Financial Crime

… from the desk of the CEO
David Fisher

Financial crime over the last 30 years has increasingly become of concern to governments throughout the world. This concern arises from a variety of issues because the impact of financial crime varies in different contexts. It is today widely recognized that the prevalence of economically motivated crime in many societies is a substantial threat to the development of economies and their stability.

It is possible to divide financial crime into two essentially different, although closely related, types of conduct.

First, there are those activities that dishonestly generate wealth for those engaged in the conduct in question. For example, the exploitation of insider information or the acquisition of another person’s property by deceit will invariably be done with the intention of securing a material benefit. Alternatively, a person may engage in deceit to secure material benefit for another.

Second, there are also financial crimes that do not involve the dishonest taking of a benefit, but that protect a benefit that has already been obtained or to facilitate the taking of such benefit. An example of such conduct is where someone attempts to launder criminal proceeds of another offense in order to place the proceeds beyond the reach of the law.

There are essentially seven groups of people who commit the various types of financial crime:

– Organized criminals, including terrorist groups, are increasingly perpetrating large-scale frauds to fund their operations.
– Corrupt heads of state may use their position and powers to loot the coffers of their (often impoverished) countries.
– Business leaders or senior executives manipulate or misreport financial data in order to misrepresent a company’s true financial position.
– Employees from the most senior to the most junior steal company funds and other assets.
– From outside the company, fraud can be perpetrated by a customer, supplier, contractor or by a person with no connection to the organization.
– Increasingly, the external fraudster is colluding with an employee to achieve bigger and better results more easily.
– Finally, the successful individual criminal, serial or opportunist fraudsters in possession of their proceeds are a further group of people who have committed financial crime.

Financial crime is commonly considered as covering the following offenses:

– fraud
– electronic crime
– money laundering
– terrorist financing
– bribery and corruption
– market abuse and insider dealing
– information security

Financial crimes are crimes against property, involving the unlawful conversion of the ownership of property (belonging to one person) to one’s own personal use and benefit. Financial crimes may involve fraud (check fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud (including insider trading), bank fraud, insurance fraud, market manipulation, payment (point of sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery; embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the production of counterfeit money and consumer goods.

Financial crimes may involve additional criminal acts, such as computer crime, elder abuse, burglary, armed robbery, and even violent crime such as robbery or murder. Financial crimes may be carried out by individuals, corporations, or by organized crime groups. Victims may include individuals, corporations, governments, and entire economies.

For most countries, money laundering and terrorist financing raise significant issues with regard to prevention, detection and prosecution.

Sophisticated techniques used to launder money and finance terrorism add to the complexity of these issues. Such sophisticated techniques may involve different types of financial institutions; multiple financial transactions; the use of intermediaries, such as financial advisers, accountants, shell corporations and other service providers; transfers to, through, and from different countries; and the use of different financial instruments and other kinds of value-storing assets.

Money laundering is, however, a fundamentally simple concept. It is the process by which proceeds from a criminal activity are disguised to conceal their true origin. Basically, money laundering involves the proceeds of criminally derived property rather than the property itself.

The conversion or transfer of property, knowing that such property is derived from any (drug trafficking) offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions;

The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offense or offenses or from an act of participation in such an offense or offenses, and;

The acquisition, possession or use of property, knowing at the time of receipt that such property was derived from an offense or offenses or from an act of Participation in such offense or offenses.

The Financial Action Task Force on Money Laundering (FATF), which is recognized as the international standard setter for Anti-money Laundering (AML) efforts, defines the term money laundering briefly as the processing of criminal proceeds to disguise their illegal origin in order to legitimize the ill-gotten gains of crime.

Social networking consists of websites that allow users to create an online profile in which they post up to the minute personal and professional information about their life that can include pictures, videos, status updates, and related content. Social networking is a potential gold mine for criminals who leverage the users’ personal details into financial opportunity.

The cost of financial crime is staggering. Each year, tech-savvy thieves defraud banks of more than $50 billion. Criminals launder $1.6 trillion in proceeds annually and customer defection and regulatory fines can add to the cost of unmanaged risk.

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