Friday, April 1, 2011

Bank frauds

Lantern Consult International is making efforts to investigate bank frauds. The article here below attracted me on common frauds and financial crimes

Financial crimes are defined as crimes against property involving the unlawful conversion of property belonging to another to one’s own personal use or benefit. Financial Crimes are carried out inter alia via cheque and credit card frauds, mortgage fraud, medical fraud, bank account fraud, payment fraud and currency fraud etc. Financial crimes involve acts such as insider trading, tax evasions and violations, embezzlement, money laundering carried. Sometimes it involves armed robbery and murder. Victims range from individuals, institutions, corporations, governments and entire economies.

On the other hand fraud is defined as any dishonest behavior by which a person or a group of people with intends to gain a dishonest advantage over another and is therefore an act of deception resulting in injury to another. In most countries and history, fraud has been criminalized and is therefore a violation of the law in respect of which the state can impose a punishment.

Frauds are on the increase in the banking industry and the following are the common frauds;

1 Common financial crimes

1. Cheque Fraud
Cheque fraud accounts for the biggest loss. For example in USA, yearly losses are estimated at more than $815 million, more than twelve times the $65 million taken in bank robberies annually. In Uganda billions of money is lost through this type of fraud.
2. Cheque Kiting
Cheque kiting is when in-transit or non-existent cash is recorded in more than one bank account. The crime usually occurs when a bank pays on an unfunded deposit. For example, a bum check is deposited into an account. Before the cash is collected by the bank, a check is written against the same account and deposited into a second account, or cashed. The increased use of wire transfers allows this type of scheme to be perpetrated very quickly.
3. ATM, Credit Card Theft and Fraud
This is the most common type of fraud because of the current form of technological use of e-banking. When there is a loss of cards or credit-cards the customers' names and phone numbers are got and with that information the fraudsters are then helped by ICT experts or a source within to defraud the company and or banks.
4. Falsification of Loan Applications
While scheming to defraud banks, companies or credit unions, fraudsters open current and savings accounts using false names and locations. Uganda has a challenge of national identity cards and this helps fraudsters to obtain fraudulent banking accounts and sometimes apply for loans for the stated purpose of financing the purchase of motor vehicles and other capital assets. Submitted false documents concerning their faked employment and income, including fake tax returns support their fraudulent intentions. By producing fictitious records including company audited accounts, insurance documents and invoices the fraudster can obtain huge sums of money in loans for various purchases ( whether actual or fictitious). Lack of identity also helps fraudsters to apply for multiple credit cards and ATM cards. In the face of globalization use of various VISA and MasterCard accounts to obtain substantial cash advances is also common.
5. Laxity in Enforcement
One of the problems with enforcing bank fraud laws is that it is often relegated to a low priority, or ignored altogether, because the activity can span several jurisdictions, involve many unidentified subjects, is non-violent and usually there are few leads. Uganda boasts of various anti graft laws and institutions but their effectiveness has been assessed as wanting! Police, Judiciary, DPP are rated as some of the most fcorrupt institutions in Uganda.

Therefore, many bank fraud suspects are able to elude arrest by furnishing false identification when cashing stolen, forged, or counterfeited checks and in cases of clear leads Uganda Police is either reluctant to act or very incompetent. One effort to stop this crime is thru the current system of Finacial cards that give all banks personal information including thumb prints that are required even for non-bank customers. With this positive identification, it has been much easier to identify, arrest, and successfully pursue bank fraud scams.
2 Fraud motivations
In Uganda the single biggest motivation for fraud is obtaining MONEY.
Other motivations are;
• The fraudster must have the opportunity (areas, skill and time).
• The fraudster must feel ha has a more than average chance to get a way with it.

How typical fraudsters look like:
One class of thought lists the following as the profile of a fraudster;
• Displays unexplained wealth and an extravagant life style.
• Is always short of cash.
• Prefers instant gratification.
• Shows no respect for every day office rules.
• Feels un appreciated and excluded.
• Always envious and resentful of others’ success or position.
• Arrogant, with a domineering personality.
• May appear muddled and disorganized, but in fact is highly orderly in his pursuit.
Some of the realities on fraud:
• Fraud can and do happen to well run Banks.
• Good managers, supervisors and other staff can be victims of fraud.
• Fraudsters steal from their employers and friends.
• Fraudsters genuinely believe they can get away with it as they plan they feel smarter and smarter but will have a second thought if they notice that you are smarter than them.
• Fraudsters come in both forms that is; men and women.
3. Fraud detections
Fraud can be detected by use of various methods as;
• Video surveillance cameras (CCTV’’s).
• Surprise Audits.
• Regular routine assessment.
• Daily checking, balancing and reconciliation of accounts.
• Training and fraud awareness amongst staff.
• Whistle blowing/hotline reporting procedures.
• Rewarding and awarding for information.
• Regular staff vetting.
4 Fraud Prevention
As the saying goes; “Prevention is better than Cure” it is better to prevent fraud and this can done by employing the following techniques;
• Deployment of security personnel.
• Deployment of video surveillance cameras.
• Training personnel.
• Disciplinary process.
• Staff vetting at recruitment and regularly thereafter.
• Publication of offenders.
• Arresting and prosecution of culprits.
• Clear written procedures with strong international controls.
• Sensitization of customers on how to keep their ATM cards and pin numbers secure.


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