If you work in the world of business, you need to know all about the most common kinds of financial crimes. When you know about them, you can ensure that you never become either a victim or a perpetrator. Here are seven of the most common financial crimes in the business world.
Mortgage fraud is something that happens in the real estate industry from time to time. And it can have a devastating impact on people’s lives. A company that does this can extract money from the transaction to increase profits. It’s illegal and can lead to real estate companies getting shut down. This can affect ordinary homebuyers, but it can also affect companies that rent commercial properties.
Forgery is when a company is involved in faking documents. It could be as simple as faking signatures to make it appear that they have authorisation for something when they don’t. The reasons for doing this are varied. But it usually links back to money and companies wanting to get their hands on more of it. It can be used to facilitate other kinds of fraud too.
When a company does not pay the amount of money in taxes that it’s obliged to, it’s a crime. It’s a serious crime, and many companies have been exposed as tax evaders in recent times. It is very difficult to distinguish between aggressive avoidance and evasion though. For example, there are some very dodgy schemes that are frowned upon but are technically legal.
Money laundering happens when illegal money is channelled into legitimate companies. This is done so that the money can enter circulation naturally and appear legal and legitimate. This money has often been used for illegal activities such as selling drugs. On other occasions, it’s simply used as a way to avoid paying tax on some money.
Fraud can encompass many different kinds of activity. At its core, fraud refers to a company or individual trying to extract money from elsewhere through illegal means. Fraudulent activity is commonly conducted via things like insurance policies. Sometimes, people take advantage of policies illegally to trigger a payout from the insurance company. But that’s just one example of fraud.
Bribery is one of the most common and widespread forms of financial crime in the business world. Bribes are used to get an unfair advantage over the competition, and it’s a key sign of corruption. It occasionally happens that honest payments are mistaken as bribes though. The best criminal defense attorney you can find if you think you’ve been wrongly accused. There is a fine line between the two and a grey area.
Racketeering is when organised groups operate an illegal business. These businesses can take many different forms. Some of them are used to simply embezzle funds. And others focus on other particular illegal activities, such as drug and trafficking offence. These organisations obviously have to be kept covert, so they can be difficult for the authorities to uncover them and take action.
JP Morgan Chase has agreed to pay four regulators $920 million relating to a $6.2 billion loss incurred as a result of the “London Whale” trades.
Under the settlement, $200 million will go to the US Securities and Exchange Commission (SEC) and $215 million to the UK’s Financial Conduct Authority (FCA).
As part of the deal JP Morgan admitted violating US federal securities laws.
Traders at JP Morgan’s London office built up huge losses in derivatives trades at the beginning of last year.
Two former JP Morgan traders face criminal charges in the US relating to the case.
They deny charges of lying about the size of their trades in order to hide their mounting losses.
In a statement, the SEC said there had been failings in JP Morgan’s internal controls and in senior management.
The regulator said the bank – whose chief executive Jamie Dimon once described the trading problems as a “tempest in a teacup” – had admitted the facts underlying the SEC’s charges.
JP Morgan Chase has agreed to pay four regulators $920 million relating to a $6.2 billion loss incurred as a result of the “London Whale” trades
“JP Morgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” said George Canellos, co-director of the SEC’s division of enforcement.
The Wall Street firm, one of the biggest investment banks in the world, is paying $300 million to the US Office of the Comptroller of the Currency (OCC), and $200 million will go to both the Securities and Exchange Commission (SEC) and the US Federal Reserve.
A further $215 million will be paid to the UK’s Financial Conduct Authority as part of the global settlement.
It said JP Morgan’s conduct “demonstrated flaws permeating all levels of the firm: from portfolio level right up to senior management”.
Tracey McDermott, the FCA’s director of enforcement and financial crime, said the failings had undermined trust and confidence in the UK’s financial markets.
“This is yet another example of a firm failing to get a proper grip on the risks its business poses to the market,” she said.
“Senior management failed to respond properly to warning signals that there were problems.
“As things began to go wrong, the firm didn’t wake up quickly enough to the size and the scale of the problems. What is worse, they compounded this by failing to be open and co-operative with us as their regulator.”
The London Whale was the name given to then-JP Morgan derivatives trader Bruno Iksil, who is believed to have racked up the losses and is now co-operating with authorities in criminal cases against other traders.
The bank’s chief investment officer, Ina Drew, stepped down following the revelation of the losses in 2012.
Jamie Dimon, whose “tempest in a teacup” comment in April 2012 prompted criticism he was underplaying the affair, said in a statement on Thursday the bank “accepted responsibility and acknowledged our mistakes from the start”.
“We have learned from [our mistakes] and worked to fix them. We will continue to strive towards being considered the best bank – across all measures – not only by our shareholders and customers, but also by our regulators,” he said.
“Since these losses occurred, we have made numerous changes that have made us a stronger, smarter, better company.”
HSBC, which was hit with a $1.9 billion US fine for money laundering last year, is facing fresh accusations of illegal activity in Argentina.
Argentina has alleged that HSBC used “fake receipts” to facilitate money laundering and tax evasion, and launder 392 million pesos ($77 million).
The country’s tax authority said it had filed criminal charges against HSBC.
HSBC said that it would cooperate with the investigation, adding that the allegations were “of great concern”.
“We are committed to working cooperatively with authorities to ensure a thorough review and appropriate resolution of the matter,” said Lyssette Bravo, a spokeswoman for HSBC.
Last year, HSBC agreed to pay US authorities $1.9 billion in a settlement over money laundering, the largest paid in such a case.
Argentina laid out its case against HSBC late on Monday.
“On the basis of what’s been investigated so far, in six months we’ve recorded 392 million pesos in fraudulent transactions, generated by evasion and money laundering,” said Ricardo Echegaray, head of Argentina’s tax agency.
Ricardo Echegaray added that HSBC also helped clients evade taxes on an additional 224 million pesos.
“We hope to recover what is due and see the courts apply an appropriate penalty,” he said.
HSBC is facing fresh accusations of illegal activity in Argentina
Money laundering is the process of disguising the proceeds of crime so that the money cannot be linked to the wrongdoing.HSBC, which has previously admitted to having poor money laundering controls, has been taking steps to tighten its operations.
Last year, the banking giant said that it had spent $290 million on improving its systems to prevent money laundering.
At the same time, HSBC also appointed a former US official, Bob Werner, to work as its head of financial crime compliance, a new position the bank has created.
The bank said that he will be responsible for beefing up its anti-money laundering and sanctions compliance systems.
Bob Werner was previously the head of the US Treasury’s Office of Foreign Assets Control, the agency responsible for enforcing the US sanctions on countries, including Iran.
The Financial Services Authority (FSA) has fined UBS $47.6 million for failings that led to trader Kweku Adoboli losing $2.2 billion.
The fine, the third largest imposed by the FSA, was for “system and control failings” that allowed Kweku Adoboli to trade in London well beyond authorized limits.
Kweku Adoboli was last week convicted of two counts of fraud and sentenced to seven years in prison.
UBS said it was “pleased that the chapter has been concluded”.
The FSA, which conducted the investigation into failings at the bank with its Swiss counterpart, Finma, said there were serious weaknesses at the Swiss bank.
It said in a statement: “UBS failed to take reasonable care to organize and control its affairs responsibly and effectively, with adequate risk management systems, and failed to conduct its business from the London Branch with due skill, care and diligence.”
The FSA’s director of enforcement and financial crime, Tracey McDermott, said faulty controls had allowed the losses to mount to what was the largest trading loss in the country.
“UBS’s systems and controls were seriously defective,” she said.
“As a result, Adoboli, a relatively junior trader, was allowed to take vast and risky market positions, and UBS failed to manage the risks around that properly.”
Kweku Adoboli, the 32-year-old Ghana-born son of a diplomat, joined UBS in 2003, becoming a trader in 2006.
He worked in UBS’s global synthetic equities division (GSE), buying and selling exchange traded funds (ETFs), which track stocks, bonds and commodities.
He was arrested in September last year.
The Financial Services Authority has fined UBS $47.6 million for failings that led to trader Kweku Adoboli losing $2.2 billion
Southwark Crown Court was told that he was “a gamble or two away from destroying Switzerland’s largest bank”.
The judge said there was “a strong streak of the gambler” in him.
But, during evidence, Kweku Adoboli said everything he had done was aimed at benefiting the bank, where he viewed his colleagues as “family”.
He said he had “lost control in the maelstrom of the financial crisis”, but had been doing well until he changed from a conservative “bearish” position to an aggressive “bullish” stance under pressure from senior managers.
Kweku Adoboli told the jury that staff were encouraged to take risks until they got “a slap on the back of the wrist”.
The fine was set at 15% of the revenue of the division where Kweku Adoboli worked and takes account of the revenue generated by the business area where the weak controls occurred.
UBS said it had made a number of substantial changes since discovering the losses, including fixing the weakness in its financial reporting.
The bank added it was retraining staff on the importance of risk management and had changed the way it evaluated and compensated employees.
UBS is changing its own structure to make itself a simpler organization.
The bank’s chief executive, Oswald Gruebel, left the company in the aftermath of the scandal.
His successor, Sergio Ermotti, announced a major restructuring last month to run down the large, risky parts of the investment banking division.
UBS said it had fully co-operated with the regulators’ investigations and that it accepted their findings and the penalties incurred.
UBS’s fine was discounted from the original level of $65 million for early settlement.
Switzerland’s financial regulator Finma said in a statement that it would also check whether UBS had adequate capital backing for its operational risks.
Finma said it had identified “serious deficiencies in risk management controls” and that it would appoint a third party to make sure proper measures were introduced.
UBS has been banned by regulators from making new acquisitions and it also needs to get prior approval from Finma for any new business initiatives.