Can Scam: States Losing Millions on Deposit Laws

Some Lawmakers Clamping Down

"Seinfeld" characters Kramer and Newman once tried driving a mail truck full of empty cans and bottles to Michigan to profit from the state's dime deposit law.

But illegal returns are a real-life phenomenon and are no laughing matter in 11 states that encourage recycling by adding a refundable deposit to beer, soft drink and other beverage containers.

Michigan would have at least $10 million a year more for environmental cleanup if not for people redeeming containers that were bought in other states. California could be spending more on recycling programs and a conservation corps for at-risk young adults.

"Smugglers are bleeding our taxpayers one can and one bottle at a time," said Michigan Rep. Steven Bieda, who's sponsoring state legislation to clamp down on illegal returns.

Michigan is the only state with a dime deposit on all carbonated beverage containers -- other states have a nickel deposit on most cans -- so people buy drinks in Indiana, Ohio and Wisconsin and redeem the containers in Michigan.

"It's like a rebate, $2.40 a case for pop and beer," said Jim Wanty, president of O & W Inc., a beer distributorship in four Michigan counties near the Ohio state line. O & W lost about $65,000 last year from picking up more returned containers from stores than it had delivered.

In some cases, smuggling rings have collected and crushed millions of cans in Ohio, selling them to several stores in southeast Michigan. When buyers don't return the bottles to get their deposits back, states or distributors get to keep the money, and store owners pocketed more than $1.5 million by redeeming cans for which no deposit had ever been paid. Law enforcement broke up the rings last year, and a trial for 12 defendants is scheduled to start Monday.

Wanty said fraud has increased since stores installed machines to handle bottle returns. Grocery workers used to accept cans in person, which he said made customers more reluctant to claim a deposit return on an out-of-state container.

"It was eyeball to eyeball, now it's eyeball to a machine," Wanty said.

However, Michigan may be on the cusp of a solution.

Makers of the machines are working on technology to reject out-of-state cans. Under bipartisan bills pending in the Legislature, each can and bottle sold in the state would have to be marked with a special dot, symbol or other code. Reverse vending machines would then be retrofitted to scan and recognize the dot to ensure that non-Michigan containers get no refund.

Stores also could limit customers to $5 a day in bottle refunds or $25 per day if the retailer has return machines. Fines and jail time would increase.

"If you don't mark them, it seems like you're always going to have one arm tied behind your back," said James Clift, policy director for the Michigan Environmental Council.

In California, at least a dozen defendants have been sentenced in recent years for bilking the beverage container recycling program out of more than $11 million. Big-time fraud involved people driving into the state with flatbed trucks full of crushed and baled cans.

"You only know about the ones you catch," said Mark Oldfield, spokesman for the California Department of Conservation.

Distributors and bottlers in Iowa, Oregon, Maine and elsewhere also have complained about fraudulent out-of-state returns costing them millions.

In Maine, a new company has found success with redemption machines that put people's bottle returns in a debit-card-like account that requires personal information initially.

"People who were coming in from out of state aren't willing to put their name and address down saying what their home address is," said Hal Prince, director of the Division of Quality Assurance and Regulations in the Maine Department of Agriculture. "They try to find other ways to redeem them or they take them back home."

Maine officials also are working undercover in border towns. Offenders can face fines of $100 per illegal container.

Massachusetts studied the issue but found potential solutions "infeasible or prohibitively expensive," said Joe Ferson, spokesman for the Massachusetts Department of Environmental Protection.

Because of regional distribution patterns, cans sold in non-deposit states often have a deposit stamp on the lid anyway. That makes it tough to stop people from intentionally or accidentally placing out-of-state containers in stores' machines. It may not even be illegal to return those cans in some states.

Despite the problems, Michigan's recycling rate for cans and bottles is a successful 97 percent.

Other states that have bottle-return laws also like the results.

"It's not a perfect system. But as far as the intended environmental impact, it seems to be doing pretty well," said Bill Blum, program planner with the Iowa Department of Natural Resources. "Containers get picked up. We recycle more than three times any of our neighboring states."

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