“The dirty secret in your basement” shone a light on corrupt practices in the heating-oil supply industry in New York City. It referenced a recent Manhattan district attorney’s office investigation (conducted with my office and other city agencies) that revealed large-scale fraud committed by several unscrupulous heating-oil delivery companies that were “shorting” their customers—charging for more oil than they actually delivered. This is not new. In the past 30 years, other prosecutors have brought similar cases, but the fraud persists.

The article centered on a more insidious scheme, known as “blending.” To cut costs, corrupt heating-oil delivery companies illegally blend unrefurbished waste oil into the heating oil prior to delivery. Besides being a fraud on the customers, who receive oil of a lesser quality that damages boilers, blended oil releases harmful metals and other contaminants into the air when burned. This exposes all New Yorkers to the risk of asthma, heart problems and other ailments.

Currently this industry has no licensing structure to hold corrupt companies accountable. The city did take significant actions after the Manhattan D.A. indictments. Agencies issued reports to help consumers protect themselves from fraud, and agencies involved in the industry enhanced and improved their measures. But as a Jan. 16 Crain’s editorial pointed out, regulators need a better, more comprehensive plan.

That plan exists: Intro No. 1268, a bill sponsored by City Councilman Antonio Reynoso, would require heating-oil supply companies operating in the city to obtain a license issued by the Business Integrity Commission. Before granting a license, BIC would conduct a comprehensive background check on the applicant to ensure that corrupt companies and individuals are kept out of the industry. This regulatory model is a proven success: In the past 20 years, BIC has used a similar licensing structure to eliminate systemic corruption in the commercial refuse collection industry. Importantly, BIC’s application process also would establish a database of the participants in the heating-oil supply industry that would be accessible to other city agencies, thus creating a more collaborative oversight structure to protect consumers and the general public.

Intro No. 1268 also would help the many reputable companies in the industry by barring competitors that engage in fraud. Local union members, who comprise approximately half of the total drivers in the industry, also would be strengthened. We understand that the companies indicted in the Manhattan D.A. cases were all nonunion. Their drivers were paid low weekly salaries, supplemented by illegal cash payments based on the amounts of oil they stole from customers. Union companies cannot compete with such a “business model.”

Moreover, union drivers are unlikely to risk both their careers and union membership (with benefits and pension) to engage in these frauds.

Criminals intent on stealing heating oil will always find ways to subvert antifraud measures on the delivery trucks. The only way to prevent shorting, blending and other schemes is to ensure that only companies adhering to the law are permitted to participate in the industry.

Daniel D. Brownell

Commissioner
Business Integrity Commission

“The dirty secret in your basement” shone a light on corrupt practices in the heating-oil supply industry in New York City. It referenced a recent Manhattan district attorney’s office investigation (conducted with my office and other city agencies) that revealed large-scale fraud committed by several unscrupulous heating-oil delivery companies that were “shorting” their customers—charging for more oil than they actually delivered. This is not new. In the past 30 years, other prosecutors have brought similar cases, but the fraud persists.

The article centered on a more insidious scheme, known as “blending.” To cut costs, corrupt heating-oil delivery companies illegally blend unrefurbished waste oil into the heating oil prior to delivery. Besides being a fraud on the customers, who receive oil of a lesser quality that damages boilers, blended oil releases harmful metals and other contaminants into the air when burned. This exposes all New Yorkers to the risk of asthma, heart problems and other ailments.

Currently this industry has no licensing structure to hold corrupt companies accountable. The city did take significant actions after the Manhattan D.A. indictments. Agencies issued reports to help consumers protect themselves from fraud, and agencies involved in the industry enhanced and improved their measures. But as a Jan. 16 Crain’s editorial pointed out, regulators need a better, more comprehensive plan.

That plan exists: Intro No. 1268, a bill sponsored by City Councilman Antonio Reynoso, would require heating-oil supply companies operating in the city to obtain a license issued by the Business Integrity Commission. Before granting a license, BIC would conduct a comprehensive background check on the applicant to ensure that corrupt companies and individuals are kept out of the industry. This regulatory model is a proven success: In the past 20 years, BIC has used a similar licensing structure to eliminate systemic corruption in the commercial refuse collection industry. Importantly, BIC’s application process also would establish a database of the participants in the heating-oil supply industry that would be accessible to other city agencies, thus creating a more collaborative oversight structure to protect consumers and the general public.

Intro No. 1268 also would help the many reputable companies in the industry by barring competitors that engage in fraud. Local union members, who comprise approximately half of the total drivers in the industry, also would be strengthened. We understand that the companies indicted in the Manhattan D.A. cases were all nonunion. Their drivers were paid low weekly salaries, supplemented by illegal cash payments based on the amounts of oil they stole from customers. Union companies cannot compete with such a “business model.”

Moreover, union drivers are unlikely to risk both their careers and union membership (with benefits and pension) to engage in these frauds.

Criminals intent on stealing heating oil will always find ways to subvert antifraud measures on the delivery trucks. The only way to prevent shorting, blending and other schemes is to ensure that only companies adhering to the law are permitted to participate in the industry.

Daniel D. Brownell

Commissioner
Business Integrity Commission

A version of this article appears in the February 6, 2017, print issue of Crain's New York Business.

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