Financial Crime Threats

Financial crime accounts for an estimated 3.6% of the global GDP each year, highlighting the significant challenge these activities present to individuals, organisations and economies worldwide. 

In this article, we discuss some of the main examples of financial crime to be aware of in 2024, examining their global impact and the threats they pose.

What is Financial Crime?

Financial crime refers to a variety of illegal activities that are committed for economic gain or to mislead and defraud individuals, organisations and/or governments. These crimes typically involve criminal conduct relating to money or to financial services/markets and rely on acts such as deception, manipulation and/or the abuse of trust.

The key characteristics of financial crime include:

  • Violation of established laws, rules and regulations;
  • Crimes that involve the financial sector, markets, institutions or government fund
  • Use of deception, misrepresentation, cyberattacks or other illicit methods;
  • Results in illegal personal or corporate gains; and  
  • Breach of public trust as well as damage to the financial system and markets.

The impact of financial crime is profound as it affects the foundations of the financial markets, impedes economic growth and causes significant losses for individuals, businesses and the economy as a whole.

The Biggest Financial Crime Threats in 2024

Financial crime  is continuously evolving as criminals become more sophisticated and leverage technological advancements to further the complexities of their crimes whilst exploiting existing legal loopholes . Outlined below are the top five financial crime threats that we envisage will have a significant impact in 2024.

Money Laundering

Money laundering is the process through which criminals disguise or conceal the origin of funds obtained through illicit activities and place them into the financial system, making it appear as though monies were derived from legitimate sources. Money laundering is considered a major threat to the world’s economy. According to the United Nations Office on Drugs and Crime (UNODC), around £625 billion to £1.5 trillion (2-5% of global GBP) is laundered globally each year. The most common methods used are cybercrime, bribery, fraud, tax evasion, human trafficking, drug trafficking, organised crime, amongst others.

There are multiple techniques criminals use, examples of which include, but are not limited to, the following:

  • Smurfing:  criminals split up large amounts of cash into small deposits to  stay under reporting thresholds, therefore avoid scrutiny and/ordetection.
  • Trade-based laundering: Invoices are doctored to misrepresent the price or volume of imported/exported goods to justify transfers of criminal funds.
  • Shell companies: Forming companies without real commercial activity, which obscures the true ownership of funds being laundered.
  • Casinos: Criminals can claim large cash deposits as gambling winnings, essentially converting illicit money into ostensibly legitimate assets.

Fraud

Fraud is broadly defined as an intentionally deceptive act to provide the perpetrator with an unlawful gain or to deny a right to a victim. The global financial losses from global card fraud are forecasted to be £28 billion in 2024. With advanced tools such as machine learning, financial services aim to detect and prevent fraudulent transactions in real-time. However, such technologies are yet to overcome the challenges of reducing the number of false positives whilst ensuring genuine transactions are unaffected.

With the enhancement of technology, the methods deployed to conduct fraudulent activities have expanded in recent years. 

Some of the most common techniques fraudsters utilise include:

  • Payment Fraud: It involves deceptive actions that lead to unauthorised transactions. This includes credit card fraud, where stolen card data is used to make unauthorised purchases, and direct debit scams, where individuals are deceived to reveal bank details.
  • Tax Fraud: This method involves individuals or businesses evading taxes by misrepresenting financial data, such as underreporting income or inflating deductions. With digital advancements, identity theft-related tax fraud, where stolen identities are used to claim false refunds, has surged. Despite sophisticated detection systems, perpetrators continuously seek new evasion methods.
  • Insider Trading: In this method, individuals with confidential, non-public information about a company use this knowledge to make profit-driven share transactions, thus violating trust and breaching market regulations.
  • Investment Scams: Often appearing as lucrative opportunities, these scams mislead individuals into investing their money in schemes involving cryptocurrency, real estate, etc. with the promise of high returns that never materialise.

Corruption

Corruption is the abuse of entrusted power for private gain, which ultimately diminishes public trust and weakens the economy. Whilst precisely determining the worldwide cost of corruption is difficult to determine due to its high levels of secrecy, various academic studies highlight its harmful effects. A study by the IMF suggests that a global reduction in corruption could recoup around £780 billion in otherwise lost tax revenues, comparable to about 1.25% of the world’s GDP.

Corruption can occur in various forms, including:

  • Bribery: This involves transactions specifically designed to influence the decisions or actions of officials. Typically, bribes involve financial payments, but they can also encompass other material benefits or inducements.
  • Embezzlement: The act of fraudulently taking or misappropriating funds or assets which have been entrusted to one’s care, typically in a role such as an accountant or other fiduciary positions. 
  • Kickbacks: Returning a portion of the money from a transaction, typically as a result of collusion. For example, a company might increase the price of a contract provided it can secretly return a share of that money back to the decision-maker granting the contract.
  • Fraudulent Procurement: Authorities in charge of a contract may tamper the selection procedure to favour a specific firm, even if they aren’t the best fit or most cost-effective choice. This manipulation can be influenced by bribes, personal relationships or the promise of future favours. 

Terrorist Financing

Financing terrorism involves raising funds with the intention to supply terrorists with resources. Precise and current data regarding terrorist financing remains largely inaccessible due to the covert nature of these activities and the constantly changing strategies terrorists use to avoid detection. Nonetheless, various organisations and governmental bodies occasionally publish information and analyses which shed light on the magnitude and extent of the problem.

For example, between 2008 and 2014, Al-Qaeda secured an estimated £98 million from kidnapping ransoms, according to data from the World Customs Organization. At its peak, ISIS generated substantial revenue from the sale of oil out of captured fields and the looting and selling of antiquities. Reports from 2014 indicated that their daily income from oil transactions alone could have reached up to £2.3 million.

The main channels facilitating terrorist financing include but are not limited to, the following:

  • Charity and Non-Profit Organisations: Some charitable institutions whilst having a genuine cause, are infiltrated or established by extremists to divert funds towards terrorist activities. Donations are collected under the banner of humanitarian or religious causes and then misappropriated to further a terrorist organisation’s cause.
  • Smuggling and Trade-Based Laundering: Earnings from drugs and unlawful trafficking of goods or natural assets can contribute to financing terrorist activities. Criminals may also exploit trade dealings to conceal monetary transfers.
  • Kidnappings and Ransoms: Extremist groups often engage in kidnapping for ransom, using the funds received to finance their operations.

Cybercrime

Cybercrime can be broadly defined as an unlawful act conducted using digital technology. With the increasing integration of new technologies into everyday lives, the occurrence of complex cybercrimes is becoming more prevalent, therefore presenting substantial challenges for people, organisations, and nations worldwide. Reportedly, the estimated global financial impact of cybercrimes in 2022 stood at a staggering £5.5 trillion, positioning it amongst the most financially detrimental type oft financial crime.

The main types of cybercrimes include

  • Hacking and Unauthorised Access: This involves illegally accessing computer systems without consent. Such breaches aim to pull information, impair network functionalities or just for the excitement of overcoming security barriers.
  • Malware and Viruses: Using malicious software or code to impair or access computer systems, steal information, or carry out other aggressive tasks. Examples include ransomware, worms, trojans and spyware.
  • Ransomware: Organisations are often held hostage by cybercriminals who infiltrate their systems and encrypt their data, demanding payment in exchange for its release. This trend has particularly spiked since 2022.
  • Data Breaches: Unauthorised and intentional release or sale of secure information, often involving the personal data of users. 

Financial Crime Trends to Watch in 2024: Is the Threat Level Increasing? 

Many experts believe that financial crime is growing in frequency and complexity, whereby the advancement of technologies such as AI and Machine Learning, coupled with global challenges, have created a more favourable environment for criminal activity.

A few highlights from recent statistics emphasise the gravity of the situation:

  • 87% of compliance teams have observed a surge in crowdfunding platforms being used for political extremism over the past year.
  • In the UK alone, the recorded number of fraud offences saw a 15% rise from the year concluding in March 2022 to the year ending in March 2023, escalating from 976,093 to 1,125,168 offences.
  • 69% of global executives anticipate a rise in financial crime risks, primarily driven by cybersecurity issues and data breaches. 

The statistics presented indicate a growing concern for the global economy. G Organisations should enhance their preventative measures, improve detection tools and promote international collaboration to combat the escalating threat of financial crime in this digital era.

Also Read: How to Report a High-Level Financial Crime?

How Technological Advancements are Necessary to Combat Financial Crime

Leveraging new technologies in the fight against financial crime has become increasingly important due to the fast-paced evolution of criminal techniques as well as the globalisation and digitalisation of financial services. Criminals are now using more sophisticated technology, making traditional methods of detection and prevention obsolete. As a result, they are able to engage in illegal activities across borders, making it difficult for authorities to monitor and prosecute these international operations.

Moreover, the sheer volume of data that financial institutions now handle exceeds the capabilities of individuals to monitor effectively. Without advanced technology, signs of fraudulent activities may go undetected, leading to substantial financial losses and, in some cases, enabling crimes such as money laundering to fund further criminal activities, including terrorism.

By improving technological capabilities, organisations can recognise, monitor, and prevent financial crimes more efficiently, ultimately safeguarding the integrity of global financial systems.

How Enhanced AML (Anti-money Laundering) Compliance Measures Can Help Organisations Operating in the Financial Sector

A key way to combat financial crime threats in 2024 and beyond is to implement thorough AML compliance and risk management measures within your organisation. This is crucial for not only those operating in the finance industry but also organisations in other industries., 

The benefits of implementing robust AML measures go beyond merely adhering to regulatory requirements:

  1. Risk Management: Effective AML policies and procedures g help identify and assess risks, enabling firms to mitigate potential threats and avoid costly regulatory fines.
  2. Operational Integrity: Upholding strict AML standards elevates an organisation’s reputation, fostering trust amongst stakeholders and potential clients.
  3. Operational Efficiency: Automated AML processes can streamline transaction monitoring and client screening, reducing manual effort and the likelihood of human errors.
  4. Protection against Financial Loss: By identifying suspicious activities early, organisations can prevent financial losses linked to fraudulent transactions.
  5. Global Operations: AML compliance facilitates international business by ensuring that companies meet global standards, paving the way for smoother cross-border transactions.

How CW Compliance can help?

Understanding and adapting to the complex world of financial regulations and protection against financial crime can be complex. At Campion Wilcocks Compliance, we specialise in tailored financial crime compliance, AML monitoring and risk management services for your organisation’s bespoke requirements.

Our experienced team can ensure that your regulatory obligations and financial security concerns are met efficiently and effectively whilst you focus on your core business activities. By leveraging cutting-edge technologies and industry best practices, we offer a proactive approach to managing and mitigating compliance risks. 

Contact us today for a consultation to learn more about how our services can benefit you.

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