financialcrimes (1)

7/30/2019 financialcrimes (1)

1/32

www.CAProfession.net


2/32

Financial Crimes (Scams, Frauds &

White Collar Offences) - Prevention,

Detection & Investigation

Chartered Accountants Services for

the Police


3/32

DEFINITION OF FRAUD

A Fraud is:

uA representation (usually of fact)

uAbout a material point (important enough to make a

difference)

uwhich is False as Truth or Correct

uIntentionally and knowingly so (some cases recklessly)

uWhich is believed and

uActed upon by the victim

uCaused Damage (Financially or otherwise)


4/32

DEFINITION OF SCAM

A Scam is:

A scheme designed with an intent to defraud

a group of individuals or an enterprise(s) or

a government(s) or a mix thereof, for getting

some personal benefit - financial or fame,

which requires violation of some law or

flouting of certain established controls andinvolves a team work


5/32

Definition Of White Collar Offence

An offence which does not result in any

physical injury but results in a financial loss


6/32

Personal

Integrity

Low High

Opportunities

To Commit

LowHigh

Situational

PressuresHigh Low

Crime

Scale

High No

CRIME SCALE


7/32

Kinds of Frauds

& Scams

Telemarketing Frauds

Consumer Scams & Schemes

Business Opportunities

Money Laundering

Business ScamsInvestment Frauds

Criminal Operations


8/32

Investment Frauds

Affinity

Pump & Dump

Bait & Switch

Ponzi

Forex / Currency

Real Estate

Financial Planners

Touting

Stock Markets


9/32

Investment Frauds Ponzi Schemes

o A Ponzi Scheme is basically an investment fraud where investors are enticed withthe promise of extremely high returns or dividends over a very short period of time.

o Named after Carl Ponzi, who collected $9.8 million from 10550 people (including

three fourth of the Boston Police Force) and then paid out $7.8 million in just 8months in the year 1920 at Boston by offering profits of 50% every 45 days

o Ponzi schemes are a simple fraud whereby initial investors are paid exceptionaldividends as interest payouts from the deposits of a growing number of new

investors. Profits to investors are not created by success of the underlying business

ventures but instead are derived from capital contribution of other investors. A few

people invest in the scheme, then as news of the offer spreads, more investors are

drawn in.


10/32

Investment Frauds Unethical Financial Planners

o Misusing a position of trusto Civic Involvement

o Attire

o Offices

o Notoriety

o Assume control / power ofattorney

G T C FundGood Till Cancelled

4ME2SPENDFor me to spend

GSC (Government Securities

Fund)Giant Service Fee

Few Cases


11/32

Money Laundering

Placement

Flight Capital

Layering

Tax Heavens

Integration

Enforcement

A criminals objective in laundering illicit proceeds is to : Get i t

out; cover it up; bring it back


12/32

Techniques in Money Laundering

Placement

Getting Currency into the

financial system so as to convert

illicit funds from cash straight

into a financial instrument orbank account

Layering

The movement of funds from

institution to institution to hide

the source and ownership of the

funds, obscure the audit trailand sever the link with the

original crime

Integration

The reinvestment of those funds

in an ostensibly legitimate

business so that no suspicion of

its origins remains and to give

the appearance of legitimizing

the proceeds


13/32

Techniques in Money Laundering

Smurfing

Shipping Money

Abroad

Placement through

Banks Use of Pass

Through or Payable

Through Accounts

Electronic Wire

Transfers Insurance Products

Investment Related

Transactions

NBFCs

Tax Havens &

Offshore Banks

Bank Secrecy Law as

a layering tool

Corporations & ShellCompanies as a

layering tool

Use of trusts

Use of walking

accounts Establishing self

owned bank

Use of intermediaries

Use of haven bankcredit cards

Receiving asconsulting ordirectors fee

Arrangement ofcorporate loans

Proceeds of gambling

Real estatetransactions

Stock Purchase Use of business

Internationalimporting andexporting

Use of free tradezones

Placement Layering Integration


14/32

Factors which severely hamper law enforcement efforts

Acceptance of flight capital by western countries

Laws and limitations of other countries

Jurisdictional conflicts and lack of international coordination

Bankings role in facilitation of the activity

Bank Secrecy

Volume and complexity of international transfers of funds

Internet based banking

Tax heavens as sanctuaries

Offshore corporations

Having to prove fraudulent transfer

Shortfall of reporting requirements

Criminals influencing Government and Bank support

The widespread use and acceptance of trade mis-pricing


15/32

Business Opportunities

Bulk e-mail

Vending Machines

Multi Level Marketing

Franchises

Inventions / Patents

Vanity Press Publishing


16/32

Money Problem scams

Credit Analysis

Credit reports

Advance Fee

Credit Card Offers

Identity Theft

Credit Repair

Loan Brokers


17/32

Business Scams

Bank Fraud

Cheque Fraud

Fake Ads & Directories

Business Loans

Counterfeiting

Fraudulent Orders

Internet Services

Cramming

Supply Scams


18/32

Work-at-home

Assembly Projects

Reading Books

Computer Work

Stuffing Envelops

Product Testing


19/32

Criminal Operations

Corporate Entities

Recovery Operations

Reloaders


20/32

Consumer scams

Chain Letters

Internet Fraud

Modeling School

Toll free

Numbers

Local Pyramid Clubs

Pay-per-call

Diet / Weight Loss

Dinner Party

/ Gifting Clubs

Multi Level Marketing


21/32

Consumer Scams

Pyramid Schemes

Travel & Vacation

Offers

Time Shares

Opportunity Seminars

Travel Clubs

Sweet Heart Seminars


22/32

How-to-manuals

Abandoned / Lost

Money

Employment

Inheritance

Scholarships /

Diplomas


23/32

Tele Marketing Frauds

Magazine Subscribers

Fund raising

Lotteries

Gimmie Gifts

Advance Fee Sweeps

Charities/Donations

Recovery Scams


24/32

RED FLAGS are the signals, signs or symptoms

which are reflected while certain types of fraud are

taking place.

What Does Red Flags Mean

RED FLAGS DEFINITION


25/32

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 ordocumentation

Claims of Authority / Registered in a different country Urgency in collecting finances

Flouting of Laws

Short cut formulae


26/32

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

F d Sh ld b t k SERIOUSLY


27/32

uFraud isincreasinguCreates significant behavioural issues

uDisrupts productivityuLosses have a multiplier effect making them much more

expensive than the actual amount lost.

uKills Good Organisations

uResponsibility of regulators for prevention anddetection of fraud has increased

Fraud Should be taken SERIOUSLY

W k i R l S


28/32

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

R l f R l t h ld b


29/32

Role of Regulators should be

Understand the need for creation / modification of laws tocurb / 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

R l f P li Sh ld b


30/32

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 newsmedia

Be independent from every business not only on

paper but otherwise

Ch t d A t t S i


31/32

Chartered Accountants Services

Identification of red flags

Conduct of pre-enquiries

Study of the methodology of scam / fraud

Assisting in documentation / verification ofdocumentation

Investigation Report / Forensic Accounting Report

Expert Advisory Services

Witness services

Training the officers on latest trends in global

scenario


32/32

financialcrimes (1)

Documents

Transcript of financialcrimes (1)