$2.7 million embezzled from Arizona National Guard

While members of the Arizona National Guard were in harm’s way, James Eugene Burnes, a retired Army colonel took care of business on the home front. Unfortunately, he put his personal business above the needs of the National Guard. Between May 2003 and August 2011, Burnes embezzled $2.7 million from the Arizona National Guard Family Emergency Fund and the Arizona National Guard Emergency Relief Fund.

Apparently, Burnes had fallen on hard times. Just three years after retiring from the Army on presumably a healthy pension, he began committing fraud in his new role as a resources manager for the Arizona Department of Emergency and Military Affairs. From all accounts, he had a gambling habit that needed to be fed. To cover his tracks – as so many perpetrators of fraud do – he created fake financial statements and audit statements.

Here is how he stole the money:

  • Withdrew $1.9 million in cash during 675 separate visits to the bank (He visited the bank as often as 20 times a month).
  • Wrote 169 checks totaling more than $400,000
  • Purchased 32 cashiers checks for more than $332,000
  • Authorized electronic transfers of $40,000

Management oversight was apparently lacking and numerous red flags were ignored. In fact, an employee within Burnes organization uncovered the fraud and shared the information with a supervisor. The fraud continued for another five months before the supervisor confronted Burnes and initiated a review of bank records which confirmed the fraud.

I am sure that the Arizona National Guard thought it was appropriate to trust “one of their own” – a retired Army Colonel. If only life were that simple… Burnes may have been an exemplary officer while on active duty, but as I have said before, even good people make mistakes. Burnes will found out soon how much he’ll have to pay for his mistake when he is sentenced later this year.

Trust too much, and employees may view it as a sign of weakness. Call me cynical, but if my experience has taught me anything, it is that organizations routinely place far too much trust in their employees. If you ever catch yourself saying that you trust your employees and they would never steal from you, it may already be too late. Trust me; I built my career as a fraud consultant based on employers trusting that their employees will never steal. Guess what? Fraud happens.

Learn more about the case here and here.

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Have trade secrets, will travel…

We regularly hear from the U.S. government about the theft of intellectual property by Chinese companies and their government. This is just one of several examples that I have reviewed and analyzed in the past week. I am sure that there are many more attempts that go unreported.

In February 2012, Hanjuan Jin, a former software engineer for Motorola, Inc., was found guilty of stealing more than 1,000 electronic and paper documents from Motorola. Jin was caught by U.S. Customs while attempting to catch a one way flight to China. She had worked for Motorola since 1998. Why did she decide to steal Motorola’s trade secrets? Had she stolen intellectual property prior to 2007? We’ll probably never know…

The 2007 theft was not a “spur of the moment” decision. It had been in the planning phases for approximately a year.

In February 2006, Jin took a medical leave of absence. Between November 2006 and January 2007, Jin flew to China and worked for Sun Kaisens, a Chinese telecommunications company that developed products for the Chinese military. Jin had already spent June through November 2006, in China negotiating with Sun Kaisens. While working for Sun Kaisens, Jin was provided access to classified Chinese military documents.

In February 2007, the plan to steal trade secrets from Motorola kicked in to high gear:

  • February 15, Jin returned to the US from China.
  • February 22, she bought a one way ticket back to China.
  • February 23, she notified Motorola she wished to return to work.
  • She went back to work on February 26. Once back on the company’s premise, she accessed large volumes of proprietary documents during normal work hours as well as after hours. She was also observed leaving the building with various documents and possibly a laptop.
  • February 27, she volunteered for a layoff from Motorola.
  • February 28, Jin was caught trying to leave the country with over 1,000 electronic and paper documents belonging to Motorola. She also had a number of documents marked “secret” belonging to the Chinese military.

Interestingly, Jin was found her not guilty of three counts of economic espionage for the benefit of the People’s Republic of China and its military. She faces a maximum penalty of 10 years in prison on each count of stealing trade secrets.

Given Jin’s frequent trips to China, and the fact that the theft had been in the planning phases for 12 months, it is anyone’s guess regarding how much of Motorola’s intellectual property Sun Kaisens or the Chinese government were able to gain direct access to. Since Jin spent time in China prior to the theft attempting to convince Sun Kaisens to employ her, she likely shared information from memory. Also, since Jin had been employed with Motorola since 1998, it is possible that she had taken information over time in the event that a move to China was in her future.

This case underscores why it is important to protect your company’s trade secrets. Ask yourself the following questions:

  • Does your company have trade secrets? Can you list them?
  • How are they used within the business?
  • Where are they stored?
  • What has the company put in place to control and monitor access?
  • How would the company know that an employee is about to steal trade secrets?

There are a number of additional questions involving the alignment of people, processes and technology and the protection of trade secrets, but the questions above should generate sufficient food for thought.

Protecting trade secrets requires a multipronged approach. If there are any gaps in the approach, employees or third parties intent on stealing intellectual property will find them. Don’t believe me? Sanofi-Aventis also has experience dealing with Chinese foreign nationals and the theft of trade secrets. For more on that case, click here.

Arguably, the theft of intellectual property can do more damage to a company than the theft of cash. A company can earn more money to replace the money that was stolen, but once a trade secret is no longer “secret”, the damage is done. Many companies look to the legal system to punish the entity or individual that stole their trade secrets. Certainly, the courts can help. But if your organization cannot demonstrate that it took steps to appropriately protect its trade secrets, the courts may not look too kindly on your claim.

Be proactive! Invest the time and effort to protect your company’s intellectual property. Once your intellectual property is in stolen, you may be a company in name, but in reality, you are a shadow of your former self.

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.


The results are in… 2012 will be another difficult year

In December 2011, I created a poll on LinkedIn that asked the following question:

“What do you predict will happen to corporate fraud in 2012 versus 2011?”

Here are the final results:

Increase – 55 (70%)

Decrease – 9 (11%)

Stay the same – 11 (14%)

Not Sure – 4 (5%)

The poll generated 79 responses, and numerous insightful comments (see below).


“Interesting question, Paul. And interesting current responses indicating expected uptick. My expectation is increased and even explosive EXPOSURE of fraud, including increased enforcement, willingness to come forward, and EXPOSURE also of enforcement failure points and beneficiary parties.”
-Dean Levinson

“It is interesting that the crash of 1907 was fueled by “bucket shops” or financial investment firms operating out of store fronts that sold derivatives. They also were famous for “pump and dump” schemes of giving advice to people on how to buy and sell, but really created false lows and false highs on a given investment. After the crash the bucket shops were outlawed in every state because of how terrible the financial fraud was. In the years prior to the 2008 crash, legislation was passed to allow the sale of derivatives and the federal legislation mandated that all existing laws on the state level outlawing bucket shops were voided….so much for greater state and local control as going hand in hand with deregulation. Well, now you can get an investment account on line….they give suggestions to investors in a manner very similar to the pump and dump schemes from the bucket shops, and they still trade derivatives. Even since the 2008 crash, the bad practices that were once outlawed due to the terrible effects they had are still practiced. 100 years ago, if fraud was discovered, it was outlawed. Today, if the govt. outlaws something, it is seen as too much regulation and prevents job creation, so fraud is legalized. If the govt. tries to regulate that, it is claimed as too intrusive, so the industry tries to make new guidelines for derivative trading and such. If fraud is discovered, it will be legalized. Once it becomes legal, it is not fraudulent. And once there is money to be made through legalized theft, it will fund lobbyist money to make sure the laws remain in tact to enforce the fraud rather than to remove it.”
– Paul Peck

“In the US exposure of corporate fraud will increase in 2012. The key words here are exposure of existing frauds. On the law enforcement side, the FBI is currently inundated with tens of thousands of fraud complaints (over 63,000 reported) and it will take years to catch up. The FBI reported that the sub prime mortgage frauds, misused bailout funds, green frauds, and others would make this true several years ago. On the political side we have groups such as Occupy and the Tea party demanding corrections to government policy that have created and nurtured a culture of corruption and fraud. A new justice department in 2013 will likely have a mandate to clean up some of the problems created during the last four years; this will place pressure on the current justice department to file cases and create the appearance of doing something about it during an election year. I agree will all the previous comments about financial pressures leading to increased corporate fraud; cooking the books is far less likely to occur when profits are growing through honest efforts.”
– John Evangelisti

“Sadly, Paul, I have voted increase. Scott has pretty much nailed it right on the head – as financial distress increases, the “need” increases, many times, to the point where otherwise honest people feel that they have no other option. In the upper echelons, the pressure to meet targets will be immense, and there will be many instances of overstating revenues and understating expenses by said echelons to meet they targets that they have put out in the public eye.That will be exacerbated by potential drops in overall remuneration packages due to lower or non-existent bonuses, again, heightening the perceived need.”
– Alan Hunter

“I believe that fraud will continue in the rise unless whistleblowers are more protected and/or compensated accordingly.”
– Edward Sotomayor

“While the poor economy will continue to trigger fraud, I’m thinking the number of major conspiracies exposed in the corporate world will likely decrease in 2012, given the awareness that has occurred over the past couple years.”
– Don Crocetti

“Thanks Paul for the poll. It would be all too easy to point out that historically in times of recession and economic downturn, corporate fraud increases. With predictions of very slow (if any) economic growth both in the US and UK and the Eurozone crisis, the global picture looks a little gloomy for the foreseeable future. With the aforementioned and the austerity measures across the public sector starting to bite early 2012, I believe the financial pressures on individuals will increase and therefore increase the likelihood of financial misconduct across both private and public sectors. Looks like I will be taking that easy option after all and voting for the increase based on my own experience and history!”
-Scott Grant

Thank you to everyone that took the time to vote or comment. Buckle your seats, it is going to be a bumpy ride in 2012!

Need a writer that understands fraud? When you hire me to write an article, blog post, newsletter or white paper you get an accomplished writer that is also an expert in fraud.