Fraud sucks profits from auto recyclersClick to Enlarge - Damaged luxury automobiles are purchased for VIN swaps, potentially netting fraudsters hundreds of thousands of dollars in profits.
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Call it fraud, deceptive business practices, outright criminal conduct or even international terrorism. They all cost the legitimate auto recycling industry and taxpayers untold millions of dollars every year and lead to deaths and injuries from accidents caused by improperly repaired vehicles or even from vehicles used to deliver improvised explosive devices. Unfortunately, it also casts a shadow on honest, hard working people in the auto recycling business trying hard to make a living in a tough marketplace.

A number of criminal activities were described by Howard Nusbaum, the founder and administrator of the National Salvage Vehicle Reporting Program (NSVRP). The NSVRP is a public interest organization that works with national and international law enforcement to reduce auto theft, fraud and illegal export of vehicles.

The NSVRP board consists of representatives from the International Association of Chiefs of Police, the Miami-Dade Police Department, the North American Export Committee and the Association of Auto Theft Investigators as well observers from various government agencies.

“I would go to salvage auctions and see burnt-out or flattened vehicles with clean titles purchased for significant amounts of money. Many were going to criminal groups because they had no commercial value, and were bought for illegal activities,” said Nusbaum. 

Nusbaum cited one example of what has been happening. NSVRP recently tracked a 2007 Porsche 911 that was sold at auction with a clean title for $16,500 cash. The 911 was basically flattened with little commercial value beyond scrap metal. The hulk was shipped in a container to Hamburg, Germany adding another $3,500 to the nefarious investment. In effect, the buyer paid $20,000 for clean paperwork and a VIN number without any paperwork mentioning the extensive damage. It appeared as though the 911 was legitimately purchased in the United States, legally imported into Germany with supporting documentation.

We can only speculate on the likely scenario of what happened next. Thieves could go out and steal several 911s of the same make and model, perhaps from multiple counties. On the black market, sets of counterfeit vehicle identification numbers (VIN) identical to the damaged Porsche are bought and put on the stolen cars and titles, paperwork duplicated or forged.

Nusbaum mentioned that counterfeit VIN number sets even come with extras in the event of installation mistakes. The stolen vehicles can be sold with cloned VIN numbers and titles and sold to unsuspecting buyers in different countries because countries do not cross check information. What’s more, a criminal can title and insure the original 911 wreck, dump it somewhere, report it stolen and collect full market value on a fraudulent insurance claim.

“There are documented cases where vehicles are purchased at United States auctions, exported and wind up delivering car bombs in Iraq,” said Nusbaum. There are also cases of criminal organizations, international brokers or buyers that are not licensed United States businesses and therefore hard to track. They bid at auction for damaged cars with clean titles, steal matching cars to which they apply fake VIN and titles and sell the vehicles privately sometimes on the internet via sites like eBay or

In June the Automotive Recyclers Association (ARA) called on state lawmakers to review and update gaps in laws that may perpetuate fraudulent car sales and related illicit activities. Michael E. Wilson, CEO of ARA, focused on one of the primary problems, “The cash intensive nature of motor vehicle sales makes them vulnerable to a number of criminal activities including money laundering, drug trafficking, automotive theft and fraud. This is a position widely held in state and federal law enforcement circles in this country.”

According to ARA, the largest auction operator in the country estimates that more than five million total loss and salvage vehicles are sold annually in the United States. As a result of the high number of these transactions being cash, especially at public auctions, it is a breeding ground for crime and deceptive rebuilders.

One of the most wide spread and egregious practices is VIN cloning – buying a severely damaged vehicle for cash for the sole purpose of acquiring the title and VIN number, which are then attributed to stolen cars. There are also unsavory scam artists that buy cheap cars at auctions with body damage or mechanical problems, make shoddy repairs and misrepresent the actual condition to unsuspecting buyers. “I know of some bad ones that stuff newspapers where airbags should be and paint over the warning light on the dash,” said Nusbaum. Obviously, if repairs are not professionally made in all respects it not only endangers the vehicle’s driver and passengers, but potentially anyone else on or near a road.

Some salvage pool auction companies promote schemes to get around laws put in place to protect consumers. Wilson put it this way, “ARA has good standing relations with many companies in the salvage pool auction industry. They provide a valuable resource to our members. But there are a few companies that appear to have policies that could facilitate bypassing various laws.” Wilson cited an auction house that recently advertised, “We help both foreign and domestic buyers purchase at all locations in Illinois, Ohio and any other state where laws impose restrictive barriers to out-of-state and foreign buyers. We also help foreign buyers register to bid at auctions without having to worry about providing the auction with unnecessary licenses and paperwork.”

Mike Swift, past president of the Iowa Automotive Recyclers Association, commented on the consequences. “The problems arising from letting unregulated buyers purchase salvage cars are numerous: cosmetically resurrected vehicles that are unsafe, taxes from sales of vehicles and parts that are not collected, and the vital paper trail of what happens to these vehicles is not maintained.”

An important weapon in fighting automotive crime and fraud is the National Motor Vehicle Title Information System (NMVTIS). The problem is that the vast majority of auto recyclers, junk and salvage yards are not yet reporting into the system. As of March, 2009 all were required to comply with NMVTIS or risk a $1,000 dollar fine per violation.

Michael Wilson outlined the scope of the challenge facing the industry. “We have about 4,000 ARA members, when you add our affiliates, but if you look at the auto salvage recycling industry and people who need to report as junkyards, we are talking upwards of 20,000 entities that are processing five cars or more a year.”

“Even though it’s federal law, a lot of people are not participating in the system, not complying with the law, so there’s lots of gaps in the data,” said Steve Levatan, senior vice president of Pull-A-Part, one of the largest self-serve part companies, and an active member of ARA. “Part of the problem is the way the system has been implemented. There should not be a charge for providing the data. Where they are charging $.25 to $.35 per vehicle to report the data, it creates an automatic disincentive for people to comply.”

As of June, at the request of the United States Department of Justice (DOJ), the American Association of Motor Vehicle Administrators (AAMVA) has made available a basic, no-cost, direct NMVITS reporting system via the Internet at “This is a direct feed into AAMVA, the NMVITS administrator, and there’s no per VIN charge. For small volume people it’s not a problem, but when you are dealing with larger companies handling hundreds of vehicles per month it’s not a realistic option. That is why we want DOJ and AAMVA to go further to provide a batch solution, like accepting spreadsheets from an inventory management system,” Wilson proposed.

There’s also a growing problem with unregulated buyers going to salvage pool auctions, buying vehicles and dismantling them in home garages or backyards without proper disposal of fluids and mercury switches, and selling used parts on the internet. Now with the Internet the larger auction companies are really pushing to get the general public to get interested in buying vehicles. In many states it’s illegal if you do not have an auto recycling license. So we have to educate lawmakers on the tax consequences of not getting that revenue and how it is unfair to people who have brick and mortar businesses and pay taxes. Only 13 states have requirements that you have to have to be a licensed recycler in order to bid at auction,” said Wilson.

When asked why auto recyclers should report to NMVITS, Nusbaum at NSVRP stated, “The most fundamental reason, it is the law. And, if they don’t report, eventually they will be fined. Most importantly, they are supporting an important public policy for the country by reporting.”

Illegal and fraudulent practices drive up costs for everyone in higher taxes to pay for law enforcement and higher prices for legitimate dismantlers and repair shops to buy salvage vehicles. NMVITS can become a powerful tool in fighting crime if everyone complies. It can offer the consumer confidence when considering a vehicle purchase and keep salvage auction prices honest. To make it work, the auto recycling industry must plead its case to lawmakers on a state by state basis. Voice opposition to prohibit unscrupulous auction operators, require auction buyers to be properly registered and require insurance companies to accurately brand total loss vehicles so they are not recycled into the underworld.