What is a Financial Crime?
Financial crime, also known as “Economic Crime”, is a crime committed against property, and is usually divided into two types of unlawful conduct. The first type includes activities intended to generate personal wealth dishonestly, such as corruption and bribery of public officials, fraud & embezzlement through corporate assets misappropriation, market offenses (e.g., insider trading and price manipulation), financial statement fraud and cyber theft. The second type of financial crimes serves an entirely different purpose – these are crimes intended to protect/utilize a benefit that has already been obtained by/for illicit means. Prominent examples include money laundering, financing of terrorism, violation of international sanctions regimes (e.g., OFAC and UNSCR) and tax evasion.
Today, it is widely recognized that financial crimes have become a substantial threat to the economic development of many societies and countries around the world. In fact, it is estimated that the current cumulative global cost of financial crime exceeds 1.4 trillion USD.
Anti-Bribery and Anti-Corruption
In an era of economic globalization, financial crimes are often linked to cross-border transactions and activities. Such activities can create various business opportunities for corporations and individuals seeking to obtain some form of business advantage. It might also be the case that international businesspersons and companies are pressured by external parties that are well-positioned to affect or control the outcomes of certain transactions pursued by those companies and businesspersons. Consequently, corruption and bribery of foreign public officials have become a growing concern for many regulatory agencies and governments, exposing almost every company with cross-border activities to corruption risks.
Indeed, corruption has become a multi-trillion-dollar global issue for companies across all sectors, with many international surveys indicating that approximately 1 out of 3 companies are being asked to pay a bribe each year somewhere around the globe. In fact, the United States Securities & Exchange Commission (“SEC”) and the Department of Justice (“DOJ”) alone were responsible for more than 30 enforcement actions brought against companies and individuals who violated the “Foreign Corrupt Practices Act“ (“FCPA”) during 2020. Considering an astonishing number of 196 FCPA enforcement actions taken between the years of 2015-2019, and more than 14 billion USD in fines, it is widely expected that last year’s trend shall remain consistent in the coming years. Because bribery and corruption threaten the free, fair and transparent operation of businesses and the global economy, numerous other regulators established their own frameworks for corruption prevention, including the U.K Bribery Act (“UKBA”), the OECD Anti-Bribery Convention, and various others.
Bribes revealed can result in more than just hefty regulatory fines, and can often lead to damaged trust and loss of integrity across the company’s stakeholder population (e.g., customers, governments, employees, investors, creditors, business partners, etc.). In addition, paying a bribe often requires a fraud or deception to record the payment in the books and records of the organization – this not only damages the integrity of financial reporting, but can also lead to interruption to normal business, loss of market share, and excess costs as a result of responding to regulatory inquiries or conducting investigations, both of which requires massive spending on legal assistance, advisory services and data processing.
Financial Crime in Capital Markets and Banks
In recent years, there has been an alarming increase in crimes committed against property through the exploitation of financial services, including money laundering, financing of terrorism, violation of international sanctions regimes, and market offenses relating to securities trading. In particular, capital markets have become increasingly exposed to criminal activity involving complex schemes, such as:
- Price manipulation – Spoofing, ramping, bull/bear raids, etc.;
- Cum-Ex Trading schemes;
- Inside information – Insider dealing, research or soundings;
- Circular trading – Wash trades, matched trades, warehousing schemes, etc.;
- Reference price manipulation – e.g., barrier or benchmark manipulation;
- Collusion and information sharing – e.g., sharing pools;
- Improper order handling – Front running, cherry picking, partial fills, etc.; and
- Misleading information – Guarantees, window dressing, etc.
- Deliver transaction monitoring typology reports, and design/validate monitoring rules & thresholds;
- Carry out regulatory gap assessments and implement emerging guidance relating to anti—money laundering, financing of terrorism and international tax treaties (e.g., FATCA and CRS);
- Design policies and procedures for prevention or detection of tax evasion schemes, emerging money-laundering and terrorism financing methods such as trade-finance, cryptocurrency-laundering, wire-stripping via SWIFT messages, correspondent banking schemes, etc.;
- Carry out risk assessments of new products or technologies (including the adoption of FINTECH/ REGTECH technologies);
- Design and implement AML/CFT compliance programs, including training programs and formulation of policies and procedures;
- Design and deliver machine-learning centric models for anomaly detection, optimization of existing monitoring rules and reduction of false-positives via alert handling predictive models.
- Design and implement sanctions compliance programs focused on OFAC/UN/Israel sanctions regimes as well as other international sanctions programs, reflecting best practices and guidance issued by the FATF, the Wolfsberg Group and others;
- Design internal controls and testing programs focused on enhancing efficiency and effectiveness of screening engines or algorithms;
- Design and deliver advanced analytics to improve entity filtering and screening, reduce false-matches and improve lists configuration.
- Design and implement ABAC compliance programs focused on effective policies & procedures governing government-interaction activities and transactions carrying heightened compliance risks, as well as best-practices for tone-at-the-top/middle, compliance testing and analytics, training and internal investigations;
- Design and implement third-party risk management processes and methodologies, including implementation of vendor compliance softwares;
- Conduct ABAC risk assessments tailored to various business sectors, territories, revenue models and other unique criteria;
- Design and deliver compliance analytics targeted at compliance-sensitive transactions (e.g., gifts/entertainment, agent commissions, high-value contracts, etc.), including machine-learning anomaly detection models coupled with fraud rules.
- Design internal controls and monitoring rules that enable deterrence and detection of securities fraud and market abuse (“Trade Surveillance”);
- Test and design rogue trading and market-abuse typologies;
- Design and deliver advanced analytics for rogue-trading detection using both transactional data and communications data (“Chat Analytics”), allowing to detect suspicious transactions coupled with human sentiment indicative of rogue-trading intentions;
- Conduct insider threat and risk assessments across middle-office, back-office and trading-rooms;
- Carry out internal audits according to existing audit plans, leveraged by data-driven auditing methodologies.