Financial Crime World

Financially Speaking: Unraveling the Three Most Common Types of Financial Crimes

In the intricate world of finance, criminal activities persist, exploiting unsuspecting victims and economies. Financial crime[1], an all-encompassing term for any activity involving the illegal acquisition of property, poses a substantial risk to both individuals and businesses. With criminal schemes becoming increasingly sophisticated, the risk landscape has significantly expanded.

According to a 2009 United Nations Office on Drugs and Crime (UNODC) study, financial crime accounts for an alarming 3.6% of the global GDP, accounting for approximately $1.6 trillion in annual launderings[2]. These statistics shed light on an unsettling truth: financial crime is a multibillion-dollar industry, fueling a menace that remains relentless.

Despite considerable efforts towards combating financial crime, illicit funds remain largely unchecked. In a 2016 Europol study, only 2.2% of illicit funds were seized, with just 1.1% being eventually confiscated[3]. The implications of such numbers underscore the monumental challenge in effectively tackling financial crimes - the perpetrators seldom falter in their escapades. A 2018 speech by a former FCA Director estimated a staggering £90 billion being laundered annually in the United Kingdom[4], further emphasizing the magnitude of the issue. Moreover, a report by Refinitiv on the “True Cost of Financial Crime” concluded that the global impact totaled up to $1.5 trillion per year[5].

With this backdrop, let’s unravel the three most common types of financial crimes:

Money Laundering 💰

Money laundering is the methodical process of concealing the origins of unlawfully acquired funds[6], disguising them as legitimate assets. This is achieved through a series of transactions, typically facilitated across numerous accounts and jurisdictions. Money laundering paves the way for further illicit activities and can also be employed to finance terrorist organizations, posing a severe threat to national security.

Signs of Money Laundering 🔎

  • Large, unusual transactions
  • Transactions with an unusually high frequency or volume
  • Complex, interrelated transactions
  • Transactions between entities with links to known criminal organizations
  • Transactions originating from or involving high-risk jurisdictions

Securities Fraud 📊

Securities fraud refers to the manipulation of stock prices and trading data with the intent to exploit unsuspecting investors[7]. Perpetrators may engage in insider trading, gaining confidential information and profiting from it by purchasing or selling stocks accordingly. Alternatively, they may employ pump and dump schemes, using misleading information to artificial inflate stock prices and then selling at inflated prices, tricking unsuspecting buyers into entering the market.

Examples of Securities Fraud 💣

  • Enron (2001)
  • Bernie Madoff (2008)
  • Theranos (2018)

Cybercrime 🔬

With the digitalization of financial transactions, cybercrime has emerged as a significant threat in the realm of financial crime[8]. Perpetrators may target financial institutions, attempting to steal sensitive customer data or breach secure accounts. Phishing attacks, tricking targeted individuals into disclosing their login credentials, can lead to identity theft and financial losses.

Types of Cybercrime 🕵️‍♂️

  • Phishing
  • Ransomware
  • Identity theft

As financial institutions, businesses, and governments endeavor to reduce their susceptibility to these financial crimes, a deep comprehension of their complexities and the motivations driving them is essential. Stay informed, stay vigilant.

[1] Definition of financial crime: Investopedia. (n.d.). What is Financial Crime. Retrieved December 8, 2021, from https://www.investopedia.com/terms/f/financial_crime.asp [2] United Nations Office on Drugs and Crime. (2009). The Global Economic Cost of Organized Crime. Retrieved December 8, 2021, from https://www.unodc.org/documents/unglobalcompact/Publications/The_global_economic_cost_of_organized_crime_UNODC_2009.pdf [3] Europol. (2016). EUROPOL SERIOUS AND ORGANISED CRIME THREAT ASSESSMENT. Retrieved December 8, 2021, from https://www.europol.europa.eu/publications/europol-serious-and-organised-crime-threat-assessment-socta-2016 [4] Financial Conduct Authority. (2018). Speech by Mark Steward, Director of Enforcement and Market Oversight: Markets in Financial Instruments Regulation, Money Laundering and Terrorist Financing. Retrieved December 8, 2021, from https://www.fca.org.uk/news/speeches/mark-steward-markets-financial-instruments-regulation-mifid-money-laundering-and-terrorist-financing [5] Refinitiv. (2021). The True Cost of Financial Crime. Retrieved December 8, 2021, from https://refinitiv.com/content/dam/refinitiv/en/thought-leadership/perspectives/2021/refinitiv-true-cost-of-financial-crime.pdf [6] United States Department of the Treasury. (2021). Money Laundering. Retrieved December 8, 2021, from https://www.treasury.gov/resource-center/fsbs/fsbs202/FSBSPub202_MoneyLaundering.pdf [7] Investopedia. (n.d.). Securities Fraud. Retrieved December 8, 2021, from https://www.investopedia.com/terms/s/securitiesfraud.asp [8] Federal Bureau of Investigation. (n.d.). Cybercrime. Retrieved December 8, 2021, from https://www.fbi.gov/investigate/cyber/cybercrime. [9] Image by Fbi.gov, Public domain, via Wikimedia Commons. [10] Image by Freepik, License: Freepik License.