Financial Crime Online

It is one of a bank’s worst nightmare. And it probably is one of yours. Imagine someone that can access your personal financial data to steal it and abuse it. Banks do (almost?) everything they can to prevent unauthorized access to your data but bank staff themselves obviously need to have access to your data in order to serve you.

In this data theft scenario, the IT support guy is like the butler in a classic murder novel; he did it. Adeniyi Adeyemi was an IT tech at Bank of New York Mellon. He confessed that he stole sensitive information belonging to 2,000 bank employees and that he used that data to steal more than US$1 million from charities. Technically: grand larceny, identity theft, money laundering, scheme to defraud, computer tampering and unlawful possession of personal identification information.

Adeniyi worked as a contract computer technician at the Bank’s Manhattan headquarters, and the data he allegedly stole belonged primarily to co-workers in the bank’s IT department. The police executed a search warrant at Mr. Adeyemi’s apartment on April 30, 2009. There, “investigators found dozens of Bank of New York employees’ credit reports on his computer, along with many other documents containing personal identifying information of more than 150 Bank of New York employees. In a storage locker Mr. Adeyemi rented, the investigative team found notebooks containing hundreds of names, social security numbers, account numbers, and other personal data, along with numerous credit cards in Bank of New York employees’ names. Investigators also recovered $30,000 in cash from Mr. Adeyemi’s apartment. Mr. Adeyemi was arrested in the course of the search warrant execution, and remained in custody ever since.

Adeyemi confessed to have stolen more than $1.1 million over an eight-year period from charities by transferring funds from the charities’ bank accounts into bogus accounts he’d set up using the personal information of his former co-workers, prosecutors say. He “input the charities’ banking details, including account and routing numbers, to set up wire transfers on the E*Trade and Fidelity sites from the charities’ account to his dummy accounts, and withdrew the stolen funds or transferred them to a second layer of dummy accounts,” the district attorney’s office said in its press release.

More than a dozen charities were victimized, including Goodwill Industries of Greater New York, the Jacksonville Humane Society and the International Association of Women Judges, all of which had publicized their bank account details in order to receive donations.

Adeyemi also admitted to stealing money from his former colleagues, taking control of their online bank accounts and then wiring money to his dummy accounts, the district attorney said. Wiring just under $10,000 at a time to avoid hitting the threshold at which all financial institutions must report transactions to the US Treasury, he is accused of stealing more than $128,000 from staff.

He spent the proceeds on U.S. Postal Service money orders, to pay his rent and credit cards, and to purchase goods that were then shipped to Nigeria, prosecutors said.

Interestingly, the fraud is reported to have been detected not by the bank or victims, but by the New York/New Jersey Electronic Crimes Task Force of the United States Secret Service, which began surveillance on Adeyemi after tracing suspicious Internet activity at his apartment. This investigation resulted in the search of his apartment and his arrest. This is probably just half of the story, but how the case exactly came to light is an interesting point.

How about contemporary standards for IT security in banks? Do IT staff really need access to client data at all? How about monitoring what IT staff (and bank staff for that matter) are accessing? Any red flags that should have been raised during his eight year rampage? Not only banks seems to be struggling to keep client data safe. If you look at the ‘ fraud triangle’, ‘opportunity knocked’  in this case.

http://www.businessweek.com/idg/2010-07-02/ny-bank-it-tech-pleads-guilty-to-data-theft-fraud.html

http://www.newyorkcriminallawyerblog.com/2009/10/bank_of_new_york_melon_compute_1.html

http://bit.ly/9dmraH

http://financialcrimeonline.com/archives/802

http://www.finextra.com/news/fullstory.aspx?newsitemid=20672

The European Commission has fined 17 bathroom equipment manufacturers a total of € 622 250 783 for a price fixing cartel covering six EU countries.

“These 17 companies fixed prices for baths, sinks, taps and other bathroom fittings for 12 years in six countries covering 240 million people. The cartel will have harmed businesses such as builders and plumbers and, ultimately, a large number of families. However, as the objective of anti-cartel enforcement is not to precipitate the fall of companies in financial difficulties, the Commission reduced the fines on five companies to a level they could afford. Companies should be in no doubt that the Commission will continue its fight on cartels and the level of fines will continue to be such that it should dissuade them from engaging in illegal behaviour in the first place,” said Joaquín Almunia, Commission Vice President and Competition Commissioner.

Ideal Standard, owned by U.S. private equity company Bain Capital LLC, received the single biggest fine of 326 million euros. Villeroy & Boch was fined 71 million euros.

Back in 2004, the EU raided the offices of Grohe, American Standard and other bathroom-products makers in five European countries and in March 2007 sent official objections to a number of the companies, including Grohe and American Standard.

According to the EU, the coordination took place during meetings of national trade associations in Germany (over 100 meetings), Austria (over 80), Italy (65), and also Belgium, France and The Netherlands, and in bilateral contacts. It consisted of fixing price increases, minimum prices, and rebates, and exchanging sensitive business information.

How did all of this came to light? US firm Masco, whose main subsidiaries are Hansgrohe and Hüppe, got full immunity under the Leniency Program as it was the first to provide information about the cartel to the European Commission.

Financial problems of related companies made the EU decide to lower the fines for these specific companies. The size of the fines “shouldn’t push the companies off the cliff,” Almunia said. “We wouldn’t want a company to go bankrupt because of a fine.”

The fine against Villeroy & Boch is “not justified” according to the company and it announced it will take legal measures to respond. Ideal Standard’s fine was cut by 30 percent reduction because it cooperated with the investigation. Still the penalty is claimed to be “ excessive” and the company sees “strong grounds to appeal.”

Villeroy & Boch shares Villeroy & Boch fell 1.24 euros, or 24 percent, to 3.883 euros in Frankfurt trading, the biggest drop since October 1998. Would this be the time to finally do some home improvement? Will we actually see a drop in bathroom furniture prices now the price rigging is behind us?

http://europa.eu/rapid/pressReleasesAction.do?reference=IP/10/790&format=HTML&aged=0&language=EN&guiLanguage=en

http://www.businessweek.com/news/2010-06-23/ideal-standard-villeroy-fined-on-eu-bathroom-cartel.html

“Operation Stolen Dreams”; 1,215 criminal defendants in mortgage fraud related cases that uncovered more than $2.3 billion in losses.  Additionally, to date the operation has resulted in 191 civil enforcement actions which have resulted in the recovery of more than $147 million. Not a small project. FFETF has been coordinating efforts nationwide to achieve these results; The President’s Financial Fraud Enforcement Task Force includes representatives from a broad range of federal agencies, regulatory authorities, inspectors general, and state and local law enforcement who, working together, bring to bear a powerful array of criminal and civil enforcement resources.

“The staggering totals from this sweep highlight the mortgage fraud trends we are seeing around the country,” Attorney General Holder said. “We have seen mortgage fraud take on all shapes and sizes—from schemes that ensnared the elderly to fraudsters who targeted immigrant communities.” The FBI announced that 23 mortgage fraud task forces are set up in “hot spots” around the country, from California and Texas to Florida and New York. FBI investigators and analysts participate in 67 working groups nationwide that share intelligence and industry data to identify emerging threats. “FBI agents and analysts are using intelligence, enhanced surveillance, and undercover operations to identify emerging trends and to find the key players behind large-scale fraud,” FBI director Mueller said.

On its website, the FBI provided some mixed examples and a cartoon like graph:

* In Miami two people were arrested for targeting the Haitian-American community, claiming they would assist them with immigration and housing issues. Instead, they used victims’ personal information to produce false documents to obtain mortgage loans.

* In California, a prominent home builder used straw buyers to sell his houses at inflated prices. The scheme inflated prices on other homes in the area, creating artificially high comparable sales and affecting the overall new-home market.

* In Detroit FBI agents arrested several individuals in a $130 million scheme orchestrated by the local chapter of a motorcycle gang. The conspirators posed as mortgage brokers, appraisers, real estate agents, and title agents and used straw buyers to obtain around 500 mortgages on only 180 properties.

So this operation is not the round up of one large criminal organization or one big scheme but the combined effort of law enforcement agencies to focus on mortgage fraud. A great way to get the attention -which always helps to improve awareness and deterrence- and to improve cooperation between law enforcement agencies and private parties involved in mortgage fraud.

http://www.justice.gov/opa/pr/2010/June/10-opa-708.html

http://www.fbi.gov/page2/june10/mortgage_061710.html

http://www.stopfraud.gov/news/news-06172010-02.html

An certified public accountant, Mrs. Cecile Nhung Campbell, working at KIA motors was sentenced to 76 months of jail time last Friday after she pleaded guilty federal charges of grand theft, money laundering and filing false tax returns, according to a statement from the Orange County (CA) district attorneys office. Mrs. Nhung Campbell worked for KIA back in 2002, when she made three transfers worth a combined $889k to a bank account opened by her brother. That account was opened at Wells Fargo under the fictitious business name U.S. Customs Service Detail. Ho created the account to resemble the legitimate federal United States Customs Service, which collects import duties on shipments of automobiles that arrive in the United States. The accountant created fake invoices from U.S. Customs Service Detail that were sent to KIA. After KIA paid the invoices, the money was transferred to personal accounts and used to pay off debts and pay for personal expenses.

The hubby, a lawyer, was also in the plot. He was sentenced to 48 months for money laundering and receiving stolen goods. The brother was arrested when he tried to re-enter the US coming from Vietnam. The automaker ultimately was able to recoup $265,000 of the $889,000 from the Wells Fargo account.

Do trust your accountant? Double check on  him/her every now and then? Are you sure you only pay “legit” creditors? Better be sure. You would expect a company like KIA to have some controls in place that would have prevented this from happening. But hey, where there is a fraud in corporate environment, the controls were probably there (written down somewhere) but fraud awareness and adherence to standards are usually on the lower side of the scale.

http://bit.ly/bWXT6n

http://bit.ly/9cUYHN

Last Thursday UNODC launched the report “The Globalization of Crime: A Transnational Organized Crime Threat Assessment“. It shows how organized crime has globalized and turned into one of the world’s foremost economic and armed powers.

“..Among the findings in the new report, which features a number of high-impact maps and charts that illustrate illicit flows and their markets are: Europe is the highest-value regional heroin market (US$ 20 billion), while the Russian Federation is now the single largest national heroin consumer in the world (70 tons). Countries that grow most of the world’s illicit drugs, like Afghanistan (opium) and Colombia (coca), receive the most attention and criticism. Yet, most drug-related profits are made in the destination (rich) countries. For example, out of a global market of perhaps US$ 55 billion for Afghan heroin, only about 5 per cent (US$ 2.3 billion) goes to Afghan farmers, traders and insurgents. The report shows that the North American cocaine market is shrinking because of lower demand and greater law enforcement, which in turn has generated a turf war among trafficking gangs, particularly in Mexico, and new drug routes..”.

UNODC states that crime has internationalized faster than law enforcement and governance. That is obviously not a new finding, as is this one: “Criminals are motivated by profit: so let us go after their money,” said Mr. Costa (UNODC chief), adding that “We must increase the risks and lower the incentives that enable the bloody hand of organized crime to manipulate the invisible hand of competition”. He called for more robust implementation of the United Nations Convention against Corruption, more effective anti-money-laundering measures, and a crackdown on bank secrecy:

“..That means strengthening integrity by implementing the United Nations Convention against Corruption. It also means stopping informal money transfers (hawala), offshore banking and the recycling through real estates that make it possible to launder money. In particular, governments and financial institutions should implement Article 52 of the anti-corruption Convention that requires Parties to know their customers, determine the beneficial owners of funds and prevent banking secrecy from protecting proceeds from crime..”.

The emphasis on financial investigation and asset forfeiture has increased world wide, as has the bank secrecy crackdown. But financial investigations are labor intensive, complex from an international law point of view and dependent on a commitment to dedicate resources that could also target other types of crime that allow a more direct ‘result on investigation’.

The difficulty to actual reduce (organized) crime is well described by this view on organized crime:

“..Today, organized crime seems to be less a matter of a group of individuals who are involved in a range
of illicit activities, and more a matter of a group of illicit activities in which some individuals and groups are presently involved. If these individuals are arrested and incarcerated, the activities continue, because the illicit market, and the incentives it generates, remain. Strategies aimed at the groups will not stop the illicit activities if the dynamics of the market remain unaddressed..”

The UNODC report has chapters dedicated to different types of crime. Financial crime, fraud and money laundering are not amongst them. UNODC understands that money is key to all types of organized crime so the financial aspect is touched upon in these chapters. Fraud is not a separate chapter; fraud is probably one of the types of crime that generates billions yearly. But while cocaine is cocaine all over the globe, the variance in fraud is significant. This makes fraud more difficult to measure. Let’s see if fraud makes a grand appearance in organized crime statistics someday.

The UNODC report, as always, is a great source of statistics. It describes recent developments in the major crime areas such as drugs, human trafficking and firearms. Just under 300 pages, give it a go on a rainy Sunday morning..

http://tinyurl.com/368dchp

Now hear this. On 10 April 2010 a Tupolev aircraft of the Polish Air Force crashed near the city of Smolensk, Russia, killing all 96 people on board. These included the Polish president Lech Kaczyński and his wife, the chief of the Polish General Staff and other senior Polish military officers, the president of the National Bank of Poland, Poland’s deputy foreign minister, Polish government officials, 12 members of the Polish parliament and senior members of the Polish clergy.

The crash site was secured by the Russian army. A short time after the crash a creditcard belonging to one of the victims jumped back to life again. It should not surprise anyone that this got detected.

“The criminal case has been started against four conscript soldiers on charges of theft by an organized group. The four were in the cordon at the scene of the crash,” the Investigation Committee of the Russian Prosecutor’s Office said.

The soldiers took several cards but only used one of them to withdraw cash, stealing about 60,345 rubles (about $1,900) in several transactions, the committee said. The committee said the suspects were identified by the command of the military base that services the military airport near Smolensk, Russia, where the plane crashed April 10….All four soldiers have confessed and are actively cooperating with the investigation, the committee said.”

According to a CNN report, Russian State TV reported the soldiers admitted they spent the money at a local cafe. Three of the four suspects had a criminal record before they were conscripted into the army, the committee said. They are now being held at their military base “under the observation of their command.”

Although we are not sure what “observation of their command” would entail, we are probably better of guessing what it is rather than experiencing it.

http://edition.cnn.com/2010/CRIME/06/08/russia.poland.crash.theft/index.html?hpt=T1

http://en.wikipedia.org/wiki/2010_Polish_Air_Force_Tu-154_crash

A new U.S.-Mexico government study estimates that $19 billion to $29 billion is shipped south, then laundered through cash purchases of land, luxury hotels, cars and other high-end items. Remember the recent arrest of Cancun mayor for aiding criminal groups setting up shop in Cancun? The amount of money involved shows the (financial) power of the drug cartels. More than half of the amount is guesstimated to be smuggled to Mexico and invested in cash.

The cash is brought into Mexico both in amounts small enough for an individual to carry and in amounts large enough to fill shipping containers. Revenue from local dealing operations across the U.S. is first consolidated in cities that serve as “collection points,” including Los Angeles, then moved to the border and broken up again for the cross-border leg of the transport.

In Mexico, where 75% of the formal and informal economy works through cash transactions, cartel bosses can launder their profits with all-cash purchases of large tracts of land, luxury hotels, cars, car dealerships and an endless array of high-end items.

The fight between the Mexican administration and the cartels claimed around 27,000 lives. As we speak the Mexicans are still not able to stop the violence, the inflow of money and related corruption.

http://articles.latimes.com/2010/jun/03/world/la-fg-mexico-cash-20100603

http://financialcrimeonline.com/archives/886

http://financialcrimeonline.com/archives/609

http://financialcrimeonline.com/archives/848

A former employee of Pamrapo Savings Bank was arrested by IRS agents on June 2 and charged with diverting and embezzling more than $600,000 from the  New Jersey-based bank. According the the details published in the public domain to date, the scheme was quite simple. In a complex banking environment, he asked business partners to pay commissions and fees to him personally instead of to an associated entity. He misinformed his colleagues about this (obviously) and was able to uphold this interesting way of doing business for around 4 years. How about fraud prevention or internal controls? Anyway, it seems that the banker started his fraudulent scheme when he was confronted with a pay cut in 2006.

From a ‘fraud triangle’ point of view, we have 2 out of 3 covered already; rationalization (the pay cut) and opportunity (inadequate internal controls). Who knows what caused the (financial or psychological) pressure to finalize the triangle?

http://www.justice.gov/opa/pr/2010/June/10-crm-637.html

http://www.bankinfosecurity.com/articles.php?art_id=2602

Reuters reports that the mayor of the Mexican beach resort of Cancun has been arrested and charged with money laundering and drug-related crimes, making him one of the highest-ranking public officials swept up in Mexico’s crackdown on narcotics traffickers. “He was moving so much money and it just didn’t match up with the amount he made as a public servant,” the prosecutor’s office said in a statement.

Mayor Sanchez is suspected of tipping off and protecting the Beltran Leyva and Zetas drug cartels – gangs known for brutal tactics including beheading rivals. He had taken a leave of absence as Cancun mayor to run for governor of Quintana Roo state, known for turquoise Caribbean waters and white-sand beaches marketed as the Mayan Riviera.

On May 13, gunmen killed a mayoral candidate in a town near the border with Texas after he ignored warnings to quit the race. Several other candidates have received threats, and in some towns near the U.S. border, some parties couldn’t find anyone to run for mayor.

High-level corruption remains one of the biggest impediments in the fight against drug trafficking in Western Hemisphere countries that have become key smuggling corridors. In Jamaica, security forces are fighting supporters of a major drug trafficking suspect who has ties to the ruling party and is resisting extradition to the U.S. In Guatemala, the national anti-drug czar and police chief are under arrest in a case involving cocaine and slain police.

The Sanchez case will be another tough test for Mexico’s judicial system and its ability to successfully prosecute high-profile drug and corruption cases.

http://www.reuters.com/article/idUSTRE64P5ST20100526

http://www.huffingtonpost.com/2010/05/26/cancun-mayor-arrested-for_n_590013.html

http://www.latimes.com/news/nationworld/world/la-fg-mexico-cancun-20100527,0,1967342.story

A decade after its introduction, the 500 euro bill has taken a leading role in the world of dirty money. An internal Bank of Italy report warned last year about the mafia’s use of the note, saying it was just adding to the national problems of tax evasion. It is globally the money launderers favorite weapon of choice; the 500 euro note. The largest US dollar denomination is $ 100, so the 500 euro note represents around 5 times more value. And what is more important: around 5 times less weight and less volume if you smuggle dirty cash. A regular cereal box can easily hold 300,000 euros. Try store $ 300,000 in a cereal box!

During raids law enforcement officers have been seizing more and more stash houses full of euros, with the 500 euro note in a leading role. Estimates vary but it is commonly accepted that 80% of 500 euro notes are only used for shady business and cash stashes. The UK based Serious Organised Crime Agency (SOCA) says 90% of the 500 notes sold in the UK are in the hands of organized crime. A SOCA deputy director said 500 euros had become the currency of choice for gangs hiding their profits. SOCA says that an eight-month analysis of movements of the note in the UK revealed that it was almost exclusively used by money launderers shifting cash for major crime gangs.

With this pressure from law enforcement, exchange offices in the UK have stopped selling 500 euro banknotes because of their use by money launderers. The impact of this measure is not predictable but it will be more difficult to change smaller street money for larger denominations. Or does it? It will probably result in a new market for money launders. The 500 euro note obviously is not illicit itself; changes to larger denominations will probably go underground now in the UK, resulting in less CTR’s filed by bureaus de change. Let’s wait for the UK’s assessment of the effectiveness of the ban.

Remember the Canadian $1000 note? That was withdrawn because of crime (money laundering) concerns. The eurozone countries have announced no plans to withdraw the 500 euro note as of yet. Just a matter of time?

http://news.bbc.co.uk/2/hi/uk_news/8678886.stm

http://news.bbc.co.uk/2/hi/uk_news/magazine/8678979.stm