Can bandits: Recycling fraud hits California

by Matt Jenkins

In February 2010, criminal investigators tailed a pair of Penske rental trucks more than 300 miles, from a self-storage facility in Phoenix, Ariz., to a small house on the outskirts of Perris, Calif. They watched as the drivers transferred their loads to two handyman’s vans. Then they drove the vans across town to a set of metal warehouses bespangled with razor wire and signs for Perris Valley Recycling.

The contraband involved was not illegal drugs, untaxed cigarettes or stolen flat screens, but a far more prosaic commodity: aluminum cans. Each time someone in California buys a bottle or can of Coke Zero or Fat Tire beer or practically any other beverage, he or she pays a nickel deposit into a statewide pool called the Beverage Container Recycling Fund. That nickel — known as the California Redemption Value, or CRV — is essentially a bounty, to encourage the consumer to return the empty bottle or can to a recycling center.

But all those nickels can add up to serious cash, so the system presents an alluring target for fraudsters. The neighboring states of Nevada and Arizona have lots of thirsty people who generate a mountain of empties each year, but neither state has its own version of the CRV. That disparity has inspired a new industry: Enterprising individuals buy empty cans and bottles in bulk in Arizona and Nevada, at their “scrap” price. Then they truck them across state lines to California, where they collect the nickel-per-container deposit that they never paid into the Recycling Fund in the first place.

If you feel like you’ve heard about this before, it might be because you saw it on Seinfeld: Fifteen years ago, the show’s writers built an entire episode around the premise of Kramer and Newman driving a mail truck full of bottles to Michigan. But can scams are the real deal. One rental truck can hold 10,000 pounds of aluminum cans, worth $15,000 in CRV. Now, faced with millions of dollars in losses, California authorities are moving aggressively to crush recycling fraud.

“We’re fighting for the money that consumers paid, and that they have the right to get back,” says Jason Marshall, the deputy director of the California Department of Resources Recycling and Recovery.

Last year, the department, better known as CalRecycle, and the California Bureau of Investigation — with help from several county sheriff’s departments, the California Highway Patrol, and the U.S. Marshals Service — arrested 32 people in five separate cases. Altogether, they had scammed the state out of more than $10.5 million. The stakeout in Perris ultimately spawned three of those cases and the arrest, on Oct. 12, of Howard Leveson, the owner of Perris Valley Recycling. Authorities estimate that he bilked the state out of $7 million. They also recovered an illegal Uzi assault rifle in the raid on his office and home.

Investigators say that the big money involved, and the potential for violence, underscores the seriousness of recycling fraud, something that has long been seen as a laughable offense. “People realized,” Marshall says, “that this is more than just George and Kramer trying to sneak into Michigan in a mail truck.”

Thanks to the CRV, the recycling rate in California has grown from about 65 percent to 82 percent over the past six years. But recently the numbers have been a little too good. About a year and a half ago, auditors noticed that of all the high-density polyethylene plastics (think Odwalla juice) sold in California, 116 percent were being returned for the nickel bounty. That pointed to fraud.

Ironically, the very incentives that have spurred high rates of recycling have also inspired entrepreneurial criminals. Until 2004, the CRV was just 2.5 cents per container. But that year, the Legislature bumped it to 4 cents — and then, in 2007, to a nickel. Or, as Marshall puts it, “Over a four-year period, we doubled the value of that 10,000 pounds that someone wants to roll on in to the state.”

Owing to their proximity to California, Phoenix and Las Vegas have become the favored source of raw material for can scams. (Because Oregon has its own version of the CRV, fewer cans are brought in from that state.) In the Phoenix area, one-man buyers — many equipped with little more a wad of cash, a scale and a rented van — are luring customers away from large-scale recyclers by offering higher prices, and are buying bagloads of cans that they then take west.

“People are willing to rob someone for 50 bucks,” says Tony DiSanti, who runs a recycling company in Mesa, Ariz. “To make 15 grand? Yeah, they’re gonna get a truck to drive it to California.”

Recycling fraud not only cheats California consumers out of the nickels that they paid into the Recycling Fund, but also threatens to undermine the entire recycling program itself. The program is, paradoxically, funded by the deposits left over from the cans that Californians don’t redeem. When those nickels are claimed fraudulently, however, that threatens to erase the surplus that funds the entire recycling apparatus in California — from the grants CalRecycle makes to support curbside recycling programs right down to the investigations of the agency’s fraud squad.

Recycling fraud is a felony when the redemption value of the containers is more than $400. But in a state that relishes ritualistic cult crime and live-televised car chases, bottle-redemption scams are often met with incredulity, or downright apathy. Marshall admits that it can be difficult to get county district attorneys to take recycling cases: “They go, ‘you want me to take a case on can fraud? I’ve got murderers. I’ve got drug dealers. I’ve got scam artists taking the elderly for a ride.’ ”

To strengthen enforcement, CalRecycle provides funding to the California Bureau of Investigation’s Environmental Crimes Unit, which investigates fraud cases, and the state attorney general’s office, which prosecutes the cases. CalRecycle is also beefing up its effort to sniff out fraud. The agency is in the process of adding a “fraud-detection module” to DORIIS, the matronly sounding computer system that processes payment claims from recyclers. The updated program will identify discrepancies like sudden bumps in recycling volumes at individual recycling centers. The department is also working to alert the state’s agricultural inspectors, who are already stationed at California’s borders, to be on the lookout for smugglers.

Of the 32 people arrested last year, most have been convicted of various charges. Several were deported; several are on the run; and several are still awaiting trial. In March, Howard Leveson — who did not respond to several attempts to contact him for this story — cut a plea bargain with prosecutors to avoid prison time. (He still faces weapon charges.) Leveson will pay $1.5 million in restitution to the Beverage Container Recycling Fund, plus $100,000 for the cost of the investigation that brought him down -- and he’s forever banned from operating a recycling center in California.

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