A Brief Overview of Financial Fraud

Affecting the Banking Industry in

Lithuania

28th of October, 2014

Disclaimer!

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# These are my views

# They do not necessarily reflect the policies or views of my current or former employers

# The main purpose is to share ideas and promote discussion

A few bits about myself

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Regional Manager of Security

Main responsibilities:

• Health and Safety

• Robbery prevention

• Drive offs

• Shop theft

• Staff fraud

• Violence against staff

• Investigation of security incidents

• Liaison with the police

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A few bits about myself (cont’d)

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Regional Director of Security

Main responsibilities:

# Counter fraud and counter corruption

# Physical security

# Fraud risk assessments

# Internal/external investigations

# Training of staff

# Liaison with law enforcement

# Liaison with other financial institutions

Academic achievements

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What do you know

about fraud in the

financial services

industry?

Common Elements of Fraud

# Dishonesty

# Fraudulent intentions

# Fraud by false representation

# Fraud by failing to disclose information

# Fraud by abuse of position

The Fraud Act, 2006

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Fraud can be…

External Internal Collusion

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Fraud can be…(cont’d)

Simple or Complex

Fraud can be…(cont’d)

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opportunistic

or

premeditated

Opportunistic Fraud

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Opportunistic Fraud

Aimed at

financial

institutions or

their

customers

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Fraud can be …(cont’d)

Where Do You Look for Fraud?

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Types of Fraud Inherent in the

Financial Services Industry

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Computer Crime and Cyber Crime

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Credit Card Fraud

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Customer Account Fraud

Identity Fraud

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International Fraud

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Securities and Investment Fraud

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Large Scale Corporate Fraud

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Large Scale Corporate Fraud

Lending and Credit Fraud

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Lending and Credit Fraud

Bribery and Corruption

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Money Laundering

Insurance Fraud

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Staff Fraud

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Categories of Fraud Inherent in the Financial

Services Industry (cont’d)

1. Application Fraud

2. Facility Takeover Fraud

3. Misuse of Facility Fraud

4. Identity Fraud

5. False Insurance Claims

6. Asset Conversion

7. Staff Fraud

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Categories of Fraud Inherent in the Financial

Services Industry (cont’d)

Main categories of Financial

Crime:

1. Money Laundering and

Terrorist Financing

2. Fraud

3. Data Breaches

4. Bribery and Corruption

5. Sanctions and Freezes

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Reputational Risk

‘It takes 20 years to build a

reputation and five

minutes to ruin it’

Warren Buffet

Run on the Bank

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Run on the Bank

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Run on the Bank

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Financial and Operating Loss

Moral and Social

Responsibility

Economic Impact

Green, M. (2013)

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Cost of Fraud in the Financial Services Industry

Nederlandse Vereniging van Banke, 2014

Cost of Fraud in the Financial Services Industry (cont’d)

43The UK Cards Association, 2013

Picture of Fraud in the Financial

Services Industry

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# Fraud doesn’t occur here attitude

# Visible fraud vs. invisible fraud

# Lack of common fraud definitions

# Lack of fraud statistics

# Exchange of data on confirmed fraud is prohibited by law

# Doesn’t share data on best practices

# Counter fraud staff lacks adequate resources and training

Main Issues/Challenges Faced by the

Financial Services Industry in Lithuania

Elephant in the Room

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Issues with Law Enforcement

# Often lack resources,

adequate investigative

skills and motivation

# Don’t understand

banking / banking

products

# Often engage in ‘blame

the victim’ behavior

# Jurisdictional limitations

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Technological advances allow for new

types of crimes to be committed

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Bank robberies in the Netherlands

50Nederlandse Vereniging van Banke, 2014

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The Contemporary Crime Dilemma

‘If a network of Nigerian scammers based in Amsterdam defrauds

French, Australian and American credit-card holders, where does the

crime occur?’‘Earning with the Fishes’, The Economist, 2014

General public lacks awareness on fraud risks inherent in banking products and how to safeguard themselves against those risks

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And finally…

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Movie

Time!

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https://www.youtube.com/watch?v=F7pYHN9iC9I

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The weakest

link?

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The Customer

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Fraud Risk Management

in the Financial Services

Industry

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Main Elements

of Fraud

Prevention

Framework

Prevention Detection Investigation

Fraud Prevention

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# Organizational culture/Tone from the top

# Fraud Prevention Policy

# Know your customers, staff, partners

# Fraud risk assessments

# Policies, processes and procedures

# Fraud Risk KPIs

# Counter fraud training

Fraud Detection

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# Internal/External Counter

Fraud staff

# Monitoring tools

# Audits

# Incident reporting

# Whistleblowing

How Do You Detect Fraud?

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Fraudster 1

Fraudster 2

Fraudster 3

Fraudster 4

Fraudster 5

Fraud Investigation

# Internal/External investigation

# Loss recovery / Business Continuity

# Disciplinary actions

# Police investigations

# Lessons learned/Adjustment of processes

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Time for a Test

1. Everyone stand up,

please!

2. Do you have a smart

phone?

3. Do you have a Gmail

account?

4. Do you use this App?

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Thank you for your attention!

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