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Recycling fraud drains California's cash

October 8, 2012 | 11:55 am

Recycling center
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 trucks full 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.

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%.

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.

Eleven states have container redemption programs, and experts believe some level of fraud exists in each. 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.

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.

But fraud rings find ways around the law — hiring people to return the cans in small bundles at numerous centers, for example. Investigating such cases is time-consuming and expensive: It's not illegal per se to drive cans across the border, so officers must follow the cans into the state, stake out the locations where the cans are broken down into smaller loads, and then follow the smaller loads to recycling centers.

To help identify people bringing cans into California, Gov. Jerry Brown signed a law last month that will require those importing more than 25 pounds of aluminum or plastic or 250 pounds of glass to declare at the border what their purpose is and the source and destination of the material.


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Photo: Government officials recently estimated the recycling fraud at $40 million a year, and an industry expert said it could exceed $200 million. Credit: Bob Chamberlin / Los Angeles Times