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Financial Crimes (Scams, Frauds & White Collar Offences) - Prevention, Detection & Investigation

Chartered Accountants Services for the Police


A Fraud is:
u A representation (usually of fact)
u About a material point (important enough to make a difference) u which is False as Truth or Correct u Intentionally and knowingly so (some cases recklessly) u Which is believed and

u Acted upon by the victim
u Caused Damage (Financially or otherwise)


A Scam is: A scheme designed with an intent to defraud a group of individuals or an enterprise(s) or a government(s) or a mix thereof, for getting some personal benefit - financial or fame, which requires violation of some law or flouting of certain established controls and involves a team work

Definition Of White Collar Offence

An offence which does not result in any physical injury but results in a financial loss


Situational Pressures High

Crime Scale


Opportunities To Commit High

Low Personal Integrity High



Telemarketing Frauds Consumer Scams & Schemes Business Opportunities

Kinds of Frauds & Scams

Criminal Operations Investment Frauds

Business Scams Money Laundering

Investment Frauds



Financial Planners

Pump & Dump

Forex / Currency


Bait & Switch

Real Estate

Stock Markets

Investment Frauds – Ponzi Schemes
A Ponzi Scheme is basically an investment fraud where investors are enticed with the promise of extremely high returns or dividends over a very short period of time.


Named after Carl Ponzi, who collected $9.8 million from 10550 people (including

three fourth

of the Boston Police Force) and then paid out $7.8 million in just 8 months in the year 1920 at Boston by offering profits of 50% every 45 days


Ponzi schemes are a simple fraud whereby initial investors are paid exceptional dividends as interest payouts from the deposits of a growing number of new investors. “Profits” to investors are not created by success of the underlying business ventures but instead are derived from capital contribution of other investors. A few people invest in the scheme, then as news of the offer spreads, more investors are drawn in.

Investment Frauds – Unethical Financial Planners

o o

Misusing a position of trust Civic Involvement Attire Offices Notoriety Assume attorney control / power of

o o o

Few Cases
 G T C Fund – Good Till Cancelled  4ME2SPEND – For me to spend


(Government Securities Fund) – Giant Service Fee

Money Laundering

Placement Layering


Tax Heavens

Flight Capital


A criminal’s objective in laundering illicit proceeds is to : Get it out; cover it up; bring it back

Techniques in Money Laundering

Getting Currency into the financial system so as to convert illicit funds from cash straight into a financial instrument or bank account

The movement of funds from institution to institution to hide the source and ownership of the funds, obscure the audit trail and sever the link with the original crime

The reinvestment of those funds in an ostensibly legitimate business so that no suspicion of its origins remains and to give the appearance of legitimizing the proceeds

Techniques in Money Laundering
• Smurfing • Shipping Money Abroad • Placement through Banks • Use of “Pass Through” or “Payable Through” Accounts • Electronic Wire Transfers • Insurance Products • Investment Related Transactions • NBFCs

• Tax Havens & Offshore Banks • Bank Secrecy Law as a layering tool • Corporations & Shell Companies as a layering tool • Use of trusts • Use of walking accounts • Establishing self owned bank • Use of intermediaries

• Use of haven bank credit cards • Receiving as consulting or directors fee • Arrangement of corporate loans • Proceeds of gambling • Real estate transactions

• Stock Purchase
• Use of business • International importing and exporting

• Use of free trade zones

Factors which severely hamper law enforcement efforts
          Acceptance of flight capital by western countries Laws and limitations of other countries Jurisdictional conflicts and lack of international coordination Bankings’ role in facilitation of the activity Bank Secrecy Volume and complexity of international transfers of funds Internet based banking Tax heavens as sanctuaries Offshore corporations Having to prove fraudulent transfer

 

Shortfall of reporting requirements
Criminals influencing Government and Bank support The widespread use and acceptance of trade mis-pricing

Business Opportunities

Bulk e-mail

Inventions / Patents

Multi Level Marketing

Vanity Press Publishing

Vending Machines


Money Problem scams

Credit Analysis

Credit Card Offers

Credit Repair

Credit reports

Identity Theft

Loan Brokers

Advance Fee

Business Scams

Bank Fraud

Business Loans

Internet Services

Cheque Fraud



Fake Ads & Directories

Fraudulent Orders

Supply Scams


Assembly Projects

Computer Work

Product Testing

Reading Books

Stuffing Envelops

Criminal Operations

Corporate Entities

Recovery Operations


Consumer scams

Chain Letters

Toll free Numbers

Diet / Weight Loss

Internet Fraud

Local Pyramid Clubs

Dinner Party / Gifting Clubs

Modeling School


Multi Level Marketing

Consumer Scams

Pyramid Schemes

Travel Clubs

Time Shares

Opportunity Seminars

Travel & Vacation Offers

Sweet Heart Seminars


Abandoned / Lost Money
Employment Inheritance Scholarships / Diplomas

Tele Marketing Frauds



Magazine Subscribers

Gimmie Gifts

Recovery Scams

Fund raising

Advance Fee Sweeps


What Does “Red Flags” Mean

“RED FLAGS” are the signals, signs or symptoms which are reflected while certain types of fraud are taking place.

Early indicators of Fraud (Red Flags)
• • • Unreasonable returns compared to market rate of returns Promise for free money Magical solutions / products

• •

Show off / Affinity
Clandestine Meetings / Maintenance of Secrecy Anonymity / One man / small team officiating

• • • •

Oral Representations documentation






Claims of Authority / Registered in a different country Urgency in collecting finances Flouting of Laws Short cut formulae

Techniques in Fraud
• • The “Three-Call” Technique The Infallible Forecaster

• • • • • • • • •

Baits to Lure in Aspect of Risk Show of Familiarity Doing you a favour An understanding of Psychology Avoidance of Questions High Pressure Sales Tactics Fancy Corporate Names Howdy Partner

Fraud Should be taken SERIOUSLY

is in c reas u Creates significant behavioural issues u Disrupts productivity u Losses have a multiplier effect making them much more expensive than the actual amount lost. u Kills Good Organisations u Responsibility of regulators for prevention and detection of fraud has increased
u Fraud

i ng

Weaknesses in Regulatory System

• Inspector Raj

• Dual Responsibility
• Undue Delay in Processes • Excessive intervention by Judiciary

• Very less time in law making
• Considering of problem rather than cause of the problem

• More interest before investigation but no interest in concluding the cases

Role of Regulators should be
• Understand the need for creation / modification of laws to curb / eliminate opportunities for scams / frauds based on the study of global scenario • Ensure appropriate powers to law enforcement agencies • Provide facility for 2/3 levels of appeal before any one approach the judiciary • Ensure time bound completion for the cases / designating case officer • Announce very severe punishment for committing the crime • Introduction of Compulsory Operations Audit on a periodical basis

Role of Police Should be
• Conduct seminars for the benefit of investment community about different kinds of fraud on a periodical basis • Conduct seminars about the repercussions on the convicted & his / her family • Utilise services of professionals such as Chartered Accountants, Advocates & Company Secretaries for conducting pre-enquiries with regard to various indicators available from news media

• Be independent from every business not only on paper but otherwise

Chartered Accountants Services
 Identification of red flags  Conduct of pre-enquiries

 Study of the methodology of scam / fraud
 Assisting in documentation documentation / verification of

 Investigation Report / Forensic Accounting Report
 Expert Advisory Services  Witness services  Training the officers on latest trends in global scenario