Applications
Fraud Detection
Background
In recent times, Fraud and Money Laundering have had a very high profile in the news. All institutions that handle financial transactions have a duty to detect and report transactions considered to be suspicious. This has to be done against a background of increasing transaction rates and more sophisticated attempts by criminals to conceal fraudulent activity.
So what is money laundering? It can best be defined as being the conversion of money derived from criminal activities into legitimate funds, or more simplistically the washing of dirty money. The methods used for laundering such dirty money can be extremely complex and involve trusts, companies (both offshore and onshore) and may even involve the use of relatively complex bank instruments.
Criminals have targeted this latter method in that they are aware of the amounts of money traded each hour in the major financial markets around the world, the number of trades being so high that it is unlikely that deals involving dirty cash will ever be caught. The Bank of New York transfers more money per day around the world than any other bank, $600 billion a day. Estimates are that between $500 and $1500 billion, equivalent to 5% of gross world product, is laundered every year through the world's banking system! A well-known New York bank was subject to the effects of the laundering of more than $7.5 billion through the bank over a three-year period by the same criminal organization.
The Financial Services and Markets Bill gives the FSA (Financial Services Authority) a range of powers to counter the risk of money laundering within authorized firms. These include the power to make rules specifically in relation to the prevention and detection of Money Laundering and institute criminal proceedings for breaches of the Money Laundering Regulations. The FSA's money laundering role will comprise setting and enforcing standards on anti-money laundering systems and controls in FSA-regulated businesses to prevent and identify money laundering.
There have been a number of high profile cases recently in the US involving large investment houses that were in breach of US Money Laundering reporting requirements (contained in the Money Laundering Control Act, 1986) including the now infamous BCCI which was fined a total of $15,000,000.
It is not only investment banking fraud, which Mineset can identify. These problems are also applicable to retail banking and specifically plastic card fraud. There are nearly 120 million plastic cards in issue in the UK, with over 85% of the adult population holding one or more plastic cards. In the UK, approximately 3.4 billion purchases are made with plastic cards each year, and this is expected to increase almost two-fold in the next ten years.
What is the cost to business? Plastic card fraud was one of the fastest growing crimes in the UK in the late 1980s and early 1990s. Despite successful efforts in the early 90s to reduce fraudulent transactions to £83.3 million, losses are on the rise again, as criminals have exploited new techniques to evade fraud prevention measures - it cost the banking industry £80.1 million in 1999, accounting for 42 per cent of total losses. To compound matters further, the onus for reporting suspicious transactions rests with the professional advisor, with extremely harsh penalties for failing to do so (the Criminal Justice Act 1988).
