Financial Crimes – The Vulnerable, The Gullible, and The Culpable

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Olushola Fashola, Lecturer, Staffordshire Business SChool

Nuthall (2019) asserted that the United Nations estimates that between 2% and 5% (US$800bn–US$2trillion) of global GDP is laundered. The year 2019 saw global anti-money laundering (AML) penalties going beyond £6billion (actual value was £6.2billion which is equivalent to around $8billion), with the US imposing double the quantum of fines imposed by UK authorities (Sweet, 2020). These facts suggests financial crimes is on the rise, which is a worrying development for societies, governments, organisations, and individuals. It is therefore important that some sort of reflection (collectively or individually) be undertaken by all concerned regarding how things have deteriorated to current level in terms of emerging global narrative on financial crime. Consequently, my own lived experience within a socio-economic and institutional context offers a basis for looking at financial crime through the multiple lens of three actors – “the vulnerable”, “the gullible” and “the culpable”.

THE VULNERABLE

Some years back I was looking through job advertisements on various websites, hoping to find a flexible job that will permit me to spend more time with my young children. I did not search too long before I came across one placed by a supposedly US based company. Though, the role was described as Administrative Assistant, the job description was more of a home-based funds transfer officer. Considering that I have practice experience in banking and finance, I quickly applied and was very optimistic as to my chances of eventually getting the job. Just as I had anticipated, I was offered the job. However, mode of operation triggered some curiosity – the company will pay money into my account which I shall subsequently transfer to various recipients!

THE GULLIBLE

The unusual nature of the responsibilities attached to this job role sent alarm bells ringing. I contacted the website where I found the job to let them know of my suspicion that something was not quite right about this company and the job. The website’s initial response was to dismiss my suspicion, suggesting there was nothing unusual about either the company or the job. Whilst pondering as to the genuineness or otherwise of this job offer, I listened to the BBC money box programme focused on money mules. This made the connection between this job offer and money mule operations vividly clear. I contacted the website again, now aware of the prospect of being used as a money mule based on what I have learnt from the BBC programme. This time, the response was an apology and commitment to bar the company from using the website. Prioritisation of corporate social responsibility can help reduce the chances of financial fraud occurring (Liao et al., 2019).   

THE CULPABLE

Whilst I did not allow this company the opportunity to pay any money into my bank account, I wonder how many people they had successfully persuaded into accepting such payments through their banks. The banking industry is central to economic growth and development, but also remains a vital part of the carefully orchestrated dastardly design of financial crimes’ architecture. The growing evidence against banks with respect to recurring culpability in facilitating financial crimes is a worrying trend that compounds erosion of public trust in them since the financial crisis of 2008/2009. Sanctions imposed on banks (see below) for offences with a bearing on financial crimes bears testimony to banking industry’s culpability.

Feb 2014: Standard Bank PLC fined £7.6m for failures in its anti-money laundering controls (BBC, 2014)

May 2015: Barclays fined $2.4bn for forex rigging (Financial Times, 2015)

June 2015: HSBC pays out £28m “compensation” to Swiss authorities over money-laundering claims (The Guardian, 2015)

November 2015: Barclays Bank (Barclays) was fined £72,069,400 for failing to minimise the risk that it may be used to facilitate financial crime by the Financial Conduct Authority (FCA) (FCA, 2015)

December 2019: HSBC to pay $192m penalty in US for helping clients hide $1billion dollar worth of assets for tax evasion purpose (Financial Times, 2019).

Financial service regulators may have demonstrated a commitment to ensuring banks do not act as facilitators of financial crimes through these sanctions, but the inherent culpability of the financial regulatory system in certain jurisdictions means that these fines do not address why they have become a magnet for financial crime. The public prosecutor in the HSBC/Swiss regulator case as cited in The Guardian (2015) sums up the real source of financial service industry culpability in financial crime thus:

“When we have a law that doesn’t punish financial intermediaries accepting doubtful funds then we have a problem. This problem dates from long before the HSBC affair.”

REFLECTION ON EVIDENCE

Criminals adept at committing financial crimes often targets the vulnerable. They are also very clever at deciphering individual vulnerabilities. Unemployment was a vulnerability ready to be exploited in this case. However, various other vulnerabilities can be the focus of the ploy of these criminals. For instance, search for acceptance and love (BBC 2020), desire to help others and outright greed, are a mix of vulnerabilities often exploited by advance fee (otherwise called “419”) fraudsters.

Individuals or organisations should not think they are above gullibility when it comes to financial crimes. The website involved in this case is a subsidiary to one of the major global online platforms. Yet their vetting process allowed this job advertisement to be placed; and initial response to contacting them laid bare their gullibility – a failure in their social responsibility obligation to society!

Banking industry and its regulatory framework remains an important defence line in society’s response to combating financial crime (Ryder, 2017). A basic line of defence where banks had in the past dropped their guards is with respect to “Know Your Customer” (KYC). This important anti-money laundering requirement needs full compliance for the global fight against financial crime to be successful. Specifically, a risk-based approach to KYC practice can help operators in the financial services industry balance regulatory compliance with business exigencies. Such an approach can help focus attention on potentially risky clients such as the politically exposed person (popularly referred to as PEP). The need for some sort of global regulatory alignment to ensure that there are no safe havens for illicit wealth (Nance, 2018) will require every nation to review its laws and ensure that loopholes exploited by financial criminals and their intermediaries are plugged.

CONCLUDING REMARKS

Fraud triangle comprising of opportunity, incentive/pressure, and rationalization (Cressey, 1953) had received wide scholarly attention, it is perhaps time we switched attention to actors whose moral gap facilitates financial crime. Vulnerability, gullibility, and culpability represents a collection of attributes that helps financial crime to spread like wildfire and the criminals that benefit from them to take the rest of society for granted. Hence, the need for every individual and organization to undertake a self-assessment as to whether they may be tacitly facilitating financial crime as a vulnerable, gullible, or culpable actor in a dark web that leaves society morally and economically bankrupt.

REFERENCES

BBC (2014) Standard Bank fined over lax anti-money laundering controls. Available at: https://www.bbc.co.uk/news/business-25864499 (Accessed 18/12/2020).

BBC (2020) Covid: Romance fraudsters ‘target lonely’ in lockdown. Available at: https://www.bbc.co.uk/news/uk-wales-54855321 (Accessed 04/01/2020)

Cressey, D. (1953) Other People’s Money. New York, NY: The Free Press.

Financial Conduct Authority (2015) FCA fines Barclays £72 million for poor handling of financial crime risks. Available at: https://www.fca.org.uk/news/press-releases/fca-fines-barclays-%C2%A372-million-poor-handling-financial-crime-risks (Accessed 18/12/2020)

Financial Times (2015) Barclays fined $2.4bn for forex rigging. Available at: https://www.ft.com/content/a255cd2a-fef8-11e4-84b2-00144feabdc0 (Accessed 18/12/2020).

Financial Times (2019) HSBC to pay $192m penalty in US tax evasion case. Available at: https://www.ft.com/content/e7d51ec4-1b99-11ea-97df-cc63de1d73f4 (Accessed 18/12/2020)

Liao, L., Chen, G. and Zheng, D. (2019) Corporate social responsibility and financial fraud: evidence from China. Accounting & Finance, 59(5), pp.3133-3169.

Nance, M.T. (2018) The regime that FATF built: an introduction to the Financial Action Task Force. Crime, Law and Social Change, 69(2), pp.109-129.

Nuthall, K. (2019) FATF’s new guidelines on tackling money laundering. Accounting and Business magazine, November (Chinese Edition). Available at: https://www.accaglobal.com/gb/en/member/discover/cpd-articles/governance-risk-control/fatf-cpdnov19.html#:~:text=According%20to%20the%20United%20Nations,of%20global%20GDP%20is%20laundered.&text=Accountants%20assisting%20with%20property%20purchases,been%20laundered%20into%20legitimate%20accounts. (Accessed 18/12/2020).

Ryder, N. (2017) The financial crisis and financial crime in the United Kingdom: A critical analysis of the response by Financial Regulatory Agencies. The Company Lawyer, 38(1), pp.4-14.

Sweet, P. (2020) Global anti-money laundering fines top £6bn. Accountancy Age publication of 17 January 2020. Available at: https://www.accountancydaily.co/global-anti-money-laundering-fines-top-ps6bn (Accessed 18/12/2020).

The Guardian (2015) HSBC pays out £28m over money-laundering claims. Available at: https://www.theguardian.com/business/2015/jun/04/hsbc-fined-278m-over-money-laundering-claims (Accessed 18/12/2020)

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