AML COMPLIANCE CHALLENGES
From a generic or simplistic perspective, fraud is deception. Over time, the weight of the deception will cause the fraud to collapse. How long does it take before a fraud collapses and is detected? It could be right at the start. It could be a matter of days, weeks, months or years. The useful life of a fraud is contingent on numerous considerations. The more situationally aware you are regarding the risk of fraud, the more likely that a fraud can be prevented or detected sooner rather than later.
There are a variety of specific fraud schemes that range from investment fraud to corporate fraud, embezzlement, check fraud, elder fraud and so many more sham activities. Regardless of the scenario, it should be viewed as deception and then from the type of specific fraud scheme it is. You need to consider which specific fraud schemes you are more susceptible to from both a personal and business perspective. Common themes to assess will originate with the potential abuse of trust and circumvention of control mechanisms. Regardless of whether it is an investment fraud, business fraud, embezzlement, elderly fraud or a check fraud, the abuse of trust and circumvention of controls will likely be a factor.
Disruptive and preventive measures leading to the deconstruction of a fraudster
Deconstructing a fraudster requires proactive and reactive measures. Preventive steps will be more proactive and detection mechanisms will be more reactive. Deconstructing a fraudster begins with fraud prevention. The best form of prevention is deterring a potential fraudster from crossing“ the line of integrity.” To do so, build a perception of detection by minimizing opportunity and reinforcing the fact that a fraudster will face serious consequences for their illicit activity.
Best practices to limit opportunity include having strong internal controls, consistent monitoring and a fraud risk assessment, assessing and testing the trust environment, and overall vigilance and situational awareness. In a business setting, promote a no tolerance for fraud policy. This begins with the tone at the top of the organization.
Business leaders must endorse strong ethical standards and embrace a no nonsense, no tolerance policy.
If you are reacting to a fraud that has been detected, deconstructing the fraudster starts with planning. You must assess the situation and prepare a written plan to address the fraud. Depending on the circumstances, you should determine how to exploit the vulnerabilities of the fraudster and how to develop evidence regarding the fraud. This requires understanding. The greed and arrogance of a fraudster cannot only cause them to lose focus, but it could cause them to more openly talk about their scheme and add additional layers of spin and deceit. The added spin and deceit adds additional weight to the fraud leading to its ultimate collapse. In addition, many fraudsters want you to know they are the smartest guy or girl in the room and they will not shy from talking about it. Be a good listener and let them talk and implicate themselves.
Other steps you need to consider in furtherance of deconstructing a fraudster includes not allowing the fraudster to gain the upper hand. Planning and preparation can assure that you maintain the upper hand. You must gather your facts objectively, be persistent and be analytical in evaluating the information you gather and assess the reasonableness of the situation. Another element to consider when planning is to develop contingencies to deal with potential exit strategies the fraudster might contemplate. Depending on the circumstances and the specific mindset of the fraudster you are dealing with, you can be confronted with a variety of potential exit strategies. Understanding and planning are the keys to deconstructing a fraudster.
Understand the consequences of fraud
It is important to recognize and understand the multiple consequences of fraud. All actions or inactions regarding fraud have consequences for victims, financial institutions and other third parties, as well as to the fraudsters themselves. Victims of fraud face financial loss, potential devastation and emotional distress. Financial institutions and other third parties could find themselves in the contrasting situation of serving as a facilitation tool or being a detection mechanism. Regardless of whether they find themselves as a facilitation tool or detection mechanism, they could face the consequences of financial, reputational and / or litigation risk. Invariably a fraud will collapse. Fraudsters face the consequence of prosecution and incarceration, restitution, seizure and asset forfeiture. In addition, fraudsters face the loss of family and loved ones as a result of their fraudulent behavior. The more that can be done to publicize and visualize the negative consequences fraudsters face, the greater the possibility of deterring potential fraudsters from crossing“ the line of integrity.”
Conclusion
What part of committing fraud is a good idea? If fraudsters were truly aware of the inevitable negative consequences of their illicit actions, they would more likely be deterred from fraudulent behavior.
Trust is the foundation for meaningful relationships. Trust is also a fraudster’ s best friend. Develop situational awareness for fraud with a focus on trust. Do not allow trust to negate control mechanisms. Limit the opportunity of fraud from occurring. Perception of detection is significant fraud deterrence. Strong internal controls will limit the opportunity for fraud. In promoting a perception of detection, reinforce the negative consequences of committing fraud. If a potential fraudster considered the inevitable negative consequences of fraud, they would likely be less inclined to cross“ the line of integrity” and not commit fraud.
Once a fraud is occurring or has taken place, deconstructing a fraudster comes down to understanding and planning. You must understand the fraud risk, the mindset of a fraudster, the attributes of a fraudster, the fraud crime problem and the consequences of fraud. Understanding all of these should lead to better preparation and planning, which will subsequently lead to disruption and prevention.
Dennis M. Lormel, CAMS, internationally recognized CTF expert, president & CEO, DML Associates LLC, Lansdowne, VA, USA, dlormel @ dmlassocllc. com
ACAMS TODAY | SEPTEMBER – NOVEMBER 2017 | ACAMS. ORG | ACAMSTODAY. ORG 53