Sean Deezley D.

Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

FINANCIAL CRIME
What is financial crime?
Financial crime over the last 30 years has increasingly become of concern to governments
throughout the world. This concern arises from a variety of issues because the impact of financial
crime varies in different contexts. It is today widely recognised that the prevalence of economically
motivated crime in many societies is a substantial threat to the development of economies and
their stability.
It is possible to divide financial crime into two essentially different, although closely related,
types of conduct.
First, there are those activities that dishonestly generate wealth for those engaged in the
conduct in question. For example, the exploitation of insider information or the acquisition of
another person’s property by deceit will invariably be done with the intention of securing a
material benefit. Alternatively, a person may engage in deceit to secure material benefit for
another.
Second, there are also financial crimes that do not involve the dishonest taking of a benefit, but
that protect a benefit that has already been obtained or to facilitate the taking of such benefit. An
example of such conduct is where someone attempts to launder criminal proceeds of another
offence in order to place the proceeds beyond the reach of the law.
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Who commits Financial Crime ?

There are essentially seven groups of people who commit the various types of 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, 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.
 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.

What are the main types of Financial Crime ?

Financial crime is commonly considered as covering the following offences:
 fraud
 Sean Deezley D. Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

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

How is financial crime linked to terrorist financing ?

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.

How should a firm react to a suspected fraud ?

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

How do you motivate employees to fight fraud ?

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.
 Sean Deezley D. Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

 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.

Why is insider dealing relevant to financial crime professionals ?

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.

Why is the financial sector vulnerable to fraud ?

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.

Fraud and Financial Crimes

Fraud and financial crimes are a form of theft/larceny that occur when a person or
entity takes money or property, or uses them in an illicit manner, with the intent to gain a
benefit from it. These crimes typically involve some form of deceit, subterfuge or the abuse
of a position of trust, which distinguishes them from common theft or robbery. In today's
complex economy, fraud and financial crimes can take many forms. The resources below
will introduce you to the more common forms of financial crimes, such as forgery, credit
card fraud, embezzlement and money laundering.

Debit/Credit Card Fraud

Debit and credit card fraud also occurs when an individual has an intent to
fraudulently obtain money, goods, or services by using the access card of a cardholder who
has not authorized its use. Common examples of credit or debit card fraud include using
someone else's credit or debit card without that person's consent, using your own credit or
debit card knowing that it has been revoked or expired or that your available balance is less
than the purchase price, and using a stolen or fraudulent credit or debit card to receive
money, goods or services.
Sean Deezley D. Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

What is Forgery?
The crime of forgery occurs when, with the intent to defraud, a person executes,
alters or publishes a writing without the owner's knowledge or consent. This can also
happen if s/he fraudulently makes a writing and holds it out to be the work of another. A
"writing" can include money, coins, credit cards, checks, bank drafts, stock certificates,
bonds, wills and deeds.

Wire Fraud
The crime of wire fraud occurs when someone voluntarily and intentionally uses an
interstate communications device (such as a telephone or the internet) as a part of any
scheme to defraud another of property, or anything else of value. For example, if you try to
sell property you do not own, and in your attempt you use a your smartphone to send an
email to someone trying to convince that person to purchase the land, you commit wire
fraud. Wire fraud is a federal crime with serious potential consequences.

Types of Insurance Fraud

Insurance fraud is stealing. Simply put, insurance fraud is lying for the purpose of
getting more money from an insurance company, whether it is auto insurance, life
insurance, or any other kind of insurance. There are two types of insurance fraud: soft and
hard fraud. An example of soft fraud is getting into a motorcycle accident and claiming your
injuries are worse than they really are for financial gain. An example of hard fraud would be
getting into that same motorcycle accident on purpose so that you can claim the insurance
money. Both are crimes.

Why You Need a Criminal Defense Attorney

Being charged with fraud or a financial crime is a serious situation. If you’re charged
with any one of theses crime classifications, or are asked questions by investigators, you
need to talk to an experienced criminal defense attorney as soon as possible. Always talk to
a lawyer before you make any statements to investigators. Your lawyer will be able to guide
you through the criminal justice process and protect your interests at every stage.

Learn About Fraud and Financial Crimes

 Bribery
Brief explanation of bribery, which is the act of accepting or offering something of
value in exchange for influence or power in connection to an elected position or
public employment.
 Fraud
In-depth information about fraud in general and definitions of the various types of
fraud – such as wire fraud; tax evasion; insurance fraud; and identity theft – plus tips
for identifying fraudulent activity.
 Embezzlement
Overview of embezzlement, a crime that occurs when an individual steals money or
property that he or she has been entrusted to manage, with links to FindLaw's theft
and larceny subsection.
Sean Deezley D. Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

 Identity Theft
Brief definition of identity theft, which occurs when someone unlawfully uses
another's personally identifying information (such as a Social Security Number) to
commit other crimes, such as credit card fraud.
 Money Laundering
Definition of money laundering, a crime involving the movement of illicit money and
other gains into legitimate channels in order to disguise the money's illegal source
and thwart tax officials.
 Mortgage Fraud
Explanation of the various different illegal schemes related to the misrepresentation
or misstatement of mortgage documents for the purpose of defrauding another
party, such as a lender or a homeowner.
 Racketeering / RICO
Overview of federal and state racketeering and RICO (Racketeer-Influenced and
Corrupt Organization) laws, which make it a crime for a criminal organization to
profit from otherwise legitimate business operations.
 Securities Fraud
Definition of securities fraud, a crime in which a corporate officer, for example,
makes misleading statements about the company’s stock performance or discloses
confidential information related to its stock.
 Tax Evasion / Fraud
Brief overview of tax evasion, the crime of not paying one’s legally required share of
either federal or state taxes, which is punished severely and can lead to asset
forfeiture or prison.
 White Collar Crimes
So-called “white-collar crimes” encompass many separate individual crimes, most
commonly related to the use of deceit for financial gains, such as Ponzi schemes;
securities fraud; tax evasion; and embezzlement.

CYBER-SECURITY
The New York Department of Financial Services has adopted detailed cybersecurity
regulations for financial institutions. The NYDFS has filled a vacuum created by the failure of
the federal government to act in this important area. Congress has failed to enact any
specific requirements; the federal government continues to rely on voluntary efforts and
recommended standards. As long as this vacuum continues, state regulators and even
foreign governments will push cybersecurity and data privacy requirements on global
businesses.
The cybersecurity regulations apply to bank and trust companies, credit unions, life
and health insurance companies, mortgage bankers, money transmitters, investment
companies and sales finance companies.
The primary requirements of the regulations require covered entities to:
 Adopt a cybersecurity program, including appropriate policies and procedures based on
a risk assessment to identify threats and protect against cyberattacks;
Sean Deezley D. Ramirez
BSA-III [ Manuel S. Envega University Foundation
National Finance Competition 2018

 Conduct a periodic risk assessment that includes criteria to evaluate and categorize
cyber risks and evaluate the adequacy of existing controls to mitigate such risks;
 Secure board review and approval of the company’s cybersecurity program, including
policies and procedures;
 Designate a chief information security officer (CISO) to maintain the cybersecurity
program and compliance with the regulations. The CISO has to report annually to the
board of directors on its cybersecurity risks;
 Encrypt all nonpublic information in transit and at rest;
 Implement multi-factor or risk-based authentication to access nonpublic information;
 Implement a third-party risk management system for vendors, suppliers and other
outside businesses;
 Maintain a log of all business activities so that financial transactions can be audited;
 Requires the board of directors to certify annually that the company is in compliance
with the cybersecurity regulations;
 Provide training awareness programs that are updated each year based on an annual
risk assessment;
 Notify the NYDFS within 72 hours of any cybersecurity event that has a “reasonable
likelihood of materially harming any normal operation of the entity”; and
 Maintain an incident response plan that provides procedures for responding to a cyber
event, responsibilities of each official, and communications and remediation
requirements.

The NYDFS has specified that a company’s cybersecurity written policy or policies
address the following areas: (a) information security; (b) data governance and
classifications; (c) asset inventory and device management; (d) access controls and identity
management; (e) business continuity and disaster recovery planning and resources; (f)
systems operations and availability concerns; (g) systems and network security; (h) systems
and network monitoring; (i) systems and application development and quality assurance; (j)
physical security and environmental concerns; (k) customer data privacy; (l) Vendor and
Third Party Service Provider management; (m) risk assessment; and (n) incident response.
The NYDFS regulations require covered entities to provide multi-factor authentication for
external access to the company’s internal network unless the CISO certifies that a less
burdensome alternative is reasonably secure (or more secure) than a multi-factor
authenticated system.
Covered entities have to encrypt non-public information in transit or at rest. For
legacy systems, encryption of systems at rest will be difficult. Companies have to undertake
a careful assessment of their existing systems in order to determine where non-public
information may be stored.
The company’s cybersecurity program has to include guidelines for protecting internal
software development program. Companies also have to develop security tests for
applications developed by third party vendors and suppliers. Such a requirement can be
burdensome for financial companies that rely on external vendors for a number of internal
processes.