When financial crime gets more complicated

Tuesday December 01 2020
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A man uses an Automated Teller Machine. PHOTO/Rachel Mabala

By Ismail Musa Ladu

Economic crime also known as financial crime is easily perpetuated by people who are least expect to do so.

This means although organised criminals, including terrorist groups, are increasingly perpetrating large-scale frauds to fund their operations, it is important to have people in position of responsibility equally within arm’s length, just in case.

This is crucial because someone with state influence may decide to use it to loot the national coffers while a business leader or senior executive can manipulate or misrepresent a company’s true financial position.

It is also no longer a secret that employees from the most senior to the lowest rank can steal company funds and other assets.

Some contractors and suppliers are also an integral part of this evil. Note that both internal and external fraudster can collude to defraud an organisation or state coffers.

Identity theft is when someone acts under a false name to gain financial advantage. It is one of the commonest tricks for siphoning off a steady stream of cash or triggering transactions. So be on your guard and don’t fall prey.

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Then there is another group comprising of individual criminals, serial or opportunist fraudsters, all committing financial crime and impoverishing unsuspecting population almost at will.

Survey

Due to the rise in digitisation and automation of financial systems, financial crimes have become more electronically sophisticated and impersonal.

According to a PwC report, economic crime is getting more complex, international and digital. What all these offences have in common is that trust is breached while controls and preventive measures fail. Economic ecosystems are built on trust and only function if those involved can rely on one another.

The problem according to the PwC study is most people (about 60 per cent) are only as honest as circumstances require. So, opportunity really does make the thief.

According to the 2019 Uganda Police Annual Crime Report, economic crime remains a matter to contend with despite registering a 12 per cent reduction in reported cases compared to the year before.

The annual crime report notes that in the period under review, 6 per cent of all the crimes reported were a result of economic crimes. This means about 13,265 economic crime cases were reported last year compared to 15,099 registered in 2018.

Obtaining money by false pretence ranked up in the list of economic crimes.

“This was the highest category reported under Economic Crimes with 10,598 cases in 2019 compared to 12,313 cases. This is motivated by the desire to make quick money, thereby making unsuspecting members of the public victims to such fraud,” reads the report.

These cases manifest in terms of double selling of land, pyramid schemes, black dollar scams and obtaining goods/credit.

Situations

An example of obtaining money by false pretense which the commonest form of economic or financial crime is well exemplified by Dunamis Coin Resources Limited.

The company with three directors had its headquarters in New Taxi Park, Kampala with branches in other parts of the country, is alleged to have defrauded about Shs20 billion from about 2,500 people.

It is alleged that the company promised each depositor a 40 per cent interest on their deposits after 21 working days. Initially, each depositor would receive the promised 40 per cent interest on their deposits.

By November 2019, the company increased interest to 50 per cent on each deposit before closing shop the second day of the following months, with the directors disappearing with the depositor’s money who were promised huge interest.

With intervention of the police, Shs47 million was recovered from Dunamis Coin Resources Ltd while Shs709 million was frozen on their accounts after investigations were instituted into their activities.

Another example of obtaining money by false pretense was by Global Crypto Currencies. This company defrauded 425 victims of their money amounting to Shs10.6 billion. The director of the company was arrested, charged and remanded.

In an interview with an anti-fraud expert, Mr Mustapha Mugisa, says economic or financial crimes are now increasingly moving to digital spaces where there are millions of unsuspecting netizens.

He said: “State of cybercrime awareness is low. Many people in the cyber space are not aware about security implications because there is nobody helping them to keep personal cyber hygiene. Even banks are not doing deliberate cyber security campaigns.”

Dealing with economic crime

Global Economic Crime and Fraud Survey 2018, conducted by PwC places inspection as top on the list when dealing with economic and financial crime.

The report notes that preventing economic crime begins with a comprehensive risk assessment.

At individual level, you need to be alert and suspicious of deals that are too sweet. At institutional level, you need to know where you are most vulnerable so that you can take targeted action and allocate the necessary resources.

Prevention is the other area that the report emphasises as well. With a sustainable Code of Ethics, a company can communicate a basic understanding of honesty and transparency that staff can base their conduct on. For example, a Code of Ethics will set down a company’s stance in terms of practices such as bribery.

Information from employees and groups close to the company is key to the prevention of compliance infringements.

 Then detection. The PwC report notes that these days, new technologies can uncover many different infractions and abusive practices. For example,   Artificial Intelligence (AI) is now used in audits to enable not just spot checks, but also checks of all transactions.

Then sanctions. The penalties should be stiff and deterrent.

The report further notes that there is no such thing as a petty case of fraud, because if you detect a small case, you prevent a major one.

Economic crime

Economic crime, also known as financial crime, refers to illegal acts committed by an individual or a group of individuals to obtain a financial or professional advantage. The principal motive in such crimes is economic gain.

Thus, economic crime covers a wide range of offenses, from financial crimes committed by banks, tax evasion, illicit capital heavens, money laundering, crimes committed by public officials (like bribery, embezzlement, traffic of influences, etc.) among many others.

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