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

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A presentation originally given at the International Financial Crime Conference in Vilnius Lithuania by Proximal Consulting's founder Peter Lilley.

Publicado en: Economía y finanzas
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Where we are now: economic crime, corruption and money laundering in the new economic world order

  1. 1. Where We Are Now: economic crime, corruption & money laundering in the new economic world order Peter Lilley Global KYC Enhanced Due Diligence Experts Established since 1999
  2. 2. Behind every great fortune is a crime Source: Honoré de Balzac
  3. 3. In memory of Cesare Lombroso 1835-1909
  4. 4. Total amount of money (clean/indifferent/dirty) that is moved across the globe each day: $2 Trillion Source: UNODC website 2017
  5. 5. 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
  6. 6. 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.
  7. 7. 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
  8. 8. 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
  9. 9. Money launderers will pay up to 30% of the amount of their “dirty money” to “facilitate” its laundering
  10. 10. 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
  11. 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.
  12. 12. 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.
  13. 13. 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.
  14. 14. 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
  15. 15. 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
  16. 16. 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
  17. 17. 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
  18. 18.
  19. 19. 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.
  20. 20. 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.
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  22. 22. Where We Are Now: economic crime, corruption & money laundering in the new economic world order Some suggested solutions
  23. 23. 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”
  24. 24. 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”
  25. 25. 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.
  26. 26. 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
  27. 27. 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
  28. 28. It’s a story of greed and deception — my greed and their deception Source:A US-based victim of 419West African Frauds
  29. 29. 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
  30. 30. 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!
  31. 31. 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
  32. 32. Understand your financial losses due to crime: How? Where? When? Why?
  33. 33. 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
  34. 34. 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. Phone +44 (0) 1672 516725 Offices Poughcombe Barns Ogbourne St Andrew Wiltshire SN8 1SE UK Rue Du Rhone 14 1204-Genève Switzerland Email Website All slide content and design is copyright 2017 Proximal Consulting. No part of the site may be reused without written permission from Proximal Consulting. If you wish to use any content, or would like Proximal Consulting to expand or clarify content, please contact us. PROXIMAL CONSULTING and the related logo are trademarksof Proximal Consulting Limited.