By Howard Schneider
Washington Post Foreign Service
Sunday, August 24, 1997; Page A21

Hilda Hanna didn't remember entering a sweepstakes in Canada, but she was willing to trust a caller from Quebec who said she had entered, and won a $945,000 jackpot. The money would be on its way, as Hanna recalled the conversation, as soon as she sent $19,000 to cover Canadian taxes and customs fees.

Hanna, a U.S. citizen who asked that her state of residence not be identified, said she sent the money -- much of it advanced from credit cards -- in June.

The prize never arrived.

When she got a follow-up call in early August requesting an extra $15,000 to cover more taxes and fees, she said she realized that those pleasant people on the other end of the line were part of a booming Canadian export trade -- in telephone fraud.

They hit Hanna twice this summer. Just as she was beginning to believe the worst about the money she "won" in June, another caller persuaded her to send $4,000 to cover "duties and tariffs" on a separate, $128,000 prize. Both incidents have been referred to Canadian law enforcement officials.

"They sounded really legitimate," Hanna said. "They kept asking for money . . . and my heart sort of said, 'Don't do it anymore.' . . . But I trust people, and they said I would have [the prize money] before [the payment] hit my credit cards. I am too trusting, I guess. I am 71 years old, and I should have known better."

Working from "boiler room" phone banks in Montreal, Toronto and Vancouver, or running "rip and tear" operations that move from hotel to hotel, Canada-based scam artists have been targeting the elderly in the United States with increasingly elaborate, aggressive and costly schemes. They now account for about one-third of the telemarketing fraud complaints received by Canadian and U.S. authorities; in the most recent statistics compiled by the U.S. Federal Trade Commission, Quebec surpassed California as the continental leader in phone fraud. Ontario and British Columbia were firmly in the top 10.

Relying on lax sentencing practices in Canada and the protection of a border that can delay extradition to the United States for years, fraudulent telemarketing groups have bilked U.S. consumers out of hundreds of millions of dollars for tickets in foreign lotteries that never pay off, prizes that never appear, and gem-investment schemes in which the profit remains just out of reach.

The groups in Canada "think they can operate with impunity," said Jonathan Rusch, a senior litigator in the fraud section of the U.S. Justice Department and co-chair of a joint working group on cross-border fraud. "They look at the United States as a particularly lucrative market, and they count on the existence of the border as a substantial hurdle that we have to get over to take any effective action."

U.S.-based scams still account for an estimated 64 percent of the total in the two countries, with some schemes, such as one using travel to Florida as a lure, targeted at Canadians.

Cross-border prosecutions are increasing. U.S. officials in Seattle last week indicted six British Columbia residents on 113 postal, customs and other alleged violations in connection with a lottery ticket scheme that collected as much as $70 million annually from U.S. residents.

In an ongoing Pennsylvania investigation, federal officials there have indicted 89 Canadian residents for a gem scam in which mostly U.S. consumers were sold low-grade jewels at high prices, then induced to buy even more with the claim that they could soon resell at top dollar. About 50 of those charged agreed to come to the United States for trial in return for reduced sentences and are now serving jail terms from four months to five years, said Gordon Zubrod, an assistant U.S. attorney in Pennsylvania. The others are fighting extradition, and Zubrod said his office expects the case could drag on for several years.

American authorities in Ohio, Illinois, New York, Colorado, North Carolina and Vermont also have requests pending in Quebec for the extradition of suspects in telemarketing cases.

So far, however, that has not slowed the apparent growth of a criminal enterprise in which "sucker lists" are the major investment, and new entrepreneurs routinely learn the ropes in one shop, then set up their own phone banks. They pose as lawyers, brokers and employees of the Canadian federal government, in some cases even claiming that they might get fired if the intended target doesn't send money.

"He said he had good news. He was so persuasive and seemed so friendly and everything," said Alice Fisher, 78, who sent $30,000 to a man posing as a Canadian customs agent, presumably for the taxes on a $1.7 million lottery prize. After sending the certified check, she grew nervous and managed to stop its delivery. For days the man continued pursuing her with calls, first complaining that he was about to lose his job, then threatening to take legal action against her.

As with many of the cases, she was the target of multiple scams: In an earlier one, she sent $2,000 to a Florida caller for the "taxes" on a lottery prize in the Dominican Republic that she supposedly had won.

Telemarketing fraud has been a growing problem in the United States since at least the 1980s; as a result, federal law enforcement agencies, state attorneys general, and regulatory bodies such as the Federal Trade Commission have put into place stricter laws and advocated tougher enforcement against a form of white-collar crime that preys most effectively on the elderly. U.S. officials estimate that telemarketing fraud costs consumers $40 billion annually.

As enforcement became stricter in the United States, with the FBI and other agencies mounting large undercover operations and multi-year investigations, prosecutors and police say scam artists began to see Canada as a place where they could target the same U.S. markets and reduce the risk of being convicted of a crime and going to jail. Some operated in the United States and then moved to Canada. But most appear to be Canadian scam operators taking advantage of a country with which they share a language, a culture and a telecommunications grid.

Canadian officials say that at any given time there are now dozens of telemarketing scams in operation in Canada that almost solely target U.S. consumers, avoiding local victims to lessen the risk of local prosecution.

The problem has become so severe, and the frustration of investigators in both countries so high, that it has been the subject twice of talks between President Clinton and Canadian Prime Minister Jean Chretien.

The working group, chaired by Rusch and a Canadian counterpart, is studying issues such as whether extradition procedures can be accelerated, and whether either country needs to change its criminal laws or sentencing guidelines.

The Federal Trade Commission, for example, recently prohibited some of the specific marketing practices that are popular among telephone fraud artists, such as collecting advance fees for loans that never materialize. That has allowed federal and state prosecutors to seek stiff civil penalties against telemarketing companies without having to meet the stricter burden of proof required in a criminal trial. The only tool available north of the border, Canadian officials say, is a criminal fraud statute that prosecutors must apply one phone call at a time.

"It is very expensive and time consuming . . . assuming you can get a prosecutor that will prosecute," said Ontario Provincial Police Det. Barry Elliott, coordinator of Canada's Phonebusters task force on telemarketing fraud. "When people see our sentencing, they are aghast. A major telemarketer in the states will get five to 10 years. A major telemarketer in Canada might not get anything."

"This is a modern type of fraud," said Inspector Yves Roussel, the officer in charge of the commercial crimes section in Montreal for the Royal Canadian Mounted Police. "Our present law system is not geared to face that."