Crime watch

Financial services firms need to take an active stance towards combating criminal activity.

Economic crime defines the wide range of crimes committed within the workplace for financial gain. But, perhaps, largely as a result of its all encompassing definition, little is known about the full extent of economic crime.
Estimated figures place the annual cost to “UK plc” as being as high as £14bn but, with so little research in this area, no one can be sure if that figure is accurate or if it is only the tip of the iceberg.

It is clear it is a significant problem that is getter bigger and is one that the Government intends to tackle, either directly, for example, through the Proceeds of Crime Act, or indirectly through regulators such as the FSA.

However, when only a limited amount of information is known about this topic, how can businesses be sure that they have protected themselves effectively? What can businesses do effectively to manage not only the economic crime that they find but also the economic crime that remains hidden?

It is not sufficient for businesses simply to react to instances of economic crime but rather they now need to look actively for instances of it in their business.

The importance of data-mining technologies can provide significant results in terms of spotting either suspicious transactions or other evidence of economic crime. To benefit truly from data mining, businesses need to improve the learning points by ensuring information is fed back into the system to improve detection further and consider how the information can be shared with the wider business community for the benefit of all.

As a sector, the financial services industry has sophisticated IT systems but many businesses in the sector need to make better use of IT if they want to improve the detection of economic crime as, so far, the benefits have not been fully realised.

Many firms could learn from the insurance industry that, for some time, has shared best practice with each other. The insurance industry introduced joined-up databases to ensure that, as an industry, they are able to spot someone who takes out three policies, has one “accident” and makes three claims.

One area where financial businesses, regardless of their discipline, could benefit is from a greater emphasis on transaction monitoring rather than just identity checking.
In the light of requirements under the money-laundering legislation, banks and building societies have put in place effective systems to check identities. The trick that is being missed is that there are not the effective systems or protocols in place to detect unusual activity once an account is opened.

For example, a system needs to detect when someone who has opened 20 accounts having had their iden- tity checked, uses these accounts to flush money through.

Seeking only to check the validity of someone’s identity but not unusual transactions is akin to have security at the front gate but leaving all the doors of a house unlocked.

If an effort is made to detect economic crime, it is important that any information is then fed back into the system in order that detection systems can be improved.
With hundreds of thousands of bona fide transactions, anything that improves the detection systems will help to reduce compliance costs.

Equally, the financial services industry needs to consider how it can carry out “post mortems” when criminal activity comes to light through law enforcement activity and it is subsequently found that money was laundered through accounts.

Why it is important for financial services businesses to grasp the nettle now?

The enactment of the Proceeds of Crime Act earlier this year was merely the first step and it is clear that economic crime generally will be a key focus of the FSA now that it is under its remit.

Indeed, now that combating economic crime is one of the FSA’s four statutory objectives – as opposed to just money laundering – and with the FSA’s appointment of Philip Robinson with a clear remit to review economic crime within financial services, one can argue that the FSA’s focus on economic crime is clear to everyone.

With the requirement for financial services businesses to operate themselves in a fit and proper manner, it is possible that the FSA will view any business that does not introduce best practice that protects both themselves and the wider industry from economic crime as failing to adhere to this rule.

There is no doubt that economic crime is a significant problem, the only doubt is as to its extent, largely due to the lack of in-depth knowledge. This is why we decided, in conjunction with the Home Office and the Fraud Advisory Panel, to undertake the biggest-ever research project into economic crime. The findings, which are expected later this year, seek to shed more light on this area.

To combat sophisticated criminals and their evolving techniques will require businesses and the financial services sector in particular to introduce solutions that cover the UK. With the increasing incidence of economic crime, what is self-evident is that doing nothing is no longer an option.

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