1 Cont ntent nts Contents Section 1 Defining Financial Crime 4 - - PowerPoint PPT Presentation

Contents

4

Section 1 – Defining Financial Crime

Cont ntent nts

9

Section 2 – Global Financial Crime Trends

16

Section 3 – Anti Fraud Framework

19

Section 4 – Gaps in Anti Fraud Framework

23

Section 6 – Standard to Address Bribery Risk: ISO 37001

Section 01

Introduction

“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

Definition of Financial Crime

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:

Definition of Money Laundering

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

Legal al defini nition

• n of fraud

ud

The legal definition of fraud varies from country to country but in cases the key elements are: dishonesty, deception, and the intention of obtaining an undue benefit; avoiding an obligation; causing loss to another party; removal of funds; or misrepresenting the financial position or affairs of the entity.

Accordin ing to th the Oxford d Englis lish Dic Dictio tionary

Fraud aud is - “A Criminal deception; a person or thing that is not what it pretends to be!” Miscond nduc uct is - “unacceptable or improper behavior”

Defining Fraud and Misconduct

Section 02

Global Financial Crime Trends

• urce: Various sources from regulat ors and news

“ Banks have paid $321 billion in fines since the crisis” CNBC March 2017

Global 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.

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).

Banking and Financial Crime Trends

• 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.

De-Risk in Global Institutions

• “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

De-Risk Risks According to World Bank

“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.

De-Risk Risks According to Industry SME

Anti-Fraud and Misconduct Framework

Section 03

Imagine an organization's fraud risk as an iceberg. The visible tip of the iceberg represents the fraud or misconduct that is identified and the rest is hidden beneath the surface.

Fraud Risk Management Strategy Weaker Stronger

Organisation’s waterline

See less See more

Fraud Risk-Iceberg

Prevention Detection

• Board/ audit committee oversight • Executive and line management functions • Internal Audit, Compliance and Monitoring Functions

Response

• Hot lines and whist le-blower

mechanisms

• Audit ing and monit oring
• Proact ive forensic dat a analysis
• Int ernal invest igat ion prot ocols
• Enforcement and account ability

prot ocols

• Disclosure prot ocols
• Remedial act ion prot ocols
• Code of conduct and relat ed

st andards

• Fraud and misconduct risk

assessment

• Employee and t hird-part y due

diligence

• Communicat ion and t raining
• Process-specific fraud risk cont rols

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
• bjectives
• Create a comprehensive anti-fraud program that manages and integrates prevention,

detection, and response efforts

Fraud Risk Management Framework

Section 04

Gaps in Anti Fraud Framework

• 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.

Based on my industry experience of different sectors, in the prevention strategy for fraud the organization's lack in areas such as:

Gaps in Anti-Fraud Framework - Prevention

• 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.

In the detection strategy for fraud, the organization’s lack understanding in the areas such as:

Gaps in Anti-Fraud Framework - Detection

• 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

In response strategy, organization’s lack understanding in the areas such as:

Gaps in Anti-Fraud Framework - Response

Section 06

ISO 37001 – A Standard to Address Bribery Risk

• ISO

37001 is an international standard designed for the implementation

• f

policies, procedures and controls which are reasonable and proportionate according to the bribery risk your organization faces.

A Standard to Address Bribery Risk: ISO 37001

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).

A Standard to Address Bribery Risk: ISO 37001

What do does ISO 37001 re requ quir ire?

Top management and those charged with governance take an active role in the implementation and ongoing maintenance of the system; Bribery risks posed by third parties are adequately assessed and appropriately mitigated; Appropriate anti-bribery controls are implemented in respect of transactions and business processes; Effective and secure mechanisms for raising concerns regarding bribery are available to personnel; The organization is able to respond appropriately to violations that are brought to its attention; and The effectiveness of the system is monitored and, as appropriate, measures are taken to improve it.

Important Note: Although ISO 37001 cannot provide assurance that no bribery has occurred or will take place in relation to an organization, the standard can help establish that the organization has implemented all appropriate measures designed to prevent bribery.

Thank you