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Today America's top military officer, General Martin Dempsey, said the U.S. and its allies
will attack ISIS from many directions. "We want them to wake up every day realizing they're
being squeezed," he said. American pilots have hit the Islamic extremist group in Iraq
nearly 200 times now, and soon the U.S. will be bombing ISIS in Syria.
America was drawn back into war when ISIS began to overrun part of northern Iraq called
Kurdistan. Kurdistan is semi-autonomous with its own military called the Peshmerga. With
American air support, the Peshmerga are holding a tense front line against ISIS.
Earlier this month, we started our reporting on that frontline to explain ISIS; what it
is, where it came from and how it blitzed through two countries. In June, the leader
of ISIS declared himself ruler of a new nation, which he calls The Islamic State.
Scott Pelley: Of course, no country on earth recognizes that state, but if it had a border,
this would be it. These are Kurdish Peshmerga forces in Northern Iraq. And right here across
the bridge is the black flag of ISIS flying over ISIS territory.
All Muslims know what's written there in Arabic: "There is no God but God, and Muhammad is
his messenger." But the true meaning of this banner is written in blood and it's up to
another Muhammad, First Lieutenant Hazhar Muhammad, to make sure the flag never crosses
this bridge.
Scott Pelley: Why is this bridge so important?
Hazhar Muhammad: This is the road to Kirkuk. The city of Kirkuk is 10 miles behind us.
And it's the gateway to Iraq's northern oil fields.
Scott Pelley: Do you have orders to destroy this bridge if it comes to that?
Hazhar Muhammad: No, the people need this bridge; no one's going to take my bridge
But he couldn't have said that last month. In August, the Peshmerga were falling back
just 25 miles from their capital city, Erbil. The U.S. had stayed out of it for two and
a half years, but panicked leaders of Kurdistan called the White House. And that's what triggered
the airstrikes.
Scott Pelley: You were outgunned?
Masrour Barzani: We were outgunned, yes.
Masrour Barzani knows ISIS better than just about anyone. He's head of Kurdish intelligence
and the Kurdistan Regional Security Council.
Masrour Barzani: I think everybody underestimated the strength of ISIS, especially with all
the weapons they seized from the Syrian army and the Iraqi army. Five Iraqi divisions melted
away and, you know, they just left their weapons which fell into the hands of ISIS.
Weapons, bought by American taxpayers, were captured by ISIS as it paraded into cities
that had been won by American troops.
Scott Pelley: How many ISIS fighters are there?
Masrour Barzani: There are perhaps 40,000 ISIS fighters who are carrying guns, fighting
both in Iraq and Syria, maybe equally divided in two countries.
Scott Pelley: And how many people collaborating with them?
Masrour Barzani: Well, collaborating whether they believe in helping them or not or out
of fear, I would say over 100,000.
Scott Pelley: Where does ISIS get its money?
Masrour Barzani: They generate their own revenues. And based on the information that we have,
they generate something equivalent to $6 million daily by the selling of oil, wheat, taking
taxes from people, ransoms and still getting donations.
Scott Pelley: You talked about donations.
Masrour Barzani: Many people who believe in these extremist ideologies believe that it's
their duty to donate money to this organization.
Scott Pelley: And that's been coming from where?
Masrour Barzani: Different countries, actually.
Scott Pelley: In the Gulf states?
Masrour Barzani: Some in the Gulf states.
Scott Pelley: Six million dollars a day? That'll keep them going forever.
Masrour Barzani: If they're not stopped.
U.S. airstrikes have stopped the advance, but black flags fly from northern Syria to
Mosul, one of Iraq's largest cities.
Now, more than four and a half million people are ruled by something new: a seventh century
vision with 21st century reach.
In digital depravity, ISIS uploads its atrocities to strike fear far beyond the range of its
guns.
The beheadings of two Americans and a Britain were calculated to give ISIS global stature
and it worked. Massacres on YouTube, the slaughter of thousands, are designed to defeat resistance
ahead of the advance.
[ISIS fighter: We are coming for you Barack Obama.]
Its sophisticated media department uploads recruiting videos in a host of languages.
Gunmen with cameras magnify the menace to make ISIS appear larger than life. But what
ISIS has shown only once, is its leader. Abu Bakr al-Baghdadi appeared in July when he
called on all of the world's 1.6 billion Muslims to bow to him.
Derek Harvey: We should be very careful about underestimating him. This guy is the real
deal.
Derek Harvey was in Iraq for the beginnings of al-Baghdadi. A colonel in U.S. Army intelligence,
he briefed President Bush and top commanders. Back then, al-Baghdadi was a member of al
Qaeda in Iraq and was imprisoned for a time by U.S. forces. When Iraq's al Qaeda leader
was killed, al-Baghdadi took over.
Derek Harvey: When he became a key figure within the organization, he was targeted and
then in 2010 he had a $10 million bounty put on his head and he became a top tier target.
But the target slipped away into Syria, where he used the chaos of the civil war to build
his army. He began to refuse orders from al Qaeda and in February, al Qaeda's leaders
kicked him out.
Scott Pelley: What does al-Baghdadi want?
Derek Harvey: He wants power, influence and authority and a return to the prestige of
the Islamic community, and he's going to start with Syria and Iraq and his strategic vision
is to expand into the Gulf, Jordan, from the Mediterranean to Pakistan.
Baghdadi preaches Salafism. It is a tiny sect in Islam that calls for a return to the origins
of the faith, 1,400 years ago. But al-Baghdadi's interpretation injects lethal prejudice. Under
ISIS, those who reject Salafism are non-believers, subject to execution. That applies to fellow
Muslims and their mosques. And it applies especially to non-Muslims
Scott Pelley: What happened in your village when ISIS came in?
Nadaya: They told us, "Wave the white flag, we won't harm you, you'll be free to go."
Nadaya lived with her large family, including brothers Sayid and Khalid in a village of
Yazidis, a non-Muslim ethnic group in Iraq. She asked us not to show you her face and
when you hear her story you'll understand why.
Nadaya: They had told us, "You have until Sunday to convert." But before Sunday, they
came back and said, "We have been told you will not convert, so you are not forgiven."
So we all were taken to the school. There, the women and kids were put upstairs and the
men downstairs.
In August, in a scene similar to this, the men were loaded onto trucks and told they
were headed to a refugee camp. But like these men, it turned out to be a short ride to a
mass grave. Nadaya's brothers Sayid and Khalid were on the trucks.
Khalid: After taking us about 300 yards away from the school, they stopped by an open field
and told us to get out and lay flat on your stomach, and we did. Then after we laid flat
about 10 ISIS fighters stood behind us and started firing all types of guns.
Sayid: One by one, they said no survivors. If there were any survivors, they would come
around and shoot them in the head. They shot us with all types of guns. I was shot five
times.
Twice in the knee, once in the thigh, once in the back and a graze to the neck. From
a window in the school, where the women were being held, a boy could see it all.
Scott Pelley: What did the little boy say?
Nadaya: He said, "I saw through the window. They're killing the men. I saw from a distance."
But we didn't want to believe him. We said, "He's just a little boy. He might just be
seeing things." We didn't believe him.
Scott Pelley: Do you have any idea how many men were killed in that massacre?
Sayid: I think about 380.
Scott Pelley: And how many survivors?
Sayid: Ten to 12.
He told us, as the ISIS fighters were finishing off the victims, a plane flew overhead and
scared them away. He and his brother, who'd been shot three times, crawled out of the
mass grave.
Scott Pelley: After the shooting stopped, what happened to the women? What happened
to you?
Nadaya: They told us to come downstairs. They took our IDs, phones, our gold. They even
ripped the gold earrings out of some of the kids' ears. ISIS used the local villagers
trucks, started loaded up 16 to 20 women at a time and taking us away. The final destination
was a little town.
Scott Pelley: And when you got there, what happened?
Nadaya: There was someone at the front door. He would take off our head scarfs and rip
open the front of our dresses. And he would touch us, sexually abuse us.
Later, Nadaya was imprisoned in a house where, she says, women were given away as prizes.
Nadaya: The very next morning a sheik from Tel-Afar came and picked up three girls for
himself. Two were my friends. He had the right to take three, and an ISIS militant had to
right to take one. A friend of mine, who was taken by an ISIS commander and returned, had
told us they're doing everything they please with us, raping us, sexually abusing us, and
that the ISIS men would tell them if you do not convert, we will rape you all, and sell
you all to ISIS militants in Syria where a young girl could be sold for about $800.
When she heard that, Nadaya took advantage of a blackout and escaped from the building.
Now, all the family has of life before ISIS is this video of the wedding of a friend.
Hard to watch. They told us, nearly everyone in the video is dead.
Scott Pelley: What about the other members of your family?
Nadaya: My sisters, two of them whom I speak with at times, who somehow snuck a phone through,
have no idea where our mother is. I don't know anything regarding my mother. Tell them,
"I want my mother." My friends are captive, I have no idea where my other brothers are,
I want them all to return, but most of all I just want my mother. Tell them, "I just
want my mother."
How was the black banner carried so far? A third of Iraq, gone, in a matter of weeks,
ground hard won by the United States in what was known as "Operation Iraqi Freedom."
Scott Pelley: The American people sacrificed 4,475 lives, ten years, and a trillion dollars
building a government and an army for Iraq. How did all of that crumble so fast?
Leon Panetta: It's a tragic story.
Leon Panetta was Defense Secretary when the U.S. walked off the Iraqi stage in 2011.
Scott Pelley: Back when you watched the stars and stripes being lowered for the last time
in Baghdad, were you confident in that moment that pulling out was the right thing to do?
Leon Panetta: No, I wasn't. I really thought that it was important for us to maintain a
presence in Iraq. The decision was that we ought to at least try to maintain 8,000 to
10,000 U.S. troops there, plus keeping some of our intelligence personnel in place, to
be able to continue the momentum in the right direction. And frankly, having those troops
there, I think would've given us greater leverage on Maliki to try to force him to do the right
thing as well.
Nouri al-Maliki was the elected prime minister. He didn't want the U.S. troops. A paranoid
man of the Shi'a sect of Islam, he nursed a grudge against the Sunni branch of the faith.
He'd been a thorn in America's side for eight years. President Bush, in an off-camera conversation
with us in 2007 said, "that Maliki is a son of a bitch, but we have to deal with him."
Leon Panetta: Prime Minister Maliki, who had the opportunity to kind of hold all of this
together, just turned on the Sunnis, fed into the historical sectarian divisions that have
marred that country for centuries. And basically undercut and undermined the security force
in Iraq and created, I think, the very ingredients that led to what we see today in Iraq.
Scott Pelley: Maliki, in your estimation, dismantled what we built? Took the Sunni military
officers out and replaced them with Shias?
Leon Panetta: We gave them a chance. I mean, you know, nobody can guarantee that Iraq would
be able to go in the right direction. But we gave them a chance. We gave them the tools.
But instead, he turned to vengeance. And vengeance never pays off.
But it paid off for ISIS. ISIS conquered with a relatively small force because it was welcomed
by the oppressed Sunnis in Iraq. In an austere intelligence agency lock up, we met the kind
of man who joined ISIS. We didn't know what to expect. But turned out he wasn't a young
fanatic, he was a middle aged real estate agent from Mosul. One of the fed up Sunnis.
Scott Pelley: When ISIS first came in, did people support them? Were they welcome?
Saleh: The Iraqi army was hurting people, even the governor and the local government
were hurting people. People thought something good was going to happen. They thought there
was going to be an Islamic state, a caliphate, that they would help people and rid them of
oppression.
Then they learned what the black flag really meant.
Saleh: You either join them, or they would consider you an infidel.
Scott Pelley: And what did that mean to you?
Saleh: If they declared you an infidel, that means they kill you.
President Obama refused to engage in a new campaign until Iraq dumped Nouri al-Maliki.
Two weeks ago, a new prime minister took office promising to unite his people. But first,
he'll have to get his country back. In a moment, the advice Mr. Obama got two years ago that
might have headed off ISIS.
President Obama's plan hinges on arming and training moderate Syrian militias to defeat
ISIS. The president has been criticized for not doing that sooner. You're about to hear
from two men who saw the threat early, former Defense Secretary Leon Panetta and King Abdullah
II of Jordan.
Jordan is a moderate, American ally, nearly surrounded by war, with the Israeli-Palestinian
conflict to its west, Syria to its north and Iraq to the east.
Today we spoke to King Abdullah in New York before this month's U.N. General Assembly
meeting. For hundreds of years, his family ruled the holiest shrines in Islam. And the
king was nearly at a loss for words today when we asked him about the head of ISIS who
claims to lead all Muslims.
King Abdullah II: I hate to use the word "heretics," whatever the words of those types are, but
to even call himself a Muslim is to me just words that I don't want to use on this program.
Scott Pelley: You just used the word "heretic," is he an Islamic heretic?
King Abdullah II: I think to use the word "Islam" and him in the same sentence is not
acceptable. That he even speaks in the name of Islam for me is so horrendous and so shocking.
The Kingdom of Jordan has borne the burden of the Syrian civil war even though it has
no oil wealth and precious little water. We went to the border where, for three years,
refugees from that war have risked death in the desert in the hope of reaching Jordan,
where they are welcomed.
Scott Pelley: We caught up with this group of refugees inside Syria as they made the
last mile to the berm that marks the border with Jordan. There are hundreds just like
them every day, thousands every month.
Jordan is now host to vast refugee camps, which have become cities in the desert.
King Abdullah II: It's the right thing to do, I mean, where else would the Syrians go?
They're in dire straits, that's why today we have more than 1.4 million Syrian refuges
in our country 20 percent or slightly more of our population.
Scott Pelley: Twenty percent of the population is refuges from outside the country?
King Abdullah II: Equivalent of probably 60 million refugees in your country, as we speak.
Scott Pelley: How long can you manage that?
King Abdullah II: I think we are at the limit actually, and with the difficult economic
conditions we're in it's a tremendous burden on our country.
Scott Pelley: Have your troops been engaged with ISIS? Do you think of your borders secure?
King Abdullah II: We have retaliated to several contacts over the past several months to those
who have come across our borders or tried to come across our borders. So we have been
somewhat aggressive to make sure our borders are defended.
Scott Pelley: Are your borders secure?
King Abdullah II: Our borders are extremely secure.
King Abdullah told us forcing ISIS out of Iraq is the easier part. But he estimates
digging it out of its base in eastern Syria could take two years. He supports U.S. airstrikes
as essential to overpowering ISIS.
King Abdullah II: The difference with ISIS, I think, compared to any other organization,
is that they are self financing. They can produce within a year, in a year cycle, up
to almost a billion dollars worth of oil derivatives that they are obviously selling at a low price
about $30 barrel. Which means they can pay a lot of foreign fighters come to their country.
They can buy weapons.
Scott Pelley: Would a billion dollars a year give them a seat in OPEC?
King Abdullah II: You would imagine if you had that capability which I, what they have
to have is about a third of the production of the United Arab Emirates in a way, technically,
they'd be asking for a seat in OPEC.
Now, according to the king, all countries in the region face a choice.
King Abdullah II: ISIS, I think, has triggered an understanding that its time for all of
us to make up our minds on the fight of good against evil. And this brings all of us together
from all religions on different sides of the divide are we going to fight the good fight.
Scott Pelley: Could the rise of ISIS have been prevented?
King Abdullah II: They could have been prevented if the international community worked harder
together to make sure funding and support to the original groups in Syria were not allowed
to get to the extent that they were.
Scott Pelley: The international community, the United States intervened too late?
King Abdullah II: I think we could have done a better job in making sure that earlier on
it was identified who the bad people were and action by the international community
was taken not to allow that to happen.
It turns out President Obama was urged to intervene in Syria much earlier. In a new
book, "Worthy Fights," former Defense Secretary Leon Panetta writes that, in a meeting in
the fall of 2012 he, Secretary of State Hillary Clinton, the director of the CIA and the chairman
of the Joint Chiefs all urged the President Obama to arm moderate Syrians who had started
the revolution against the dictatorship to begin with. That might have left no room for
ISIS to grow.
Leon Panetta: The real key was how could we develop a leadership group among the opposition
that would be able to take control. And my view was, to have leverage to do that, we
would have to provide the weapons and the training in order for them to really be willing
to work with us in that effort.
Scott Pelley: But with virtually his entire national security team unanimous on this,
that's not the decision the president made.
Leon Panetta: I think the president's concern, and I understand it, was that he had a fear
that if we started providing weapons, we wouldn't know where those weapons would wind up. My
view was, "You have to begin somewhere."
Scott Pelley: In retrospect now, was not arming the rebels at that time a mistake?
Leon Panetta: I think that would've helped. And I think in part, we pay the price for
not doing that in what we see happening with ISIS.
Now ISIS has forced Mr. Obama to reverse himself. The new policy depends on local forces to
win on the ground, but many of the available partners are dubious. Syrian rebels fight
each other. And the Pentagon figures only about half the Iraqi army is reliable.
But, at the same time, ISIS has problems of its own. Its advance is running into heavy
opposition now. In the north, we found Kurdish troops holding the line backed by U.S. airstrikes.
[Peshmerga solder: Thank you America, thank you Obama, thank you American military.]
To the east and south, ISIS has come up against the opposing Shiite population. Most of Baghdad
is Shiite. If ISIS has reached its borders, the concern for America now is what will it
export.
Scott Pelley: When we see these ISIS soldiers on these videos say, "We're coming for you,
America." Is that idle boasting? Or are they a threat here at home?
Leon Panetta: I think they are a threat. I think they're as dangerous, as fanatical as
terrorist as Al Qaeda was. And they have a large number of foreign fighters with foreign
passports that make them particularly dangerous to the safety of this country.
Scott Pelley: How long does it take to destroy ISIS?
Leon Panetta: I think it's going to take a long time. And I think the American people
need to know it's going to take a long time.
It's been a long time already. U.S. forces attacked Iraq in 1991 and were engaged on
the ground or in the air for 21 years. The latest effort begins where Lieutenant Mohammad
is holding the bridge to Kirkuk. Each American campaign began like a journey on a bridge,
straight, narrow, clearly defined until it reached the enemy.
There have been lots of stories over the past few months on identity theft and how the information
can be used against you. You may have heard something about stolen identity tax fraud.
You may even have been a victim of it. It's the biggest tax scam around now.
This is how it works. Someone steals your identity, files a bogus tax return in your
name before you do and collects a refund check from the IRS. It's so simple, you would think
it would never work, but it does. It's been around since 2008, and you'd think the IRS
would have come up with a way to stop it, it hasn't. Instead the scam has gone viral,
tripling in the past three years.
The IRS estimates that it sent out nearly three million fraudulent refunds to con artists
last year. And according to a new report from the Government Accountability Office out tomorrow,
it cost tax payers $5.2 billion. The Treasury Department believes the numbers are much higher
than that. Proving once again, what every con man already knows: there is no underestimating
the general dysfunction and incompetence of government bureaucracy.
Wildredo Ferrer: It's a tsunami of fraud that we have been encountering. The vast number
of fraudulent tax returns was something that I don't think the IRS ever really was ready
for.
Wilfredo Ferrer is the United States Attorney for the Southern District of Florida and George
Piro is the Agent In Charge of the Miami Field Office of the FBI. Together they run a federal
task force operating at the epicenter of largest tax scam in the country.
Wildredo Ferrer: Florida has been third year in a row on the top. Number one in terms of
ID theft complaints. And Miami is also number one in terms of metropolitan areas that suffer
from identity fraud.
Steve Kroft: Don't take this the wrong way. Is there any scheme that Miami is not number
one at?
Wildredo Ferrer: We have very sophisticated and good criminals. Steve, who know how to,
you know, defeat the system.
For decades now, south Florida has been the Silicon Valley for scam artists, drawn here
by the weather, the beaches and the opportunity to make lots of money without actually doing
much work. There's Medicare fraud, mortgage fraud, securities fraud, and now what the
Justice Department calls stolen identity tax refund fraud a tax preparation scheme epitomized
by an over abundance of questionable looking establishments that have sprung up here over
the past few years. But this scam is so easy, you don't even need an office.
Wildredo Ferrer: For this fraud all you need is a laptop, someone's social security number,
date of birth, not even their name. They can do it from their kitchen table. They can do
it at a fast-food chain restaurant. Or they can do it on the beach, as long as they have
Wi-Fi access.
Actually Corey Williams says you don't even need a laptop, you can file phony returns
on your cell phone, if you have the right app. He used to be a legitimate tax preparer
until his boss turned him on to the scam. Before he was arrested and sentenced to 40
months in prison, he had made millions and millions of dollars.
Corey Williams: Anybody who knew about it, you'd be a fool to not try to get involved
with making some money. I could wake up in the comfort of my own home, and just get on
a laptop, do about 15 returns a day. Fifteen times $3,000 a return, that's $45,000 a day.
Steve Kroft: So you had a home office?
Corey Williams: Yeah. I used to work in my boxers and a t-shirt, yeah.
It as easy as one, two, three. Williams gave us a demonstration. One: you collect or buy
a list of stolen identities that are readily available in Miami if you know the right people.
Two: you go to one of dozens of tax preparation sites on line, and using the stolen social
security numbers and dates of birth you fill out a completely bogus W-2 form, claiming
a modest refund of a few thousand dollars.
[Corey Williams: It has given us a refund of $4,834.]
Three: you tell the IRS where to send the money, your house, your bank account or loaded
onto a prepaid debit card.
Steve Kroft: Do you have any idea how many bogus returns you filled out?
Corey Williams: Has to be like in the thousands, maybe.
Steve Kroft: Did the IRS pay all of it?
Corey Williams: On a percentage range, you'd say they would pay out 40 percent of the tax
returns.
Steve Kroft: Once you hit sent, how long did it take you to get a check?
Corey Williams: Seven days
Steve Kroft: Seven days
Corey Williams: Yes
Steve Kroft: So you'd send in these returns. And seven days later, you'd get a check?
Corey Williams: Yes
Steve Kroft: Forty percent of the time?
Corey Williams: Forty percent of the time.
Steve Kroft: Where would you have them send the check?
Corey Williams: You can send the checks to an address, any address. I've seen cases where
25 checks came to one address, and the mailman delivered it.
It sounded so outrageous; we wanted to run it by the federal task force.
Steve Kroft: So you just put down a name and a social security number, and you can make
up an employer, or the amount of money that was earned and withheld.
Wildredo Ferrer: That's it.
Steve Kroft: And send it off to the IRS and they'll send you a check back for the refund?
Wildredo Ferrer: They will pay, most of the time. Unless they catch that there's some
fraudulent, you know, information. And then it's our job to chase.
Steve Kroft: I'm still amazed that you don't need to provide any documentation when you
file your tax return.
George Piro: There are no supporting documents when you are filing electronically. And that's
the ease or the convenience that was created for the benefit of the innocent taxpayer,
which is now being exploited by criminals.
You would think that the IRS computers would notice that they were sending thousand of
checks to a handful of addresses. But they didn't. And you might expect that the IRS
would match taxpayer returns with legitimate W-2 forms filed by employers. It doesn't do
that either because the law requires refund checks to be sent out within six weeks and
employer W-2s are often not available until months later. So if a bogus return is received
before a legitimate one, the check will go out to the crooks.
Wildredo Ferrer: The way that you learn that you become a victim of this is when you go
and try to file your return the IRS tells you, "Oh, you've already filed." You're like,
"No, I haven't." Well, like, "Yes, you have." Well, it wasn't you; it was the fraudster
who used your identity to file the return.
And it's not an easy problem to get fixed. Many of the people in this line outside the
IRS office in Plantation, Fla., are victims of the fraud, waiting to prove their identity
and claim their rightful refund. They will eventually be reimbursed but it can involve
massive amounts of paperwork, multiple visits to the office, and months and months of waiting.
Wildredo Ferrer: And this is where I call the sort of the nightmare-ish process, of
clearing up your identity. I have seen cases of individuals who have almost lost their
businesses because they did not get their refund check in time. I've seen individuals
who have lost their place in a nursing home because they needed their refund to pay for
that year's worth of services. And it's a real shame.
Steve Kroft: So, did you know about this before you got this job?
Commissioner Koskinen: I had no idea about this before I started getting briefed last
fall.
John Koskinen is the Commissioner of the IRS, its fourth commissioner in just two years.
Its become a high turnover position in part because the agency has been beset by a number
of embarrassing problems, including stolen identity tax fraud, that have led people to
question its competency.
Steve Kroft:. I mean it looks to me like the IRS got really outsmarted by some people who
were not all that bright, were not that ingenious.
Commissioner Koskinen: What happened was a lot of people discovered that, a, social security
numbers are either easy to steal or find or buy and then, b, you can file a false return.
Steve Kroft: Why didn't anybody anticipate that?
Commissioner Koskinen: Well, I think it goes back to the fact that people don't anticipate
social security numbers were going be so readily available. The assumption was, until fairly
recently, was a part of your identity that you protected and took great care of so that
no one actually expected they would be this easy to get a hold of.
But there were plenty of warnings. The Senate Finance Committee held hearings on stolen
identity refund fraud way back in 2009 when then-IRS Commissioner Douglas Shulman testified.
Douglas Shulman: I discussed the issue of identity theft with the senior leaders of
the IRS my first day on the job.
There were more hearings in 2011 and another in 2012 with deputy IRS Commissioner Steve
Miller.
Steve Miller: We cannot stop all identity theft, however we are better than we were
and we will get better still.
In those ensuing years, the number of cases of stolen identity refund fraud has risen
from 51,000 to nearly three million.
Wildredo Ferrer: In the year 2012, the Department of Treasury's inspector general predicted
that by the year 2016, IRS will be hemorrhaging, and losing $21 billion due to this type of
fraud.
Steve Kroft: It's only 2014. Don't you think something can be done in the next two years
to fix this?
Wildredo Ferrer: Well, that is my hope.
But it will not be easy. The entire IRS system uses social security numbers as its primary
means of identifying taxpayers. Even though they are now ubiquitous in public, private
and corporate files just waiting to be stolen by thieves.
Wildredo Ferrer: The key to this is to have somebody in the inside, or someone who has
access to our social security numbers, to our date of births.
Wildredo Ferrer: And a lot of these individuals are insiders in big institutions. In banks,
hospitals, schools, clinics.
Corey Williams: We would approach anyone who worked at like a dental office, anybody who
worked in a medical field. You would tell them if they get you 100 names, you would
give them $1,000.
Steve Kroft: These people easy to find in Miami?
Corey Williams: Very easy, very easy.
Steve Kroft: Because you would think if you went in and started knocking doors, and asking
people that worked as hospitals, and doctors' offices, and dentists' office, somebody would
call the cops.
Corey Williams: No, they needed the money more than they wanted to call the cops. Everybody
was with it. Everybody was with the scam.
Steve Kroft: Was this like a community of people doing this?
Corey Williams: More like a nation of people doing this.
It's gone from hundreds of people filing hundreds of fraudulent returns to thousands of people
filing millions of fraudulent returns and its become much more organized. U.S. Attorney
Ferrer says some people are even setting up franchises.
Wildredo Ferrer: We have had defendants, master-minds of these schemes, engage in filing parties.
And what they do is that they invite their friends to a hotel room or to an apartment,
and then they tell them how to do it in return for a cut of these tax returns.
Steve Kroft: You make it sound like Amway or Tupperware.
Wildredo Ferrer: That's what we've seen.
Even Ferrer's own boss, U.S. Attorney General Eric Holder, has had his identity stolen in
an IRS refund scam. And a number of members of the task force have been victimized, including
North Miami Beach Police Officer, Rocky Festa, who says local police departments have been
hit hard.
George "Rocky" Festa: Aventura had nearly their entire department, which was 50-some-odd
officers got hit. Davie Fire and Davie Police, it was in the hundreds. They were all victims
of tax return fraud.
Festa and his partner Craig Caitlin now work exclusively on tax refund cases and were among
the first to discover the breadth of the scam five years ago, when they began finding tax
documents and stacks of pre-paid debit cards when they pulled over suspicious vehicles.
[Craig Caitlin: Here is a wire plastic with a card.]
You can get one of these prepaid debit cards almost anywhere, usually without providing
identification. You then deposit and withdraw money from it as needed. It's like a bank
account for people who don't have one.
Steve Kroft: Now is that a Visa? A real Visa card?
Craig Caitlin: It's a real Visa card and you can buy.
Steve Kroft: So you can go in a convenience store and buy a Visa card?
Craig Caitlin: Right off the shelf.
If you want, the IRS will electronically deposit tax refunds directly onto these cards no questions
asked, eliminating the need for crooks to ever actually set foot inside a bank or try
to cash a refund check. They can spend the money in stores, or withdraw it from ATMs.
Steve Kroft: So is this kind of like a throwaway phone?
Craig Caitlin: Yes, sir. Yeah, once the money goes on the card, you empty the money off
on ATMs and you put the card in the garbage. It's pretty good.
The prepaid cards are now used by millions of Americans to collect $142 billion in government
entitlements like Social Security and Medicare payments. IRS Commissioner Koskinen thinks
it's an invitation to commit fraud.
Commissioner Koskinen: The prepaid cards are the currency of criminals. Our problem is
you can't distinguish the number of a prepaid card from a legitimate bank account.
Steve Kroft: Almost impossible to trace, right?
Commissioner Koskinen: It is almost impossible to trace.
Steve Kroft: Why doesn't somebody put an end to that?
Commissioner Koskinen: There are significant percent of the population that were "unbanked"
as it were called. If you don't allow them to use a prepaid card, they are going to have
to get a check and they'll have to pay someone a lot of money to cash that check. So you
are disadvantaging a significant amount of the population.
Steve Kroft: And empowering a criminal network?
Commissioner Koskinen: And you are empowering a criminal network.
Five years into the scam most of the time the IRS still cannot tell if the person filing
the return and claiming the refund is actually the real taxpayer. By comparison, the credit
card companies are much better at flagging suspicious charges before they are paid out.
Steve Kroft: Credit card companies don't have that much of a problem with this. Why can't
the IRS do that?
Commissioner Koskinen: So that's the direction in which we're going. It's a significant move
into what I call the 21st century. We're still kind of in the late 1900s. But this is it's
still a big problem that, while we are making great progress, we've got a lot of work to
do.
IRS Commissioner Koskinen says the agency does catch a lot of the fraud, but the enforcement
efforts have been hampered by cuts to its budget.
A number of fixes are under consideration, some of them obvious, including delaying the
payment of refund checks until they can be matched up with W-2 forms filed by employers.
The House passed legislation recently increasing the penalties for tax refund fraud and the
Senate Finance Committee has scheduled yet another round of hearings.