What is financial crime? Financial crime has become a stay-awake issue for corporate directors and C-suite executives at financial institutions around the world. Financial crime costs usually include direct losses, fines for non-compliance, and reputational damage.
What is Financial Crime?
Financial crime is generally defined as any activity involving fraudulent or dishonest behavior for personal financial gain. Financial crime refers to all crimes committed by an individual or a group of individuals that involve taking money or other property that belongs to someone else to obtain financial or professional gain. The two most significant types of financial crime are money laundering and the financing of terrorism.
Financial crime is a significant ongoing challenge for banks, institutions, and individuals. As regulators and financial authorities introduce new strategies to detect and prevent financial crime, criminals develop more sophisticated methodologies to evade legal scrutiny and commit offenses, including fraud, money laundering, and the financing of terrorism. Financial institutions are also expected to participate in the fight against financial crime by ensuring compliance with the authorities’ regulations at the risk of potentially severe penalties.
Financial compliance is a significant international concern: the global cost of compliance in the financial sector is estimated to be around 180.9 billion U.S. dollars annually.
Financial institutions spend lots of money to strengthen the internal controls and compliance culture to ensure that financial crime activities are prohibited within the organization. Internal controls mechanisms prevent the occurrence of external financial crime threats to which the institution is exposed.
Criminals are very creative in developing methods to commit such crimes. They are heavily influenced by the economy, financial markets, and anti-money laundering or counter-financing of terrorism regimes where they operate. Many increasingly exploit the complex nature of financial services, making detection and prevention even more difficult. Furthermore, large-scale syndicates such as international organized crime groups take advantage of differences in national criminal legislation.
The impact of financial crime on the economy, governance, and society is so significant that the survival of the whole financial system is put at stake because of complex criminal activities and structures built to perform these criminal activities. Financial crime has become a matter of concern to the States, and efforts are put in to protect the financial system’s integrity and stability, cut off the resources available to terrorists, and identify those engaged in crimes or other criminal activities.
Financial crime is a multi-trillion-dollar business for criminal organizations. According to the United Nations Office on Drugs and Crime, it is estimated that up to 2 trillion U.S. dollars of illicit funds are laundered through global financial networks every year. Such represents two to five percent of global GDP and is increasing yearly. It is estimated that only one percent of illicit financial flows are intercepted globally.
Financial crime is a type of property crime that involves the illegal conversion of ownership of property (belonging to one person) to one’s personal use and benefit. Fraud (cheque fraud, credit card fraud, mortgage fraud, medical fraud, corporate fraud, securities fraud (including insider trading), bank fraud, insurance fraud, market manipulation, payment (point of sale) fraud, health care fraud); theft; scams or confidence tricks; tax evasion; bribery; sedition; embezzlement; identity theft; money laundering; and forgery and counterfeiting, including the production of counterfeit money and consumer goods, are all examples of financial crimes.