Your Career in Financial Crime Prevention

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

1. Organised criminals, including terrorist groups, are increasingly perpetrating large-scale frauds to fund their operations.
2. Corrupt heads of state may use their position and powers to loot the coffers of their (often impoverished) countries.
3. Business leaders or senior executives manipulate or misreport financial data in order to misrepresent a company’s true financial position.
4. Employees from the most senior to the most junior steal company funds and other assets.
5. From outside  the company, fraud can be perpetrated by a customer, supplier, contractor or by a person with no connection to the organisation.
6. Increasingly, the external fraudster is colluding with an employee to achieve bigger and better results more easily.
7. 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 offences:

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

Terrorist organisations require financial support in order to achieve their aims and a successful terrorist group, like any criminal organisation, is therefore one that is able to build and maintain an effective financial infrastructure.

It is generally believed that terrorist organisation raise funds by the following means:

• legitimate sources, such as the abuse of charities or legitimate businesses
• self-financing (i.e. through their members or sympathisers)
• criminal activity
• state sponsors
• activities in failed states and other safe havens

Terrorists often control funds from a variety of sources around the world and employ increasingly sophisticated techniques to move these funds between jurisdictions. To manage their finances, they draw on the services of professionals, such as bankers, accountants and lawyers, and take advantage of a range of financial services products.

A financial institution should take appropriate action where a corporate customer, a member of its senior management or a senior representative of the customer is the subject of an investigation by a law enforcement agency or regulatory body.

Financial Institutions must also consider any obligations they might have to report suspicions of money laundering (including any successful fraud).

Consideration should also be afforded to obtaining appropriate legal advice to reduce the risk, that:

• customers transfer or move fraudulent funds, or use the bank to illegally
• transfer or dispose of assets, including money or other negotiable instruments
• constructive trust claims are made against the bank, by third parties arising out of a dispute between a third party and the bank’s customer
• assets under management are not negotiated without proper authority in law, when the subject of an asset-forfeiture or restraint order issued by a Court

The foundation of any successful fight against fraud is the culture within the institution. When correctly motivated, employees remain honest and become the most effective front-line defence against the fraudster.

Employees become motivated when they believe:

• that their institution is honest and ethical in its business dealings, including dealings with customers, suppliers and employees.
• that their employer treats them with respect, rewards them fairly, imposes discipline fairly, and, where regrettably redundancy becomes necessary, carries this out fairly.
• that fraud prevention is a common objective throughout the organisation at all levels, that they have been trained to play their part in the fight, and that their efforts are acknowledged.

An awareness of what constitutes insider dealing activity is imperative for financial crime and compliance professionals in the detection and prevention of exposure to the activity as a serious financial crime. Regulatory data shows unusual share price movements – a potential indicator of market abuse – in around 29% of takeover announcements.

Additionally, it is possible in the case of financial services businesses that are themselves listed, for directors to commit the offence. To this extent, financial crime and compliance professionals should ensure that businesses and their employees comply fully with all relevant disclosure rules.

More commonly, financial services businesses are exposed to insider dealing through customers who are engaged in the activity. Any money, goods or property derived from insider dealing activity is capable of predicating money laundering offences in most common law jurisdictions.

Due to the often complex nature of financial services, detecting and preventing fraud within the financial sector poses an almost insurmountable challenge. The threats are both domestic and international. They may come from within the organisation or outside it. Increasingly, internal and external fraudsters combine to commit significant fraudulent acts.

The victims may be the financial sector firms themselves or the customers of those firms. The proceeds of fraud are rarely generated in cash. The funds that are the target of the fraud are generally already within the financial system but will undoubtedly need to be moved in order to confuse the audit trail.