textfiles/law/fbiaug02.law

August 1990                                                       

                                                                  
                   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.