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PRESENTED BY:
71 Nishit Patil.
72 Nouman Khan.
73 Paresh Jain.
74 Parvaz Shaikh.
75 Prashant Verma.
76 Pratik Bacche
77 Pratik Saraiya
78 Priyanka Baheti
79 Purvesh Alandikar
80 Riddhi Dalal.
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Paul Lower 2010
Loan Fraud
Internal loan fraud
Loansto Phantom borrowers
Loan lapping
Kickbacks on illegal loans
Reciprocal loans
Commercial loans Suspense account fraud
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Paul Lower 2010
EmployeeLevel Fraud
Scale of employee level fraud
Many ways for bank employeesto commit fraud
Loan fraud isthe area of highest risk
But embezzlement remains high onthe list
Two categories of employee fraud for banks
Looting customer accounts Exploiting weaknesses in operations
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EmployeeLevel Fraud
Two types of employee fraud
Looting customer accounts
Theft from customer accounts
Dormant account fraud
Cashiertheft of cash or Skimming
Cheque fraud
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EmployeeLevel Fraud
Two types of employee fraud
Looting customer accounts
Exploiting weaknesses in operations
Theft of consignment items
Invoicing fraud
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EmployeeLevel Fraud
Theft from customer accounts
Employees divert funds from customer accounts
Fraud isthen concealed with false records
Hudson Savings Bank fell victim to thisscheme
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Harshad Mehta - Rs 4,000 crore
He triggered a rise inthe Bombay Stock Exchange inthe year 1992 by trading inshares at a premium acrossmany segments.
Taking advantages ofthe loopholes inthe bankingsystem
Harshad and his associatestriggered a securitiesscam diverting fundsto the tune of Rs 4000 crore (Rs 40billion) from the banksto stockbrokers between April 1991to May 1992.
Core
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Harshad Mehta - Rs 4,000 crore
Mehta mastered the tricks ofthe trade and set out ondangerousgame plan
Mehta hassiphoned off huge sums of money fromseveral banks and millions of investors were conned inthe process.
Hisscam was exposed, the markets crashed and hewas arrested and banned for life from trading inthe stockmarkets.
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Harshad Mehta - Rs 4,000 crore
He was later charged with 72 criminal offences
He died in 2002 with many litigationsstill pendingagainst him.
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Ketan Parekh - Agrregate Borrowings Rs 1,500 Cr
Ketan Parekh followed Harshad Mehta's footstepstoswindle crores of rupees from banks.
A chartered accountant he used to run a familybusiness, NH Securities.
He targeted smaller exchanges like the Allahabad StockExchange and the Calcutta Stock Exchange, and boughtshares in fictitiousnames.
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Ketan Parekh - Agrregate Borrowings Rs 1,500 Cr
His dealings revolved around shares of ten companies
like Himachal Futuristic, Global Tele-Systems, SSI Ltd,
DSQ Software, Zee Telefilms, Silver line, pent media
Graphics and Satyam Computer (K-10 scripts).
Ketan borrowed Rs 250 crore from Global Trust Bank tofuel his ambitions.
Ketan along with his associates also managed to getRs1,000 crore from the Madhavpura Mercantile Co-operative Bank
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Ketan Parekh - Agrregate Borrowings Rs 1,500 Cr
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Was convicted in 2008, for involvement inthe indianstock market manipulationscam in late 1999-2001.
Currently he has been debarred from trading intheindianstock exchangestill 2017
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C R Bhansali - Rs 1,200 crore
The Bhansali scam resulted in a loss of over Rs 1,200crore (Rs 12 billion).
He first launched the finance company CRB CapitalMarkets, followed by CRB Mutual Fund and CRB ShareCustodial Services.
He ruled like financial wizard 1992 to 1996 collectingmoney from the public through fixed deposits, bonds
The money wastransferred to companiesthatneverexisted.
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C R Bhansali - Rs 1,200 crore
CRB Capital Markets raised a whopping Rs 176 croreinthree years.In 1994 CRB Mutual Funds raised Rs 230crore and Rs 180 crore came via fixed deposits.
However, hisgood days did not last long, after 1995 hereceived several jolts.
Bhansali tried borrowing more money from the market.This led to a financial crisis.
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Cobbler scam
Sohin Daya, son of a former Sheriff of Mumbai, wasthemain accused inthe multi -crore shoesscam
Daya ofDawood Shoes, Rafique Tejani of Metro Shoes,and Kishore Signapurkar of Milano Shoes were arrestedfor creatingseveral leather co-operative societies whichdid not exist.
They availed loans of crores of rupees on behalf ofthese fictitioussocieties. The scam was exposed in 1995.
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Cobbler scam
The accused created a fictitious cooperative society ofcobblersto take advantage ofgovernment loansthrough variousschemes.
Officials ofthe Maharashtra State Finance Corporation,Citibank, Bank ofOman, Dena Bank, DevelopmentCredit Bank, Saraswati Co-operative Bank, and Bank ofBahrain and Kuwait were also charge sheeted..
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The UTI Scam - Rs 32 crore
Former UTI chairman P S Subramanyam and twoexecutive directors -- M Kapur and S K Basu -- and astockbroker Rakesh G Mehta, were arrested inconnection with the 'UTIscam
UTI had purchased 40,000 shares of CyberspacebetweenSeptember 25, 2000, and September 25, 2000for about Rs3.33 crore (Rs 33.3 million) from RakeshMehta whenthere were no buyers forthe scrip.
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The UTI Scam - Rs 32 crore
The market price was around Rs 830. The CBIsaid itwasthe conspiracy ofthese four people which resulted inthe loss of Rs 32 crore (Rs 320 million).
Subramanyam, Kapur and Basu had changed theirstance on an investment advice ofthe equities researchcell of UTI.
The promoter of Cyberspace Infosys, Arvind Johari wasarrested in connection with the case.
The officials were paid Rs 50 lakh (Rs 5 million) byCyberspace to promote itsshares.
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Citibank India; fraud worth 400 crore
A case of possible fraud was reported atDLF-II branch,Gurgaon and is reportedly estimated at Rs 300-350 crore.
The scam was engineered by none otherthan anemployee Shiv Raj Puri who was working as aRelationship Manager forthe past 7-8 years.
Puri had opened a joint account inthe names of PremNath, Sehna Prem Nath, and Deeksha Puri in September2009; initial investigations reveal thatthe joint account (no5011666247) had transacted a huge sum of money.
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Citibank India; fraud worth 400 crore
Police reportssay that Puri managed to get largedeposits and made fake bank slips and statements forthecustomers
. Puri siphoned offthe money to invest inthe stockmarket.
Citibank has intimated the Reserve Bank ofIndia andSebi aboutthe fraud.
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Citibank India; fraud worth 400 crore
The suspected employees had accessto high net worthindividual (HNI) clients ofthe bank
They were in roles which involved servicingtheirrequirements for investment products, accordingto abank employee who spoke on condition of anonymity.
. The employees claimed thatthe products wereauthorized by the banks investment product committeeand used forged bank documents and letterheadstoprove the same.
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Paul Lower 2010
FRAUDDETECTION & CONTROL
MANAGEMENT LEVEL FRAUD
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EmployeeLevel Fraud
Milton Pereira, former management of Hudson City Bank, wasconvicted on charges of embezzling more than $650,000 from hisformer employerto fund hisgambling and credit card debts.
Overseven years Pereira tampered with more than 60 customeraccounts by executingthousands of fraudulent debits and credits
CASE STUDY
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Paul Lower 2010
EmployeeLevel Fraud
How he did it:Pereira repeatedly withdrew funds from customer accounts andtransferred them to accounts he had created and controlled and from
which he illegally withdrew funds.
He evaded detection by moving funds between accounts andpreventing customers from receivingstatements.
CASE STUDY
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EmployeeLevel Fraud
How he was found out:When a few customers became aware of unauthorised activity ontheir accounts, Pereira corrected the errors by transferring funds
from other customers accounts.
Then he sent lettersto the customersto tell them there had been anerror inthe bankssystem that caused the error and thatthis hadsubsequently been corrected.
Some ofthe customers remained suspicious and the ensuing policeand FBIinvestigation uncovered Pereiras fraudulentscheme.
Pereira wastried and sentenced to two years in prison.
CASE STUDY
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EmployeeLevel Fraud
When bank employees have too much control overcustomer accounts
How could this fraud have been prevented?
Which controlsshould have been in place to prevent it?
CASE STUDY
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EmployeeLevel Fraud
When bank employees have too much control overcustomer accounts
Surprise audits of fund transfers might have revealed red flags of
unusual patterns in accounts being looted by Pereira and anunusually high number of creditsto the accounts he controlled.
Sampling ofsuppressed statements by auditors or regionalmanagersshould have pointed to Pereira as being responsible forrequestingthe statementsto be held.
Use automated fraud pattern detectionsoftware; ensure IT
professionalsset up to include flagging bank manager activity.
Thorough background checks on Pereira might have revealed hispersonal debt and gambling problems
CASE STUDY
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Management Level Fraud
Fraud atsenior management level
Occurs less frequently than employee level fraud
But when it occurs lossestend to be greater
Management hasgreater authority
Possibly better knowledge ofsystems
Better equipped to execute complex frauds
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Management Level Fraud
Types of management level fraud
Same as employee fraud but on a largerscale
Cheque fraud
Skimming
Looting customer accounts
Loan fraud approving loansto oneself Loan fraud kickback schemes & bribery
Illegal financial transactions and corruption
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Management Incentives
Meeting market expectations
Stock prices are tied to meeting earnings forecasts
Focus is onshort-term performance only
Companies are heavily punished fornot meeting forecasts
Executives have been endowed with hundreds of millions of dollars worth ofstockoptionsfar exceeds compensation (tied to stock price)
Performance is based on earnings & stock price
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Management Disclosure Fraud
Meeting market expectations
Overall misrepresentations aboutthe nature ofthe company or its products, usually madethrough news reports, interviews, annual reports, and elsewhere
Misrepresentations inthe management discussions and othernon-financial statementsections of annual reports, 10-Ks, 10-Qs, and other reports
Misrepresentations inthe footnotesto the financial statements
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Roleof Credit Reference Agencies
Independent credit agencies play a part
The three major credit rating agenciesMoodys, Standard & Poors and Fitch/IBCAreceived substantial fees from Enron
Just weeks priorto Enrons bankruptcy filingafter most ofthe negative news was outand Enronsstock wastrading for $3 pershareall three agenciesstill gave investmentgrade ratingsto Enrons debt.
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Roleof Auditors
They must be independent
Auditors mustnot provide internal and external audits. Anderson was paid $52 million in2000 by Enron, the majority fornon-audit related consultingservices.
Auditors mustnot be solely reliant on one client.Enron was Andersenssecond largest
client and kept a whole floor of auditors assigned atEnron year around Auditors mustnot have been employed by the client CFOs and controllers were formerAndersen executives
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