Financial Crime ???Financial crimes are crime 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 (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud , bank fraud, payment fraud, healthcare fraud;
Theft; scams or confidence tricks; tax evasion; bribery; embezzlement; identity theft; money laundering; forgery , producti
Presentation By : Tanka Mani Sharma
Director General
Department of Customs
20 May , 2011
NAFIJ/BPC
MONEY,MONEY,MONEY
Criminal Activity for MONEY
Financial Crime ???
Financial crimes are crime 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 (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud , bank fraud, payment fraud, healthcare fraud;
Theft; scams or confidence tricks; tax evasion; bribery; embezzlement; identity theft; money laundering; forgery , production of Counterfeit money and consumer goods.
Other Financial crimes are 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.
Financial Crime reporting is generally analyzing and reporting of above mention and other related crimes.
Organized crime magnitude
Total direct cost of 9/11 , 2001 attack=US$ 27.2 billion. 7,00,000 global wire transfer everyday.
Gross criminal product 1000-1500 b$ per year.
IMF estimate 2-5% of global economy.
IMF estimated $22 to $55 b. in Canada.
US $ is Mostly used currency for ML.
Financial Crimes -Types
- Corporate Fraud/ including Banking Fraud - Securities and Commodities Fraud - Health Care Fraud - Mortgage Fraud - Identity Theft - Insurance Fraud - Mass Marketing Fraud
-Tax Evasion . Revenue Leakage. - Money Laundering
Corporate Frauds- Activities
(1) Falsification of financial information, including: (a) False accounting entries(b) Bogus trades designed to inflate profit or hide losses (c) False transactions designed to evade regulatory oversight
(2) Self-dealing by corporate insiders, including: (a) Insider trading (b) Kickbacks (c) Backdating of executive stock options (d) Misuse of corporate property for personal gain (e) Individual tax violations related to self-dealing
(3) Fraud in connection with legitimately-operated mutual or hedge fund: (a) Late trading (b) Certain market timing schemes (c) Falsification of net asset values (d) Other fraudulent or abusive trading practices by, within, or involving a mutual or hedge fund
(4) Banking Fraud ; Banking Crime Act – Crimes specified in the Act.
Example -Nepal Development Bank , Gorkha Development Bank etc.
Bank and Money Laundering
Placement
Layering
Integration
Erase the link of crime, money and the owner.
Securities and commodities Fraud
Market Manipulation (“Pump and Dump”)
Broker Embezzlement .
Late Day Trading : As like making your bet after you've seen your opponent's cards.
High Yield Investment Fraud-
Ponzi Scheme-which is named after early 20th century criminal Charles Ponzi. These schemes use money collected from new victims, rather than profits from an underlying business venture, to pay the high rates of return promised to earlier investors
Pyramid Schemes –Networking Business.
Prime Bank Investment Fraud- Schemes of reputed banks.
Advanced Fee Schemes
Hedge Fund Fraud and Mutual fund Fraud.
Commodities Fraud – Generally high value ornaments and precious metals.
Market Manipulation: Market Manipulation or "Pump and Dump" schemes are based on the manipulation of lower-volume stocks purchased on small over-the-counter markets. The basic goal of Market Manipulation fraud is to artificially inflate ("pump") the price of penny stocks so that the conspirators can sell ("dump") their shares at a large profit. The "pump" involves recruiting unwitting investors through false or deceptive sales practices, public information, or corporate filings. Many of these schemes use "boiler room" methods where brokers, who are bribed by the conspirators, use high pressure sales tactics to increase the number of investors and therefore raise the price of the stock. Once the price of the targeted shares reaches a certain point, the perpetrators "dump" their shares at a huge profit and leave innocent investors to foot the bill.
Commodities fraud is perpetrated by firms or individuals that sell futures and options through illegal means. For example, investments in precious metals or commodities may be sold based on fraudulent sales pitches claiming high rates of return, with little risk, if clients purchase commodities through a financing agreement.
Foreign Currency Fraud
Foreign Currency Fraud: The perpetrators of these frauds are foreign currency trading firms that entice individuals into investing in the spot foreign currency (Forex) market by false claims and high pressure sales tactics.
Additionally, individual currency traders employed by large financial institutions may manipulate Forex prices and divert profit to themselves. Corrupt currency trading firms use fraudulent sales practices including false and deceptive guarantees of future return on investment.
These firms may even create artificial account statements that reflect a purported investment in the Forex market when, in reality, no such investment has been made.
When the currency trading firms actually invest clients’ funds into the Forex market, they do so not with intent to conduct a profitable trade for the client, but merely to "churn" the client's account.
Churning creates large commission charges benefitting the trading firm at the expense of the client's interests.
Churn-moving violently.
MORTGAGE FRAUD
The increased reliance by both financial institutions and non-financial institution lenders on third-party brokers has created opportunities for organized fraud groups, particularly where mortgage industry professionals are involved.
Combating significant fraud in this area is a priority, because mortgage lending and the housing market have a significant overall effect on the nation's economy.
Each Mortgage Fraud scheme contains some type of "material misstatement, misrepresentation, or omission relating to the property or potential mortgage relied on by an underwriter or lender to fund, purchase or insure a loan.
Insurance- Corporate Fraud
Insurance companies hold customer premiums which are forbidden from operational use by the company. However, when funding is needed, unscrupulous executives invade the premium accounts in order to pay corporate expenses.
This leads to financial statement fraud because the company is required to "cover its tracks" to conceal the improper utilization of customer premium funds.
Premium Diversion/Unauthorized Entities - The most common type of fraud involves insurance agents and brokers diverting policyholder premiums for their own benefit. Additionally, there is a growing number of unauthorized and unregistered entities engaged in the sale of insurance-related products.
As the insurance industry becomes open to foreign players, regulation becomes more difficult. Additionally, exponentially rising insurance costs in certain areas (i.e., terrorism insurance, directors'/officers' insurance, and corporations), increases the possibility for this type of fraud .
Insurance fraud continues to be an investigative priority for the FBI's Financial Crimes Section, due in large part to the insurance industry’s significant status in the U.S. economy. The U.S. insurance industry consists of thousands of companies and collects nearly $1 trillion in premiums each year. The size of the industry, unfortunately, makes it a prime target for criminal activity; the Coalition Against Insurance Fraud (CAIF) estimates that the cost of fraud in the industry is as high as $80 billion each year. This cost is passed on to consumers in the form of higher premiums. In fact, the National Insurance Crime Bureau (NICB) calculates that insurance fraud raises the yearly cost of premiums by $300 for the average household.
Mass Marketing Fraud
Mass Marketing Fraud is a general term for frauds that exploit mass-communication media, such as telemarketing fraud, Internet fraud, and identity theft.
Advanced communications, including computers, speed dialing, automatic dialing, and facsimile machines, along with modern conveniences such as credit cards, electronic banking, and television have led to tremendous growth in mass marketing.
Illegal mass marketers use three primary methods to identify potential victims.
First, they may contact individuals with whom they have had no prior contact and attempt to scam these individuals.
Second, they prompt prospective victims to contact the mass marketing operation by sending them communications that guarantee substantial awards or other benefits.
Third, many mass marketers purchase lists of people who are known to have been victims of prior fraud schemes. These individuals are often receptive to investing in other schemes. The most common mass marketing schemes are:
Advanced Fee Fraud
Foreign Lottery Fraud
Overpayment Fraud (Forged/Altered Check Scam)
Since the 1930's, mass marketing has been an accepted and productive way of increasing a customer base. Advanced Fee Fraud - In these scams, victims are told that they have won a lottery, received an inheritance or are otherwise entitled to a large sum of money. Often times the victim is drawn into the con by applying for a loan through a newspaper article or online advertisement placed by the con artist. Victims are informed, that in order to receive the money to which they are entitled, they must first send funds to cover taxes or processing fees.
Foreign Lottery Fraud - In Foreign Lottery Fraud, the victim is notified that he or she has won a lottery or sweepstakes but must first pay various taxes and fees before receiving the prize. The subjects, posing as lottery administrators, often send the victim a counterfeit check representing all or a portion of the victim’s winnings, and require that the victim send money back to cover the taxes and fees.
Overpayment Fraud (Forged/Altered Check Scam) - Overpayment Fraud often occurs when a person advertises an item for sale in a newspaper or online. The seller is contacted by an individual wishing to purchase the item. The purchaser sends the seller a counterfeit check for an amount greater than the price of the item and asks the seller to deposit the check and to return the remaining money or to send it to another person (often a “shipper” or “agent” who works for the purchaser).
IDENTITY THEFT
Identity theft involves the misuse of another individual's personal identifying information for fraudulent purposes. It is almost always committed to facilitate other crimes, such as credit card fraud, mortgage fraud, and check fraud.
Personal identifying information, such as name, Social Security number, date of birth and bank account number is extremely valuable to an identity thief.
With relatively little effort, an identity thief can use this information to take over existing credit accounts, create new accounts in the victim's name or even evade law enforcement after the commission of a violent crime. Identity thieves also sell personal information online to the highest bidder, often resulting in the stolen information being used by a number of different perpetrators.
Identity theft can be very difficult for consumers to deal with, as they often do not know they have been defrauded until they are denied credit or receive a call from a creditor seeking payment for a debt incurred in their name.
Nigerian Letter Scam (419 Fraud)
- In Nigerian Letter Scams, an e-mail, fax, or letter is sent to a victim claiming there are millions of dollars either from an exiled head of state, political refugee, a pseudo-governmental company or a deceased relative (inheritance) in an account in a foreign country.
The funds are supposedly in a security company and the victim is asked to help get the funds to the U.S. The victim is asked to wire numerous fees in conjunction with getting the funds released from the foreign country and sent to the U.S. The victim is promised a percentage of these funds for his assistance.
In other cases, the victim is provided a check to pay the "fees" required, which, after the victim pays the "fees," turns out to be fraudulent. (419 Frauds are named after the Nigerian Penal Code Section 419.)
Business in Financial Crime(ML)
Drugs /Organized crime Frauds Terrorist Financing Hydroponics/
Indoor gardening
Construction renovation
Real estate
Travel agencies
Electronics
Pharmaceutical
Convenience
Grocery stores
Holding companies
Real estate development
Consulting firms
Energy sector
Precious metals
Technology
Cooperative.
use of commodities, false invoicing, and other trade manipulation to move funds
Non-profit organizations
Convenience
Grocery stores
Real estate
Hydroponics (From the Greek words hydro, water and ponos, labor) is a method of growing plants using mineral nutrient solutions, in water, without soil. Terrestrial plants may be grown with their roots in the mineral nutrient solution only or in an inert medium, such as perlite, gravel, mineral wool, or coconut husk.
Techniques of Financial Crime
A. Banking- Smurfing and transfers through banking channels.
B. Non-Bank financial Institutions –Remittance, money orders .
C. Non-Financial Businesses or Professions-Facilitators /advisors
Black Market currency Exchange
The use of gold in the Middle East, and the use of precious gems in Africa.
Some terrorists use Islamic banks to move funds.
Real businesses-false invoicing , false import export declaration.
Real estate companies
Commercial trade and transactions through free trade zones.
Casinos , internet casinos etc.
Money Laundering ?
Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity, having originated from a legitimate source.
In US -financial transactions to conceal the identity, source, or destination of illegally gained money.
In UK -taking any action with property that disguise the fact.
Clean" money= Legally obtained.
"Dirty" money =Illegally obtained.
Laundering = Making dirty money clean .
ML= Making Black money to White money.
Sources and Uses of MLFT Funds
Sources of Funds Uses of Funds
Drug trafficking.
Human trafficking
Precious stones trafficking.
Abduction(highjack)
Wildlife ,Herbs, Red sandal,
Valuable forest products,
Aquatic animals trafficking .
Arms trafficking (sources/uses)
Revenue Leakage .
Illegal business.
Corruption .
Misuse of authority ,etc.
Consumption of luxury items
Investment in companies .
Real estate and Shares.
Casinos, hotels, cinemas etc.
Cash based business invest.
Charity
Social works.
Further crime. etc.
Nepal- Current Situation
2005 Mutual Evaluation
2oo8 Anti-money laundering Act.
National Coordination Committee.
Financial Information Unit (FIU) at NRB
Investigation Agency (DRI)
2010 Targeted Evaluation .( Critical Analysis)
High Risk Jurisdiction- Global Warning Position.
Working Committee./Awareness and Interim plan.
Latest Letter from the FATF President 27 October.
Compliance date- December 2010 – Already been ove
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