Financial Crime World

Unmasking Financial Crime: A Deep Dive into Three Typical Modus Operandi

Financial crime, an all-encompassing term for any illegal activity resulting in the unlawful acquisition of an asset, poses a significant threat to economies, businesses, and individuals worldwide. In this article, we’ll explore the concept of financial crime and delve into the three most prevalent types.

The Scale and Consequences of Financial Crime

According to a 2009 United Nations Office on Drugs and Crime (UNODC) study, the global proceeds of financial crime accounted for approximately 3.6% of the world’s Gross Domestic Product, with an estimated value of $1.6 trillion in US dollars [1]. However, these estimations may be just the tip of the iceberg. A 2016 Europol study showed that only 2.2% of illicit funds were seized during that period, and merely 1.1% of these funds were ultimately confiscated [2]. More recent reports suggest up to £90 billion ($115.1 billion) being laundered annually in the UK alone [3], and Refinitiv estimating the global impact of financial crime at $1.45 trillion [4].

Types of Financial Crime

Money Laundering

This age-old criminal tactic involves disguising the proceeds of criminal activities as legitimately obtained funds. Money launderers employ various methods, including cash transactions, bank transfers, and trade-based money laundering, to make ill-gotten gains appear legitimate [1][2]. Proceeds from money laundering can finance various illicit activities, including terrorism, human trafficking, and drug trafficking [1].

Techniques

  1. Cash Transactions: The exchange of large amounts of cash for goods or services, typically at various locations.
  2. Bank Transfers: Fraudulent transfers between bank accounts, often executed in multiple steps to evade detection.
  3. Trade-based Money Laundering: The manipulation of international trade for money laundering purposes [1].

Securities Fraud

Securities fraud involves the illegal manipulation of securities or securities markets [3]. This form of financial crime can take various forms, including insider trading, market manipulation, and pyramid schemes, which aim to exploit investors by manipulating stock prices or withholding critical information.

Techniques

  1. Insider Trading: Illegal use of confidential information to gain advantage in the market by transacting on the security before it becomes publicly available.
  2. Market Manipulation: Illegally influencing stock prices or exchange rates through fraudulent means such as false trading, disseminating misinformation, or bullying (applying pressure to drive the stock price in a desired direction).
  3. Pyramid Schemes: A fraudulent business model in which new employees (or “investors”) pay earlier “members” to become part of the program, often presenting it as a legitimate business opportunity [5].

Banking Fraud

Banking fraud refers to any unauthorized or deceptive activity that results in financial gain [1]. Criminals can employ various tactics, including opening fraudulent accounts using stolen identities, creating counterfeit checks, or using cyberattacks (phishing scams, ransomware attacks) to access sensitive information [2][4].

Protecting Yourself and Your Organization from Financial Crime

  1. Stay informed about current financial crime trends.
  2. Implement robust risk management strategies and technologies, such as customer due diligence, transaction monitoring, and fraud detection systems.
  3. Regularly update internal policies and procedures to address emerging threats.
  4. Provide training and resources to key stakeholders to promote awareness and vigilance against financial crime.

References

[1] United Nations Office on Drugs and Crime. (2009). The illicit global marijuana crop: Area, Yield and Production. Retrieved from https://www.unodc.org/unodc/en/frontpage/2011/October/illicit-money_-how-much-is-out-there.html [2] Europol. (2016). ECSO Annual Report 2016. Retrieved from https://www.europol.europa.eu/newsroom/news/does-crime-still-pay [3] FCA. (2018). Technology and global ties: Turning the tide on financial crime. Retrieved from https://www.fca.org.uk/news/speeches/technology-and-global-ties-turning-tide-financial-crime [4] Refinitiv. (2018). The True Cost of Financial Crime: 2018 Report. Retrieved from https://www.refinitiv.com/en/resources/special-report/true-cost-of-financial-crime-global-focus.pdf [5] Federal Trade Commission. (2017). Pyramid Schemes. Retrieved from https://www.ftc.gov/consumer-proteiction/pyramidschemes.shtm