Predicate Crimes

The concept of predicate crimes can be traced to American Law and were initially classified under drug related offences, however legislation has since broadened the definition to include any serious crime and ever since the 2004 Financial Action Task Force (FATF) recommendations, predicate crimes have guided Anti -Money Laundering (AML) definitions and several jurisdictions have a list of crimes they consider to constitute serious crimes, however the ununiformed variation in definitions has resulted in several bad actors taking advantage to circumvent the law and evade detection. 

Predicate crimes are of particular interest to me as I am currently undergoing my PhD research within this area and I hope to discover important findings that will make important contribution to the financial crime landscape.

What constitutes a predicate crime?

A predicate crime is a key concept of Money Laundering and ML can only happen after a predicate crime has been committed, a predicate crime is therefore a component of a larger crime. For example, Mr Joe goes out to sell “heroin” on the streets of Long Island and cash was payed, the predicate crime in this instance is the selling of Class A drugs. 

Various jurisdictions have different approaches as to how a predicate crime is interpreted, the United Kingdom for example who are no longer a part of the EU has the Proceeds of Crime Act (POCA) 2002 legislation that adopts an “all crime approach” which serves as a predicate offence to ML. In the United States, predicate crimes are known as “specified unlawful activities” and there are over 200 known SUAs which covers well known key areas. The introduction of the 6th EU Money Laundering Directive is indeed a welcome development, with the aim of providing a uniform approach to AML/CFT regulations by proving a list of 22 predicate offences that constitutes Money Laundering across the EU states, including certain tax crimes, environmental crimes, cybercrime and self – funding.

With several guidance and reports put together by organisations such as the Financial Action Task Force (FATF) and the European Union (EU), it is imperative to highlight that the onus ultimately lies on financial institutions, designated non-financial business and other regulated businesses to take a unified approach in other to mitigate their risk of money - laundering, organised crime, terrorist financing and other related predicate offences.

If your organisation, professional body or civic group would like to learn more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email- contact@emgfinancialcrimeconsulting.co.uk

Trade Based Money Laundering (TBML)

Taking a historical look at the Black-Market Peso Exchange (BMPE) in the 1970s where Latin America drug cartels moved the proceed of cocaine sales to Colombia, this is a form of TBML because of the paramount importance of imported products that require hard currency. Over the years, there has been an understanding of TBML to a wide extent, however the issue has been staying abreast with the variants and changes in the political economic, legal and regulatory landscape that has sparked a huge shift in TBML typologies, which still permits the flow of billions of dollars across various jurisdictions.

Today criminals are constantly seeking other avenues besides the use of financial institutions to explore ways dirty money can be converted into legitimate funds, infact the Wolfsberg Group, an association of 13 global banks in its 90-page guidance on Trade Finance & AML does highlight that 90% of world trade is not financed by banking institutions. TBML offers a spectacular way of moving value across borders for transnational organised crime, also for terrorism and the proliferation of financing. TBML provides the opportunity to move a staggering amount of money across borders without anyone realising it as criminals use legitimate trades to move value around to obtain dirty money. Literally any industry involved in any trading activity could be involved, there is nothing tied to the nature of the good or services, rather it is the value.

 The highlighted below is a very good example of “overinvoicing” often used to explain TBML from a money launderers perspective.

"We have Andy & Bob, two different trading entities looking to trade goods with eachother and then you have got "Smith" who is involved in the sale of narcotics/human trafficking and they have got the proceeds of that crime, that needs to be moved back to Andy in a different jurisdiction, so Andy and Bob are going to trade and that’s going to result in the value moving, hence what has happened is Andy would sell Bob some goods, but the amount Andy  charges for those goods is higher than the actual values, so Bob  would then buy those goods, sell them on the open market and then retrieve the value but has made a loss as Andy was overpayed. So what happened effectively is the difference between the amount Bob has payed Andy for those goods and the amount Bob got from selling those goods is the amount of value that has moved from Bob to Andy, so it’s a sneaky thing going on, as that illicit value generated in one country has moved to another"

From the above example, we can see how difficult it is to detect a TBML transaction as it does not resonate with direct trade, additionally if Andy & Bob agree amongst themselves, all the bank will see is the payment settlement, no underlying transactions is obvious as per trade facilitation. 

In an attempt to provide guidance on TBML, there have been several great publications by the Financial Action Task Force, the UK Financial Conduct Authority, Singapore Association of Banks and other national regulators on the techniques and red flags, but at the end of the day, one common theme of any whitepaper or publications is does something feel unusual and does not make economic sense.

If you would like to know more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email contact@emgfinancialcrimeconsulting.co.uk

Beneficial Ownership: What is it about?

Beneficial ownership refers to the person or persons who ultimately own or control an asset (for example, a property or a company). It is vital to emphasise that such ownership control could benefit from its establishment either legally or illegally. A drug trafficker for example could set up a car renting service in order to appear to have legal sources of income from renting out cars for personal use while in reality the money is derived from the sale of drugs. Therefore, the identification and verification of beneficial ownership are very critical requirements for combating every forms of financial crime, tax evasion and corruption, fraud and money laundering, to trafficking and terrorist funding.

Who are your customers, vendors and third parties? Do you really know them? Do you have a full understanding of their structure & complete ownership? Many criminals or legitimate businesses would deliberately try to create multiple layers of ownership using complex but valid corporate structures across various borders which in turn makes the ownership and money movement almost untraceable.  Additionally, the presence of offshore financial secrecy havens such as the Cayman Islands only goes to further complicate beneficial ownership information.

The 5th EU Money Laundering Directive and the Financial Action Task Force (FATF) Recommendations 24 & 25 provides a comprehensive guidance towards combating the ability to disguise beneficial ownership. This guidance should be employed in tandem with regular training of your employees responsible for performing due diligence, Ongoing due diligence and monitoring of business relationships, Employing enhanced measures for your high risk clients and adopting a risk based approach to customer due diligence.

Please kindly note the content of this writeup is only intended to provide general information and not to provide any legal advice. Also, if you would like to know more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email contact@emgfinancialcrimeconsulting.co.uk

Fraud & Coronavirus (COVID -19)

As the coronavirus pandemic wreaks havoc and devastates nations across the globe, it is despicable that many individuals and businesses have fallen victim to fraudsters more especially the older and vulnerable people who are isolated from family and friends. The truth is that we are in precarious times, hence it is therefore critical for us to prepare for a dramatic increase in various fraudulent activities, fraudsters would constantly seek ways to exploit our fears and anxiety, the disruption of our normal daily routines also presents an increased risk more especially during this emergency times.

The United Kingdom’s (UK) COVID-19 Fraud watch group, a cross-sector and cross-industry coalition of trusted partners (including the Cabinet Office and City of London Police) who come together to share  information and warn the public, private and third sectors about COVID-19 fraud risks and preventative actions. Below are some outlined fraud risk by this group

Current COVID-19 Fraud risks

• Procurement fraud (esp. PPE equipment from overseas)

• Benefit fraud (including phishing emails and fake claims)

• Online shopping fraud (esp. fake medical goods)

• Impersonation of HMRC, DWP, FCO and travel companies

• Fake applications for government support/grants

• Payment diversion fraud

• Fake online communication sites (esp. including domains using 'Zoom')

• Authorised push payment fraud

• Charity impersonation fraud

• Romance fraud

Anticipated and/or emerging issues

• Social engineering techniques adapting to focus on COVID-19

• Fake charities or businesses being set up to access grants/support

• Hacking and DDOS attacks

• Ransomware targeting the health sector and social services

Below are some tips I have put together to help prevent the following Fraud Risk as highlighted above.

• Be sceptical if you receive an email, text or WhatsApp message about the Coronavirus, and never click on any attachments or links. 

• If you believe you have been a victim of scam, report your suspicions to the UK Action Fraud 03001232040 on / similar law enforcement in your country of residence.

• It is critical for businesses at this time to implement additional verification methods before making payment to reduce the risk of payment diversion fraud.

•    Please do not allow yourself to be pressured into donating money, research any charities or crowdfunding sites soliciting donations.

 • Having total control of personal data is extremely important, do not provide your information such as your full name, address and date of birth as fraudsters can use this data to steal your information.

• If you are to make purchases online, please carry out an effective due diligence checks to ensure credibility.

• Install latest app updates or software to protect your devices from the latest threat.

Please kindly note the above preventive tips is not exhaustive, I urge my readers to be on guard for COVID-19 scams and to look out for vulnerable family members, friends and neighbours who may become target for fraudsters and If you would like to know more about this subject matter or any other areas within my line of interest, you are most welcome to get in touch with me via email contact@emgfinancialcrimeconsulting.co.uk

Understanding Money Laundering & What is Suspicious

As a seasoned Financial Crimes Investigator, I have seen many changes come up in this space, recently the 5th EU Money Laundering Directive.  My favourite regulations personally are the 4th EU Money Laundering Directive 2017 and the United Kingdom’s Proceed of Crime Acts 2002 (POCA).  The greatest feeling of accomplishment for me is when money laundering and terrorist violations are found, the feeling that you are valued by law enforcement and the government.

Defining Money Laundering

Let me simply say this is the practice of disguising the origins of illegitimately obtained money.

What is Suspicious Activity?

It is virtually impossible to quantify all activity that is considered suspicious. However, the following below are some examples of suspicious activities that should be monitored. (Please note certain high risks businesses as highlighted below should include site visits so as to determine legitimacy of its stated business type :

1.  “High-risk” businesses – such as cash checking, currency dealers, convenience stores, adult entertainment clubs restaurants, car washing facilities, money service business and the likes, this is not an exhaustive list. 
2.  Other business with high wire transfer activity, particularly wires to foreign entities and banks
3.  Cash intensive businesses
4.  Frequent consumer foreign wire transfer activity
5.  Frequent large cash consumer deposits and withdrawals.


Protecting your business

No matter what your business area is, Money Laundering can influence your bottom line, this crime is not limited to financial institutions or government organisations as criminal techniques has become a lot more sophisticated.  In no particular order, the below are useful tips to safeguard your business but please note this is not an exhaustive list.

• Establish an Anti-Money Laundering culture.
• Leverage on the use of technology.
• Always perform due diligence checks on new customers, clients and vendors.
• Have an effective data management system and process in place 
• Always obtain and retain records of all supporting documentation for at least 5 years.  
• Report any concerns or suspicions to the designated law enforcement in your country.



Gbolahan Babalola offers expertise and advise in Fraud, AML, Investigations, and Terrorist Financing. He is a qualified Certified Anti-Money Laundering Specialist, Certified Fraud Examiner and an Accredited Counter Fraud Specialist together with a Masters Degree in Criminology He is also a member of the Association of Certified Fraud Examiners, Fraud Advisory Panel United Kingdom and the Association of Certified Anti - Money Laundering Specialist.

As highlighted above, together is best when it comes to Anti-money laundering (AML) and Anti - Fraud. AML traces the origin of funds to ensure illegally earned money has not being disguised as legitimate, simply put any attempts to make dirty money look clean. In contrast, the aim of Fraud-prevention is to prevent or reduce monetary losses caused by criminal acts of deception, such as identity theft and forgery.

Despite the evident overlap of the AML and Fraud functions within businesses/ organisations, these two teams are often traditionally separated. It is worthy to note that AML and Fraud teams need to effectively work together and share best practices on the risk/ threats they face as on many occasions the threat one faces has the potential to affect the other. A good example could be in the case of a credit card fraud where the fraud prevention team suspects the culprit/ those involved might also be involved in laundering money, this suspicions can be escalated to the AML team for review, verification of any red flags and application of appropriate mitigation controls.

In conclusion for effective collaboration, intelligence sharing is a must between AML and Fraud functions and there must also be strong financial crime controls in place. This list is not exhaustive, however the following as listed above would reduce the effects of criminal activity and promote integrity and stability within the financial space.

If you would like to know more about this subject matter, you are most welcome to get in touch with me via email contact@emgfinancialcrimeblog.com

Fraud in Charity

I still cannot comprehend why anyone would try to defraud a charity considering the nature of what they do and the fact that they are dependent on donations from the public, supporters, government grants and financial aids to run. The nature of the charity sector implies that everyone is acting to support a cause or for goodwill purposes and, if fraud were to occur, it would come from an external source. Sadly this is not always true. Anyone who works for a charity will commit Fraud when the right opportunity presents itself.

Charities can be susceptible to Fraud from both internal and external sources. Typical internal Fraud can include an employee keeping donations for themselves, a misuse of charity credit cards or bank accounts, staff members making fictitious expense claims. External Fraud would include the use of false invoices to get money from a charity, Using identity fraud to obtain money from a charity bank account, Phishing scams and fraudulent fundraising in a charity’s name.

The impact of Fraud on a charity’s reputation can be very damaging. Report from the charity commission states that charities, along with individuals and the private sector, “lose billions of pounds each year to fraud”. Clearly more efforts is required to help tackle this menace.

I have compiled a checklist below to make your charity safer;

Ensure you have strong policies in place to discourage and prosecute fraudsters, as this will send strong signals to anyone who may have such intentions.

Ensure that staff members can only access areas of the system that they need. Don't have a blanket "one size fits all" approach.

Verification processes must be adhered to when changes are made to master records, e.g. independently contact supplier/staff, and request written confirmation for changes.

Appropriate segregation of duties should be followed (no one person should start a transaction and end it i.e. recording/reconciliations and authorisations).

Be prepared to conduct periodic unannounced audits, as you will always find a few instances of errors. Even if these errors do not necessarily represent fraud, it gives your employees the impression of a constant oversight and I think this definitely deters the "casual" thief.

While this list is not exhaustive, the following are some of the ways to keep your charity safer.



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Crowdfunding – A new cover for Fraud

Crowdfunding is a fantastic way to raise money. However this is not to say it’s not without its inherent risk. As with all other businesses where money is involved, there is always a risk of fraud and crowdfunding is certainly no exception to this rule. For the unaware, crowdfunding is simply a way for a group of people to support a cause, project, or person that otherwise might not have the tools or resources to raise money. It could be supporting a charity event, an author’s book, or a friend’s cancer treatment.
Such websites like Kickstarter, GoFundMe and YouCaring can be easily accessed by anyone anywhere and do not have advanced fraud controls, unfortunately fraudsters have taken note and capitalised on these loophole.

How can you avoid being a victim?

1. Research the creator of the campaign: A good way to begin is to check their social media accounts, Facebook and the likes. Have a look at the activity and the friends for the account. Is there a long history or was the account just recently created? Do the friends appear to be real? Also, can the creator be found on other social media networks?

Other consideration should be whether their name appear in other scams? Are they claiming to do something that seems too difficult as a solo project or is there anything you are unsure of? that could just be good sign for you to steer clear of that campaign.

2. Carry out your own due diligence: Just as your bank won’t issue you a loan without doing a background check, make sure you do the same before donating to any crowdfunding project. Make sure you can verify the truth of the claimed need. Is there any information you can find out about the project creator’s track record? Do you know some scammers are more than willing to fake illnesses and accidents to prey on kindhearted donors?

     While this list is not exhaustive, I would like to re-emphasize on  the importance of conducting your own due diligence as a means of mitigating any occurrences of fraud. It may take three hours, three days but it’s worth it in the end as prevention is definitely always better than seeking restitution after falling victim to a fraud.

Social Media and Identity Theft

Social networking sites have become a great part of people's daily lives, as well as makes the world go round with just the touch of a button, however as I have written in this blog previously, everyone is vulnerable to some form of identity theft and the biggest vulnerabilities comes through the use of Facebook, Twitter, LinkedIn and others.

So, I was glad to find this great article (How Social Media Networks Facilitate Identity Theft and Fraud) written by Kent Lewis via the web. The author lists several best practices for minimising the risk of your personal details being stolen when using social media; here are a few items from his list:

·        Assuming you plan to be active in social media, ensure you minimise the use of personal information on your profiles that may be used for password verification or phishing attacks.

·       Avoid listing the following information publicly: date of birth, hometown, home address, year of high school or college graduation, primary e-mail address.

·       Only send invites people you know or have met, as opposed to friends of friends and strangers.

I encourage you to read the full article at this link; https://www.eonetwork.org/octane-magazine/special-features/social-media-networks-facilitate-identity-theft-fraud

For more information on this topic or any other fraud related area, you are most welcome to get in touch with me via email; contact@emgfraudconsulting.co.uk, I will be happy to assist you

2016 Report to the Nations on Occupational Fraud and Abuse

The Association of Certified Fraud Examiners 2016 report to the nation on occupational fraud and abuse is based on actual fraud cases that occurred in 114 countries across the world.

The report contains important facts for every organisation and business owner.
    
   . Median loss from reported fraud cased amounts to $150,000.

   . Asset misappropriation was the most reported fraud type, which took place in 83% of the cases but has the smallest median loss of $125,000.

   . Financial statement fraud was the culprit in less than 10% of cases but caused the biggest median loss of $975,000.

   . Organisations with fewer than 100 employees were the most likely to suffer from fraud in the study, representing about 30% of
the reported fraud cases. The median loss suffered by those firms was $150,000, the same as those suffered by large organisations (10,000 or more employees) and more than organisations with between 1000 and 10000 employees.

This report also draws an important conclusion on the implementation of of anti -  fraud controls, as organisations seem to be getting the message that anti-fraud controls can limit the duration of and damage caused by fraud schemes.

  

For more information on this report, please visit the ACFE website. 

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