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www.CAProfession.net
Financial Crimes (Scams, Frauds & White Collar Offences) - Prevention, Detection & Investigation
Chartered Accountants Services for the Police
DEFINITION OF FRAUD
A Fraud is:
A representation (usually of fact)
About a material point (important enough to make a
difference)
which is False as Truth or Correct
Intentionally and knowingly so (some cases recklessly)
Which is believed and
Acted upon by the victim
Caused Damage (Financially or otherwise)
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 and involves a team work
Definition Of White Collar Offence
An offence which does not result in any physical injury but results in a financial loss
Personal
IntegrityLow High
Opportunities
To CommitLowHigh
Situational
PressuresHigh Low
Crime
Scale
High No
CRIME SCALE
Kinds of Frauds& Scams
Telemarketing Frauds
Consumer Scams & Schemes
Business Opportunities
Money Laundering
Business Scams
Investment Frauds
Criminal Operations
Investment Frauds
Affinity
Pump & Dump
Bait & Switch
Ponzi
Forex / Currency
Real Estate
Financial Planners
Touting
Stock Markets
Investment Frauds – Ponzi Schemes
o A Ponzi Scheme is basically an investment fraud where investors are enticed with the 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 8 months 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 exceptional dividends 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.
Investment Frauds – Unethical Financial Planners
o Misusing a position of trust
o Civic Involvement
o Attire
o Offices
o Notoriety
o Assume control / power of attorney
G T C Fund – Good Till Cancelled
4ME2SPEND – For me to spend
GSC (Government Securities Fund) – Giant Service Fee
Few Cases
Money Laundering
Placement
Flight Capital
Layering
Tax Heavens
Integration
Enforcement
A criminal’s objective in laundering illicit proceeds is to : Get it out; cover it up; bring it back
Techniques in Money Laundering
PlacementGetting Currency into the financial system so as to convert illicit funds from cash straight into a financial instrument or bank account
LayeringThe movement of funds from institution to institution to hide the source and ownership of the funds, obscure the audit trail and sever the link with the original crime
IntegrationThe 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
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 & Shell Companies as a layering tool
• Use of trusts
• Use of walking accounts
• Establishing self owned bank
• Use of intermediaries
• Use of haven bank credit cards
• Receiving as consulting or directors fee
• Arrangement of corporate loans
• Proceeds of gambling
• Real estate transactions
• Stock Purchase
• Use of business
• International importing and exporting
• Use of free trade zones
Placement Layering Integration
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
Business Opportunities
Bulk e-mail
Vending Machines
Multi Level Marketing
Franchises
Inventions / Patents
Vanity Press Publishing
Money Problem scams
Credit Analysis
Credit reports
Advance Fee
Credit Card Offers
Identity Theft
Credit Repair
Loan Brokers
Business Scams
Bank Fraud
Cheque Fraud
Fake Ads & Directories
Business Loans
Counterfeiting
Fraudulent Orders
Internet Services
Cramming
Supply Scams
Work-at-home
Assembly Projects
Reading Books
Computer Work
Stuffing Envelops
Product Testing
Criminal Operations
Corporate Entities
Recovery Operations
Reloaders
Consumer scams
Chain Letters
Internet Fraud
Modeling School
Toll freeNumbers
Local Pyramid Clubs
Pay-per-call
Diet / Weight Loss
Dinner Party / Gifting Clubs
Multi Level Marketing
Consumer Scams
Pyramid Schemes
Travel & Vacation Offers
Time Shares
Opportunity Seminars
Travel Clubs
Sweet Heart Seminars
How-to-manuals
Abandoned / Lost Money
Employment
Inheritance
Scholarships / Diplomas
Tele Marketing Frauds
Magazine Subscribers
Fund raising
Lotteries
Gimmie Gifts
Advance Fee Sweeps
Charities/Donations
Recovery Scams
“RED FLAGS” are the signals, signs or symptoms which are reflected while certain types of fraud are taking place.
What Does “Red Flags”“Red Flags” Mean
RED FLAGS – DEFINITION
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 or documentation
• Claims of Authority / Registered in a different country
• Urgency in collecting finances
• Flouting of Laws
• Short cut formulae
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
Fraud is increasing Creates significant behavioural issues Disrupts productivity Losses have a multiplier effect making them much more
expensive than the actual amount lost. Kills Good Organisations Responsibility of regulators for prevention and
detection of fraud has increased
Fraud Should be taken SERIOUSLY
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
Role of Regulators should be
• Understand the need for creation / modification of laws to
curb / 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
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 news
media
• Be independent from every business not only on
paper but otherwise
Chartered Accountants Services
Identification of red flags
Conduct of pre-enquiries
Study of the methodology of scam / fraud
Assisting in documentation / verification of
documentation
Investigation Report / Forensic Accounting Report
Expert Advisory Services
Witness services
Training the officers on latest trends in global
scenario
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