White-collar crime is a hard-to-solve problem – and a costly one, at that.
The FBI and the American Association of Certified Fraud Examiners estimate financial losses from white-collar crimes to be between $300 and $600 billion per year. But the issue is often overshadowed in the media by more attention-grabbing offenses and scandals. And it is complex for investigators to take on as well.
“White collar crime is way down the list because of the voluminous documentation involved in financial schemes requires significant resources to detect, investigate and prosecute successfully,” said Tim Deehan, president of Actionable Intelligence Technologies, a Virginia-based supplier of financial investigations solutions. “The conventional process used by investigative teams takes them months and years to enter data into a program, such as Excel, that can be used to analyze all of the transactional activity.”
The more time stretches on, the harder it becomes to nail down offenders. “By the time many schemes are uncovered, the funds have been taken and hidden in off-shore accounts, where it is very difficult to trace the flow of funds to those places and actually recover all of the money that has been taken or spent by the fraudster to fund their lifestyle they lived while stealing,” Deehan said.
[drizzle]Getting a guilty conviction is a difficult task as well, given that many jurors don’t have the financial backgrounds necessary to fully comprehend the complexities of a case.
But the fact that white-collar crime is difficult to pin down doesn’t diminish its magnitude.
In 2014, big-name financial institutions reached multi-billion-dollar settlements with the Department of Justice over white-collar crime cases. Bank of America, JPMorgan, CitiGroup and Credit Suisse were all involved.
According to Deehan, banks, large corporations and securities brokers are the biggest offenders. Accountants play a major role as well. “Accountants are essential to create sophisticated schemes that are so complex they can hide improper or illegal financial activities,” he said. “Often these schemes are able to run for significant periods of time only with the help of accountants concealing the truth and altering entries to continue the scheme.”
And as far as what crimes are being committed, it runs the gamut, Deehan said:
Money laundering is a very common offense because criminal organizations need a way to disguise the source of their illicit funds so they can legitimately get the funds into the banking system. Failure to exercise proper due diligence to prevent money laundering is the primary reason many financial institutions, such as HSBC, have had large fines or deferred prosecution agreements imposed on them. Securities fraud continues be a source of very high value cases that affect a lot of people and have a large ripple effects on all of the investors, employees and partners of a company or organization.
HSBC agreed in June to pay nearly $43 million to the Swiss authorities to settle allegations of money laundering.
According to Deehan, the key to success in weeding out white-collar crime is the ability to leverage advanced technology that allows investigators to conduct comprehensive analysis across wide sets of data in a timely manner. “This rapid speed and analysis gives the agency the ability to successfully win cases that would otherwise either be greatly curtailed, discontinued or defeated at trial,” he said.
Of course, technology has its limitations. In general, automated detection of fraud can only highlight abnormalities or outliers, which is useful in determining where to focus resources but can only go so far.
First-time offenders and unsophisticated criminals trying to take large sums of money very quickly are ones automated systems easily detect. “Once criminals have learned how any system works they can create profiles, behaviors, and schemes that will never be automatically detected,” Deehan said. “To find these frauds, forensic investigators need to test transactions going several layers into the backup documentation or systems to determine if what was represented by the transactions actually occurred.”
While systems and technologies for detecting white-collar crime advance, it is up to investors and consumers to do their due diligence to avoid being caught in a scam.
“Research is a person’s greatest defense against getting defrauded,” Deehan said.