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Rampant recycling fraud is draining California cash

Fraud rings bring cans and bottles from other states and illicitly 'redeem' deposits that were never paid. And some private recycling centers might claim bigger reimbursements than they deserve.

October 07, 2012|By Jessica Garrison, Los Angeles Times
  • Government officials recently estimated the recycling fraud at $40 million a year, and an industry expert said it could exceed $200 million.
Government officials recently estimated the recycling fraud at $40 million… (Bob Chamberlin, Los Angeles…)

Just over 8.5 billion recyclable cans were sold in California last year. The number redeemed for a nickel under California's recycling law: 8.3 billion.

That's a return rate of nearly 100%.

That kind of success isn't just impressive, it's unbelievable. But the recycling rate for certain plastic containers was even higher: 104%.

California's generous recycling redemption program has led to rampant fraud. Crafty entrepreneurs are driving semi-trailers full of cans from Nevada or Arizona, which don't have deposit laws, across the border and transforming their cargo into truckfuls of nickels. In addition, recyclers inside the state are claiming redemptions for the same containers several times over, or for containers that never existed.

The illicit trade is draining the state's $1.1-billion recycling fund. Government officials recently estimated the fraud at $40 million a year, and an industry expert said it could exceed $200 million. It's one reason the strapped fund paid out $100 million more in expenses last year than it took in from deposits and other sources.

"The law says California has to make it easy to recycle … so anyone with a devious mind, it's so easy, they can just go right in," said Los Angeles County Sheriff's Deputy Dave Chapman, who has investigated fraud rings in recent months.

Under the state's 25-year-old recycling law, California charges consumers a deposit on most beverage containers sold within its borders. Anyone who brings empty containers back to one of about 2,300 privately run recycling centers can collect 5 cents for most cans and bottles and 10 cents for larger containers.

Only products sold in California are eligible. But a can is a can — and many recycling centers in California aren't that interested in where they come from.

Hence the influx from out of state. Last summer, the state Department of Food and Agriculture counted all vehicles driving into the state with used beverage containers through 16 border stations. The three-month tally was 3,500, including 505 rental trucks filled to capacity with cans.

Officials with the state Department of Justice said they have filed approximately 10 criminal cases this year against fraud rings bringing in cans from outside California.

Investigators looking into one case sometimes stumble across another.

In the spring of 2010, special agents Jose Soto and Joe Somanek, part of the Justice Department's recycling fraud unit, were driving east on Interstate 8 to tie up some details in a case in Arizona.

Around 5 a.m, they were drinking coffee and making plans for the day when a white Ford pickup and trailer sped past them, heading west. Suspecting the truck might be carrying cans, the agents flipped a U-turn and followed it more than 150 miles to San Diego, where it pulled into Ace Recycling. The driver and his passenger unloaded 21 large bags full of cans, were paid by the owner and headed back to Yuma.

The suspects made the same journey at least three more times over the next few weeks. Officials said that fraud ring brought in at least $189,000 worth of cans before they were caught.

Ultimately, the owner of Ace Recycling, Michael Barshak, and several others pleaded guilty to grand theft and unlawful recycling.

Eleven states have container redemption programs, and experts believe some level of fraud exists in each. "Seinfeld" fans will recognize the scheme: Two characters once conspired to drive a mail truck full of empty bottles from New York, where they could be redeemed for 5 cents each, to Michigan, where they could fetch 10.

The problem is particularly challenging — and costly — in California. This is the only state in the region besides Oregon with a deposit program, making it a magnet for recycling fraud. And it is the only state besides Hawaii to directly administer the program through private recycling centers.

Other states have beverage distributors or sellers collect the deposits and pay the redemption costs, so they — and not the state — are responsible for the money. But grocery stores and markets opposed that approach in California, which opted to have private recycling centers take in the material. The state reimburses the centers for what they spend on redemption costs, based on their account of what they take in by weight.

The centers, which make their money by selling the material for scrap value and sometimes by collecting additional fees from the state, have a financial incentive to maximize the amount of material they take in, not to look for fraud.

State officials say recycling centers in California are required to take reasonable precautions: They are not allowed, for instance, to buy more than 500 pounds of aluminum or 2,500 pounds of glass from any one person in any given day.

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