All posts by Chris Majernik

A Tale of a $10 Million International Embezzlement Scheme

Roberto Montano began his relationship with New Hampshire-based Global Forest Partners (GFP) in 2006. At that time, GFP entered a joint venture arrangement with Montano’s company in Guatemala to develop and manage teak plantations in that country. Teak is a hardwood used in flooring, indoor and outdoor furniture, kitchen cabinetry, veneer, and even yacht decks.

GFP is a low-profile firm with only 24 employees, but it manages billions of dollars in forest industry investments. The company’s clients are private and public pension funds, foundations, endowments, and other institutional investors.

GFP invested a total of $75 – $80 million of its clients’ money into two separate teak investments. The capital was to be used to purchase land, supplies, equipment, and labor needed to plant, maintain, and harvest teak trees on the new plantations to supply global markets. Montano managed the teak forestry projects for GFP from 2007 until 2014.

In 2014, GFP learned the Guatemalan contractors had not been paid, which obviously led to an internal investigation. When questioned, Montano admitted that he had been using the money to fund his own personal ventures and had even “cooked the books” to hide his illicit transactions since 2009. Montano admitted he decided to take the money out of the joint venture in the hopes he would turn his own business ventures around and then pay the money back. 

Montano concealed his activities by altering financial statements and moving funds between accounts. He used several different methods including transferring the venture’s funds into accounts he personally controlled, diverting subsidies provided by the Guatemalan government to unidentified recipients, and mortgaging the venture’s assets to collateralize loans to himself. The U.S. attorney’s office said Montano provided the company with a false bank statement reporting that one of the bank accounts had a cash balance of more than $1.1 million. The account was empty.

During the investigation, Montano pleaded with GFP executives not to prosecute, saying he would never be able to pay them back if he was in jail. 

However, as investigators were closing in and he learned they were seeking criminal charges, he agreed to meet with GFP executives to provide more information but failed to show up for the scheduled meeting to discuss the situation. Instead, he fled to Guatemala City and then later to Nicaragua to avoid capture and prosecution. His case triggered an international manhunt. He lived under different identities and worked a variety of odd jobs to avoid detection. During his time in Guatemala, he also became connected with another alleged embezzlement scheme, not related to GFP, according to federal law enforcement officials.

The details of the capture have not been made public at this time, but in November 2023, Roberto Montano was arrested at Miami International Airport and returned to law enforcement in NH.

Montano pleaded guilty to wire fraud under an agreement with prosecutors in February 2024 in Concord, NH, that calls for a five-year prison sentence and restitution. His sentencing by the court will be May 30, 2024. Under sentencing guidelines he could face up to 20 years in prison, up to 3 years supervised release and a fine of up to $250,000 or twice the amount stolen, whichever is greater, if the court ignores the plea deal.

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How to Create an Ethical Culture

Ethics is an ever-changing perspective and must be reviewed periodically to ensure it is up-to-current. Old, outdated, ambiguous, and ill-conceived policies and practices will signal to employees and others that ethical behavior isn’t a primary concern of management.

1.     Establish an Ethical Code of Conduct

Every organization needs a written code of conduct that reflects its ethics and values. But it can’t just be on paper. Management must take that code to heart. Like any aspect of company culture, expectations regarding ethical behavior need to be communicated, understood, supported, and demonstrated from the top down in a consistent and continuous manner, year in and year out. This applies to all natural resource specialists as well, especially foresters and wildlife managers who have dual roles of dealing with forests and people. The days of working independently in the woods and relying principally on technical and operational skills are over and are unlikely to return.

Professional codes of ethics play a key role in guiding these activities and in influencing decisions. Those of you who are Certified Foresters and Registered Foresters are aware that ethics is being emphasized in many of the programs required for recertification, as it is in many professions.

2.     Identify and Communicate Specific Examples of Ethical and Unethical Conduct

A traditional process for determining ethical conduct follows four primary perspectives on how to view and evaluate ethical decisions. These perspectives guide the decision process through a series of questions:

  • Is the decision legal?
  • Does the decision respect the rights of the individuals affected?
  • Is it fair and equitable?

3.     Promote Ethical Decision-Making through a published Employee Code of Conduct

Develop policies and practices that will reduce or even eliminate most problems. At least when those policies and practices are created and publicized, employees who practice unethical behavior will do it deliberately and not out of misunderstanding and can be treated accordingly.

Key elements of an Employee Code of Conduct include:

  • The rights of the employee and the organization.
  • The responsibility of all employees to work within the law is to be respectful and responsible.
  • The responsibility of all employees to report conflicts of interest, fraud, and health and safety concerns.
  • Infringement information gives specific examples of company policy on handling typical ethical situations faced each day in the workplace.
  • Employee agreements.

To maximize its effectiveness, an organization should ensure its Code includes the following best practices:

  • A message from top management.
  • An explanation of why the company has a Code of Conduct, who must follow it, and what happens if they don’t.
  • Accessibility includes prominent visibility, readability, messages in their own language, and attractive, well-organized communications.
  • Accessibility to more detailed policies about complex situations.
  • Company-specific examples that are relevant to employee experiences and changing to address new issues that face employees each day (including FAQ and avenues for asking questions).

4.     Make your Employees your Biggest Allies

You can’t be in all places at the same time. Fraud perpetrators count on that. They learn the systems and processes and even the habits that are in place and use that knowledge to work around them. They also count on other employees either to go along with them as accomplices or to choose to avoid getting involved. Not turning in a colleague (“tattling”) can be a more powerful incentive than the theft itself.

Here are some suggestions about how to do that:

  • To avoid the “tattling” mentality, help employees know when it is important to make the tough choice to tell. That takes more than a brief overview of the policies.
  • Conduct Anti-fraud training programs once a year. Review the ethics policy as well as other ethical issues directly related to the company’s business and culture. Teach employees how to recognize fraud and what to do when they see something.
  • Have methods available to allow employees to easily report fraud anonymously and easily. This overcomes the fear of repercussion or involvement.
  • Include Senior Managers as well as all supervisors in the training. Sr. Executives aren’t immune to fraud and in fact are able to steal higher amounts from the company per incident. Dishonest managers at all levels set a tone that will likely lead others to follow. Finally, Managers should be able to spot Red Flags and be encouraged to act.

5.     Establish Internal Controls

Through well-structured, well-communicated, and sound accounting and other process practices and procedures, companies can make a big difference in preventing and detecting internal fraud. Employees who know what they should be doing and are diligent in following procedures will automatically establish an anti-theft system that monitors ethical conduct. It becomes “the way we do things around here.” 

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Where Do Ethical Values Come From?

Ethics refers to standards and practices that tell us how human beings ought to act in the many situations in which they find themselves – as friends, parents, children, citizens, professionals, etc. Ethics is also concerned about our character. It requires knowledge, skills, and habits. 

To understand ethics better we need to remember that our ethical values come from a variety of interlapping places; any of which are not the only source. Understanding that ethics is complex, we can learn more about its source if we start with what ethics is not:

Ethics is not the same as feelings.

Feelings do provide important information for our ethical choices. However, while some people have highly developed habits that make them feel bad when they do something wrong, others feel good even though they are doing something wrong.

Ethics is not the same as religion.

Many people are not religious but act ethically, and some religious people act unethically. Again, there can be much overlap, but the questions arise about which religion are we talking about? Some religious beliefs are diametrically opposed to each other And what about those people who don’t belong to any religious organization? Are they off the hook from following ethical behaviors? 

Ethics is not the same thing as following the law.

Generally, laws come about by some form of a governing body (elected or not) that creates the laws for the good of the people and the nation. A good system of law does incorporate many ethical standards, but law can deviate from what is ethical. Law can become ethically corrupt – a function of power alone and designed to serve the interests of narrow groups. It can also be defined by the majority vote, which may be misguided. Law may also have a difficult time designing or enforcing standards in some important areas and may be slow to address new problems.

Ethics is not the same as following culturally accepted norms.

Cultures can include both ethical and unethical customs, expectations, and behaviors. While assessing norms, it is important to recognize how one’s ethical views can be limited by one’s own cultural perspective or background, alongside being culturally sensitive to others.

Ethics is not science.

Social and natural science can provide important data to help us make better and more informed ethical choices. But science alone does not tell us what we ought to do. Some things can be scientifically or technologically possible and yet unethical to develop and deploy.

If our ethical decision-making is not solely based on feelings, religion, law, accepted social practice, or science, then on what basis can we decide between right and wrong, good and bad? Bret Hood has some ideas.

Why You May Not Be as Ethical as You Think

Bret Hood was less concerned about the foundations of ethical decision making and more about why people make the decisions they do. He focused on the actions more than the values and beliefs, although these clearly play a major role in heading down the right or wrong path.   

This is a summary of his Ted Talk presentation. He starts with a comparison between what a person believes about their ethical decision-making and their actions.

Start by rating yourself on an ethical scale from 1 to 10, with 1 being totally unethical, and 10 being extremely ethical. Most people will rate themselves at about a 7.

Then see how that ethical foundation plays out in real-life decision-making. He found the best way to understand a person’s perspective on ethics was to ask how serious is each situation from an ethical perspective. Using the same 1-10 scale above, how serious is each of the following:

1.     How bad is it to share your Netflix passwords outside your family?

2.     How bad is it to go into a restaurant and leave without paying?

Both are stealing, yet many people will score the second statement as much more serious than the first. There are several reasons to support that decision, but in most cases the decision is based on a concept called separation between the decision and the consequences.

Most people will say going into a restaurant and leaving without paying is much more serious than sharing a Netflix password. The rationale? Netflix is a company without a face or personality with a consequence that is viewed as nominal compared to the live person who waited on you a few minutes ago, is probably paid very little and may have to make up the loss from his/her own paycheck when you are gone. The distance between me and the company is much greater than between me and the server. At the same time, the consequences of my actions are perceived to have greater impact on the server than on the large, faceless company.

So, how can people who would not consider stealing from an individual come into work and be friendly and even speak highly of the company and yet steal them blind? It is a separation between the decision and the consequences. The more we see the company as a thing and not someone’s business or our co-worker’s livelihood, the more likely we are to steal. Also, the more likely we can rationalize that the theft has little consequences (e.g., it doesn’t cost Netflix anything when I share my password) the more we are likely to steal from Netflix.

In the same way, if you see a person drop a wallet and, upon picking it up learn that it is loaded with cash, do you give it back? How is that different from when you find three $100-dollar bills on the sidewalk? Many people will feel obliged to return the wallet but will pocket the cash because psychological distancetells them there is no victim. The person already lost the money.

Looking at another situation, how bad is it to exceed the speed limit?

How do people go home after exceeding the speed limit, sometimes by quite a lot to the point of driving recklessly, and not feel bad about it?

To understand this better, there are two distinct, internal systems we use to determine our actions. System 1 is called reactionary (we see a deer in front of you and react – hit it, brake, swerve). We must think quickly. In System 2, we have time to use our brains to think rationally about what to do (for instance when we are buying a car). Which system do you think you spend most of your time each day? Most people spend their time in System 1 (Reactionary).

Reactionary thinking causes us to make mistakes and do things we wouldn’t normally do. If 95% of decisions are made each day in a reactionary mode, we don’t have time to think ethically. That is called ethical fading. Essentially, when you use System 1 to make decisions, you have taken ethical decisions out of the situation completely.

Many businesses take ethical thinking out of decisions. Business schools teach that decision-making is about cost-benefit analysis. That means decisions are made by the likelihood of consequences. In other words, the decision about whether or not to go in a certain design way that is known to have certain risks, consider the cost of taking the risk and the estimated potential of the negative consequences happening verses the cost of not fixing the problem.

As an example, Ford decided to sell Pintos even though they knew there was a design flaw. When hit from behind at 30 mph or more, the car would explode. They did a cost-benefit analysis and determined that to fix the problem would cost $11 per car. The cost to fix the Pinto was more than the anticipated lawsuits. They manufactured and sold Pintos.

Now imagine that you are a Ford executive that knows this background and your son wants a Pinto for his 16th birthday. That response would be “no way!”

Help for ethical fading is to generate multiple perspectives. Ask yourself, what would happen if I made the exact opposite decision? Or what would happen if that was me and I had to suffer the same consequences? Have someone you trust be your devil’s advocate. Make it their responsibility to provide different perspectives that are the exact opposite of how to act, even if they don’t agree with their positions.

Research shows that when people put up pictures of moral leaders, unethical behavior drops. When we are reminded of our morality, unethical decisions drop. In order to stay true to your ethical values, become the person you think you are.

Remind yourself you are a moral person and most likely, you will be.

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The Case: Catching and Prosecuting Timber Thieves is a Long Process

In late 2015, the DNR sent out a standard timber harvest proposal for bid. The harvesting was to take place on state-managed forest land in Menominee County, Michigan. As expected, the bids came back close to each other. R&J Logging, based out of Stephenson and owned by Raymond Vetort, won the bid by $40,000, a significant difference that really stood out.

Local foresters marked thousands of trees at a time that needed to come down. They walked the 92 acres of land and physically and electronically documented high-dollar trees that were not included in the agreement. Before R&J began the harvest, foresters noticed newly marked trees.

Given the red flag of new suspiciously marked trees, they patiently patrolled the land and waited.

Twelve to 18 months later, R&J Logging started its harvest. The DNR confirmed new trees were being marked and cut down. They watched Vetort drop the trees. At the same time, they conducted interviews and collected paint samples from the trees they knew were not included in the harvest.

Conducting their investigation and analysis seemed to take a long time. However, the Michigan State Police lab confirmed the chemicals on the newly marked trees matched chemicals Vetort had in his possession. Vetort confessed. He had cut about half of the 92 acres. It was determined that $100,000 in timber value was involved.

With every harvested tree documented, in 2016 the DNR reclaimed the timber sale. The DNR confirmed with mill operators who purchased the timber and compared what was sold with what was harvested. Documentation was found in Vetort’s house, obtained by search warrants.

In 2021, Vetort was charged with trespassing or damages to state land, larceny and malicious destruction of property. He pleaded guilty in October 2021. He was ordered to pay $119,000 in reimbursement to the state and serve three years of probation, with six months in jail suspended pending his successful completion of his probation term. (Champion, 2023)

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Review of Scale House Records is the Best Source for Discovering Potential Security Problems

SCALE HOUSE – WATCH THOSE NUMBERS

Although there is some benefit in watching for abnormal behavior at the scale house itself, the primary solution is found in having accurate record-keeping practices and then conducting periodic audits to look for discrepancies and unusual situations that need further investigation.

When auditing the scale house documentation, look for the following situations, as they may point to potential problems:

1.    Questionable documentation practices:

  • Scale tickets or mill statements that don’t provide enough data.
  • Multiple tract names under the same contract/producer.
  • Logger delivering from more than one source.
  • Scale tickets used out of order.
  • Altered scale tickets. 
  • Missing delivery cards/ altered delivery cards.
  • Any unsigned scale tickets.

 2.    Questionable information:

  • Same or similar gross or tare weights on several tickets.
  • More trucks weighed than unloaded.
  • Unusual truck weights.
  • Shorter than expected turnaround times.
  • Trucks tare weight out of the normal range.
  • Shrinkage factors out of line.
  • Discrepancies in book inventory and actual inventory.

3.    Questionable scale house practices:

  • Scaler never takes a vacation.
  • Cash transactions of any kind in the scale house.
  • Scaler is the only one responsible for inventory.
  • Scales are outdated.
  • Scales tickets are hand-written.
  • When comparing scalers, the deductions for one scaler are much higher/lower than the other scalers.

4.    Questionable timing:

  • Date and time ticket punched prior to the previous numbered ticket.
  • Scale ticket shows the log truck leaving before it arrives at the wood yard.

5.    Questionable activities at the wood yard:

  • Truck’s in-and-out processing time is not normal for the wood yard.
  • Trucks leaving the wood yard without unloading.
  • Trucks pulling off of scales and then backing back up on scales.
  • Logs are stored in separate piles in the yard.

 RECOMMENDATIONS

  • Since most scale houses are set off from the main operations to allow for adequate waiting areas, security cameras are a good way to see what is happening at any given time. They allow others to observe and document all activities, especially those that are out of the ordinary. If some type of breach is discovered, the archived footage will serve as documentation and evidence for further disciplinary action or as court testimony should that be needed. Whether using cameras or visual observation, look for the circumstances described above and check out anything that is suspicious. Even if there isn’t anything amiss or at least it can’t be proven, your visible follow-up will serve as a reminder that you take this seriously and that any theft and/or fraud will not be tolerated. That follow-up in itself can serve as a deterrent for many would-be violators. If your operation is seen as not only easy to circumvent but also not well-monitored, your chances of theft and fraud are greatly enhanced.
  • Set up a clear process for documentation and ensure it is followed at all times. Provide periodic checks, training, and refresher training to reinforce your expectations. Make sure your process has appropriate checks and balances and that no document has a lone signature.
  • Conduct periodic audits of the paperwork trail that is established. You can either use an outside auditor or do this in-house. In either case, be meticulous about looking for the types of issues listed above. Be especially vigilant about timing issues – tickets out of sequence, altered, or incomplete, or which contain information that seems out of the ordinary, e.g., have similar weights, etc. (I know in computer-based systems ticket order should not be an issue, but lot’s of folks still use paper-based systems).
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Suppliers — The Fraud Focal Point of the Timber Supply Chain

We’ll start with a look at red flags that might indicate an issue with theft, fraud, and contractual violations. These generally stem from processes and practices that are sloppy and/or undisciplined. 

Here are some things that should trigger further investigation when overseeing logging operations:

1. Unfocused operations and processes: 

–      Loggers delivering wood from more than two sources at any one time, especially from company stumpage and private sources.

–      Loggers frequently move from one tract to another.

–      Poor utilization.

–      Improper merchandizing.

–      Loggers not knowing tract names.

2. Diversions and questionable practices:

–      Diverted wood (logger’s trucks seen heading the wrong way or in an unauthorized wood yard.

–      Loggers operating where they shouldn’t be operating.

–      Products separated on the landing which the contract doesn’t mention.

–      Firewood cutting during normal logging operations.

–      Loggers who divert your attention away from a specific area of the sale.

–      A sudden change in production (without a change in equipment) UP or down.

3. Confusing Company Structures

–      Loggers that have multiple names in which to haul wood.

–      Loggers who have multiple crews.

4. Contracts and payments:

– Producers being paid different rates for wood from the same source.

–      Products not listed in the contract being harvested or delivered on that contract.

–      Wood delivered on contracts that have expired or been closed.

–      Wood delivered from timber tracts that have not yet been opened.

5. Trucking and Delivery:

–      Sporadic deliveries of wood from one tract which interrupt the regular flow of wood from another tract.

–      Changes in trucking zones or trucking rates in excess of a ten-mile move toward or away from the mill

–      Multiple trucking contractors hauling from the same site

RECOMMENDATIONS 

1. Start on the right foot by clearly expressing your expectations in the very beginning of the business relationship. Doing this enables you to establish a solid, long-term partnership that can be mutually beneficial to both parties. 

  • Outline your expectations and what the supplier can expect from you in the terms and conditions of the contract. 
  • Establish the level of record-keeping you expect and ensure the producer has well-established and effective policies and work procedures. 
  • Have a clear contract including well-defined expectations for delivery, tract identification, land usage, ownership of residual products, and payment terms. 
  • Be wary of producers who seem to lack clear operating procedures, and have multiple company names, multiple crews, and multiple trucking contractors as this could be a means of shifting timber. 

2. Once agreement is reached and work has begun, the following precautions will go a long way to ensure the agreements you established up front are maintained and taken seriously:  

  • Periodically check the work site and look for the red flags mentioned above.
  • Check the work site in unpredictable patterns and remember, loggers are not bankers, their work schedules vary widely.  Your work schedule should also vary widely.
  • Keep accurate and updated records of contracts and check invoices for conformity with existing contract rates, products and terms and conditions.

3. As a long-term strategy, seek suppliers who work with integrity already and who can meet the quality and integrity standards you have for your own company. Consider looking for suppliers who have the potential to develop long-term relationships and help you find creative, sustainable solutions for moving your business forward. Begin building that long-term partnership by discussing and reaching agreement in detail on how the following areas will be handled: 

  • Insist on maximum safety standards and performance.
  • Promote business and environmental sustainability.
  • Protect the company’s interests in dealings and transactions.
  • Comply with all legal and regulatory requirements.
  • Protect confidential information from disclosure to unauthorized sources.
  • Maintain relationships based on fairness, trust, respect, and compliance.
  • Continuously improve the value of the relationship by seeking new ways to conserve resources, reduce pollution and waste, and enhance the communities in which they operate.
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