The Federal Motor Carrier Safety Administration plan to “clean-up the bad actors”and fraudsters who commit freight fraud in trucking by overhauling its registration system is a “significant” step towards modernizing and securing industry but has serious flaws, according to comments made to Regulations.gov’s docket.
The FMCSA Registration System, or FRS, will replace a number forms used by motor carriers, as well as others in the transportation sector, such the MCS 150, BOC-3 and OP-1.
Ken Riddle, Director of the Office of Registration and Safety Information, FMCSA, described the system as a system that would integrate identification and business verification into the FRS and prevent registrants from proceeding until they have proven their identity and their business is registered with either the IRS or state.
The FMCSA hopes that the FRS will be a huge undertaking by the end 2025.
[ Related to: Does FMCSA’s registration overhaul have a problem with sole proprietorships?]
Only four comments on the Regulations.gov docket were submitted in the two-month period that the comment period was open. (It closed June 18) Yet, each of them raised important issues with the proposed system.
Hank Seaton, an attorney, and Mark Andrews, a member of a coalition of transportation and logistics organizations and security organizations, commended FMCSA for “recognizing that a closer examination of registration applications is needed to prevent supply-chain fraud ranging from stolen loads to identity theft.” Seaton and Andrews pointed out that the FRS’s online questionnaire was “not nearly enough” unless it was backed up with hands-on vetting of applicants and verification before operating authority is given.
They argued that the FRS alone was “an incomplete and piecemeal way of addressing the need to investigate the authenticity and safety fit of applications for registration.”
Seaton and Andrews take issue with FMCSA’s legal basis in its approach to the registration overhaul. They argue that the agency has engaged in proposal rulemaking, and not just a “information collection” initiative, with their Federal Register publications and solicitation for feedback. The attorneys also questioned FMCSA’s hesitation to “penalize perpetrators” of registration fraud, stating that the agency has the power and had previously hit “reincarnated carriers” with thousands in fines.
The FMCSA told Overdrivethat it does not pursue perjury cases against carriers and brokers who have lied on their applications. This is despite the fact that the OP-1 form threatened perjury charges, up to $10,000 fines, and a year of jail time for those found to be lying.
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Seaton and Andrews called on FMCSA to delay its current move towards the FRS, and re-initiate the procedure as a proper notice of rulemaking. They also urged the agency to address the lack of penalties and prosecutions for fraudulent actors. They cited pending bills that would create a Task Force on Supply Chain Fraud if the House of Representatives’ version of the Department of Homeland Security Appropriations Bill becomes law. (A similar standalone bill to that effect has also been recently introduced in the House). The attorneys argued that FMCSA should wait for the legislation to pass before making any major moves. They called for an “Whole of Government’s” approach to combat freight fraud and asked FMCSA to work alongside other federal agencies to “force multiply.”
Seaton and Andrews cited the “Corporate Transparency Act” (31 USC5336) as an example. This law requires that most U.S. businesses in all sectors of the economy report their corporate affiliations with the Treasury Department’s Financial Crimes Enforcement Network. As FinCEN’s database grows, FMCSA and Treasury can work together to prevent scofflaws from registering new affiliates to act as “chameleon” operators.
[ Related to: Financial Crimes Enforcement Network’s new reporting requirements hits owner-operators and small fleets]
The American Trucking Associations published a comment that echoed Seaton and Andrews’ points. They also commended the agency for “its efforts to address the mounting fraud in the industry by its proposed transition to the new FMCSA Registration system.” ATA made a number of other recommendations.
The regulatory burden for existing carriers, brokers, and other entities was kept low. ID verification requirements were also increased and multi-factor authentication was required for all accounts.
ATA cited anecdotes of its members to illustrate how FMCSA could improve the quality of its data and block bad actors. “For example, many carriers register at a common address in an apartment complex, strip mall or shopping center, using a similar email address,” ATA stated. “FMCSA should implement rigorous processes for data validation at the point-of-entry to minimize errors and inconsistent data.”
ATA asked FMCSA to verify “email addresses and physical mailing address used during the registration process, and match a carrier’s fleet size reported to its number drivers” before granting permission. ATA stated that FMCSA could cross-reference carrier data between its various platforms and database (i.e. FMCSA Licensing & Insurance databases, Safer databases, URS databases, and Registered Mover databases) and audit it. Riddle noted this was something the agency had on their radar for the overhaul.
ATA and Seaton and Andrews, the alliance represented by Seaton & Andrews, agree that the FRS will not stop fraud unless the agency adopts a holistic approach. It only takes one bad apple within a brokerage or fleet to create fraud opportunities.
“FMCSA should also devote resources to better understand and identify sources of fraud, the prevalence of these practices, and the extent that fraudulent practices are perpetrated by individuals within legitimate organizations,” ATA stated. This includes “brokers, freight-forwarders, third parties and intermediaries” who are involved in the application.
Other comments also pointed out shortcomings with FRS. concerns were raised by a property management company about sole proprietorships that are not always registered with the Secretary of State.
One commenter emphasized the urgency of the fraud problem, especially when it came to cargo theft by misdirection or other schemes. CargoNet reported a 46 percent rise in the first three months of 2024 compared to the same period last year. This equates to an estimated $154.6 millions in stolen goods.
The commenter said, “The problem isn’t a website, it’s enforcing laws. There are already laws in place to stop bad actors if someone would enforce them!” Is this going to stop brokers taking 70% and double brokering four times? Or is it going to stop fake trucking firms operating and scamming all?
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