Korean Air underpaid the Guam Airport over $600,000 in passenger facilities charges, because they underreported the number of passengers on their flights for years. As soon as the airport caught it in an audit, the airline paid up – and started asking questions.
Their former station manager will now serve 41 months in federal prison, plus five years of supervised release, for bank fraud and money laundering and will have to pay restitution to the airline.
Between September 2015 and December 2018 he structured a scheme so that Korean Air paid him, and he paid the airport, for rent and passenger fees – and he’d underreport the number of passengers on Korean flights and pocket the difference.
- He was one of two signers for Korean Air in Guam
- He changed the address on his checking account to match the local Korean Air office
When the airport finally started an audit of the airline’s passengers and payments, the manager fled to Texas. He was indicted last year, and took a plea in the fall. Korean Air notes that when caught, the manager did not even apologize. His attorneys argued in his defense that,
- This fraud was so super obvious, it should have been caught a long time ago, and that’s on the airline. Korean Air was sending payment to the guy’s personal checking account, and he was writing personal checks to the airport.
“The defendant had put the money in his own personal account; it should have been easily found,” Mantanona said. “You don’t want to blame the victims, but if the victims had done any of their own due diligence, and checked … and had GIAA looked to see who was writing the checks that paid their bills, they would have discovered this. It wasn’t, in the defense’s opinion, a sophisticated means. It was very simple.”
- Nobody should’ve trusted the guy anyway, or more specifically that he wasn’t in a ‘position of trust’ that was abused.
There are two things here that strike me as particularly astonishing.
- His lawyers are right that this is an obvious fraud – different systems and reports won’t match, so the fraud will be uncovered and surely not enough money was involved to make that certainty worthwhile.
- Instead of fleeing in advance of getting caught (because it was obvious he eventually would be caught) he waited until his work was being audited and then he fled… to Texas?
The man ran from justice, didn’t leave the United States to somewhere without extradition but instead only half-fled.
That’s both chutzpah and stupidity.
I can only guess this was possible due to Korean Air’s bureaucracy, perhaps a lack of corporate competence due to the hiring of friends and family hires, and the language barrier between Guam as a US territory and South Korea. Shouldn’t the airport know exactly how many passengers on an airline pass through security every day? Or in Guam’s case, go through immigration? Guam’s government also operates its own customs checkpoint separate from U.S. immigration.
Sigh. Prison. I’ve said before that the US is the most unkind country on earth because of our proclivity to send people to prison. The objective data shows that our prison population per capita is higher than any other nation. Yet, daily, we hear calls to lock people up.
Some people should be locked up: violent criminals who are physically unsafe to let loose in society. I also wish we could lock up a-holes, because society becomes much more pleasant without them. The idiot at Shake Shack who called the wrong number, then got mad at me when I wasn’t coming to get my food? Lockup please. To be clear, mere idiocy shouldn’t result in lockup. It’s getting mad at someone that makes one an a-hole and unpleasant in society.
But mere fraud shouldn’t be punished with prison.
The lawyer for the crooked station manager is trying to blame the airline for enabling the fraud and its extent even as the station manager perpetrated criminal fraud against the airline and the airport. It’s lame to blame a criminally defrauded party for the crooked station manager’s criminal defrauding of the airport on the defrauded airline employer.
@FNT: Having worked with airline corp real estate/airport affairs for years…. you would think so. But it was only $600k over 3 years.. looking at current GUM rates and charges as a baseline.. most charges are based on per-passenger (given the facilities are all basically common/shared use). Right now it costs $8.05 per departing passenger and $7.50 per arriving pax (plus there are some per flight jetway charges, some square footage rental rates and all that good stuff). So quantifying $600k over 3 years is about 38k passengers in+out amongst total 10.5 million through the airport during that period, so pretty small overall. I don’t know Korean’s breakdown, but in/out they probably did (looking at flight volumes from 2015-2018, pre-pandemic) let’s call it 1000 pax total a day in+out.
So feasibly… it wouldn’t be that hard to under-report. And typically these port authorities do a rough true-up at the end of the year, based on what airlines report. Forensic auditing usually is a year or two behind. I used to get reconciliations 2-4 years in arrears depending on the airport. Some use a system like Passur that uses FAA/ADSB data to tally flights. And honestly TSA/customs counts aren’t terribly complete (double count people who went through twice, or missed infants in arms) and I’ve found not incredibly accurate and not broken down to the level needed for airport billing.
So yeah, I can see this happening and don’t even have to stretch myself to see it happening. Especially such overall small numbers over a few years. Plus with pandemic, airports weren’t so great at reconciliations (especially if not a residual budget model) especially as they weren’t really collecting much.
Just think about typical government bureaucracy, add in oversight from broader govt level that doesn’t really get the nuts and bolts, squint a little bit, and you can see how this is completely believable at probably half the airports out there certainly of this size or larger.
@FNT Delta: If the fee is for “enplanement” (more likely) instead of “deplanement”, GIAA has reason not to know, as departing passenger data are sent to USCBP and TSA but not Guam customs. But in Guam’s situation, there will be an obvious imbalance of arriving (Guam customs has data from the arrival form) against departing passengers. The number of passengers flying in on KE and departing by other means will be small.
@High class professional
your right fraudsters and con artists should not go to prison. After they are convicted by a jury, they should be taken out back of the court house and put down like a lame horse.
@HkCaGu:
The airport overall has an imbalance of arrivals to departures during that time frame, sometimes upwards of 100k people annually. There are fees for enplanements and for deplanements. Plus the rise of low fare airlines between Korea and Guam pricing one-way without penalty makes it easier to mix and match airlines. So spreading 38k people over 3 years across enplanements and deplanements really is not a huge stretch.
@High Class. Your argument is the basis for complaints that the entire justice system is biased and rigged for “the right people”. A 19-year old robs a 7-11 for $100 and gets time in prison. A white collar crook robs an airline for over half a million bucks and serves no time behind bars?
And before you say “don’t send the kid who robs a 7-11 to prison either”, then your position really comes down to no one should go to jail. Yeah, let’s see what happens to society when we go that route….
Mere fraud shouldn’t be punished with prison? Am I welcome to your money, your parents and grandparents money as well as your children’s?
Dumbest statement I’ve seen on here in a while.
I am in favor of civil penalties such as treble damages for fraud. If you steal my money, but you did it politely (a la Madoff), no prison time is due. You should repay me triple what you stole, including triple any gains your ill-gotten money would have earned if it were still in my hands.
Prison serves to remove people from society. Violent offenders, yes. Unpleasant a-holes, also yes. We all want to live in a safe and pleasant society.
Other wrongs can be addressed through civil procedure.
@Thing1 – “then your position really comes down to no one should go to jail. Yeah, let’s see what happens to society when we go that route….”
In some parts of the country, you already can see that.
The irony is that Guam, itself, may be corrupt; or rather there have been, observations, reports, and studies on corruption. What would be a hilarious kicker, is if someone who oversees airport operations/fee collection, pockets x% of airline revenue brought in haha. Imagine an audit being ran because the corruption racket didn’t get enough funnel money haha. Initial reference below.
https://www.uog.edu/_resources/files/2019-guam-corruption-report-highlights.pdf
@NedsKid
Can you walk me through your numbers a bit more? When I crunch yours, I come up with about $300k.
My math, assuming your numbers are correct (they seem good enough), indicates he had to fudge the numbers on 6.5% of passengers per day. If your estimate of 1k pax/day is correct, that’s 65 people per day that he’s mis-reporting.
I calculated $7.75 per pax (as an avg of $7.50 and $8.05 that you provide), meaning that $600k equates to 77,500 unreported pax, and this happened over 40 months, so 1.2M pax during that time.
So, it may have passed initial filters of odd activity, but more stringent audits later on will catch that. Had he merely misreported an average of 2 pax/day, that’s nearly $6k per year. That probably passes under the fraud investigation threshold, other than to maybe implement more controls for more accurate counts.
This is like Office Space, where if you take advantage of decimal dust over a long period, you likely won’t get caught. I guess he messed up some mundane detail.
High class professional says: “…but you did it politely (a la Madoff), no prison time is due. You should repay me triple what you stole, including triple any gains your ill-gotten money would have earned if it were still in my hands.”
I dont know about madoff, but in general thats a great idea.
Let them work to pay off their ill gotten gains.
Could be the Guam operation was run by a contractor or “friend” of the airline. Some airlines may contract the work out at smaller or remote stations. As an example, the ticket agent behind the counter has an airline logo on his shirt, but his W2 has the name of the contractor. Therefore, the controls at Guam were not as strong as at Incheon airport which is directly under KE ‘s radar scope.
Still, with todays reporting environment and data bases, someone was not monitoring the budget and/or failed to challenge the variances. Someone in Seoul got his butt kicked or was fired for this muck up!!
B Madoff couldn’t have ever paid off in full all of the people whom he scammed. The “white-collar” dude deserved to go to prison for his dirty low-life robbing of his customers no less so than than the average home burglary criminals who run off with money and other valuables and leave the places a wreck and the victims insecure.
@Flyyyyy
Having worked in all five U.S. territories, I can tell you they are wholly corrupt. As corrupt or more corrupt than any big-city machine-dominated city hall.
Partly because of benign neglect on the part of Uncle Sam and partly because the governors of those territories have incredible power. The transition from Navy rule to self-rule in the 1940s and 1950s was largely overseen by Big Government/FDR types who created massive territorial governments, where the government in the territories was all-powerful.
There is little to no civil service in any of the five territories. Almost all the jobs in the respective governments are either political appointments to the governor of the day or friends and family. It’s common to see someone in the same job their grandfather did. Inherited government jobs.
@CrunchingNumbers:
Sure… I was combining enplaned and deplaned passengers. They are reported and billed differently. In general, for an airline at a non-hub location the number of people arriving and departing is round about the same (not usually more than about 5% different). Underreporting both numbers at about the same rate would be best to not raise flags (much more difference between arrivals and departures, especially on an island with no other real way on/off than out of the airport, would probably pique the interest of whatever entry level analyst or clerk is compiling the monthly stats for billing – which in 95% of airports is an Excel template sent via email).
So your number is correct if underreporting passengers just one direction. I was assuming what would be the manager applying some thought to not being as obvious which would be to trim both arriving and departing. I guess it’s all really the same depending which way you bucket it. Round trips or one-way journeys but yes, same principle.
And you are right… the Office Space scenario would be probably completely go under the radar while what he actually did will miss scrutiny until some later date (and at that point, may not even get caught depending on what amount of sampling the airport authority’s accounting policies require for audit). Fudging the numbers by 2-3 people per day would be completely believable as that sort of margin for error kind of happens anyway. For example, say someone on their onward connection at ICN misses or no-shows onward… agents frequently will just uncheck them from the entire journey without picking and choosing which segments. So they could have flown GUM-ICN then got removed from check-in status. They wouldn’t show in statistical reports run at the end of the month but for the airline’s purposes of customer wanting a refund or something, they’d look at the PNR level history and see they checked in, boarded, were un-checked, etc.
I had reporting I had to do for one airport where they wanted enplanements by domestic local, through, connecting, and the same for international. Well, I couldn’t run a report specifically for more than one market at a time. I had my operations agents keep a report at the end of the day where they went into each of our three daily international flights (out of about 45 flights a day at my station) and added in an Excel spreadsheet how many local/connecting arriving and departing for international. So at the end of the month I’d run the station as a whole, take those intl figures, subtract them from the total and there I had domestic totals. Easy to see all the opportunities for error. Or let’s say someone uses tableau or the MS equivalent and builds a custom report… then it’s subject to the misconnect scenario I outlined above.
This guy just went too far and got caught. He could have pocketed $50 a day and nobody would have batted an eye likely.
@Exit Row Seat:
At GUM, the primary outsourced handler is Menzies and they handle Korean. Funnily enough I flew Korean out of Guam earlier this year. Having at one point in my life been a director at a ground handler and had Korean as a customer (on mainland US), I’m sort of familiar with how they operate. They will fully outsource the ramp and customer facing positions but usually have a manager who is Korean Air employee (may have a couple of cities in a region) as well as one or two duty managers/supervisors so someone is always “minding the shop.” You’ll usually see someone who is normally of Korean origin (both in paycheck and ethnicity) hovering around the ticket counter during operations.
What this GUM KE manager did would have to be done where there are per-passenger charges levied by the port authority because per-flight charges or landing fees wouldn’t necessarily work… as Menzies is counting flights for its own billing purposes, plus they have to then report that to the airport since they pay a portion of their revenue as an operating tax to the airport.
In many employee fraud situations, the perpetrator slips up. We had a field clerk buy a brand new Olds 98 on a clerk’s salary. Or another who was manipulating meter readings so her boyfriend got a huge discount on his electric bill. Or a customer is cut out but shows his/her stamped receipt to the office manager.
Eventually, someone brags too much (boyfriend) or appears very conspicuous. Today, most corporations have an employee hot line for such issues.
Our KE friend may have lived too high on the hog, or spouse bragged about a luxury item, or kids enrolled in an exclusive school. Eventually, it will come around and bite you on the arse.