“Financial Crimes” is a term used to describe a variety of criminal acts including money laundering; terrorism financing; bribery; corruption; sanctions violations; proliferation financing; cyber financial crime; various types of fraud (securities fraud, insider trading, market manipulation, bank fraud, insurance fraud, payments fraud, health care fraud, medical fraud, credit card fraud, cheque fraud, corporate fraud, and other types of frauds and scams); and other crimes against property. In recent years, financial crimes have become a multi-billion dollar global phenomenon with criminal methodologies adapting and changing faster than governments, legislators, enforcement agencies and businesses can keep up. The associated risks to business and financial institutions are very real and can lead to regulatory fines, reputational damage, loss of customer base and even imprisonment.
While the risks of financial crimes are becoming increasingly clear to major corporations, financial institutions and governments, most consumers remain unaware of what exactly are financial crimes and how financial crimes are impacting them personally. Most people would have heard of money laundering as one of the most well-known financial crimes and most people would say that money laundering has not hurt them. That’s because their idea of financial crime is too limited. Unless they’ve personally experienced identity theft or fallen victim to some fraudster, many people think financial crime has not touched them. They couldn’t be more wrong.
Financial crime affects every one of us. It raises the cost of banking, it siphons money out of the pockets of every taxpayer, it could increase the cost of credit, it can impact whole economies and ability to trade internationally when the country’s risks rating is lowered due to the prevalence of financial crimes, and, even more significantly, it applies a financial stranglehold to world economy. So, what is it?
Understanding financial crime
The term “financial crime” is actually an umbrella term rather than a specific crime. It covers a broad spectrum of crimes rather than a single one. That broad spectrum includes crimes most people consider to be “victimless” or crimes that victimize businesses, organizations or financial institutions that most people think have “enough money” to write off the loss without harm.
Common financial crimes with limited scope
Embezzling is the most common financial crime. It is common because many people have access to a company’s or organization’s funds, giving them an opportunity to commit this crime. Embezzlement, however, is the most often detected financial crime.
Frequently, people who succumb to the temptation to embezzle funds find it harder than they thought to avoid detection. They have no viable plan for covering their tracks, so most embezzlers eventually are caught.
The damage embezzlement does, although it is the most common financial crime, is not as widespread as other financial crimes. That is not to say it is victimless, though. Although many people don’t see businesses or organizations as victims, stakeholders of those businesses or organizations can be deeply victimized by an embezzler.
Employees of a business that has had hundreds of thousands of dollars stolen from it may face job loss as the business struggles to recover from the theft. Charitable organizations may have to cut services to people who need them when large sums are lost to embezzlers. Although the grim effect of embezzlement is limited to only those who have a direct stake in the company or organization, the damage, nevertheless, is very real.
Another crime with damage limited only to those directly victimized is fraud. Fraud can take an almost unlimited number of forms, from the schemes of individual con men to highly organized identity theft networks. Most often, though, it, too, is limited to only those who are directly targeted.
Financial crimes with broader scope
As we move into financial crimes whose damage is more widespread, tax evasion comes into play. Many people, again, view tax evasion as a victimless crime, with only the government, with its vast storehouse of money, affected and easily able to handle the loss. The reality, however, is much different.
The government’s revenue source is taxpayers. When some taxpayers evade paying their rightful share, the government must make up that shortfall by having honest taxpayers shoulder a heavier load. Not only that, but tax evasion leaves the government with less money to pump back into the economy. So, the economy, and all the people it benefits, suffer, too.
Cybercrime has an even broader scope. By using the almost limitless reach of cyberspace, criminals can target more victims. The amounts of money stolen in cyber thefts can reach astronomical figures. For example, more than USD 300 million – perhaps triple that amount – was stolen from more than 100 financial institutions in the U.S., Russia, Japan and Europe in 2013 through a sophisticated scheme that involved malware and hacking. And this theft is not an isolated incident. Thefts of similar scope have been uncovered around the globe.
The massive scope of money laundering
The damage of all these financial crimes, however, is minor compared to money laundering. Ultimately, for any crime that involves large sums of money to succeed, its perpetrators must find a way to “legitimize” their illicit funds if they hope to use them without risking discovery of their crime.
This process of legitimizing illicit funds is known as money laundering. Although many people feel such crimes have no effect on them, money laundering and similar monetary manipulation schemes impact governments, financial institutions, businesses and individuals in ways that most people don’t realize, even, in some cases destabilizing entire industries and developing nations.
Financial crime ranges from small-scale fraudulent acts that mark the limit of most people’s awareness of it to massive organized schemes that net perpetrators hundreds of millions of dollars or legitimize billions of dollars of illicit funds. Financial crime is not something that affects “someone else but not me.” It affects businesses, governments and individual citizens. It affects everyone in ways that most people don’t even realize.
For over 30 years, Marin Ivezic has been protecting financial services and critical infrastructure against financial crime, cyber, and regulatory risks. He previously held multiple interim CRO, CISO and technology leadership roles in Global 2000 companies. Since 2013 he has been advising institutions and regulators around the world on safe, secure and compliant adoption of crypto assets and other decentralized technologies.