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www.CAProfession.net
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Financial Crimes (Scams, Frauds &
White Collar Offences) - Prevention,
Detection & Investigation
Chartered Accountants Services for
the Police
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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)
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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
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Definition Of White Collar Offence
An offence which does not result in any
physical injury but results in a financial loss
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Personal
Integrity
Low High
Opportunities
To Commit
LowHigh
Situational
PressuresHigh Low
Crime
Scale
High No
CRIME SCALE
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Kinds of Frauds
& Scams
Telemarketing Frauds
Consumer Scams & Schemes
Business Opportunities
Money Laundering
Business ScamsInvestment Frauds
Criminal Operations
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Investment Frauds
Affinity
Pump & Dump
Bait & Switch
Ponzi
Forex / Currency
Real Estate
Financial Planners
Touting
Stock Markets
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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.
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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
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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
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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
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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
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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
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Business Opportunities
Bulk e-mail
Vending Machines
Multi Level Marketing
Franchises
Inventions / Patents
Vanity Press Publishing
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Money Problem scams
Credit Analysis
Credit reports
Advance Fee
Credit Card Offers
Identity Theft
Credit Repair
Loan Brokers
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Business Scams
Bank Fraud
Cheque Fraud
Fake Ads & Directories
Business Loans
Counterfeiting
Fraudulent Orders
Internet Services
Cramming
Supply Scams
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Work-at-home
Assembly Projects
Reading Books
Computer Work
Stuffing Envelops
Product Testing
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Criminal Operations
Corporate Entities
Recovery Operations
Reloaders
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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
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Consumer Scams
Pyramid Schemes
Travel & Vacation
Offers
Time Shares
Opportunity Seminars
Travel Clubs
Sweet Heart Seminars
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How-to-manuals
Abandoned / Lost
Money
Employment
Inheritance
Scholarships /
Diplomas
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Tele Marketing Frauds
Magazine Subscribers
Fund raising
Lotteries
Gimmie Gifts
Advance Fee Sweeps
Charities/Donations
Recovery Scams
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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
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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
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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
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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
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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
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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
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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
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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
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