Though the financial institutions are known to be the ultimate losers in the event of financial crimes it is now occupying the space in the common man’s life. Banks, NBFCs, Cooperative banks, Insurance companies and Stock markets all face the heat of financial crimes.
Globally there are two types of crimes prominently observed in the financial sector. First is the crime which causes financial damage to a party involved in the transaction. This includes fraud, theft or corruption. Whereas the second type includes protecting the financial gains derived from causing damage to another party. This involves money laundering.
Types of financial crimes
Accordingly, every business in the financial services sector must know the potential threats they face and the measures they need to put in place to protect themselves from these events. Here are some of the different types of financial crimes.
There is a variety of frauds taking place in the financial systems. This includes but is not limited to cheque fraud, credit card fraud, mortgage fraud, bank fraud, insurance fraud. Additionally, there are securities fraud, Insider trading scams, market manipulation, payment fraud, health care fraud, medical fraud, corporate fraud etc;
There are different types of theft activities. Inventory thefts, cash thefts, intellectual property thefts are the most common forms of thefts having a financial impact. As the technology evolves the impact of IP theft will have a significant impact on the forensic accounting domain.
Scams or confidence tricks
A scam is a dishonest plan of cheating multiple entities. Scams are generally large value financial damages. Regulators calling the customers to take out insurance or fake call centres shopping for credentials are all examples of scams.
From the birth of mankind, taxes are a financial burden for the common man. Whenever a taxpayer gets an opportunity, he likes to save some taxes. However, when taxpayers become aggressive on saving more taxes it leads to tax evasion. There are two types of Taxes Direct and Indirect. There are different methods of evading the taxes from the treasury.
Bribery is nothing but offering, promising, giving, accepting or soliciting of an advantage as an inducement for an illegal action, unethical or a breach of trust. Globally, Foreign Corrupt Practices Act and UK Bribery Act are the two most powerful legislation dealing with this financial crime. Individuals with political influence, such as government officials, may be able to use their status and influence to launder the proceeds of corrupt activities while avoiding AML controls.
Theft or misappropriation of funds placed in trust and belonging to one’s employer is embezzlement. This is a typical example of white collar crimes in a business environment.
Using somebody else’s identity to carry out financial transactions causing financial damage to the person is typically termed as identity theft. There are methods like phishing, spear-phishing or vishing used in obtaining the identity of the other person.
Changing the colour of criminal money from the activities like corruption, bribery or terrorist financing to clean, white and legitimate. The money from crimes is introduced often in banks and then circulated through various bank accounts before the money actually leaves the system to be placed in the account of the end beneficiary.
Forgery and counterfeiting
This includes the production of counterfeit money and consumer goods. It is not only copying but also an imitation of a document, signature, banknotes.
Financial crimes may involve additional criminal activities, such as computer crime and elder abuse and even violent crimes such as robbery, armed robbery or murder. Individuals, companies, cartels carry out frauds. Victims may include individuals, corporations, governments, and entire economies.
However, the most dangerous form of financial crime is terrorist financing. This causes damage not only financially but also to the human life. Moreover, identification detection and prevention of these financial crimes is the priority for the law enforcement agencies across the world.
Changing Dynamics of Financial Crimes
In addition to the above-mentioned activities of fraud, forgery and cheating, there are many other sophisticated techniques. Some of these techniques are
- Collusion with the bank employees
- Appointing Money Mules
- Using social engineering techniques such as phishing, smishing or vishing.
Moreover, there are different establishments in the world combating fraud and money laundering. Financial Crimes Enforcement Network (FinCEN) in the United States, the Financial Conduct Authority (FCA) in the UK and the Federal Financial Supervisory Authority (BaFin) in Germany are some of the examples.
With the development of technology, methods of combating such criminal activities are evolving. With the developing regtech sector in recent years, solutions to combat financial crimes have increased. Anti Money Laundering (AML) regulations have become stricter and now the countries have to comply with the FATF standards. Non Compliance leads to the inclusion of the country in the grey list.
Certified Bank Forensic Accountant has become the greatest weapon in the fight against financial crimes.