Recycling fraud costing Californians up to $200 million annually, report says

California’s recycling system is rampant with fraud, potentially costing consumers as much as $200 million a year in stolen nickel and dime deposits, a new study alleges.

The “Cash For Trash” report from Consumer Watchdog says past investigations by the State Auditor and a local news outlet show $40 million to $200 million dollars in deposit money is stolen each year from California’s beverage container recycling program through padded loads, falsified weights tickets and other tactics.

The organization is supporting  Senate Bill 38, which would require producers of beverage containers to take full responsibility for the entire lifecycle of the items, including recycling and final disposal.

California offers a 5-cent refund for most glass bottles, plastic bottles and aluminum cans less than 24 ounces, and 10 cents for containers of 24 ounces or more.

How it happens

California offers a 5-cent refund for most glass bottles, plastic bottles and aluminum cans less than 24 ounces, and 10 cents for containers of 24 ounces or more. (File photo by Trevor Stamp, contributing photographer)

Consumer Watchdog claims fraud is occurring in several forms, including:

Importing non-CRV (California Redemption Value) containers from out of state: The report alleges empty, redeemable containers are brought from states and countries such as Arizona, Nevada and Mexico for illegal redemption by organizers of rackets.

Weighing the same truck repeatedly: The study claims processors, including waste haulers authorized to process deposit materials, can claim the CRV on the same containers more than once by running a loaded truck over a weight scale a second time and giving each load a different serial number.

Padding the load with non-CRV containers: Recycling centers can buy non-CRV glasscontainers such as empty wine bottles or manufacturer rejects, break them up, and mix them in with CRV bottles.

Doctoring weight tickets: Recycling centers can doctor weight tickets by claiming additional weight that does not exist on their reports to CalRecycle in order to boost the amount of CRV reimbursement.

Liza Tucker, who authored the Consumer Watchdog report, said the schemes were compiled from fraud convictions and industry insiders who observed wrongdoing taking place in California’s recycling programs.

The Watchdog report claims Californians pay $1.5 billion a year in deposits but get back barely more than half of that. That occurs partly because scores of recycling centers have closed, but many stores that are obligated to take back containers in areas where no recycling centers exist aren’t accepting them, the Los Angeles-based organization said.

Fraud convictions

The report notes that CalRecycle, the state agency that oversees California’s waste and recycling programs, won 93 fraud convictions between 2010 and 2019 with $61.2 million in restitution funds ordered. The department assessed another $106 million in restitution between 2008 and June 2021 against 15 companies for allegedly defrauding the program or for incorrect record-keeping.

But the agency doesn’t always recover all of the money that’s stolen, whether inadvertently or otherwise.

The report highlights a case in which CalRecycle assessed $80 million in restitution against Recycling Services Alliance for fabricating weight tickets and other violations in a 2018 fraud case. When civil penalties, costs, and interest were factored in, the total came to $541.3 million. CalRecycle and the California Department of Justice settled the case in September 2021 for just $34 million.

CalRecycle spokesman Lance Klug said the Department of Justice made 256 beverage container recycling fraud arrests between 2010 and 2019 — arrests that were primarily based on referrals for investigation from CalRecycle.

“CalRecycle’s investigators and auditors use all of the tools currently available to aggressively root out fraud in all of California’s recycling programs, both state-run and manufacturer-run,” Klug said via email.

CalRecycle, working through beverage container pilot programs, is pursuing new technologies to increase consumer access while reducing opportunities for fraud, he said.

“As California builds our circular economy, the beverage container program must modernize to provide more convenient redemption statewide, Klug said.

Senate Bill 38

SB 38, authored by Sen. Bob Wieckowski, D-Freemont, would require California beverage distributors to form a stewardship organization that would develop a plan and budget for the recovery and recycling of empty beverage containers.

The Extended Producer Responsibility model, which has been widely adopted in Europe, uses Reverse Vending Machines from which consumers can redeem their empty containers for money.

“RVMs can prevent double redemption of receipts and containers, and can swiftly and accurately verify whether a deposit should be refunded, so they reduce the risk of error or fraud compared to a manual take-back system,” environmental consultancy Eunomia said in the Watchdog report.

It works in Oregon, too

Oregon uses an Extended Producer Responsibility model that’s administered by the Oregon Beverage Recycling Cooperative on behalf of the beverage companies. The program is funded by beverage producers at no cost to taxpayers.

“An industry stewardship model, like Oregon’s, helps avoid much of the opportunity for fraud to occur within the operation of the system,” said Eric Chambers, a spokesman for Oregon’s recycling cooperative.

Chambers said no taxpayer funds are involved in Oregon’s recycling network and there are no profit motives like there are in systems that rely on handling fees and third-party redemption center operators.

California’s consumer redemption rate stands at 57%, Consumer Watchdog said, but rates in Oregon, Michigan, and in other countries such as Norway, Germany and even Lithuania, range from 81% to 98%.

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