How are financial crimes detected?

254

Financial crime is a global industry valued at many trillions of dollars each year. It is considered a white-collar crime, committed by employees, directors and businesses for financial gain.

Business crime is generally non-violent, although it may include other forms of harm such as intellectual property infringement and bribery, and the proceeds of financial crime may feed into violent crime networks.

Detecting financial crimes is a 24/7/365 operation, with many thousands of people around the world employed full-time to identify and combat incidents. This leads to thousands of criminal investigations each year, against suspect employees and their employers.

Why is financial crime increasing?

Over time, financial crime generally increases in scale and complexity. This is due to a combination of factors, including the increase in funds held within the banking system, as well as the emergence of new technologies to commit sophisticated frauds.

In some cases, the crime is not the removal of money, but the insertion of funds into the banking system illegally as a precursor to money laundering.

The scale and value of corporate crime means there is significant financial incentive for the banks to detect and prevent it. That’s why the world’s largest financial services organisations pour so many resources into their anti-fraud departments.

How is financial crime tackled?

Where possible, the banks act proactively to prevent financial crime from occurring, rather than detecting it once it has already happened.

Examples of this include:

  • Know Your Customer screening of new accountholders
  • Extra security checks on very large cash deposits
  • Periodic verification checks to ensure existing data is still accurate

These kinds of checks allow the banks to minimise their credit risks when approving new accounts and other products, as well as to identify corporate customers whose circumstances may have changed in a way that increases their risk.

Some of these measures are introduced industry-wide via regulation, whereas others are a private initiative undertaken by one organisation or by a group of competing banks working together for the common good.

When are innocent parties impacted?

Innocent parties within the financial services sector can be impacted by investigations into suspected financial crime, without themselves being the victims of crime.

For example, where money is moved illegally out of a particular institution’s accounts, it is clear that the institution is a victim in its own right.

However, where money is laundered by moving it into an account and then withdrawing it to a different bank, the institution may become a vehicle for laundering without any net negative impact on its own finances.

When an investigation commences, this can lead to significant disruption, particularly for banks whose accounts have been used for illegal activities undetected for an extended period of time.

How to reduce the impact of business crime investigations

If you are informed of an impending investigation against your organisation or an employee, even if you believe you are innocent of the allegations, it is important to speak to specialist business crime solicitors as soon as possible.

While your first instinct may be to cooperate with the investigation as fully as possible, financial crime solicitors can help you to understand when you should not disclose details that could be perceived as incriminating.

This can reduce the risk of several negative impacts:

  • Personal impact when regulators attempt to hold individuals responsible for offences at corporate level.
  • Financial impact where institutions are subjected to substantial financial penalties for failing to prevent a breach.
  • Reputational damage arising from publicity surrounding the investigation and the original corporate crime that led to it.

Without good legal advice, you could find allegations against an individual’s deliberate criminal actions expand to include claims of negligence on your part for failing to monitor their activities closely enough, or for other failures in your financial security precautions.

Why defending financial crime claims matters

No organisation should be punished for acting in good faith, such as when you legitimately employ individuals who act against your best interests, or when you comply with an investigation and your own evidence is used against you.

Equally, when an allegation is made against an employee of your organisation, it brings your entire institution into disrepute, and financial crime solicitors can act swiftly to contain that risk and minimise the reputational damage to your brand.

Ultimately, tackling business crime and financial fraud requires collaborative effort from banks, regulators and law enforcement agencies. By successfully defending spurious claims, you can help to maintain confidence that the systems that are in place work in the best interest overall.

With trillions of dollars under threat each year, the risk of funding organised crime, and a very real existential threat to organisations found to be in serious breach, it is essential that all financial services operators take whatever steps are appropriate to prevent business crime, without falling victim to spurious claims in their own right.