Financial crime is a menace the financial industry has been plagued by over the years. From the IPO manipulations in the 1990s, the stock options debacle in the 2000s, the financial crisis of 2007-2008, and the advent of Ponzi schemes to name a few, financial crimes have long since existed and this new age of technology is not an exemption. The increase in the rate and frequency of financial threats to cybersecurity has compounded with intensified cybercrime and hacking and in 2018, the World Economic Forum reported that private companies spent approximately $8.2 billion on anti-money laundering (AML) controls alone in 2017.
Financial fraud involves the loss of money, capital, or investment through illegal, misleading, or deceptive practices and it can be done through different methods such as identity theft, facility takeover, mortgage, and lending fraud, investment fraud.
Financial scams are becoming more costly than ever before with digitization meaning that financial systems have moved from personal and physically monitored systems to electronically monitored systems meaning that persons can get access to a load of financial details and information from anywhere around the world making vulnerabilities in the system are more dangerous.
The evolution of fraud and financial crimes
Fraud and financial crimes have evolved over the years with both becoming interrelated and complex. There is little or no distinction in these modern times between fraud and financial crimes although both have some differences as viewed by regulators with financial crimes covering tax evasion, bribery, money laundering, and fraud covering forgery, credit scams, deception of financial personnel to commit theft.
Attackers have equally adapted to new developments and upgrades in financial systems and domains to gain access and commit crimes. Possessing knowledge of the cyber environment, banking processes, and controls, attackers identify loopholes within these systems making use of different channels including credit cards, ATMs, wire transfers.
Unlike before when fraud cases were mostly transaction-based, cyber-related attacks such as identity theft have become commonplace with attackers getting access to the personal information of customers as every detail is being put online, no thanks to digitization.
It is getting increasingly difficult to watch out for financial crimes due to the constant update and adaptation of cyber attackers. There are always warning signs though, red flags that require that vigilance and extra investigation be taken;
1. Unusual money transactions
Transfers or exchange of money that is not consistent with the accounts should be flagged and unusually high money deposits should be flagged as well. There are “locations of concern” as well, and transfers from there should equally be observed.
2. Complicated group structures
Criminal enterprises are usually built on complex structures to disguise and hide the true entity. Set up without any logical explanation, these schemes are usually layered with geographical locations that have no connection and financial instruments that are complicated. If you come across such, that’s a red flag.
3. Incomplete and inconsistent information
Information that can not be verified, multiple IDs, false information, or reluctance of the client to release required information is a sign that further findings should be carried out.
How to prevent financial crimes
In preventing financial crimes, it is important to be able to predict rather than react to financial crimes. It is important to be proactive in preventing financial crimes. Financial institutions have to carry out a continuous assessment of cyber threats, fraud, and financial crime cases and then use it to redesign internal operation processes for customers.
“To catch a thief, you have to think like a thief” is a statement that is best suited to preventing financial crimes. Financial institutions have to think like financial criminals to be able to predict their pattern of flow to effectively set countermeasures against cyberattacks. By studying their behavior and analysis of successful crimes carried out, control systems can be built in to avoid subsequent and continuous target of their system weak points.
Financial crimes have become more cyber-related in this age and the cybersecurity of financial institutions is constantly under attack. Integrated fraud and cyber-risk functions provide a more efficient approach to dealing with these attacks as well as predicting them. Continuous updating of the risk scores will help financial institutions to constantly review the level of risk of clients and transactions.
Institutions must see the need to spent huge on the cost of integration to effectively maximize banks’ data, automation, and analytics to nullify financial crimes. Tech systems such as Artificial Intelligence and Machine learning can be used to carry out accurate predictive analysis when given additional sources of information as well as heightened detection capabilities. With integrated data from internal and external sources, banks’ databases will be sufficiently enhanced to enable better customer identification and verification.
No one wants to be a victim of fraud or a financial scam. Customers of financial institutions want to see security controls and measures put in place to checkmate financial crimes. Improved customer satisfaction reassures the customers and helps shape customer behavior. Security is topmost at, the mind of any customer but certainly not all there is; convenience, transparency, quick resolution of issues, easy and hitch-free authentication, control is a few of some other ideal requirements that customers expect from their financial institutions.
The example of the Carbanak attacks which began in 2013, very well illustrates the risk and fear of present-day financial crime in this age of cybersecurity. Malware thefts totaling $1 billion carried out by an organized criminal gang revealed the reality; banks are yet to fully grapple with fraud, financial crime, and cyberattacks and clearly, a new approach has to be thought out and worked on. Processes, technology, data, people have to be thoroughly checked and questioned.
Criminal activities are getting more advanced and more adaptive to firewalls set by institutions rendering them less effective and dangerous. The onus is therefore on institutions to brace up and stay ahead of the curve to ensure financial security in this age of cybersecurity both in the near term and in the long term.
BIO: David Lukić is an information privacy, security, and compliance consultant at IDstrong.com. The passion to make cybersecurity accessible and interesting has led David to share all the knowledge he has.
