FINANCIAL

CRIMES
ALLAN REY S IMPERIO
CELVERT C CLAUDIO
 ECONOMIC CRIMES
• Economic crime is usually confused with
another term, corruption. There are
different definitions of what is
corruption. Each definition illuminates
different dimensions of the
phenomenon to be studied, influencing
the analysis and prosecution tasks to be
implemented. A first definition focuses
on public ethics. Here, corruption is
defined as an ethical confusion between
public and private space.
• A second vision relates the
problem of corruption to the lack
of transparency of the state, may
that be it in the form of barriers
to access public information or
the pinpoint hiring opportunities
to certain companies in the area
of ​goods and services.
• However, there is a third definition,
corruption is one of the many
parts of a more complex and
more comprehensive criminal
phenomenon, which is economic
crime. Therefore, our vision is not
limited to crimes committed in the
public sector, but also extends to
those perpetrated by economic
actors in the private sector.
• economic crime covers a wide
range of offenses, from financial
crimes committed by banks, tax
evasion, illicit capital heavens,
money laundering, crimes
committed by public officials (like
bribery, embezzlement, traffic of
influences, etc.) among many
others.
• Economic crime is regarded to generate
a considerable social damage. That’s because it
doesn’t only affect democratic institutions but
also undermines the state treasure by cutting
available resources for the implementation of
public policies. Those who are more vulnerable
are those who need these policies the most, that
is way they become one of the main victims of
corruption and economic crime. At the same
time, the social damage generated by this
criminal activities is usually invisible: apart from
the general indignation, is rather complex to
have a precise awareness about the true effects
of these crimes.
• Moreover, selective and inefficient
prosecution of this type of crimes
and those responsible, evidence
the structural impunity in our
judicial system towards this criminal
activity. Of course, this is linked to
the fact that economic crimes are
often carried put by powerful
actors linked to political and
economical power.
• Economic crime is generated from a
hidden power that defines the
relationships between economics and
politics. Financial liberalization and market
reforms undertaken in Argentina in recent
decades, left as a result a gradual process
of institutional state capture by major
economic groups. This capture is now
expressed in a powerful influence of these
economic actors in the decision making
processes, the implementation of public
policies and distribution of economic and
social resources.
 FINANCIAL CRIMES
• INTRODUCTION
• DEFINITION
• COMPONENTS
• TYPOLOGY
• TYPES OF WHITE
COLLAR CRIME
• TYPES OF WHITE
COLLAR SCHEMES
 INTRODUCTION
The volume of financial transactions
increases at a staggering rate as an
online banking system becomes a
norm these days. Due to convenience
of monetary transactions on a global
scale, illegitimate money also takes
advantage of the structured
transaction systems, along with
legitimate finances.
Considering the nature of
surrounding environments, financial
crime is not an isolated concept. It
evolves as a reflection of its
environmental changes, such as social
contexts and ICTs advancements.
Against these backdrops, financial
crime proliferates and diversifies itself
into more sophisticated subsets.
Financial crime is one of deeply entrenched
illegal activities in any society. However, the
concept of financial crime has not been
agreed upon until now. Without proper
classification and conceptualizing of financial
crime, it is difficult to figure out ways to
identify and respond to recent types of
financial crime. Therefore, it is critical to
understand the nature and characteristics of
contemporary financial crime.
 DEFINITION
• as crime against property, involving the unlawful
conversion of property of another to one’s own
personal use and benefit
• “any non-violent crime that generally results in a
financial loss” International Monetary Fund
(2001),
• ‘any offence involving fraud or dishonesty;
misconduct in, or misuse of information relating
to, a financial market; or handling the proceeds of
crime’. (FSMA) Financial Services and Markets Act
2000
 OTHER DEFINITION
• is crime committed against property,
involving the unlawful conversion of the
ownership of property (belonging to one
person) to one's own personal use and
benefit. From Wikipedia, the free
encyclopedia
• referred to as white-collar crime which
was first coined by Sutherland (1939) as
“committed by a person of respectability
and high social status in the course of his
occupation” Interpol
 Financial Crime
• Pickett and Pickett (2002) define
financial crime as ‘the use of
deception for illegal gain, normally
involving breach of trust, and some
concealment of the true nature of
the activities’, using the terms
financial crime, white-collar crime,
and fraud interchangeably
 Financial Abuse
• IMF (2001) suggests that financial
abuse is encouraged by poor
regulatory and supervisory
frameworks and weak tax
systems and as a subset of
financial abuse financial crime
requires a financial loss
 White Collar Crime
The term white-collar
crime was coined in the
1930’s by Edwin
Sutherland who defined it
as crime committed by a
person of respectability
and high social status in
the course of his
occupation.
 COMPONENTS
①deceitful
②intentional
③resulting in pecuniary losses
④possible concealment
⑤breach of trust
⑥possible appearance of outward
respectability
TYPOLOGY
Classification of financial crime by Gottschalk
(2010)
• Corruption - Kickbacks, bribery,
extortion, embezzlement
• Fraud - Identity, mortgage, occupational
• Theft - Cash, intellectual, fraud
• Manipulation - Laundering, cybercrime,
bid rigging, insider trading
 Classification of financial crime by IMF (2001)

• Financial sector crime - Money

laundering/fraud/tax evasion/circumvention of
exchange restrictions /other
• Other financial crime - Sale of fictitious financial
instruments or insurance policies/
embezzlement/tax evasion/stock
manipulation/other
• Other financial abuse - Tax avoidance/connected
party lending/stock manipulation /other
 Occupational crime: Crime committed by
Crime
individuals in the course of their employment.
 Professional occupational crime: Crimes
committed by professionals such as physicians
and lawyers in the course of their practices.
 It seems that every occupational category
generates a considerable number of criminals
and the higher the prestige of the occupation,
the more their criminal activities cost the
general public.
 Corporate Crime
 Corporate crime: Criminal activity on behalf of a
business organization.
 Crimes of fraud, concealment, and misrepresentation
continue to victimize all sorts of groups and
individuals in society.
 TYPES OF WHITE COLLAR CRIME
• Bank Fraud • Insider Trading
• Blackmail • Insurance Fraud
• Bribery • Investment Schemes
• Cellular Phone Fraud • Kickback
• Computer fraud • Larceny/Theft
• Counterfeiting
• Money Laundering
• Credit Card Fraud
• Racketeering
• Currency Schemes
• Securities Fraud
• Embezz1ement
• Tax Evasion
• Environmental Schemes
• Telemarketing Fraud
• Extortion
• Welfare Fraud
• Forgery
•
• Weights and Measures
Health Care Fraud
 Bank Fraud
• To engage in an act or pattern of activity where
the purpose is to defraud a bank of funds.

The S&L Scandal: The Best Way to Rob a Bank

is to Own One
 The savings and loan scandal of the 1980’s amounted
to one of the most costly crime sprees in American
history and is likely to cost the U.S. taxpayer up to
$473 billion.
 Blackmail
• A demand for money or other consideration
under threat to do bodily harm, to injure
property, to accuse of a crime, or to expose
secrets.
 Bribery
• When money, goods, services, information or
anything else of value is offered with intent
to influence the actions, opinions, or
decisions of the taker. You may be charged
with bribery whether you offer the bribe or
accept it.
 Cellular Phone Fraud
• The unauthorized use, tampering,
or manipulation of a cellular
phone or service. This can be
accomplished by either use of a
stolen phone, or where an actor
signs up for service under false
identification or where the actor
clones a valid electronic serial
number (ESN) by using an ESN
reader and reprograms another
cellular phone with a valid ESN
number.
 Computer fraud
• Where computer hackers steal information
sources contained on computers such as:
bank information, credit cards, and
proprietary information.
 Counterfeiting
• Occurs when someone copies or imitates an
item without having been authorized to do
so and passes the copy off for the genuine or
original item. Counterfeiting is most often
associated with money however can also be
associated with designer clothing, handbags
and watches.
 Credit Card Fraud
• The unauthorized use of a credit card to
obtain goods of value.
CurrencyCurrency Schemes
• The practice of speculating on the future
value of currencies
 Embezz1ement
• When a person who has been entrusted with
money or property appropriates it for his or
her own use and benefit.
 Environmental Schemes
• The overbilling and fraudulent practices
exercised by corporations which purport to
clean up the environment.
 Extortion
• Occurs when one person illegally obtains
property from another by actual or
threatened force, fear, or violence, or under
cover of official right.
 Forgery
• When a person passes a false or worthless
instrument such as a check or counterfeit
security with the intent to defraud or injure
the recipient.
 Health Care Fraud
• Where an unlicensed health care provider
provides services under the guise of being
licensed and obtains monetary benefit for
the service.
 Insider Trading
• When a person uses inside, confidential, or
advance information to trade in shares of
publicly held corporations.
InsuranInsurance Fraudce Fraud:
• To engage in an act or pattern of activity
wherein one obtains proceeds from an
insurance company through deception.
 Investment Schemes
• Where an unsuspecting victim is contacted
by the actor who promises to provide a
large return on a small investment.
 Kickback
• Occurs when a person who sells an item
pays back a portion of the purchase price to
the buyer.
 Larceny/Theft
• When a person wrongfully takes another
person's money or property with the intent
to appropriate, convert or steal it.
 Money Laundering
• The investment or transfer of money from
racketeering, drug transactions or other
embezzlement schemes so that it appears
that its original source either cannot be
traced or is legitimate.
 Racketeering
• The operation of an illegal business for
personal profit.
 SecuSecurities Fraud
• The act of artificially inflating the price of
stocks by brokers so that buyers can
purchase a stock on the rise.
 Tax Evasion:
• When a person commits fraud in filing or
paying taxes
 Telemarketing Fraud
• Actors operate out of boiler rooms and
place telephone calls to residences and
corporations where the actor requests a
donation to an alleged charitable
organization or where the actor requests
money up front or a credit card number up
front, and does not use the donation for the
stated purpose.
WelfareWelfare Fraud :

• To engage in an act or acts where the purpose

is to obtain benefits (i.e. Public Assistance,
Food Stamps, or Medicaid) from the State or
Federal Government.
 Weights and Measures
• The act of placing an item for sale at one
price yet charging a higher price at the time
of sale or short weighing an item when the
label reflects a higher weight.
 TYPES OF WHITE COLLAR SCHEMES
• Advanced Fee Schemes
• Airport Scam • Pigeon Drop
• Auto Repair • Police Impersonation
• Check Kiting • Ponzi
• Coupon Redemption • Pyramid
• Directory Advertising • Quick Change
• Fortune Telling • Shell Game
• Gypsies
• Utilities Impersonators
• Home Improvement
• VCR Scam
• Inferior Equipment
• West African Investment
• Jamaican Switch
Scamsonzi:
• Land Fraud
• Ponzi:
• Odometer Fraudes:
• Gypsies:
• Police Impersonation:

• Fortune Telling:
 AdvAdvanced Fee Schemes
• Actor induces victim to give him some type
of advanced fee in return for a future
benefit. The future benefit never occurs and
victim never receives the advanced fee back.
ATM Ponzi Scheme Receiver Can Recover
Referral Fees
•A promise to send money or products, or to provide
services, after an upfront or advanced fee has been paid.
•An offer to allow participation in a special deal after an
advance fee is paid.
•A request to help remove money from a country that is in
political turmoil.
•A request to provide law enforcement with assistance in
catching thieves.
 Airport Scam

• Actor approaches victim in an airport

stating that the newspaper stand cannot
change his one hundred dollar bill and asks
the victim for change. Victim provides actor
with the change, actor returns to the store
to get the one hundred dollar bill back,
however, never returns to victim.
 Auto Repair
• Actor hangs out around an auto repair shop
and approaches victims who leave after
getting estimates. Actor claims to do work
off duty at a very low cost. Once actor has
the car, inferior work is completed and
victim cannot get the return of the car until
the very high bill is paid.
 Check Kiting
• A bank account is opened with good funds
and a rapport is developed with the bank.
Actor then deposits a series of bad checks
but prior to their discovery, withdraws
funds from the bank.
 Coupon Redemption
• Grocery stores amass large amounts of
coupons and redeem them to manufacturers
when in fact merchandise was never sold.
 Directory Advertising
• Actor either impersonates sales person from
a directory company like the yellow pages
or fraudulently sells advertising which the
victim never receives.
 Fortune Telling
• Actor advises victim that victim is cursed.
Actor advises victim that the curse must be
removed. Actor advises that she must
meditate to the spirits and will require
payment. Over a period of time, victim pays
fortune teller thousands of dollars to
remove curse.
 Gypsies
• Actor states that victims money is cursed. In
order to remove the curse, the money must
be placed into a bag or box that the actor
provides. The bag or box is switched. Actor
advises victim to perform certain rituals
over the money and the curse will be
removed. The bag or box cannot be opened
for a period of time when it is opened, the
money is gone.
 Home Improvement
• Actor approaches a home owner with a very
low estimate for a repair or improvement.
Inferior or incomplete work is performed.
Once the repairs are completed, actor
intimidates the victim to pay a price much
greater than the original estimate.
 Inferior Equipment
• Actors travel around selling inferior
equipment such as tools at high prices.
 Jamaican Switch
• Actor #1 approaches a victim looking for the
address of a prostitute. Actor #1 shows a large sum
of money to the victim. Actor #2 arrives and tells
Actor #1 where he can find the prostitute but
cautions on taking all the money as the prostitute
might rob him. Actor #1 asks the victim to hold the
money for him. Actor #1 puts his money into a
handkerchief with the victims money. Actor #1
shows the victim how to hide the money under his
arm, inside his shirt while switching
handkerchiefs. Victim takes the handkerchief and
the parties split up, however, Actor #1 leaves with
victims money.
 Land Fraud
• Actor induces victim to purchase tracks of
land in some type of retirement
development which does not exist.
 Odometer Fraud
• Unscrupulous used car salesman purchased
used cars and turn back the odometers. The
used car is sold at a higher price due to its
low mileage.
 Pigeon Drop
• Actor #1 befriends the victim. Actor #2
shows both Actor #1 and victim a "found"
package containing a large amount of cash.
Actor #1 insists that the found money be
divided equally but only after each person
puts up his own money to demonstrate good
faith. All the money is put in one package
and the package is later switched.
 Police Impersonation
• Actor tells victim that his bank is being
operated by fraudulent bank officers. Actor
instructs victim to take money out of bank
and place it into a good bank. After the
money is withdrawn, the actor allegedly
takes the money to the police station for safe
keeping. The victim never sees the money
again.
 Ponzi
• An investment scheme where the actor
solicits investors in a business venture,
promising extremely high financial
returns or dividends in a very short
period of time. The actor never invests
the money, however, does pay
dividends. The dividends consist of the
newest investors funds. The first
investors, pleased to receive dividends,
encourage new investors to invest.
This scheme falls apart when the actor
no longer has sufficient new investors
to distribute dividends to the old
investors or the actor simply takes all
the funds and leaves the area.
 Pyramid
• An investment fraud in which an
individual is offered a distributorship
or franchise to market a particular
product. The promoter of the pyramid
represents that although marketing of
the product will result in profits,
larger profits will be earned by the
sale of franchises. For example, if a
franchise price is $10,000.00, the seller
receives $3,500.00 for every franchise
sold. Each new franchise purchaser is
presented with the same proposal so
that each franchise owner is
attempting to sell franchises. Once the
supply of potential investors is
exhausted, the pyramid collapses.
Many times, there are no products
involved in the franchise, simply just
the exchange of money.
 Quick Change

• Victim is confused by actors speedy series of

money exchanges and in the end, is short
changed.
 Shell Game
• Actor #1 manipulates a pea beneath three
walnut shells or bottle caps. Actor #1 moves
the caps around and shows victim the cap
with the pea under it. With the
encouragement of another player, also Actor
#2, victim places larger and larger bets as to
which cap contains the pea. The game is
ended by Actor #1 when the take is large
enough.
UtilitUtilities Impersonators
• Actor impersonates utilities employees by
wearing jumpsuits with name tags. Actor
approaches victim with story about a gas
leak or electrical surge to gain entry to the
home. Valuables are taken by actor.
 VCR Scam
• Actor purports to sell new VCR's or
televisions at an extremely low cost due to
his connections. Victim pays for the VCR or
television only to discover that the box has
been filled with rocks.
 West African Investment Scams
• Actors target businesses and obtain
business' bank account information from
which all funds are later withdrawn.
 Seven Essential groups who commit
Financial crime
• Organised criminals, including terrorist groups,
are increasingly perpetrating large-scale frauds
to fund their operations.
• Corrupt heads of state may use their position
and powers to loot the coffers of their (often
impoverished) countries.
• Business leaders or senior executives manipulate
or misreport financial data in order to
misrepresent a company’s true financial position.
• Employees from the most senior to the
most junior steal company funds and
other assets.
• From outside the company, fraud can be
perpetrated by a customer, supplier, and
contractor or by a person with no
connection to the organisation.
• Increasingly, the external fraudster is
colluding with an employee to achieve
bigger and better results more easily.
Mitigate the threat of financial crime

• Create the right corporate culture

• Respond quickly to criminal
behaviour 
• Avoid unwelcome attention
• Create a fortress against crime 
 Create the right corporate culture

• Good culture encourages good

behaviour, reducing conduct risk.
Make the prevention and detection of
financial crime a key part of your
business and motivate your staff to
play their part in protecting the
integrity of your firm.
Respond quickly to criminal behaviour

• By introducing alert systems to make

sure any red flags are dealt with
immediately, you’ll be able to more
quickly investigate and escalate
suspicious activity, reducing the
potential damage to your firm.
 Avoid unwelcome attention

• High-profile incidents of financial crime

have put businesses in the media
spotlight. The impact of being named and
shamed has led to significant financial
losses. By introducing the right controls
and procedures you’ll minimise the
likelihood of bad PR and damage to your
bottom line.
 Create a fortress against crime

• In an increasingly complex, global

industry, a comprehensive approach to
financial crime is essential. By
developing a solid overview of your
firm’s vulnerabilities, and the controls
and procedures needed to address them,
you’ll make you firm a tougher target for
criminals.
anti-fraud strategy
• prevention
• detection
• deterrence
• response
 RED FLAGS – DEFINITION

What Does “Red Flags” Mean

“RED FLAGS” are the signals, signs or symptoms

which are reflected while certain types of fraud are
taking place.
 Early indicators of Fraud (Red Flags)
• Unreasonable returns compared to market rate of returns
• Promise for free money
• Magical solutions / products
• Show off / Affinity
• Clandestine Meetings / Maintenance of Secrecy
• Anonymity / One man / small team officiating
• Oral Representations / No formal approvals or
documentation
• Claims of Authority / Registered in a different country
• Urgency in collecting finances
• Flouting of Laws
• Short cut formulae
 Techniques in Fraud

• The “Three-Call” Technique

• The Infallible Forecaster
• Baits to Lure in
• Aspect of Risk
• Show of Familiarity
• Doing you a favour
• An understanding of Psychology
• Avoidance of Questions
• High Pressure Sales Tactics
• Fancy Corporate Names
• Howdy Partner
 Fraud Should be taken SERIOUSLY

u i ng
Fraud is in c reas
u Creates significant behavioural issues
u Disrupts productivity
u Losses have a multiplier effect making them much more
expensive than the actual amount lost.
u Kills Good Organisations
u Responsibility of regulators for prevention and
detection of fraud has increased
 Weaknesses in Regulatory System

• Inspector Raj
• Dual Responsibility
• Undue Delay in Processes
• Excessive intervention by Judiciary
• Very less time in law making
• Considering of problem rather than cause of
the problem
• More interest before investigation but no
interest in concluding the cases
 Role of Regulators should be

• Understand the need for creation / modification of laws to

curb / eliminate opportunities for scams / frauds based on the
study of global scenario
• Ensure appropriate powers to law enforcement agencies

• Provide facility for 2/3 levels of appeal before any one

approach the judiciary
• Ensure time bound completion for the cases / designating
case officer
• Announce very severe punishment for committing the crime

• Introduction of Compulsory Operations Audit on a periodical

basis
 Role of Police Should be

• Conduct seminars for the benefit of investment

community about different kinds of fraud on a
periodical basis
• Conduct seminars about the repercussions on the
convicted & his / her family
• Utilise services of professionals such as
Chartered Accountants, Advocates & Company
Secretaries for conducting pre-enquiries with
regard to various indicators available from news
media
• Be independent from every business not only on
paper but otherwise
 Chartered Accountants Services

 Identification of red flags

 Conduct of pre-enquiries

 Study of the methodology of scam / fraud

 Assisting in documentation / verification of

documentation

 Investigation Report / Forensic Accounting Report

 Expert Advisory Services

 Witness services

 Training the officers on latest trends in global

scenario