How Montreal scammers are ripping off America

Champlain, N.Y., is a quiet farming village nestled in the Adirondacks, just a stone’s throw from the Quebec border, with a reputation that far exceeds its modest circumstances. It has a population of just 1,100 people and nearly 300 companies—one for roughly every three residents—almost all of which, authorities say, are fake businesses set up by organized crime rings out of Canada.

For the past decade, law enforcement officials say, hundreds of millions of dollars scammed from American seniors, churches, charities and small businesses have flowed through the post office boxes and freight forwarding companies in Champlain and across the St-Bernard-de-Lacolle border to Montreal. It’s saddled Champlain with a reputation as the Fraud Capital of the U.S.A.

“I hate to see Champlain get tainted as a scam town, but I’m afraid it is,” says David Polino, who recently retired as the long-time president of the Better Business Bureau of Upstate New York. The bureau received more than 1,000 complaints about Champlain telemarketing businesses last year and opened 15 separate investigations into companies with a Champlain address. The problem has grown so large that at one point Champlain companies were responsible for nearly 40 per cent of all scams targeting small businesses across the United States, according to the Better Business Bureau. Nearly a third of the 5,500 complaints that land on the desk of the New York attorney general’s nearby Plattsburgh office involve just six addresses (mail forwarding facilities) in Champlain. The Better Business Bureau has issued a warning to all of its U.S. member businesses that any company with a Champlain, N.Y., address is probably a Canadian scam.

“It’s frustrating. I wish I could tell you we were all over it and that we had found a good solution,” says Glen Michaels, the local assistant attorney general. “But quite frankly, we haven’t seen a huge abatement of the problem.”

Champlain has become an ideal place for Montreal-based criminals who need a U.S. address to give their scams an air of credibility with American consumers more likely to trust a company based in the States. New York is known for both its tough consumer protection laws and its big cities, says Michaels. “People don’t know where Champlain is,” he says. “They think it’s a suburb of New York City or another metropolitan area and assume that it’s a U.S.-based company.

The Champlain scams are big business, with the few companies that Canadian and American authorities have been able to shut down reporting sales of about $10 million each. (Americans have reported losing more than $35 million to Canadian scams between 2009 and April of this year. Those complaints likely represent a fraction of the total since few American consumers realize they’re being scammed by a Canadian-based company, says Daniel Williams, manager at the Canadian Anti-Fraud Centre, the federal agency that monitors mass market fraud.) Investigations into Canadian scams out of Champlain go back to at least 1997, when U.S. authorities raided a Champlain mail forwarding business and seized hundreds of bottles of an herbal product shipped from Canada that purported to cure HIV/AIDS. At one point, Polino says, Canadian criminals even set up their own mail forwarding business in Champlain to run their operations.

These days, most Champlain scams tend to involve telemarketers selling fake identity theft protection or calling small businesses pretending to be the Yellow Pages or another business directory. After asking the businesses to confirm their name, address and phone number under the guise of updating an existing Yellow Pages listing, the telemarketers later bill the companies upwards of $800 for a listing in a fake directory.

In a lawsuit filed earlier this year, a Presbyterian church in Augusta, Ga., complained that a Canadian company operating out of Champlain called Yellow Local Directory was harassing it for an $825 listing it never ordered. “These business directory scams are a really big problem,” says Steve Baker, a regional director with the Federal Trade Commission, which has successfully prosecuted a handful of Canadian telemarketing scams. “It would not surprise me to find at least a dozen serious boiler-room operations in Montreal that engage in that right now.”

One Quebec company that used a Champlain address, known as the Official Yellow Pages, harassed Myron Gibson’s tire shop in Eureka, Kan., just outside Wichita, for nearly a year. The shop paid the company $200 for a directory listing it had never ordered and then sent another $400 when the telemarketers demanded more. They later called the tire shop to say its second cheque was late and demanded a $50 fee. “They were pretty well hollering that they were going to sue,” says Gibson.

A cross-border investigation eventually shut down the operation, which authorities said had bilked U.S. businesses out of more than $9 million. Gibson says the tire shop never got its money back and continues to get calls asking it to buy listings in other business directories, including one call just minutes before Gibson spoke with Maclean’s. “I told them to send it to me in writing and they hung up on me,” he says. “It may be a legit deal, but burn me once and you’re going to have trouble convincing me the second time.”

There’s been little political push in Champlain to crack down on the Canadian scammers or the mail forwarding businesses they use. Local officials say they’re used to the controversy, but the community relies heavily on legitimate cross-border business from Canadians who often rent mailboxes to ship goods they can buy cheaper in the U.S. Those shoppers drop money on gas, groceries or eat at a local restaurant on their way out of town. The business is badly needed in the community, whose major industries besides the border include New York State’s largest poultry farm and a Pfizer pharmaceutical manufacturing facility that is set to be shut down next year.

“It’s a business for us and we’ve lost so many of them,” says Richard Favreau, Champlain’s deputy supervisor. “We’re a border town and you take the things that happen here as just things that go with being on the border.” Most days, the local post office is full of Canadians. “I’ve been at the post office when there’s hundreds of little packages being mailed out. Grocery carts full,” says Jane West, Champlain’s treasurer.

A bigger obstacle to cleaning up Champlain’s reputation is that authorities in both Canada and the U.S. say it’s nearly impossible to shut down cross-border scammers. Only the largest Canadian telemarketing operations warrant the extradition orders that U.S. investigators would need to prosecute Canadian criminals, the Federal Trade Commission’s Baker says. Canadian banks also aren’t required to comply with U.S. subpoenas for their records. American law enforcement officials say they’ve found little enthusiasm among Canadian federal agencies with the authority to crack down on cross-border scams because they almost never target Canadian victims. “The response we often get from Industry Canada is: ‘Hey, this is a real problem, but our first priority is complaints from Canadian citizens and gee, we don’t have any from this company,’ ” says Michaels.

“Every scammer, if given the choice, would be defrauding somebody with a couple of jurisdictional boundaries between them and the victim,” says Williams, of the Canadian Anti-Fraud Centre. “It’s hard to get the authorities really fired up. You have scammers in Montreal who have never defrauded anyone in Montreal, so getting the courts in Montreal interested in the cases is difficult.”

Even when investigators have been able to freeze the bank accounts of Canadian telemarketing scams, they rarely find any money left for refunds to victims. In one recent case, police in Canada raided the Montreal call centre of a Champlain company known as Reed Publishing, seizing several bank accounts. The company’s records showed it had made more than $8 million from scamming thousands of small U.S. businesses for fake directory listings, according to court records from 2010. But investigators were only able to find $19,000 of the money, enough to offer just 188 refunds. “The simple truth is the money is just gone,” says Baker. “It’s been spent.”

Once they’re caught, scammers will often close up shop and move on to other border states. But they always seem to come back to Champlain.

“It’s just become this little cottage industry,” says the Better Business Bureau’s Polino. “It’s funny how one small little town can generate so much baloney.”