Where we are now: economic crime, corruption and money laundering in the new economic world order

Where We Are Now: economic crime,
corruption & money laundering in the new
economic world order
www.proximalconsulting.com
Peter Lilley
Global KYC Enhanced Due Diligence Experts
Established since 1999

Behind every great fortune is a crime
Source: Honoré de Balzac

In memory of Cesare Lombroso 1835-1909

Total amount of money (clean/indifferent/dirty) that is
moved across the globe each day:
$2 Trillion
Source: UNODC website 2017

International financial transactions are carried out in a realm that
is close to anarchy. Numerous committees and organizations
attempt to coordinate domestic regulatory policies and negotiate
international standards but they have no enforcement powers
Source: Randall Kroszner, Associate Professor of Business Economics at the University of
Chicago Graduate School of Business

New factors which impact on economic crime activity:
• globalization of markets & financial flows
• the dizzying rise of the internet — a single unregulated market
• competition, consolidation & collaboration
• corporates — staff have to deliver results
• technological advances
• criminalization of politics
• Offshore Financial Centres (OFCs) — economic salvation for obscure jurisdictions.

Globalization opens more opportunities for crime, and crime is
rapidly becoming global, outpacing international cooperation to
fight it ... [it is] estimated to gross $1.5 trillion a year — a major
economic power rivalling multinational corporations
Source: United Nations, Human Development Report 1999

Estimated scale of the illicit narcotics industry:
$400 billion per annum
… with 400 million regular customers, it is bigger than
the world’s oil and gas industry
Source: UNODC, Economic and Social Consequences of Drug Abuse and IllicitTrafficking Report

Money launderers will pay up to 30% of the amount of
their “dirty money” to “facilitate” its laundering

The problem is that this is a phenomenon that respects no
borders. The organized crime groups and terrorist
organizations are far more attuned to the realities of the
globalist century than western governments are
Source: Senior law enforcement official commenting after 9/11

Transnational organized crime is a major threat to international
security. It damages the social, economic, political and cultural
development of societies. Organized crime has evolved in times of
increasing globalization and expanding international trade: the range of
organized crime activities has broadened and diversified. In the last few
years, organized crime groups have built up large-scale international
networks and amassed substantial profits from illicit trafficking in drugs,
human beings and weapons, from the production and sales of
counterfeit products, and from international fraud.

The proceeds from these crimes are laundered, and re-injected into the legal
economy. Organized criminal groups need to be able to launder the proceeds of
drug trafficking and commodity smuggling in order to avoid possible legal
investigation and prosecution by tax and criminal authorities in relevant
jurisdictions. The most dangerous consequence of laundering is the vast amount
of money passing through the hands of criminals, enabling them to put these
resources to further illegal use. Rapid developments in financial information,
technology and communications now allow money to move anywhere in the
world with speed and ease. This makes the task of combating money laundering
more challenging than ever.

The financial downturn & economic crime risk:
• The increase of economic crime risks occurring when companies are expanding
(e.g. entry into new markets) may have been reduced.
• Companies experiencing a reduced turnover may have lower fraud losses.
• The motivation to commit economic crime may have increased — driven by
financial pressures.

Counterfeiters need little excuse at the best of times and
economic hardship is likely to be a recipe for increased
criminality
Source: David Howard,Chairman of the InternationalAuthenticationAssociation

Fraud survey of the financial services sector in 2009:
• Fraud losses were up 22% from previous year.
• Of the 10 industries surveyed, the financial services sector was hit hardest.
• 21% of companies surveyed confirmed that their internal controls had been
weakened by cost cutting.
Source: Economist Intelligence Unit

Fraud survey of the financial services sector in 2009:
Frauds experienced:
Theft of physical assets 28%
Regulatory or compliance breach 28%
Internal fraud 27%
Information theft, loss or attack 25%
Financial mismanagement 25%
Corruption/bribery 16%
Vendor/supplier fraud 12%
Source: Economist Intelligence Unit

Governments have already lost the war against economic
crime & money laundering so they’ve left it up to financial
institutions and other providers to police the problem for them

Fraud typologies:
• insider (staff) fraud
• fraud by outsiders
• West African 419 fraud
• organized crime and money laundering
• insurance fraud
• computer and cyber crime
• mortgage fraud.

Some new/current “rhythms”:
• staff involved in data theft
• stolen data on the web
• the risks of social networking sites
• identification of beneficial owners
• the many faces of corruption.

Where We Are Now: economic crime, corruption & money
laundering in the new economic world order
Some suggested solutions

The organizations that are more at risk of fraud are those
where awareness is low
Source: UK AuditCommission report on council fraud “Protecting the Public Purse”

In improving efficiency and making difficult choices about
spending priorities, councils must take care not to lose focus on
fraud prevention and detection
Source: UK AuditCommission report on council fraud “Protecting the Public Purse”

Economic crime (fraud/money laundering) is committed by people, not systems or machines, so people
are the most important element in preventing it.
Your marketing/product-development departments will always create new products and services that
are stupid: they completely ignore fraud/money-laundering risks.
Every organization should create a culture that tries to prevent economic crime. This tone needs to be
set from the very top. Note: if your organization is not prepared to do this, do you really want to work
there?
Every organization must have a unit to prevent, detect and investigate fraud/economic crime. This unit
must be staffed with professional, creative and competent people.
The customer-facing staff of your organization will always do stupid things and be taken in by criminals
— particularly criminals whose business could generate large bonuses or commissions.

Every one of my victims was smart enough to see through my
scam; my job was to make sure that they did not have any time
to think
Source:Alphonse Mortier, convicted fraudster

You would not believe how easy it is to steal, especially if you
look as smart and middle class as me
Source:An unidentified female shoplifter interviewed inThe Daily Mail newspaper (UK), November 2009

It’s a story of greed and deception — my greed and their
deception
Source:A US-based victim of 419West African Frauds

It never ceases to amaze me how arrogant, stupid and gullible
people are
Source: John Moscow, former assistant DA in NewYork, talking about the victims of advance-fee fraud

The stupid actions of your marketing and customer-
facing people has consequences; you will continually
be at odds with them and manage to make yourself
very unpopular in the process.
Note: if you do both of these things, you are
probably doing your job well!

Economic crime is migratory: follow best practices and install dynamic defences to ensure
that your organization does not become an easy target. If your defences are strong,
criminals will move on to targets with weaker defences.
Train ALL staff in fraud prevention, IT security, data protection and anti-money laundering
methods. Prevention is better (and cheaper) than cure.
Fire criminals who work for you — and prosecute them.
Abolish all talk of “acceptable” fraud losses: it is defeatist. Aim for year-on-year fraud-
loss reductions. Record and analyze all losses and show your management what a great
job you are doing when losses are (hopefully) reduced.
How to do your job even better

Understand your financial losses due to crime:
How?
Where?
When?
Why?

Design, implement, monitor (and then improve) robust controls.
Carry out thorough KYC and due diligence checks on your staff,
suppliers and customers.
Use technology — if only because criminals and terrorists have
long been utilizing technology to its full potential.
A summary of recommendations

Proximal Consulting have unrivalled experience in providing KYC enhanced due diligence background reports on individuals and companies
on a global basis. We also offer a complementary range of services including AML training, country risk reports and bespoke investigations.
Our enhanced due diligence reports are tailor-made to our clients' specifications. They are totally different from the usual database-led
reports that often fail to meet enhanced due diligence requirements. Our reports present clear, accurate and confidential findings, which
enable our clients to make informed business decisions and fulfil their AML obligations.
We work with a variety of global clients including regulatory agencies, law firms, individual companies, private banks, trust companies and
other firms in the financial sector.
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Where we are now: economic crime, corruption and money laundering in the new economic world order

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