on Patterson's flat on October 26 2006 had found. After some initial reluctance, it has to be said, in August 2012, the author received two 'NZ Police Job Sheet's outlining, in precise detail, what'd been uncovered at that Colwill Road address.
Fortunately/unfortunately there's no mention of any passport or passports being found.
However, in the email accompanying those two documents, a police detective states: "I can confirm that only 1 x NZ Passport, in the name of Wayne Thomas PATTERSON, was located and seized from the address."
Something not listed as an exhibit in either of those Job Sheets.
Which must be considered unusual. Given that, for example, at '1149 hrs,' it's recorded a Logitec computer mouse and holder: "Located on the top lefthand corner of the desk in the office," had been located, photographed and seized. And labeled as 'Exhibit No: 39'!
Hum… Still a conspiracy theory? The author will let the reader decide.
The Fallout
What of the political fallout? After all, the MSD is this very high profile government department.
As entirely expected, the politicians weren't slow in coming forward here. The first of several embarrassing questions being asked in Parliament only four days after Wayne Patterson's sentencing in October 2007. Not just ones concerning non-opening spreadsheets either.
Once more, it was then-opposition MP Judith Collins who was asking the hard questions of Acting Minister Steve Maharey. Questions such as: "Why did the ministry not consult the Serious Fraud Office when it realised it was dealing with a fraud of well over $1 million?" A good question, especially given it was the MSD's policy to refer such significant frauds to either the SFO or police.
By way of an 'answer', Maharey tried deflection first: Pointing out the MSD-led investigationhad been 'Highly successful.' One assumes he was referring to the prosecution and sentencing. Although, it was more likely he was referring to the money the MSD had made from Patterson's investments.
No surprise, Collins was having none of that and, quoting from a memo received from the SFO Director: "The role adopted by the ministry as the investigator, the prosecutor, and the political adviser of this significant fraud, in which it was also the victim, raises perception issues that would have been avoided had the police or the Serious Fraud Office been responsible for the investigation and prosecution."
This is interesting because, sometime after this, the author is unable to ascertain when exactly, the SFO ceased to prosecute benefit fraud. From their website, we now have the following statement: "Work and Income New Zealand (WINZ) will investigate allegations of beneficiaries fraudulently obtaining a benefit."
Back to parliament, and once more the Acting Minister pointed to a successful outcome, before moving on to the argument we will hear over and over in this book. He stated Patterson was: "A unique fraudster and outstanding in his own field - literally, because no one else has ever done this." Simply not true.
Excepting for the few hard questions outlined, and all asked in Parliament, this was about it. As far as the author can ascertain: No heads rolled as a result, no wrists were even slapped. Much worse perhaps: There seemed to be no demands this should've happened either. That's from either the politicians or the media.
Seeking Reparations
Unsurprisingly, every defrauded organisation wants its money back. The MSD proving no exception.
Now the initial amount of cash and gold recovered from Wayne Patterson's flat in October 2006 totalled around $1.2 million. Which wasn't too bad for a day's work. However, as alluded to previously, the MSD would later announce the government would actually be 'profiting' from this fraud.
After his sentencing in October 2007, the MSD said Patterson had invested the bulk of their money in foreign bank accounts, and MSD Chief Hughes had stated: "Within weeks [of his arrest] we had traced and frozen assets with overseas banks." This immediately netted them around $2.2 million: $1.1 million in the Austrian bank account, approximately the same amount in the Swiss one. Therefore, along with that $1.2 million recovered from Patterson's flat, they'd at least gotten their $3.4 million back. It got so much better though.
Because by May 2007, this total had grown from $3.4 million to around $3.9 million. And, in October that same year, it'd further increased to over $4 million and, in January 2008, again increased to over $4.3 million. This marked increase was due to two factors. Firstly, the price of gold had risen: Patterson bought it when it was around $400 US an ounce, it was around $600 US when sold.
Then there were those Apple shares.
Which Patterson had bought at $75 US a share in 2006. But then the company had launched the iPhone in the United States in June 2007: After which the shares had skyrocketed to $160 US each.
So by March 2008, Patterson's cash and investments totalled around $4.4 million. Thereby 'earning' the Government a cool $1 million!
Staggering when you consider, as outlined in the Preface to this book, that less than 10 percent of defrauded companies recovered all of their money. Let alone made a large profit. Perhaps financial adviser and columnist Martin Hawes summed it up best when he'd stated: "He's perhaps been very skillful but took an awful lot of risk." No argument here.
As he had when originally drafting this chapter: The author would be happy to end this section right here, with all the 'loose ends' nicely tied up. Unfortunately it wasn't to be.
Because while the Government had, by 2012, already recovered $3.5 million, there are still unclaimed assets deposited in Austria. Assets including those Apple shares. Which by then had leaped in value from $810,000 in 2007, to more than $3 million by August 2012.
In March 2009, the Government's bid to recover these from Wayne Patterson's Anglo-Irish Bank account had been rejected by the Vienna Regional Court.
To add salt to the wounds, Patterson was-and-is receiving the Austrian equivalent of legal aid to argue for his entitlement. It gets worse.
When the Government appealed this ruling in 2010, the Court then ruled these assets should, in fact, be forfeited to the Austrian Government.
Patterson promptly appealed himself, and that forfeiture was overturned. On the basis the New Zealand Government had already recovered more than the amount he'd stolen. So it remains. And today (2013), the Government's relooking at its options.
The MSD Takes Action
The MSD's Annual Report 2011/2012 states: "This year our payment systems processed over 45 million transactions totalling $16 billion." With this in mind, MSD Chief Hughes stated it's an impossible task to check every one of their million-plus clients because: "If we did that, it would take you several years to get on New Zealand superannuation." An entirely fair statement.
What must be understood is that this $16 billion makes the MSD, in common with any other large financial service organisation, a prime target for fraudsters. Hence Hughes' statement made after Wayne Patterson's 2006 arrest: "This is a serious matter and the Ministry recognises it needs to be accountable."
Of course, the MSD initially denied there were any holes in their systems. A government Minister at that time saying he had confidence in them to prevent and detect such cases. Despite the, even then, overwhelming evident otherwise.
Given Hughes' later statement around Patterson being under very close scrutiny once he'd done his time: What did the MSD doto try and keep fraudsters like him away from that $16 billion? First off, they did what most other financial services organisation did post a sizable fraud: They commissioned an independent review of their current controls.
The problem here is, such client-paid reviews have a way of painting a somewhat rosier picture then reality may, and the facts often, indicate. And this one was no different: Hughes saying it found that while the MSD had strong controls, these alone couldn't protect against a determined fraudster.
An all too common theme. Despite all that evident to the contrary. To their credit though, the MSD did take more positive action.
And one of the first things they did do was tighten up on the use of birth certificates as ID. These are now checked against a birth and death records database whenever anyone applies for a benefit. Initially manually checked, in 2010 this process became a web browser-based service available via the DIA.
Manual or not, this led Hughes to perhaps over-optimistically state: "This will prevent false identities in the benefit system." Besides database checks, a better form of photo ID was now required, and targeted training for frontline staff was put in place. And an Intelligence Unit was also established to carry out fraud-related risk assessments.
In March 2008, Hughes briefed a parliamentary committee on Patterson's fraud, informing them he was now confident no similar-scale frauds could occur now because they'd spent around $1 million on measures making sure it couldn't. Yes.
In the Office of the Auditor General's 2008 report to Parliament, the MSD were found to have: "Good systems, policies, and procedures in place to prevent, detect, and investigate benefit fraud." But did go on to say they should make better use of their intelligence and data-matching functions in order to better identify areas of emerging risk and potential instances of fraud. Good advice. And not just for the MSD.
Okay, forgetting entirely the part Kiwibank had to play, we have a sound bite from Hughes in 2007: "I am confident that it is a matter of when rather than if we catch benefit fraudsters as the case of Wayne Patterson so clearly demonstrates."
It'd be nice to think so.
Did Anybody Else Take Action?
While the MSD took action, Wayne Patterson's fraud, of course, touched a number of other organisations as well. As stated, the MSD had tightened up on the use of birth certificates as ID, and that, initially, these had been manually checked against a birth and death records database.
In 2010, the DIA launched the 'Data Validation Service' (DVA): A web browser-based service setup to help both governmental agencies and private sector organisations combat identity theft. This service allowing users to check whether personal identity information presented was consistent with information held by the DIA. Including that in its 'Citizenship, Passports, and Births, Deaths and Marriages' databases.
The DIA admitting this service had been, at least partly, developed in response to Patterson's fraud.
Alright, four years after the event. During his October 2007 sentencing, the Judge noted Patterson had sometimes used forged temporary driver's licences as ID when opening bank accounts.
In response, Land Transport New Zealand (now the New Zealand Transport Agency) spokesman, Andy Knackstedt, said they'd certainly be 'looking into' how this could've happened.
He also said that while they worked closely with both Immigration New Zealand and the DIA, a driver's licence was not designed to be an ID card.
Wasn't Knackstedt being just a little naive here? After all, 'designed' for it or not: A driver's licence is accepted as an ID card. In fact, their own 'Identification for driver licensing' factsheet says, in order to renew your licence, you have to front up with ID. And one of your choices is stated as being: "A New Zealand photographic driver licence that is current or has expired within the last two years."
Unfortunately, that 'looking into' hasn't resulted in any affirmative action to date. Look at the case of then 17 year old student Marcus Lim's 2009 prosecution for selling forged photographic drivers licences to his fellow students for $100 each.
Then there were those limited liability companies Patterson had setup in the year before his arrest.
Forgetting the 'why' of both directors of Rodney Securities Limited likely being Patterson himself: How could a man, a 'career criminal' who'd done time for major fraud and theft, both locally and overseas, become a company director?
Obviously Companies Office doesn't perform anything approaching thorough background checks.
And not just them either. Hadn't Maritime International Limited checked him against an international database meant to flag criminals?
Given all of the above, one could argue that while the MSD spent some major dollars tightening up their own systems, policies, and procedures as a direct consequence of Patterson's fraud, no other government agency seemed too concerned? And it's not just government agencies either.
Kiwibank, for instance, has never said a word.
Some Observations
While many of the points raised in this section may've been made before, the author felt they're worth reiterating here, as findings or observations resulting from a close analysis of the MSD's press releases, the court records, parliamentary debate papers, media articles and other sources. All of which are freely available online (see 'Bibliography').
Much of what follows is very much the author's opinion. Alright backed up by facts where and if at all possible.
The author also restricted himself to what he saw as only the most pertinent findings, a 'Top 5' in this case, the rest thought to be adequately covered in the body of this chapter.
A 'Career Criminal'
Wayne Patterson is a 'career criminal.' And alright, once released, he'll be: "Under scrutiny like no one else in the country."
So the MSD assure us anyway. However, prior to his $3.4 million benefit fraud, wasn't he already well-known to the New Zealand authorities? A several-times convicted fraudster who'd already stolen millions from welfare agencies in two countries. A man who'd perfected his system practically 'next door' in Australia? A serial offender labelled a 'high-risk' prior to this latest fraud by the Probation Service, and likely to continue being one once released by the Parole Board? A man who began his latest fraud within days of his home detention release in June 2003.
So why wasn't Wayne Patterson 'under scrutiny like no one else' back in 2003? Was it a lack of resources: People, funding, and so on? Was it a lack of process: No process equalling no scrutiny?
Or was it a lack of responsibility: The old-as-bureaucracy 'it's not my department' argument? Given the evidence presented, the answer would have to be: All of the above.
Patterson's System
Wayne Patterson's system was simple and straight forward: Prove to the authorities you're someone you're not and get paid. Much simpler than straight identity theft.
Patterson stole no one's identity. He simply up and provided the MSD with all the, mostly forged, proof they asked for when he made an application. A simple system made even easier once he'd established National Superannuation didn't require he physically front up on anything like a regular basis. All of which helped ensure Patterson was who he said he was. And not himself.
Here a quick check against the data held by the DIA would've uncovered his deceptionfrom the get go. Okay, this's now being done, of course. Thanks, in part anyway, to his fraud. Why wasn't this done before?
For much the same reason a crash barrier is only erected on that notoriously dangerous cliff road: Because a family of four drove over the edge last week.
No Serious Fraud Office Involvement
When the MSD established its taskforce to investigate a potentially large fraud, they included the Police, various other government agencies, a number of trading banks, and a private forensic accounting firm. But not the SFO.
When later questioned in Parliament, the Acting Minister had said: "The protocol at the time was for the police to engage the Serious Fraud Office." Nicely laying the 'blame' for the SFO's non-engagement onto the police. Who anyway played what can only be called a background role in the resulting case.
Regardless of any political ructions though, it was unusual that the SFO weren't involved. They should've been. Not least of all because the MSD's own policy said they should.
It was only after Paterson's sentencing that the SFO declared WINZ would now: "Investigate allegations of beneficiaries fraudulently obtaining a benefit." Changing the rules after the fact doesn't alter the fact though.
One possible answer as to why the SFO weren't even consulted was the MSD, to spare itself embarrassment, decided to use its political 'muscle' to keep the investigation in-house.
Thereby better controlling the flow of information. And, it has to be said, so successful was this strategy that by the time Patterson was sentenced, the public had pretty much lost interest. Helped along by the fact the MSD had actually made a 'profit' of $685,000 by then.
Strong Controls No Help
Entirely due to Wayne Patterson's fraud, the MSD commissioned an independent review of its controls. Such reviews pretty much always being carried out after an event. And most often, as in this case, involving one of the 'Big 4' audit and accounting firms: Deloitte, Ernst & Young, KPMG or PwC.
The problem here is that such 'self-paid' audits most always result in similar findings: Strong controls found to be in place already, but that these couldn't protect against a determined fraudster.
Then there's 2008's Auditor General's report, with its: "The Ministry has good systems, policies, and procedures in place to prevent, detect, and investigate benefit fraud." However, in-place controls, systems, policies and procedures by themselves, and no matter how 'good' or 'strong,' will never ensure your systems have a reasonable chance of remaining anywhere near fraud-free. A fact the author's very familiar with, given my background in information security.
No. History and common sense tell us this can only be achieved through the full and active cooperation of your staff, linked to some effective monitoring and 'old school' enforcement.
Remember that people will always cross that railway line or stop on the motorway, regardless of any warning sign or law saying otherwise.
Checks And Balances Lacking
As the prime victim, the MSD at least took some proactive measures to counter frauds like Wayne Patterson's. But it took until 2010 for the DIA to set up its Data Validation Service. Which they themselves admitted had been partly developed in response to his fraud. Albeit four years earlier.
Worse, the Transport Agency appeared to do nothing at all. Except naively state a driver's licence wasn't designed to be an ID card. Yet they'll still accept a current or already expired licence as proof of ID when you apply for a new one. And there are many others who should've known better. Especially when it comes to doing in-depth enough background checks. Remember those 137 ATM and 125 IRD cards? So we have to include the major trading banks and the IRD as well. At least.
Then there's Companies Office, also 'allowing' Patterson to use false IDs. There no real excuse for any of this. Not anymore. Not given the concern these days around identity theft, let alone fraud.
So while the MSD spent $1 million tightening up their controls and systems, it has to be said other government agencies and private organisations didn't appear too bothered.
'Master Fraudster' Or 'Mere Chancer'?
Opinion on Wayne Patterson, even within the MSD, appeared divided. At least it seemed this way, depending on the question being asked at the time. For instance, when defending his Ministry, MSD Chief Hughes described him as: "A very, very skilled man," one who used: "His considerable intelligence on fraud schemes."
Contrast this with Hughes talking of Patterson the man: "His has been a life characterised by failure," who: "Lived a lonely life few would envy." So which is it then? Skilled and intelligent, or lonely failure? Arguing for the former, Patterson did create 123 different identities out of nothing. With enough history and supporting paperwork to fool multiple government agencies and major trading banks.
Then he also managed to defraud $3.4 million, which he then invested well enough for the MSD to actually profit from his fraud.and, despite being a known fraudster, Patterson did get away with it for three years, three months.
The author’s in no position to argue on his loneliness, but can at least discuss 'failure'. That Patterson had done time, every time, he'd perpetrated a fraud. And this time around: Wasn't it more the MSD's, and others', failings that allowed him to get away with it for so long?
Then hadn’t it also taken him over two years to work out he could launder 'his' funds offshore. Rather than bury them in his ornamental garden?
Additionally, wasn’t he now, far more than before, a 'marked man'? When recalling this, and remembering all of the other evidence outlined in this chapter: It could be argued Wayne Patterson was more 'Chancer' than 'Master'.
A career criminal who, aware of its flaws, had exploited a system wide open to such exploitation.
Other Examples
Wayne Patterson's $3.4 million benefit fraud remains (2013) the largest ever in New Zealand history.
But there have been thousands of other local cases. One pertinent fact: Benefit fraud cost New Zealand taxpayers' $23.4 million in the year to June 2012. It'd 'only' been $7.5 million in 2006, the year Patterson was arrested. Alright, only a tiny percentage of the total MSD payout of over $16 billion, this is still $3.4 million too much.
Now the following are three of the more interesting examples of benefit fraud from the last few years.
Learn how Mike 'Milky' Gibson found himself in trouble over a good days work. How Peter Freedom did a runner, literally, with $28,000 of the MSD's money. And how pensioner Colin Diedrichs' double identity theft 'earned' him $447,000.
Michael Gibson
In 2009, Michael James Gibson, 53, pleaded guilty to six charges of making false statements to the Accident Compensation Corporation (ACC) and others between 2003 and 2008. In January 2010, despite each charge carrying a maximum sentence of three months prison or a $5,000 fine, Gibson was sentenced to 200 hours community service. Regardless of this case first being brought to the media's attention in July 2008. When video had surfaced of Gibson, after claiming $100,000 in benefits for a back injury that prevented him from working, lifting boulders, cutting hedges, launching his boat, and doing building work.
Consequently, he was nicknamed 'Milky' by locals. Due to his obvious 'milking' of the system.
When questioned over why they'd refused to act by the media, an ACC spokesperson had said: "Sometimes [we] do take a long time because we have to get it right."
In response, they soon found themselves criticised by MP Rodney Hide for the lack of any action over Gibson's case, even after numerous complaints had been received. Eventually, after spending tens of thousands of dollars on gathering evidence, ACC investigators found he had, in fact, engaged in activities contrary to statements he'd made to his doctor and ACC case managers.
Despite being convicted, he continues to receive ACC payments, as he's fully entitled to them.
Gibson said after the ruling he was pleased the nightmare was finally over, that the experience had been: "A waste of time and money."
Peter Freedom
In June 2011, Peter Freedom, 34, aka Petrus van Druten, was charged with one count of using a forged document, and one of misleading a WINZ officer. When he failed to appear in court, an arrest warrant was issued. There'd been little surprise, official or otherwise, at Freedom's nonappearance: He hadn't lived in New Zealand for two years by then.
Back in April 2009, he'd left for Australia, assuming his Unemployment Benefit would be cut off shortly afterwards, as was usually the case. It wasn’t. Instead he'd received nearly $28,000 between then and when it was finally stopped in January 2011. During that 19 month period he'd travelled extensively in Asia, Africa, Britain and Europe. Before settling in the Netherlands.
Freedom's benefit only ended because of a new MSD reform which required those on unemployment to reapply for it after 12 months. And his trip only came to the media's attention after he'd contacted them in February 2011 to point out the MSD error, stating: "What started as an accident soon became an opportunity."
Freedom then went on to attack WINZ, and Social Development Minister Paula Bennett, in a whole series of YouTube videos. The media, of course, made much of a welfare fraudster who travelled the world for two years courtesy of the local taxpayer. But then WINZ were, partially anyway, at fault, too.
Freedom had lied on his initial benefit application about having another name. something his case manager found this out, but hadn't bothered to record. Something that would've trigged an alert when he'd left the country in the first place.
Colin Diedrichs
In March 2012, retired gardener Colin Diedrichs, 82, was sentenced to three years, two months prison for assuming the identities of two dead children to claim $447,000 in superannuation payments over a 22 year period. Meaning he can lay claim to the entirely dubious honour of committing one of the longest benefit frauds in New Zealand's history. Because there have been longer!
In a ploy first brought to the public's attention in Frederick Forsyth's1971 thriller "The Day of the Jackal", Diedrichsobtained the details of a two year old who'd died in 1935, and another from 1957.
Using these, he got birth certificates and passports in both boys' names, and then applied for superannuation benefits on their behalf. Only caught out when the DIA, using facial recognition software, found Diedrichs' photograph in more than one passport.
He deposited the defrauded money into 29 different bank accounts across a number of banks.
Some accounts were in his name, as he was also legitimately receiving superannuation, while others were in the names of the deceased.
When asked why he'd done it, Diedrichs stated: "To get more money I suppose." Despite this, he hadn't lived extravagantly. Witnessed by the fact the MSD, working with the police Asset Recovery Unit, have since recovered around $357,000 in cash and assets. The head of the MSD's fraud unit stated this type of fraud was: "Rare and cannot happen today." One wonders though...
Bibliography
The author wishes to gratefully acknowledge the following (online) sources:
New Zealand Herald: Articles from 5th, 6th, 15th and 18th November 2006; 20th February, 17th March, and 12th and 13th October, and 4th November 2007; and 6th, 19th and 31st March, 7th Septemberand 6th December 2008.
Stuff.co.nz: Articles from 12th (x2), 13th and 16th October 2007; 20th March and 15th September 2008; 1st January 2009 (x2); 19th April 2010; and 22nd August 2012.
Judicial Decisions Online: Rulings from 12th October 2007 (High Court); 6th March (Court of Appeal), 1st May (High Court) and 28th August (Supreme Court) 2008; 10th December 2009 (High Court); and 12th March 2010 (High Court).
New Zealand Parliamentary Debates(Hansard): 'Questions for Oral Answer - Questions to Ministers' papers from 16th and 17th October 2007.
Companies Office: Copies of 'Certificates of Incorporation' for Rodney Securities Limited and United Gold Limited.
Bibliography For 'Other Examples' Section
The Marlborough Express: Michael Gibson articles from the 25th November 2009; and 25th January 2010.
New Zealand Herald: Peter Freedom articles from 18th June, 19th and 22nd November 2011. Colin Diedrichs articles from 5th November 2011; and 15th February and 22nd March 2012.
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