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Cont ntent nts Contents Section 1 – Defining Financial Crime 4 Section 2 – Global Financial Crime Trends 9 1 Section 3 – Anti Fraud Framework 3 16 Section 4 – Gaps in Anti Fraud Framework 19 Section 6 – Standard to Address Bribery Risk: ISO 37001 23 4 2
Section 01 Introduction 3
Definition of Financial Crime “Financial crime can refer to any non-violent crime that generally results in a financial loss , including financial fraud. It also includes a range of illegal activities such as money laundering and tax evasion . “ Financial System Abuse, Financial Crime and Money Laundering” IMF Feb 2001 Time Magazine, “Money Laundering – The trillion-dollar shell game” Dec.1989 4
Definition of Money Laundering The concealment of the origins of illegally obtained money, typically by means of transfers, involving foreign banks or legitimate businesses. Typically it involves the following three steps: 5
Example of Financial Crime Areas • Economic Sanctions; • Money laundering and terrorism financing; • Fraud (e.g. credit card fraud, mortgage fraud, cheque fraud, insurance fraud, securities fraud, payment fraud, etc.); • Market abuse and insider trading; • Tax evasion; • Bribery and corruption; • Cyber crime and Identity theft; • Embezzlement; • Scams or confidence tricks; and, • Forgery and counterfeiting 6
Defining Fraud and Misconduct Accordin ing to th the Oxford d Englis lish Legal al defini nition on of fraud ud Dictio Dic tionary The legal definition of fraud varies from country to country but in Fraud aud is - “A Criminal deception; a cases the key elements are: person or thing that is not what it dishonesty, deception, and the pretends to be! ” intention of obtaining an undue benefit; avoiding an obligation; Miscond nduc uct is - “unacceptable or causing loss to another party; improper behavior” removal of funds; or misrepresenting the financial position or affairs of the entity. 7
Section Global 02 Financial Crime Trends 8
Global Financial Crime Trends Commerzbank AG BNP Paribas Fine: $1.45bn Fine: $8.9bn Credit Suisse Fine: $2.6bn 2016 RBS 2015 Crédit Agricole Fine: $100m Fine: $329m 2014 Bank of Tokyo-Mitsubishi Standard Chartered Bank Fine: $565m JPMC Fine: $667m 2013 Fine: $2.05bn HSBC Habib Bank AG Zurich Fine: $1.9bn Fine: £525k “ Banks have paid $321 billion in fines since the crisis” ING Fine : 619m CNBC March 2017 2012 S ource: Various sources from regulat ors and news 9
Banking and Financial Crime Trends • Regulatory fines and public scrutiny continue to increase, leading to severe reputational damage. • In order to understand the Business complexity and details, focus on Business Risk Assessments are highly in the agenda in order to define a pragmatic risk based approach and to develop De-risking strategies. • Correspondent banking relationships have been greatly affected in various jurisdictions as part of de-risk. • Focus on client’s due diligence and transaction monitoring (Information). High risk individuals, organizations and PEPs continue to be the focus • Trade Finance continues to be highly lucrative but heavily monitored by Banks due to the high risk for ML/TF and Sanctions. 10
Banking and Financial Crime Trends • Intelligence and Technology have been a key drivers for investment in Compliance from Global Banks – in order to detect, monitor and report Financial Crime. • Leading Banks are establishing internal Financial Crime Intelligence Units (FIUs) with strong Data Analytics focus and with experienced (Financial Crime and Business) in order to have a proactive and flexible approach to mitigate Financial Crime risks. • By implementing FIUs this also allows Leading Banks to establish “Factories” for processes driven review in order to implement robotics and machine learning techniques on these Factories (maximize operating costs). 11
De-Risk in Global Institutions • De-risking refers to financial institutions exiting relationships and closing the accounts of clients or group of clients considered high risk. • There is an observed trend toward de-risking of correspondent banking relationships from countries perceived as high risk. 12
De-Risk Risks According to World Bank • “Keeping individuals and businesses in regulated financial systems is a precondition for effective systems to mitigate risks and combat financial crimes. Turning away customers could actually reduce transparency in the system by forcing transactions through unregulated channels” World Bank, October 2016 13
De-Risk Risks According to Industry SME “It is sort of understandable that people working in banks find it easier to say ‘no’ rather than go through a process of understanding the intent and rules involved in a transaction. That of course is unless the customer is wealthy and the transaction is significant.” Roger Wilkins – Previous FATF CEO. 14
Section Anti-Fraud 03 and Misconduct Framework 15
Fraud Risk-Iceberg Imagine an organization's fraud risk as an iceberg. The visible tip of the iceberg represents the fraud or Fraud Risk Management Strategy misconduct that is identified and the Weaker See less rest is hidden beneath the surface. Organisation’s waterline Stronger See more 16
Fraud Risk Management Framework The key challenges for organizations is to develop a comprehensive effort to: • Understand various control frameworks and criteria that apply to them • Integrate risk assessments, codes of conduct, and whistleblower mechanisms into corporate objectives • Create a comprehensive anti-fraud program that manages and integrates prevention, detection, and response efforts Prevention Detection Response • Code of conduct and relat ed st andards • Hot lines and whist le-blower • Int ernal invest igat ion prot ocols • Fraud and misconduct risk mechanisms • Enforcement and account ability assessment • Audit ing and monit oring prot ocols • Employee and t hird-part y due • Proact ive forensic dat a analysis • Disclosure prot ocols diligence • Remedial act ion prot ocols • Communicat ion and t raining • Process-specific fraud risk cont rols • Board/ audit committee oversight • Executive and line management functions • Internal Audit, Compliance and Monitoring Functions 17
Section 04 Gaps in Anti Fraud Framework 18
Gaps in Anti-Fraud Framework - Prevention Based on my industry experience of different sectors, in the prevention strategy for fraud the organization's lack in areas such as: • Ethical Risk Assessment including conducting ethical surveys. • Circulation of code of conduct of the company in local language. • Declaration/ clauses on compliance with code of business conduct in third party contracts • Understanding of Anti-Bribery & Corruption laws at executive level. • Pre-vendor due diligence. • Right to audit clause in contract with third parties. • Ethics training and awareness program. • Pre and post employee screening. • Fraud risk assessment. • Anti-Fraud Policy. • Communication of fraud policy. • Fraud awareness trainings. 19
Gaps in Anti-Fraud Framework - Detection In the detection strategy for fraud, the organization’s lack understanding in the areas such as: • Ethical hotlines not independently managed. • Mechanism for conflict of interest declaration. • Surprise fraud audit. • Documented investigation methodology. • Trail of previous conducted investigation • Segregation of internal audit and individuals conducting investigation. • Pre-exit digital forensics* * Pre-exit forensic digital forensic involve analysis of data obtained from the official laptops/desktops of key exiting employees few days before exit with an objective of detecting any malafide activities. 20
Gaps in Anti-Fraud Framework - Response In response strategy, organization’s lack understanding in the areas such as: • Timely incident response • Use of Forensic technology for identification of deleted file and recovery of digital evidences • Fraud response plan • Procedure to secure evidence (Electronic and Documentary) • Quantification of losses • Segregation and categorization of fraud events • Remedial action protocols • Post fraud response monitoring 21
Section ISO 37001 – 06 A Standard to Address Bribery Risk 22
A Standard to Address Bribery Risk: ISO 37001 • ISO 37001 is an international standard designed for the implementation of policies, procedures and controls which are reasonable and proportionate according to the bribery risk your organization faces. 23
A Standard to Address Bribery Risk: ISO 37001 What t does s ISO 37001 address? ss? Bribery in the public, private, and non-profit sectors; Bribery by the organization; Bribery by the personnel acting on behalf of the organization or for its benefit; Bribery by the organization’s business associates acting on behalf of the organization or for its benefit; Bribery of the organization; Bribery of the organization’s personnel in relation to the organization’s activities; and Direct and indirect bribery (a bribe accepted or offered through by a third party). 24
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