Report of the Canada - United States Working Group on Telemarketing Fraud

Department of Justice

1. INTRODUCTION

The growing availability of telephone and other communications facilities provides opportunities for many forms of interaction and commerce. Telemarketing, the use of telephones to market goods and services, has grown rapidly. In recent years, total sales in the United States and Canada have exceeded US$400/C$500 billion per year. Most telemarketing activities are legitimate, but some, unfortunately, are not. Telemarketing fraud has become one of the most pervasive and problematic forms of white-collar crime in Canada and the United States, accounting for as much as 10% of the total volume of telemarketing.

On April 8, 1997, Prime Minister Chrétien and President Clinton directed their officials to establish the Binational Working Group to examine the problem and report on ways to address it. The Working Group was asked to survey measures already in place and recommend further steps. As a result, it examined each country's legislation, legal procedures, enforcement practices, and education and prevention efforts, and has developed recommendations for cooperative and coordinated strategies to deal with cross- border telemarketing frauds. The Binational Working Group has prepared this Report pursuant to its mandate, in a spirit of mutual commitment to address a serious problem that affects the citizens of both countries.

"Telemarketing fraud" is used in this Report to describe a range of activities in which telephones are used to deprive victims dishonestly of money or property or misrepresent the true values of goods or services on offer. This covers a range of offences under Canadian and U.S. law. It is intended to describe the general problem as encountered by law-enforcement agents, regulators and prosecutors in the United States and Canada.

Criminals in both countries have been drawn to the offence by large proceeds and relatively low risks of detection, prosecution, and punishment. Since the early 1980s, as low-cost telecommunications made the telemarketing of legitimate goods and services increasingly popular, offenders have recognized that it also provided an effective means of conducting potentially massive frauds. The large number of victims who can be targeted using telephones vastly increases potential proceeds. A single telemarketer with a well-organized scheme can easily contact hundreds of victims, and organized groups can target thousands, particularly if a scheme continues for any length of time before being detected and stopped. Losses to each victim run from hundreds to thousands of dollars, and in some cases to much more. A single offender can easily earn several hundred thousand dollars per year, with larger "boiler room" operations extracting tens of millions of dollars.

The use of telephones also enables criminals to target victims at long distances, and across provincial, state and international borders. This ability highlights differences between legal systems and usually involves more elaborate arrangements for law- enforcement cooperation. It generally complicates investigations and prosecutions and increases the costs and length of time needed to bring offenders to justice or recover proceeds. The nature and growth of telemarketing fraud have made trans-boundary offences more frequent, which now places new demands on traditional Canada-U.S. legal cooperation.

The Working Group reviewed evidence drawn directly from the substantial practical experience of its members, the officials of both countries who deal with the problem personally. The Working Group believes that more structured research on telemarketing fraud is called for, but the evidence it has already seen is compelling. The evidence clearly demonstrates that telemarketing fraud is a serious economic crime problem. The devastating consequences it has for some of the most vulnerable citizens of the United States and Canada require that immediate and effective steps be taken.

The Working Group examined the problem of telemarketing fraud from three perspectives: legal matters, public education and prevention, and cooperation and strategy. The Report addresses these in separate sections. The Working Group cautions that there is no simple solution to telemarketing fraud: a truly effective response must draw elements from all three areas. It is hoped that this Report will lay the foundation for a joint program of effective measures to benefit both countries' populations.