With the rise of digitisation, it has become increasingly more convenient for individuals and businesses to perform many tasks, including financial transactions. With the right software and the click of a button, you can make payments, receive money, do stock trading and much more. However, these recent developments have also changed the way that crimes are being committed within the financial sector.

While financial crimes have existed for as long as the exchange of currency has, the constant modernisation of different sectors have made it easier for perpetrators to commit them. Due to the complex nature of financial services, criminal acts can be easier to hide and prevention can be insurmountably challenging. Criminals are always resorting to innovative methods to stay one step ahead of authorities, making the seemingly unstoppable nature of economically motivated crimes a growing concern for many.

Most Prevalent Types of Financial Crime

Put simply, financial crime is defined as any illegal act made against property. It can refer to activities that deceitfully generate wealth for the individual or organisation in question. Alternately, the abuse of a certain benefit that is granted to someone or something can also be a financial crime. Here are the most common types of financial crime and what you can do to minimise them.

Money laundering. At its core, money laundering is simply the act of disguising money that was generated from illegal activity. Many mafia groups and drug cartels are prominently known for doing this to continue their operations, but individuals are also capable of laundering money. As this crime can be committed on varying scales, having the right financial crime and AML software can help in detecting these grievous acts.

Many anti-money laundering applications and programs efficiently gather, analyse, and monitor data from different accounts and transactions. This can make it easier for financial companies to catch suspicious and unlawful activity in real time and report it to authorities.

Fraud. Similar to money laundering, fraud can be committed on different levels by both individuals and groups. Colloquially known as ‘scam’ or ‘bamboozle’, fraud is any type of act with the purpose to misrepresent in order to deceptively gain personal or monetary gain. Terrorist groups have many large-scale frauds in place, and many individuals can also be opportunistic enough to unfairly generate revenue from a certain company.

Aside from having the right technology in place to help detect possible fraudulent acts, financial institutions must also implement internal policies that uphold fighting against fraud. Fraud prevention and detection should be the culture of any financial firm that officers, employees, and customers are correctly motivated to comply with.

Tax evasion. Any law-abiding individual or organisation within the financial sector is expected to pay any taxes promptly and in full. Any non-payment or underpayment of such taxes is considered a criminal offense. Tax evasion can come in different forms, such as hiding taxable income in offshore accounts or providing false information in official documents to keep the tax rate as low as possible.

While some entities evade taxes intentionally, many people and groups unknowingly commit this crime due to misinformation or mere confusion. Compliance software can not only help track investors and clients, but can also serve as a helpful tool to help keep individuals and organisations updated on the changes and nuances of tax laws.

Identity theft.
It is true that identity theft does not need to be a financial crime, as some people may steal another person’s identity for other purposes. However, identity theft has an alarmingly threatening financial aspect, where the criminal can assume someone else’s identity to make purchases, file taxes and more using the stolen information. While it is a horrible crime that can befall anyone, identity theft is preventable.

Many individuals and groups can often be too lax when it comes to securing personal and financial information, making it easy for someone to access that data and use it for their own benefit. Simple measures such as using secure passwords for different accounts, shredding documents with important information, or installing the right security software can help prevent identity theft. Online scammers are becoming more sophisticated, but that does not mean that it is impossible to safeguard one’s important data from them.

Terrorist financing. As the name implies, this is when any powerful individual or organisation provides funding in support of terrorist activities. Like money laundering, terrorist financing involves the covert smuggling of money across different borders. Moreover, connections with corrupt businesses and government entities aid and support such acts.

What makes terrorist financing so difficult to monitor and prevent is because the transactions made are usually meagre and innocuous. Criminals are extremely careful not to send large sums of money, and they cover up their tracks to avoid rousing any suspicions. Fortunately, many financial institutions use compliance programs to closely monitor the activities of individuals. These applications are designed to sift through data and ‘name and shame’ suspicious people. Such programs are helpful for authorities, who can catch and deal with terrorist financiers faster.

Market abuse and insider trading. This is a particularly serious crime as it poses a security risk for any financial institution and can have a profound effect on various markets. Market abuse is when an individual with specific knowledge that cannot be divulged to the public uses what they know to dishonestly and artificially manipulate markets. This can include unlawful disclosure of such information, insider dealing, and more.

Insider trading is a more specific type of market abuse that involves leveraging knowledge that one is not authorised to disclose to gain unfair advantages in the securities market. Improper divulging of insider knowledge to third parties encourages such parties to participate in certain markets using your knowledge to affect their prices. Since these kinds of criminal behaviour can be committed by those involved in the financial sector, institutions must be more thorough and vigilant when it comes to screening all new and current employees and implementing strict policies on information security.

The financial sector is fraught with crimes committed by people and groups who are intelligent enough to adapt to new technologies to avoid getting caught. However, with many developments in preventative technology and digital security, it is also easier to detect criminal activity and put a stop to it. It is everyone’s responsibility to do their part and remain compliant with laws to help minimise the incidents of financial crimes.