Can Smuggling in the U.S.

The U.S. has a patchwork of deposit laws on soft drink bottles and cans. Most states have no deposit, but some states—Michigan, for example—have deposits. The cans are the same, so you can make ten cents by buying a can in one state and then returning it for the deposit in Michigan.

Ten people have been arrested for making more than $500,000 doing this:

They ran grocery stores such as Save Plus Superstore in Pontiac, The Larosa Market In Sylvan Lake and Value Foods in Ypsilanti, police also raided The Farmer John, Savemart Food Center and the Americana foods, all three in Detroit.

Investigators alleged that millions of non-redeemable out-of-state cans were collected, crushed, packaged in plastic bags and sold at a discount to merchants who then redeemed them.

Bulk redemption payments from the state are based on weight.

Nice arbitrage scam.

Tags: , ,

Posted on September 28, 2007 at 10:15 AM • 81 Comments

Comments

sr • September 28, 2007 10:38 AM

It’s arbitrage, but how exactly is it a scam? Were they adding lead to the crushed cans to inflate the weight?

Chris • September 28, 2007 10:46 AM

I don’t understand either. If the state of Michigan doesn’t want this happening, they can reduce the amount of the deposit.

nzruss • September 28, 2007 10:52 AM

OMG people are haxing the recycle incentive program by…. um, recycling!?!

Isn’t that the aim of the program? If the cans are worth 5c, then they’re doing the entire COUNTRY a favor!!

Andy • September 28, 2007 10:54 AM

Customers pay 10c extra when buying those cans and get them back when they return the can. The state wants only cans which are bought in MI to be redeemed. There’s 10c surcharge for every sold can and returned ones are then refunded. The surplus is used to clean up the ones that are dumped outside. This all fails if the neighboring states don’t follow suit.

Anonymous • September 28, 2007 10:56 AM

same feelings here. Is it Michigan’s belief that is criminal to recycle any can, not just those bearing MI recycle fee notices?

Maybe they need RFI tech within each can to determine where they were originated. And are all cans sold in Michigan manufactured only in Michigan?

Maybe they are paying far to much to recycle.

Austin • September 28, 2007 11:15 AM

Some of the larger stores (at least in south-western Michigan) have scanners that read the UPC on the cans and reject out of state cans.

They still let you recycle out of state cans, but they go into a separate bin and you don’t get 10 cents.

The problem is that the smaller stores can’t afford the scanners, or extra staff to inspect every can. To limit potential abuse, most of the smaller stores put a limit to the number of cans you can return at once, usually around 50 cans.

However, this article is about the stores returning cans to the recycling plants in bulk. My guess is that they found they could get away with it when a certain employee was on duty at the recycling plant…but then auditing caught up with them.

Bruce Schneier • September 28, 2007 11:19 AM

“It’s arbitrage, but how exactly is it a scam? Were they adding lead to the crushed cans to inflate the weight?”

The scam was redeeming cans for a deposit, when no deposit was paid on those cans.

It is — for obvious reasons — illegal to do this.

Alexandre Carmel-Veilleux • September 28, 2007 11:21 AM

It’s fraud because in Michigan, people pay that extra 10 cents, merchants then give that money to the state. When customers return cans, merchants refund them the dime and then send the cans to the state to have them refunded.

These guys sent out of state cans to MI, redeemed them and then kept the money. In essence, they got the MI customers to give them money with the state subsidizing any shortfall. Fraud is after all a “deception deliberately practiced in order to secure unfair or unlawful gain.”

anonymous • September 28, 2007 11:21 AM

Maine has a law with a rather stiff fine if you get caught at it – not sure if there is time attached.

Wee bit of a problem for vacationers who bring their own groceries to vacationland!

derf • September 28, 2007 11:22 AM

Unfair, stupid taxes make for interesting “opportunities”.

Michigan’s government makes money for each can not redeemed. These people were stealing money from the greedy little politicians.

Similiar “black market” thefts of greedy politicians’ dollars are happening with cigarettes. Buy a vanload of ~300 cartons in Virginia ($0.30 per pack tax) and drive them to NYC ($3 per pack tax) and make $8100 a load for your 5 hours drive time.
http://www.taxfoundation.org/blog/show/22632.html

Chaz • September 28, 2007 11:30 AM

As a life long Michigan resident, I’m used to paying an extra 10¢ for every container. I get that money back only if I return the container. We can pay our kids in cans, donate them to good causes, etc. It’s very rare to see a can on the side of the road, and that’s a good thing because we have a fair amount of tourism here.

The Michigan economy is struggling, and our state government is bankrupt. Jobs are moving elsewhere and people are desperate.

Getting a refund on containers for which no deposit was paid is stealing, plain and simple. The thought that people are taking millions this way worries me greatly.

That doesn’t excuse the people who built a system with loopholes in it, of course.

xrey • September 28, 2007 11:36 AM

I am shocked that this is illegal. Would they imprison an individual who picked up a can of coke in Illinois on a road trip and then threw it in the recycle bin when they got home to Michigan?

Don’t approximately as many people carry cans out of Michigan than in? Shouldn’t they get credit when they recycle back home?

When recycling the cans, does everyone have to swear an oath and sign a document that all their cans came from Michigan?

xrey • September 28, 2007 11:48 AM

@Chaz: I appreciate that Michigan is bankrupt, but is this prosecution cost effective?

How much did “Operation Can Scam” cost? How much are the court costs for the suspects? How much will Michigan pay to keep 15 people in prison for potentially 20 years each?

All of this certainly adds up to more than $1 million!

Michael • September 28, 2007 11:48 AM

If Michigan wants to prevent out of state cans being brought in, they should make sure out of state cans don’t have the notice printed on them.

Sorry, but if the can says “MI – 10 cents” on it, it should be redeemable for 10 cents, regardless of where it was sold. Truth in advertising.

Chaz • September 28, 2007 11:49 AM

@derf: “…stealing money from the greedy little politicians.”

Not quite–a deposit feels different than a tax, to me. I realize the money may go to the same place.

@anonymous: “Maine has a law…. bit of a problem for vacationers who bring their own groceries….”

That’s not a problem in Michigan. There are scanners that check the bar code on each can to see if it’s valid, and they just don’t pay for the ones that aren’t.

Rich • September 28, 2007 11:49 AM

@xrey
The cans are marked as 10c MI refund. You take it to a grocery store and trade the can for 10c. For individual cans the customer knows if this is fraud.

This is not “recycling” it is “returning” for cash — a different concept. When I get out of state cans I put them in recycling; I don’t take them to the store to try and get 10c.

Rich • September 28, 2007 11:54 AM

@michael
The issue for this case is not the individual return of cans which can be checked, but the stores’ bulk returns to the state.

It is a classic trust boundary issue. Here the stores are trusted to check the cans and only redeem correct cans to the state. The stores being closer to the consumer can check each can, but the state dealing in bulk cannot. In this case, that trust was violated.

Chaz • September 28, 2007 11:56 AM

@Michael: “if the can says “MI – 10 cents” on it, it should be redeemable”

It is.

My understanding is that the scam was perpetrated after that point, using cans that did not have that marking. The cans had been crushed so that fact wasn’t apparent.

beads • September 28, 2007 11:57 AM

@xrey;

Its not that Michigan is against recycling in any way its the fraud of using cans without any deposit from other states. This requires complicity or shameless stupidity from an insider as well. If you want to recycle a can from another state your certainly free to do so, just stop by any of the numerous Michigan Highway rest stops and toss it into a recycling bin. Thats one thing Michigan does better than any other state I have traveled – rest stops about every 30 miles.

In order to complete this scam you need cans and bottles from a state that has no deposit law. Take these cans and bottles to a state like Michigan, pass them off as legitimate and recover MONEY that was paid for in the form a deposit by someone else. Hence that nasty legal term – Fraud. Plain and simple.

Back when Michigan passed this law in the mid 1970s it wasn’t uncommon to see hundreds of cans and bottles on the sides of highways. Now, its a rarity. Its a good law that has worked very well over the years and after the initial shock has become no big deal. I only wish all states had similar laws to encourage this kind of recycling.

John Ridley • September 28, 2007 12:05 PM

The point is that Michigan is paying not just to get the cans recycled, but to reduce litter. They’re not paying for the aluminum, they’re just redeeming the funds that were paid to them in the first place when the cans were purchased.

beads has it right. I was a kid when the law was enacted. The previous year my 4H club did a highway cleanup. We cleaned ONE MILE of road and we filled a dozen pickups with caps completely with empty cans, and the same stretch had been cleaned the year before.

The year after, there was still garbage but you could put all the cans from a mile of road in one plastic garbage bag.

The amount of money the state has saved on cleanup alone is huge.

Nomen Publicus • September 28, 2007 12:09 PM

The brain cells tingle…

To make odles of money all one needs to do is bribe someone who collects the recycled cans to dump a truckload somewhere and one can put them through the system again, and again, and again…

It’s not as if the security involved in protecting recycled cans is going to be stellar.

Joe Patterson • September 28, 2007 12:12 PM

@xrey:
recycling isn’t illegal, and is probably even encouraged. There would have been no problem if they had been selling the cans for their value as scrap aluminum. What they were doing was claiming a deposit they didn’t make, which makes the life cycle of recycling more expensive.

also, the cost of “Operation Can Scam” is important, but shouldn’t be compared against how much those 15 people defraded the state by. It should be compared to how much fraud would be perpetrated if there were no enforcement. That’s a lot harder to quantify, but a large part of the purpose of law enforcement is as a deterrent.

xrey • September 28, 2007 12:19 PM

I stand corrected in mixing up recycling vs. redemption.

However, I stand by my comments about how the prosecution is not cost effective for “criminals” who made $1/2 million.

The estimated loss of $13 million every year is because it is a system begging to be abused.

Technically, the fraud was not perpetrated against the State, because they were “sold at a discount to merchants who then redeemed them.” The middle-man merchants (who I assume were not part of the scam) took a calculated risk in accepting bulk purchases. That’s why they gave a discount.

As implied in earlier comments, the real problem is that this is not really a “deposit”. It is a tax for reducing litter and encouraging recycling, and should be referred to as such.

If Michigan wants to make it cost effective, then reduce the “deposit” to something more on par with the true value of recycled aluminum (not much) and then pay that amount for cans.

It sounds like all of you in Michigan used to be real litterbugs 😉

Anonymous • September 28, 2007 12:23 PM

@Joe Patterson: Yes, crime should be discouraged, but the cost of prosecution and imprisonment must be proportional to the crime.

Do they put someone in prison for 20 years for stealing a loaf of bread like in “Les Misérables”?

Blaise Pascal • September 28, 2007 12:24 PM

I’m confused about what exactly the scam was…

I live in NY, a state with a 5 cent bottle return law. The bottle in front of me claims I can return it for a 5 cent refund in CT, IA, ME, MA, NY, OR, VE, or DE, and for 10 cents in MI. It is also labeled as having a “CA CASH REFUND”. When I have bought identical beverages in states without a bottle return law (like PA or VA) they haven’t been so labeled. When I have accidentally tried to return Virginian cans in New York, they are rejected.

Is the scam here taking New York cans, in bulk, and shipping them to Michigan, so they are cashing in cans labeled “MI 10 cents”? Or is the scam here taking Minnesotan cans, with no refund label, and cashing them in?

My feeling has long been that there isn’t really an arbitrage situation because the transaction costs of getting properly-labeled cans from a 5-cent state to Michigan overwhelms the 5-cent refund difference. Iowa is the only state on these bottles that’s even remotely close. And there’s no profit in shifting cans from Connecticut to Massachussetts.

Harry • September 28, 2007 12:47 PM

The law, as I understand it, is that you can only redeem cans on which a deposit was paid. So returning a Minnesotan can, which does not have a deposit, is illegal, and this is the essence of the scam. The fact that the entire law isn’t printed on the can doesn’t really matter: one, it’s common sense and two, ignorance of the law is no excuse.

@ Blaise: Cans I buy in my non-deposit state all have the deposit labeling. Cans I buy in Virginia and Pennsylvania also have deposit info, so it seems labeling varies.

@ Blaise: out of curiosity, did the VA cans you tried to return have deposit info on them? Were they rejected by a machine or a person?

xrey • September 28, 2007 12:48 PM

Just to clarify my earlier remarks, I didn’t think that Michigan was criminalizing recycling, but it seemed that Michigan was criminalizing what could be an honest mistake for an individual can.

For example, you throw all your cans into a bin, and take them to be redeemed at the end of the week. You may have accidentally thrown in an out-of-state can.

By accepting the cans on behalf of Michican, the store cashiers have taken on a responsibility, but without any of the benefits. If someone tries to pass off an out-of-state can, does the employee have the right to arrest them?

Instead, they will just assume it was an honest mistake. But what if I really was trying to pass off an out-of-state can? Nobody is going to arrest me. Yet if you do it on a large scale, you can get 20 years.

John • September 28, 2007 1:42 PM

It seems we have a lot of non-Michiganders who don’t really understand the problem.

Soda cans are barcoded by state. Michgan cans have a special code (e.g. Coke-12oz-10c) so you know 10c is to be paid and then refunded. Non-Michigan cans have a different code (e.g. Coke-12oz-0c).

When you go to the supermarket to return the can, the clerk scans it. If it’s a non-Michigan can, it’ll come up as something different.

You can return the non-Michigan can for recycling (who brings back used soda cans?), but you don’t get your deposit returned because no deposit was paid.

So at most store-based recycling centers, these “worthless” non-Michigan cans can start to accumulate in quantity. After all, they collect a lot of cans each day.

So what happened? People at the stores took big piles of non-Michigan cans, crushed them (to hide the barcode), and then collected deposits that were never paid.

That is clearly fraud, and good on the state for cracking down.

As far as the honest mistakes go, it’s relatively difficult to get this to work without collusion. The small shopclerks who don’t have scanners are rare, and they do read the cans.

Note also that only cans (not bottles) are being used, because (unlike glass bottles) cans can be crushed to very effectively hide the barcode.

matt a • September 28, 2007 1:51 PM

If the cans didn’t have the MI-deposit on them, then its fraud as you are misrepresenting the transaction. If it does say MI-deposit, there shouldn’t be a crime. What would be the difference if these people went to the local MI land fill and collected the cans that way. They still didn’t pay the deposit but it shouldn’t be held against them. As a kid I remember being delighted in finding a coke bottle or 2 by the side of the road that I could return for the deposit.

I'm horrible, aren't I? • September 28, 2007 1:55 PM

Jailbird 1: What are you in for?

Jailbird 2: Smuggling Cans.

Jailbird 1: Say what? Since when is that a crime? What kind of cans?

Jailbird 2: Any kind, really. Costa Ricans, Africans, Americans, Sri Lankans,…

Lydia • September 28, 2007 1:59 PM

Sounds like a nationwide can deposit would be the solution to this problem. You might still have the problem of a person buying a can in one state and redeeming the deposit in another, but there would be no incentive for it.

And given that congress can use the commerce clause to govern what a guy grows on his own farm for his own consumption, I’m sure the feds have the authority to do it.

Heywood Jablome, PA LCB • September 28, 2007 2:01 PM

I practice similar arbitrage between Pennsylvania and Delaware. As opposed to curbside recycling in PA I store my bottles/cans and return them to DE. Liquor, wine & beer is significantly cheaper in DE because it is taxed less and is not subject to the archaic PA LCB system. I benefit by lower prices and reaping the unpaid deposit. Sure, it’s illegal to traffic liquor across state lines but anyone with hald a brain can pull it off without a hitch.

It also encourages me to host celebrations – “sure, leave your cans and bottles behind, I’ll take care of them!” (cha-ching!)

“Delaware, the home of tax-free shopping!”

Dale • September 28, 2007 2:07 PM

I can tell you for a fact that some cans sold in IL have the MI deposit marking and are, in fact, indistinguishable from cans in MI.

Either the bottlers (canners?) are doing double duty for MI & IL, and making the assumption that mis-redemption will be small.

Or, too many cans are made, and they are shipping them to non-deposit states to sell before the soda/pop gets too old and looses flavor.

Either way, it appears they are betting they don’t need better can-deposit security.

Anonymous • September 28, 2007 2:24 PM

@Blaise Pascal, the bottle in front of you is marked to indicate that the deposit is 5 cents in CT, IA, ME, MA, etc and 10 cents in MI, but those states impose restrictions that it is illegal to claim the deposit refund for containers purchased outside the state. So what the bottle claims is that if you are eligible for a deposit refund, those are the states and amounts you should receive.

The real problem is that some (but not all!) manufacturers produce and sell product labeled for state refunds outside the states for which they are labeled.

The solution is that states should collect the deposit from the manufacturer, not the retailer, and for all containers produced with markings showing the state deposit amount.

Problem is that would be politically unacceptable because it would impose expense on the manufacturers, and would be cumbersome (but not impossible!) to enforce.

Jim Lippard • September 28, 2007 2:29 PM

Where in the U.S., with or without a deposit program like this, do you see aluminum cans lying by the side of the road? The price of aluminum from recyclers is sufficient motivation for recycling. It’s not nearly as profitable as copper, which is causing copper theft to run rampant, but it’s enough to cause homeless people to dig through other people’s garbage to pull out cans.

Harry • September 28, 2007 2:46 PM

We’re all assuming that the deposit marking means you get 10c back for returning it. The can doesn’t say that.

I have a can in front of me and it says “MI-10c.” (I’m not in MI.) Nothing more.

It doesn’t say I get 10c back for returning the can. It could just as easily mean I have to pay MI 10c extra to buy this can whether or not I’m buying in MI. I expect everyone would have a different view of the matter if this were the case.

There’s nothing about the deposit system that stops you from recycling out-of-state cans in a deposit state. There’s nothing that stops you from collecting cans and selling them to aluminum collectors. There’s nothing that stops you from collecting in-state cans and redeeming the deposit. All the system does is try to stop you from getting a refund for something you never put a deposit on.

Still seems like common sense to me.

a random John • September 28, 2007 3:49 PM

Star Market stores in Boston have scanners that reject cans and bottles not purchased (or perhaps simply not available) at that store. So if you frequent both say, Trader Joe’s and Star Market you have to separate your returnables according to what store you purchased them at. This ads enough hassle to the process that I just put the stuff in the curbside recycling bin. Then homeless people would go through the bin at night and steal the cans and bottles.

I think having a consistent program in all 50 states would go a long ways towards making sure that any bottle or can could be returned at any location that accepts returns.

Roxanne • September 28, 2007 4:26 PM

You really have to wonder how many other chain stores are doing similar things. We feed our cans into machines that read the barcodes (and will reject cans from brands not sold by that store) but this was being done at the store level, rather than the consumer level.

I am both amazed at the inventiveness, and appalled as a Michigan resident. Still, I don’t think this is what caused the current budget crisis.

Adrian • September 28, 2007 5:01 PM

California also has a redemption value on cans (and some other containers). Unfortunately, the redemption centers are few and far between, and they have limited hours of operation.

As a homeowner, my city requires by law that I pay for a weekly trash service. The minimum service includes curbside recycling. Thus, for convenience, most people in my area forgo the redemption value, and use the curbside service which they are already paying for.

The service is subsidized by the collection company which can then claim the redemption value.

In practice, however, scavangers pick all of the redeemable containers out of the bins before the truck arrives. So I’ve paid twice to recycle my cans, and my collection company wants to increase rates for driving nearly empty trucks around collecting far fewer redeemables than they anticipated.

These strategies are generally successful at encouraging recycling, but the combination is inefficient.

xrey • September 28, 2007 5:15 PM

So, if the state of Michigan has to bribe its residents not to litter, does everyone from Michigan litter when they are on vacation in another state?

John Henry • September 28, 2007 5:54 PM

I find it hard to believe that cans are marked with deposits of various states but that the barcode can distinguish MI cans.

If the canner were going to the trouble to print MI specific barcodes, they would also print MI specific deposit info.

UPC barcodes, the ones they scan at checkout, consist of 2 numbers. The first is the manufacturer. Coca-Cola gets assigned one number (maybe 2-3 because of their size) and all products manufactured by the Coca-Cola Company will have the same number (or numbers)

This is assigned by an organization called the Uniform Code Council.

the second half of the number is assigned to a specific product by Coca-Cola. Perhaps Coca-Cola Classic in .33 liter can.

It is easy enough to tell if the barcode is state specific. All we need is 4-5 people from different states to post the barcode number for .33l cans of Coke Classic.

I make my living helping companies, including bottlers, change packaging lines from one product to another. I’ve never heard of a barcode that identified a state.

It would add one more layer of complexity, probably costing hundreds of thousand$ or even million$ per year. I can’t imagine it happening.

I could be wrong and may learn something from this experiment.

John Henry
Changeover.com

Billy Bob • September 28, 2007 5:58 PM

When I was living in Massachusetts, I used to buy my beer in New Hampshire, both to avoid the deposit and because it was cheaper anyway. But I was always careful to stack my cases of empties neatly next to the building dumpster for the local bumbs to pick up. It was a combination of sympathy for the bumbs and contempt for Taxachusetts.

John • September 28, 2007 8:55 PM

Did anybody click on the news item URL?

Jailbird 1: What are you in for?

Jailbird 2: Smuggling cans. My name is
Waleed Kada.

Jailbird 1: What are you in for?

Jailbird 3: Smuggling cans. My name is Aziz Miha Aboona.

Jailbird 1: What are you in for?

Jailbird 4: Smuggling cans. My name is Saad Choulagh.

Jailbird 1: What are you in for?

Jailbird 5: Smuggling cans. My name is Essam Sattam.

Jailbird 1: What are you in for?

Jailbird 6: Smuggling cans. My name is Adnan Elias Kada.

Jailbird 1: What are you in for?

Jailbird 7: Smuggling cans. My name is Romel Kejbou.

Jailbird 1: What are you in for?

Jailbird 8: Smuggling cans. My name is Eddi Aboona.

Jailbird 1: What are you in for?

Jailbird 9: Smuggling cans. My name is Marlow Sattam.

(there are two other names that don’t appear middle eastern.)

It looks like a crackdown on certain store owners. And just when they were learning Western capitalism too.

Jonadab the Unsightly One • September 28, 2007 11:06 PM

I agree that cans that have the refund notice printed on them should be redeemable, irrespective of where they were purchased, but in fact most of our cans here (about three hours south of the MI border) don’t have it printed on them, so I doubt if that’s really the issue.

On the one hand, the state of MI is certainly within its rights to pursue criminal charges against people who conspire to turn in enormous quantities of non-deposit bulk aluminum, misrepresenting the source, thereby collecting significant amounts of deposit money illegitimately. They’re defrauding the state, which of course is illegal.

On the other hand, just because the state within their rights to do so doesn’t mean it’s the best possible course of action. Having lived in Barry County, Michigan for three years during the late eighties, I can say with confidence that a better solution would be to do away with the deposit altogether. It is totally ineffective for its stated purpose (reducing roadside litter). Ohio’s system (charging a four-figure fine if you get caught littering, and saying so on roadside billboards) works much better. Michigan is much more sparsely populated (I think Barry County has more deer than people), but has much more roadside litter, or at least did have when I lived there. Of course the bulk of it was paper, but we saw plenty of pop cans where they didn’t belong too (and paper litter is just as bad, and you can’t really put a deposit on all paper products). The truth is, ten cents per unit just isn’t a significant motivator for the demographic groups responsible for most roadside litter. If anything, throwing away the stupid ten-cent cans, rather than saving them for redemption, is almost a point of pride with a lot of people.

The deposit system is a poorly thought-out idea, on top of that not very well implemented (as it stands it is a MUCH bigger hassle than traditional recycling-collection programs, due in part to the manner in which it unnecessarily involves every single establishment in the entire state that sells canned beverages, and in part due to the necessity of counting each consumer’s individual cans), and no amount of vigilance in protecting it from fraud will make it effective at reducing roadside litter.

The whole deposit plan should just be scrapped. That would put a sure end to the deposit fraud problem, among other positive effects.

Michael • September 29, 2007 8:13 AM

Whew. So glad we can finally sleep safely in our beds. My God… the havoc these people were wreaking on our way of life. 🙂 I’m glad we’re discussing this in such depth, too, as this has to be one of the most important topics we face today. 🙂

Among other things this is probably a good study in tax money wasted fixing a problem after the fact, through law enforcement, rather than coming up with a system that sufficiently deterred such criminals.

Then again, that is a lot of motivation (500k motivations) to deter… How do you identify / authenticate a can in a way that people standing to earn that kind of money don’t find it worth the money/time to thwart?

I wonder how much it’d cost to create different size/style cans for each refund state?

Don Marti • September 29, 2007 8:24 AM

I grew up in northern Indiana. There were a bunch of liquor stores on both sides of the Indiana/Michigan state line. The ones on the Indiana side are for people from Michigan to buy beer during the week, so they don’t have to pay the extra 10 cents/can. The ones on the Michigan side are for people from Indiana to buy beer on Sunday, since you can’t sell beer on a Sunday in Indiana.

Matthew Skala • September 29, 2007 8:55 AM

This sounds a lot like what happens with intellectual property: there’s a crime that exists only because there’s a law against it. Redeeming out-of-state cans is fraud because the redemption price is more than what the cans are actually worth – if they paid the scrap value of the metal this would be a non-issue, but they don’t do that because of the policy desire to create an incentive for recycling. Similarly, selling copied CDs is theft because it deprives the original-CD sellers of the ability to charge far more than their marginal cost – if they sold original CDs at a price set by the market then it would be a non-issue, but society enforces their monopoly because of the policy desire to create an incentive for original creation.

I don’t necessarily agree with the libertarians who think that free markets are the right answer to everything (or even anything); but I do think that these particular problems are directly caused by not having a free market, and they’re part of the price we pay for not having a free market. We should think about whether the benefits of not having a free market in recyclable cans, or CDs, are worth the cost of creating these kinds of problems.

altjira • September 29, 2007 11:46 AM

Talking about scams: in California, sales tax is assessed on the container deposit at the point of sale. This tax is not refunded when returning the container for its redemption value.

pej • September 29, 2007 5:29 PM

@Michigander – my MN Coke can matches yours exactly. Same UPC, same marking on the top of the can.

UPC
0 496340 6

Under the UPC
1 712 7 2451C

Left of the opening:
CACRV
MI 10c

Under the tab:
V
41A
H

Right of the opening:
CT MA ME NY VT 5c
HI IA OR

Bottom of can:
JUN0208PAD
2A 0945

averros • September 29, 2007 11:36 PM

Of course,. the real criminals in this case are politicos from the Michigan legistlature who conspired to steal 10c from most buyers of canned products under some nonsensical bullshit about recycling, littering or whatever.

What got those store owners is inability to recognize that the government hates competition.

Alan • September 30, 2007 12:31 PM

I did this when I was in college back in the late 70’s. I would go to Minnesota to visit my girlfriend and buy several cases of beverages. Then I would go back to school in Michigan and put a layer of deposit cans on the top. Most stores didn’t even check or if they did, they’d just glance at the top layer.

Had a sense that it wasn’t quite right, but was a broke college student and it helped put a little food on the table for a week or so, until I went back to MN.

I was way ahead of Kramer and Neuman, and really got a chuckle when that Seinfeld came out.

To solve this, all states should implement the deposit law. Yes, Michigan was a trash heap before the law. Had a job cleaning up parking lots at a mall and it was amazing the day that law went into effect. People not only didn’t throw out cans and bottle, but they seemed to hang onto everything else. Often, when we would once find broken/smashed bottles, after the law went into effect, people would set out the six pack of bottles, empty, and neatly sitting in the carrier.

Jagadeesh Venugopal • September 30, 2007 5:19 PM

Another similar arbitrage opportunity — one that won’t get you arrested.

The recent collapse of the US Dollar vis-a-vis the Loonie has created an excellent short term arbitrage opportunity in book sales. Canadian prices on most books are higher than US prices, a holdback from the days when the dollar was much stronger. With the two currencies at parity now, the smart arbitrageur would export books from the USA to Canada, and convert the Canadian dollars so earned back to US dollars at par.

Earl Mardle • September 30, 2007 7:00 PM

Bob Says “Nice arbitrage scam.”

Redundant, all arbitrage is a scam that relies on someone in the chain not getting the true value in the exchange.

Candude • September 30, 2007 9:22 PM

@ a random John
“I think having a consistent program in all 50 states…”

Wouldn’t work. We’d just have illegal alien cans crossing the border from Mexico and being redeemed for half of what American cans fetch. So then we’d have to institute a “guest container” system for cans, as long as it didn’t involve amnesty for cans already in the country illegally. And there’d be concerts to promote passage of this bill, all organized by Canadians (Can-aid-ians).

Mark • October 1, 2007 2:57 AM

@John
So what happened? People at the stores took big piles of non-Michigan cans, crushed them (to hide the barcode), and then collected deposits that were never paid.

In which case they probably shouldn’t have been accepted in the first place. It isn’t exactly rocket science to consider any cans where the barcode is unreadable simply to be “scrap metal”.

supersnail • October 1, 2007 3:02 AM

@Earl: – “all arbitrage is a scam that relies on someone in the chain not getting the true value in the exchange”

Not really, arbitrage is a reward for knowledge of more than one local market. It also promotes efficiency in the two or more local markets the arbitrager works in. e.g. used covertables (as in cars) are worth less in cold states like Illinois than in warm states like California, people used to make a nice living exploiting these local differences but by exploiting them they evened up the prices in both markets so the profits are now marginal.

Free markets are not normaly as efficient as some economic evangalists believe but in this case it relly worked.

greg • October 1, 2007 8:55 AM

In a Christopher Walken Voice:
500,000 dollars…. at 10cents a can…. Thats a lot of cans.

pedantic • October 1, 2007 10:24 AM

@Alan:

So you’re admitting to committing the same fraud for which these guys are facing 20 years. The only difference is the scale.

What’s the statute of limitations on fraud?

Better yet, what is the reward for turning in a dangerous criminal such as yourself?

Mad Prophet • October 1, 2007 1:30 PM

Sooo…..The solution for solving a “tragedy of the commons” scenario is to force retailers to participate in a can redemption program. In addition to the conscripting of the retailers, the program is apparently so fraud-prone that is a moral hazard for both the retailers and the taxpayers of Michigan.

Yes, private property does also get littered. The reason for that is that mere citizen-units are not permitted to use the same methods the government used to obtain compensation.

Rich • October 2, 2007 9:11 AM

There is something that clearly classifies MI cans from other state’s cans…even ones with the MI-10cent punch in the top.

I’ve always assumed it had something to do with the UPC, but it sounds like that is not the case…perhaps it reads the bottler’s ID…I believe that MI has bottlers/distributors for every major product (pepsi/coke/bud/etc) in state…if the machine can tell it came from a MI bottling plant, it could authorize it. I assume the “punch” in the top is a general print for states with recycling, and thus canneries deliver the generic cans to those states with the desired tag. In the case of MI/Ohio…Ohio very specifically doesn’t have the same can for it’s distributors, as the Ohio/MI corridor is heavily traveled.

I haven’t lived in MI my whole life, so it was a shocker when I first moved here…but for most people, the 10 cents is just a cost of life…people either are dedicated recyclers, or they count the deposit as a loss and trash the can (like me)

And from my understanding of the history of this thing…the 10c refund developed not to get people to stop throwing out cans along the highway…but to compensate for state clean up projects and to increase the volunteer numbers for the adopt a highway program.

Before the law, Adopt a highway was a civic pride thing…get your little sign along the road. After the law, it’s a potential fund raising exercise for scout troops, school bands, churches, etc.

So not only does the State get a new tax…but they get organizations jumping at the opportunity to pick up the litter along the MI roads. Especially the heavily traveled metro freeways and blvds.

It’s true you don’t see many bottles/cans along MI highways these days…but you can find just about anything else…adopt a highway is really trolling for money that can be made off the cans…the rest (like fast food paper bags, which are everywhere!) is left to degrade.

Blackmoon • October 2, 2007 9:13 AM

We had similar cases in Germany. Almost all one-way bottles have a deposit of 25 Cent. In most cases the deposit is returned by machines that just check the barcode.
There already were some scams where bottles had been created with the correct barcode printed on to collect the deposit.

hartwell • October 3, 2007 11:23 AM

Seems like a great waste of time. I live in Florida. We used to have a 5 cent deposit on bottles. When I read that the deposit was changing to 10 cents, my brothers and I decided to go door to door buying bottles at 5 cents. Those gathered dust in our garage until a couple weeks after they doubled in value. Then, we started taking them back in dribs and drabs. Easy money. (As an aside, I don’t remember any adult telling us that our scheme was fraudulent.)

Some time later, the Florida legislature canned that program. (Bad pun, sorry.) Shopping is so much easier when you don’t have to redeem containers as you enter the store.

A ten cent deposit on cans is a good way to enable homeless people to live on the streets.

I see the slight advantage of less litter, but it seems like

hartwell • October 3, 2007 11:55 AM

hartwell wrote: I see the slight advantage of less litter, but it seems like

It seems like I should not accidentally click “Post” before I finish a sentence.

Anyhow, I see the whole process as a waste of time. Litter (and injuries to children getting cut by broken glass) have gone down in MI since the deposit went into effect. But attitudes towards litter have also changed. If states dropped these silly programs, litter might increase, but not by as much as you think.

johnzilla • October 15, 2007 11:08 PM

The cans are not the same in different states. The bottle/can return machines in Michigan can easily determine whether a particular can
was sold in Michigan or not. This is done by UPC symbol. If I take a can from Ohio and try to run it through a machine in Michigan, the
can is quickly rejected. Bottles, too.

The scam only worked because a) the perpetrators owned grocery stores that accepted bottle and can returns, and b) once an individual can is returned, it is crushed to make transportation, further processing, and further accounting easier. A grocery store
regularly submits large quantities of crushed aluminum cans to the state for credit. The state assumes that the store collected all of those cans legitimately, and paid 10 cents for each. However, we’re talking about thousands of pounds of scrap: the state determines the credit by weight, not by UPC symbol, since the UPC symbol is no longer visible.

Many reporters made a link between the scam and an episode of Seinfeld, where Kramer and Newman try to return cans and bottles
from New York to Michigan. The Seinfeld scam, while funny, would not have worked because of the UPC symbol issue (NY cans would be rejected by Michigan machines). The reporters were wrong (not unusual). It would have worked if Kramer and Newman had crushed all the cans and submitted them as bulk, but they would have had to have been store owners, not people walking in off the street.

So, to make the scam work, you need to own a store, you need a source of crushed aluminum cans, and the price of scrap aluminum
needs to be less than the price the state of Michigan is offering for the same wieght of crushed cans.

And yes, it is stealing. When a store owner takes the bulk, crushed cans to the state for credit, he/she is representing that they have already paid 10 cents per can to the person redeeming the can. Therefore, the state is reimbursing them. If they haven’t paid out the 10 cents, then getting money from the state is fraud and theft.

Anonymous • March 9, 2008 7:22 PM

You people are so brainwashed, wheres ur inner american rights? You all have turned into little girls, no spine no nothing……worried about what can u have and where it came from, fuck this government so what if u scam them for 10 billion dollars u’ll never get back what they’ve done with ur taxes nieve, ignorant people…have NO clue what our government will do with our money…the city in which i live in has spent 40 Million on making multiples boys and girls clubs (in one area) where as they stand….within half miles of each other neither attracts alot of kids….the first one didn’t but i guess its fair that our money get put into boys and girls clubs……around welfared communities? Really fair to me…..it makes me sick when I see people spending 1000’s of dollars on groceries and sliding there WIC card and getting it all free and bragging about how they don’t have to work…..SICKENING people need to WORK and the state needs to DENY people welfare they WOULD work if they realized they won’t survive by begging anymore….why am i writing this, this world is so fucked up….i wont raise one eye brow, at least not one that will speak up

Anonymous • March 9, 2008 7:22 PM

You people are so brainwashed, wheres ur inner american rights? You all have turned into little girls, no spine no nothing……worried about what can u have and where it came from, fuck this government so what if u scam them for 10 billion dollars u’ll never get back what they’ve done with ur taxes nieve, ignorant people…have NO clue what our government will do with our money…the city in which i live in has spent 40 Million on making multiples boys and girls clubs (in one area) where as they stand….within half miles of each other neither attracts alot of kids….the first one didn’t but i guess its fair that our money get put into boys and girls clubs……around welfared communities? Really fair to me…..it makes me sick when I see people spending 1000’s of dollars on groceries and sliding there WIC card and getting it all free and bragging about how they don’t have to work…..SICKENING people need to WORK and the state needs to DENY people welfare they WOULD work if they realized they won’t survive by begging anymore….why am i writing this, this world is so fucked up….i wont raise one eye brow, at least not one that will speak up

Anonymous • October 11, 2008 2:01 AM

You all are getting ripped off in Michigan. You Pay 10 cents per can for a deposit and if you return it you get your 10 cents back. How much is the State of Michigan making from the recycled cans you pretty much gave them?

I live in Illinois, and I do recycle my cans, but I get 75 cents a pound and I don’t pay a deposit

danny • November 19, 2008 2:41 PM

I live in Indiana, I have some family in Michigan, and go to quite a few college football games, while in Mi. I purchase beverages, and also collect cans here in In. I crush all my cans, so they take up less space, so some are from In. and some are from Mi. if all are crushed and I go and try to return them how can they tell which are which? Someone help and at least let me know if I should even worry about returning any of them. Thank You.

Cheers • January 26, 2009 3:14 PM

I buy Schlitz beer at a grocery store in NYC. The cans are marked, “All Aluminum” and “Please Recycle.” I pay a deposit but cannot get a return deposit. Is this legal?

From Oregon • October 29, 2014 6:17 AM

I live in Oregon and we have machines / 5cent deposits. UPC is always the same in each series. for many years in a row a coke product will use the same bar code. The machines read the bar-codes and compare them to a list of ones with a tax paid. its easy to see how the same coke can could have been returned in any of the states engraved on the top of the can. my coke can will work not only in the 10cent states but anywhere the tax is paid. the idea of a can labeled for one state by coke is laughable to say the least.. the only reason some don’t work when said container is labeled and tax paid is because its not in the list like its supposed to be. even more proof that companies would not pay for special labeling, they go as cheap as they possible.

Dave • May 7, 2018 10:14 AM

Technically, the fraud was not perpetrated against the State, because they were “sold at a discount to merchants who then redeemed them.” The middle-man merchants (who I assume were not part of the scam) took a calculated risk in accepting bulk purchases. That’s why they gave a discount.

Leave a comment

Login

Allowed HTML <a href="URL"> • <em> <cite> <i> • <strong> <b> • <sub> <sup> • <ul> <ol> <li> • <blockquote> <pre> Markdown Extra syntax via https://michelf.ca/projects/php-markdown/extra/

Sidebar photo of Bruce Schneier by Joe MacInnis.