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Monday, June 16, 2014

Ainsworth on Sales Suppression Fraud

Richard Thompson Ainsworth (Boston University - School of Law) has posted Sales Suppression as a Service (SSaaS) & the Apple Store Solution on SSRN. Here is the abstract:

The problem of sales suppression fraud is estimated to cost state and local governments $20 billion annually ($2 billion in New York restaurants alone). Modern sales suppression (skimming) is carried out with technology (Zappers and Phantom-ware). Nine undercover sting operations in and around Manhattan and the Bronx by investigators working for New York’s Department of Taxation and Finance (NY-DT&F) have identified the SSaaS variant of modern skimming.



A striking example of SSaaS may be unfolding in the $1 million sales suppression case against Congressman Michael Grimm (R-NY). It is alleged that Grimm skimmed sales from his Healthalicious restaurant in Manhattan, and it appears at this early stage that SSaaS was the skimming method used. 

Starting in Buffalo, NY in March 2009, and ending in the Bronx by September of that year, approximately 23 stings were set up by the NY-DT&F looking for Zappers and Phantom-ware. Sting locations were in Buffalo, Schenectady, Albany, Dutchess County, and the Bronx. False restaurants, manned by undercover agents, invited point of sale (POS) system salesmen. Almost all offered to show owners how to suppress sales. The preferred suppression technique was SSaaS. 

This paper recaps the author’s keynote address at the California Board of Equalization’s Sales Suppression & Detection Techniques Symposium in Pasadena California, April 28-29, 2014. 

The paper draws five observations from the NY stings, finds a disturbing conclusion about the extent of this fraud in the NY retail sector, and presents the technological solution that has been adopted in VAT jurisdictions. The solution essentially treats all businesses as an Apple Store. 

The key to preventing sales suppression fraud is to obtain secure, encrypted transactional sales data from the moment of a sale. The most advanced solution on the market today for accomplishing this was demonstrated at the California Sales Suppression & Detection Techniques Symposium – the Avatar-DTI system. It is explained here.

http://lawprofessors.typepad.com/crimprof_blog/2014/06/ainsworth-on-sales-suppression-fraud.html

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