May 2015 Issue

Our 'Newsletter on Financial Fraud' is your monthly insight into the various new fraud types and methods used by fraudsters globally in the banking space. 

In this issue, we bring to light the effect of banking fraud creeping in and making banks lose millions to this plaguing menace.

Banking Sector Frauds on Rise as Technology becomes Highly Sophisticated

Although technology has revolutionized the way the banking sector works, frauds in this segment continue to rise with the number of such incidents rising by over 10% in the past two years, according to a study by a consultancy firm.

"While the banking sector has been amongst the first sectors in India to adopt technology for business expansion and ease, they have not yet leveraged technology to the maximum extent as part of their fraud risk mitigation efforts," said KV Karthik, senior director, Deloitte Forensic.

The firm says the banks also saw frauds being carried out with increased sophistication as they upgrade their technology.

"Retail banking was identified as a major contributor to fraudulent incidents, with a majority of respondents indicating that they had experienced more than 50 fraud cases in the retail banking segment in the last two years, with an average fraud loss of around Rs 10 lakh per incident," the firm said.

Frauds encountered in the non-retail segment averaged 10 over two years, incurring a loss of about Rs 2 crore in each such incident, it added.

Some of the reasons for the increase in fraud include lack of oversight by line managers or senior management on deviations from existing processes, business pressures to meet unreasonable targets, lack of tools to identify potential red flags, and collusion between employees and external parties.

"Traditionally banks have relied on guidance from the Reserve Bank of India (RBI) to develop their fraud control policies. However, in light of the changing fraud landscape – such as rise in technology facilitated frauds – it is important that banks also focus on periodically assessing fraud risks and tweaking their fraud control policies to cover these risks. For instance, only few banks appear to have a robust policy on combating phishing and identity theft," Karthik said.

While diversion and siphoning of funds are identified as common causes of frauds in corporate banking, fraudulent documentation and absence/over-valuation of collateral were found be the key reasons for frauds in retail bank, the report said.

"While fraud is not a subject that any organization wants to deal with, the reality is that most organizations experience fraud to some degree. The important thing to note is that dealing with fraud can be constructive, and forward-thinking, and can position an organization in a leadership role within its industry or business segment," Karthik added.

Source: IBTimes

UAE bank alert on new 'SIM swap' fraud

Banks in the UAE are warning customers about a new “SIM Swap” fraud and are advising them to keep their phones switched on at all times, even when they are travelling.

In an email sent to its internet banking customers, RAK Bank said the “SIM Swap” occurs when criminals fraudulently obtain a new SIM card with your existing mobile number, pretending to be you.

It adds that once the SIM swap has occurred your phone will show an on-screen notification from your service provider, with the notification usually reading, “SIM not registered”.

According to the bank, as soon as your mobile number is assigned to the new SIM card, the fraudster will receive all your calls and confidential banking SMS notifications which could include one-time passwords sent to you by the bank.

The fraudsters could use the information to access your account and conduct fraudulent transactions.

The notice states that the bank is enhancing the security of banking transactions with customers now having to enter a telephone identification number when self-registering for mobile banking.

Customers are advised that if one suspects a fraudulent SIM swap, they should contact the bank urgently to notify of the incident and contact Etisalat and Du immediately to inform them of the incident and visit their nearest outlet to restore their mobile services.

Through its Twitter account, Dubai Police advised residents last week to type the bank website address into their web browser and never go to bank websites from a link in an email.

Source: Emirates 24/7


Africa loses $50bn to money laundering

Chairman of the Economic and Financial Crimes Commission (EFCC), Mr. Ibrahim Lamorde, has described money laundering as a threat to the economy.  He urged major players in the financial sector to co-operate with law enforcement agencies in combating the menace.

He lamented that a whopping $50 billion is lost to money laundering in Africa alone.

Lamorde described money laundering as an evil that requires collective and concerted efforts to tame.

“Money laundering is a cross-jurisdictional crime that, while obviating natural and artificial national boundaries, actually serves to bring nations together in one global crime-fighting network,” he said.

While lamenting the impact of illicit financial flows from Africa, he said that an estimated $50billion is lost by the continent in illicit financial flows, thus necessitating the important roles of players in the financial sector in combating money laundering.

“These flows relate principally to commercial transactions, tax evasion, criminal activities including money laundering; drugs,  arms and human trafficking; bribery, corruption and abuse of office,” Lamorde further stated.

In his paper, Anti-Money Laundering Legislation in Nigeria, New Regulations and Guidance Notes, Bala Sanga, the Project Coordinator (Anti-corruption) of the United Nations Office on Drugs and Crimes, noted that many players in the financial sector, have provided a platform for politicians to be corrupt.

“There’s the need for financial institutions to strengthen and enhance proper collation of customers’ data, and to ensure proper diligence on customers,” Sanga said.

Source: Sun News

Understanding Financial Crime, its Implications & How to Combat it

Financial crime is a serious criminal offense that is escalating at an alarming rate. Worldwide losses due to financial crime have been estimated to have crossed 3 Trillion USD. Banks worldwide have been struggling to identify and combat financial crime in order to minimize risks.

Let’s have a look at the most common kinds of financial crime prevalent today and their magnitude of threat:-

Account Takeover: Account takeover involves having a fraudster take over another person's account, first by gathering personal information about the intended victim, then contacting their card issuer by impersonating the genuine cardholder, and asking for mail to be redirected to a new address. As per a study conducted by Phishlabs in 2013, account takeover fraud grew annually by 69% worldwide.

Application Fraud: Application fraud takes place when a fraudster uses stolen or fake documents to open an account in another person's name.

Check Fraud: Check fraud involves making use of checks unlawfully in order to acquire or borrow funds that do not exist within the account balance. As per a report released in 2014 by JPMC, 82% of bankers surveyed reported that checks were the primary target for fraud attacks at their companies.

Internal Fraud: Internal fraud is broadly defined as an employee's misuse or misappropriation of an employer's resources or assets for personal gain. 72% of organizations worldwide are said to have been plagued with insider fraud sometime or the other.

Money Laundering: Money laundering is the process of creating the appearance that large amounts of money obtained from serious crimes, such as drug trafficking or terrorist activity have originated from a legitimate source. According to a recent report released by KPMG, 88% of bankers globally see AML as a priority.

Phishing: Phishing is the attempt to acquire sensitive information such as usernames, passwords, and credit card details (and sometimes, indirectly, money) by masquerading as a trustworthy entity in an electronic communication. Reports suggest that an estimated 5.9 Billion USD was lost to phishing in 2013 alone with North America being the most targeted geography.

 Skimming:  The theft of payment card information is called skimming. The thief can procure a victim's card number using basic methods or more advanced methods such as using a small electronic device (skimmer) to swipe and store hundreds of victims’ card numbers. In Europe alone, cash losses owing to skimming incidents exceeded 248 Million EUR in 2014.

Implications of financial crime are extensive. High-profile frauds & money laundering not only cause massive monetary losses but often lead to litigation costs due to non-compliance of various regulations. Apart from financial damages, organizations face irreparable blow to their reputation and hence end up losing potential customers. The only viable solution lies in implementing a strong combat mechanism that protects organizations against multi-channel fraud in real-time.

Combating Financial Crime

Initially, fraud was mostly an opportunistic crime committed by small-time fraudsters. But today, the banks and their customers face a very different world. As the size and sophistication of products, channels and services have grown, so have the types of fraud. Money laundering is also proving to be one of the most prevalent kinds of financial crime today. Therefore coming up with a robust combat strategy is essential for the management of financial crime. It involves the following:-

Alignment of Anti-money laundering & Anti-fraud efforts: Both fraud risk and money laundering are key containment areas within an organization with respect to operational risk management. It makes sense for the banks to implement a unified platform for both anti-fraud & AML that will facilitate optimization of the efforts of investigation teams.

Enabling customer state view: The new age fraud monitoring systems go way beyond fraud detection, they essentially provide fraud prevention and transaction decline solutions. For this to happen, the solution should be able to view the customer state view within the duration of the customer action completion.

Influencing outcome in real-time: Financial Crime has traditionally been detected through an array of post facto analysis software. While these systems are immensely effective in all the regulatory reporting, the one thing they fundamentally lack is to influence an outcome at point of interaction.Though most of the current generation fraud detection systems work in near real-time for processing transactions, banks need real-time fraud detection systems which can process banking events from core banking systems within milliseconds.

There is more to the ideal combat strategy. To know further, download our e-book ‘Guide to Managing Financial Crime in 2015’ here.


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