By Charles Davis, INSIDER
Who knew that “recycling fraud” was even a thing?
When California’s top law enforcement official charged a family of eight with ripping off the state’s recycling program — for millions of dollars — it was likely the first time that many people became aware that there is real (and dirty) money to be made in the field of used beverage containers.
Since 1987, California authorities credit the state’s cash incentives with saving more than 300 billion beverage containers from ending up in landfills. Most bottles and cans sold in the state include a 5 or 10 cent surcharge, called the California Redemption Value, that consumers can get back if they recycle the container.
“In addition to saving energy, natural resources, and preventing carbon dioxide from being released into the air, bringing bottles and cans to the recycling center will put cash in your pocket,” says CalRecycle, which administers the beverage container program.
But where there is money to be made, there will be people trying to make it, some in less than honorable ways. And because of a mix factors — bureaucratic and political inertia, and a CRV program that largely relies on self-reported claims from those handling recyclable material — the opportunity exists to make a quick, illegal buck.
That’s “the central problem,” Liza Tucker, an advocate with the nonprofit Consumer Watchdog, told Insider. “It’s an honor system — and, frankly, you can’t trust anybody.”
Theft by recycling
That California is potentially losing tens of million dollars a year to recycling fraud is not news to anyone who has looked into it.
In a report released by Consumer Watchdog last year, Tucker described a recycling program that is ripe for fraud, including by the industry’s biggest players, including waste haulers, who collect deposits for recycled goods in curbside bins, and recycling centers themselves.
The issue, in a nutshell, is that while there are several known ways to scam the system, it is relatively difficult to get caught.
People can turn in lots of bottles without having to verify their identity, usually just writing their name on a sheet of paper; recycling centers can overstate how much they are collecting, their claims — often handwritten — not regularly checked by state auditors; and processors, who sell recycled goods to companies seeking raw materials, can pad out their margins by falsely representing those materials as eligible for the CRV.
Hauling from out of state
Although the CRV provides a clear financial incentive to recycle — and a way to make some money for those struggling to find steady employment — the system contains a clear flaw: There’s no obvious way to tell whether a bottle or can was originally purchased in California. That means someone could collect the deposit without ever having paid it themselves, just by bringing in containers from other states that don’t charge a recycling fee.
And people do this, en masse. The family accused of ripping off the state’s recycling program to the tune of more than $7 million is accused of doing so by obtaining thousands of pounds of containers from Arizona, some purchased as bulk scrap, and bringing them to California. Prosecutors say that constitutes felony grand theft and fraud.
The scale of the suspected fraud may have been a red flag, prompting an investigation. In other cases, people have been caught by sheer chance. In one case, police followed a truck they suspected of carrying containers from Arizona all the way to San Diego, where they dutifully pulled into a recycling center, the Los Angeles Times reported.
According to Consumer Watchdog, people who import out-of-state containers may do so as part of large rackets, in collaboration with corrupt recycling centers that process the hauls “under the cover of night.” Alternatively, perpetrators sell the containers on the streets of California, promising buyers they can turn a profit by redeeming them for the CRV.
A 2014 report from the California state auditor’s offices said that out-of-state bottles “may represent the largest fraud risk facing the beverage program.” It noted that more than 22 billion cans were sold in a single year outside the state of California — but containing the state’s CRV logo. If just 3% of those cans were brought into the state and redeemed, it would represent a taxpayer loss of more $33 million.
As far as recycling scams go: “It’s very common,” Tucker said, “but it’s not the only one.”
Trash companies and recycling centers are reimbursed by the state for all the CRV-eligible containers they collect. California pays by weight — think: big bricks of smashed cans — but also pays a bit more if the items were deposited at a recycling center vs. a curbside bin. This too provides an incentive to fib.
In 2012, in a case highlighted by Consumer Watchdog, the Los Angeles Times reported that a former supervisor at a recycling center in San Francisco accused his ex-employer of looking the other way at fraud, claiming that workers were routinely misrepresenting hauls as having come from the center itself, leading to higher reimbursement as cans and bottles collected at a center are easier to process than those from bins, where they may have been contaminated.
“That’s a huge scandal,” Tucker said. And it’s the sort of thing one could still get away with, she argued, due to the system’s reliance on self-reporting.
In this scheme, recycling processors simply “run a loaded truck over a weight scale for a second time” and give it a fresh serial number, according to Consumer Watchdog.
In 2015, a California-based metal company agreed to pay the state $1.74 million after investigators accused it of redeeming the CRV for millions of pounds of cans and bottles. It was then supposed to sell these recyclables to someone who would turn them into products; instead, it sold them to people who turned around and redeemed them again.
Keep it (under) 100
According to CalRecycle, no single person may collect the CRV for more than 100 pounds of aluminum or 100 pounds of plastic each day.
“Assurances should be made that individuals are not attempting to circumvent the regulations by delivering material throughout the day, delivering material in different vehicles, or sending other persons in the same vehicle to the scale with split loads,” it says.
But right now there is little incentive to spot or report an obvious red flag, like someone coming in every day with 99 pounds of soda bottles.
Aware of this, an unscrupulous processor — which packages up recycled goods and sells them to companies that turn them into new products — could buy up materials from a recycling center, put them in bags of up to 99 pounds, and then distribute and bring them to other centers, including ones they operate themselves.
“The CRV money is claimed by the recycling centers via the same processors who run the same scam over and over again,” according to Consumer Watchdog.
An extra 2.5%
Under California law, recycling centers are allowed a small discrepancy between what they say they are processing and what they actually do. This allows for the fact that some scales may be slightly off or material lost in transit.
But it also enables small-time fraud: 2.5%, to be precise.
“For example, a recycling center can report a load weighs 10,240 pounds, but at the processing facility the same load weighs only 10,000 pounds,” Consumer Watchdog says. The self-reported weight, provided it is only off by up to 2.5%, is what the state pays out for.
“There’s always going to be things jostling around — stuff falls off a truck, right? That’s all normal. But you can claim large quantities of additional weight,” Tucker said. “That’s a problem.”
Mix in other junk, like wine bottles
Not every glass or plastic container in California has a CRV. Five-gallon jugs of water, for example, are not covered by the program. Nor are wine bottles.
But who’s to say that, behind all those bales of recyclable items in a shipping container, there aren’t literally tons of aluminum and glass that don’t belong? A processor could ship off a bunch of mislabeled material abroad — scrap aluminum and CRV-eligible aluminum would receive the same shipping label — and the foreign receiver, in on the scheme, would then sign off, “attesting to an all-CRV aluminum load,” Consumer Watchdog says, “and no one would be the wiser.”
Why is this still happening?
In a statement, CalRecycle told Insider it has taken steps to address fraud amid a record haul of 19.5 billion beverage containers last year.
“This includes expanded use of tools like investigations, audits, inspections, risk assessments such as CRV volume reviews, and analyses of imported material entering California to shut down fraudulent operators and increase arrests,” it said.
But critics say the state could do more. It could require recycling centers to verify identification — and, in the 21st century, store that information electronically — when someone turns up with cans and bottles in bulk, making it easier for auditors to spot abuse. It could also, in general, do more to verify what recycling centers and processors claim.
So why is fraud still such a persistent issue? One possible answer is that there hasn’t been much sufficient public outrage, at least to the point that lawmakers feel compelled to act. And there are people who would be upset if the status quo were to change.
“There are a lot of special interests feeding at this trough,” Tucker said. Trash haulers, for instance, are not only getting paid to pick up garbage but — unlike in any other state — getting paid, by the pound, for bottles and cans people thrown in their curbside bins, despite that material often being contaminated and unable to be recycled.
“So there isn’t a willingness [to change],” Tucker argued. “There’s an inertia in the system.”
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This story was updated with comment from CalRecycle.