Fraud, scams, and money laundering, while distinct in nature, often intersect, forming a complex web of financial crime. Understanding the nuances of each, their commonalities, and the strategies to combat them is crucial for businesses and law enforcement alike.
What are the implications of Fraud, Scams, and Money Laundering. Show me the money!
- Fraud: Typically results in direct financial loss for victims. This can range from identity theft and credit card fraud to corporate fraud. The impact extends beyond monetary loss, often causing emotional distress, reputational damage, and erosion of trust.
- Scams: Often involve deception to trick individuals or businesses into parting with money or personal information. Scammers exploit trust and vulnerability, leading to financial loss, identity theft, and emotional harm.
- Money Laundering: The primary goal is to disguise the illicit origin of funds, allowing criminals to use proceeds from criminal activities without detection. This process undermines the integrity of the financial system, facilitates other crimes, and erodes public trust.
What are some contributing factors?
Several factors contribute to the prevalence of fraud, scams, and money laundering:
- Technological advancements: The digital age has created new opportunities for criminals to operate anonymously, globally and exploit those less technically savvy.
- Financial complexity: The increasing complexity of financial systems, products and schemes provides avenues for money laundering and fraud.
- Regulatory gaps: Insufficient or poorly enforced regulations can create loopholes exploited by criminals.
- Human factors: Greed, susceptibility to social engineering, and lack of financial literacy can make individuals and businesses vulnerable.
- Organised crime: Criminal networks often engage in all three types of financial crime, leveraging their resources and expertise.
How about some controls please!
Fraud involves gaining money illegally, scams involve gaining money by deception, money laundering involves moving money gained illegally by deception.
It is our view that there are opportunities for businesses and financial institutions to adopt a complementary approach to combat fraud, scams, and money laundering, and in fact any service that relies on better ‘knowing your customer’?
cough, marketing, cough, credit risk, cough, cough
This can be enabled through:
- Customer due diligence: Your ticket to the game, implementing robust Know Your Customer (KYC) procedures helps identify suspicious activities and prevent fraud, by actually knowing your customer, not just successfully onboarding them.
- Technology solutions: Employing advanced fraud detection tools, anti-money laundering software, and cybersecurity measures can enhance protection. Aligning these tools by capability, not marketing, can assist in making sure you are leveraging the capabilities your business may already possess.
- Collaboration: Sharing information and intelligence with law enforcement and industry partners can help disrupt criminal networks, right? But what about we also talk across departments, to the front line, to the call centres, to the marketing teams etc to see what our customers are actually doing and how we are looking at responding.
- Risk assessment: Continuously assessing and managing fraud and money laundering risks with the people and teams that actually respond, influence and are impacted by these risks is critical to really understanding your risks, not just documenting them.
- Incident response: Developing effective incident response plans to minimise losses and, crucially, learn from experiences.
- Regulatory compliance: is an outcome of all of the above, not just an input.
If these seem like pretty bland statements, you would be right, they are cross functional, ? standard guidance that are agnostic to financial crime, so don't isolate them, generalise them, and learn from your broader organisation!
OK so if I agree that makes sense, why doesn’t every business do this?
Well some do, usually informally, however there are cultural and industry wide barriers to collaboration (that exist in multiple silos!) that can take a long time to break down, from internal power dynamics, different work styles, pay grades, trust issues etc. Moving the cultural dial at large organisations can be a mammoth task.
However, there are a multitude of ways to approach the problem:
- Know your risks!
- Develop and standardise enterprise controls
- Identify and centralise like capabilities (people, process and technology) or establish virtual teams
- Operate and optimise
Thanks for the info! What was the point of this article again?
Firstly, thanks for reading this far! Hopefully we’ve been able to get you to think about how like capabilities can be aligned for a common goal, how simple concepts like knowing your customer can be spread across a broad range of internal company teams and disciplines and how looking at enterprise controls more holistically can help you better manage your fraud, or your scams, or your ML/TF risks, or shock simply service your customers better.
Would you like to explore a specific aspect of this topic in more detail? Quorsus can help, contact us!
