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It has been a long time since financial crime has been identified and the body of research in this type of issue has been growing rapidly. Today this research provide covers a wide range of topic ranging from financial studies to social implication of the study as well as to research to prevention and best practices that may help to stop this fast growing issue. This chapter will provide an overview of the impact of financial crime, the steps used to address this problem and briefly assess the theories of about financial crime in the world.
Definition and types of financial crimes
There is no broad concensus on the meaning of financial crime but it can be understood that it is any type of illegal activity that result in an economic loss.Financial crimes, sometimes defined to as "white collar" crimes, are nonviolent criminal acts comitted to gaine illegal monetary. According to the United Nation Office on Drug and Crime (UNODC) financial crime can be viewed as "any non-violent crime that results in a financial loss which includes computer crime and dishonest practices". Financial crimes is a critical issue and it has likely devastating economic, security and social impact. It encourages drug dealers, terrorists, illegal arm dealer, corrupt public officials and others to operate and expand their criminal enterprises.According to Petter Gottschalk, (2010)," financial crime can be categoried in corruption, fraud, theft and manipulation . There are different types of financial crime. These types are as follows:
According to Jeffrey Simser, (2006), money laundering can be defined as "a technique designed to make illicit acquisitive gains appear legitimate, usually by disguising the property's illegal provenance." In other words, perpetrators are trying to cover-up the monetary sources obtained from illegal transactions so that it look like it was acquired from legal sources. Commonly, according to (Schneider, 2004; Cassella, 2004), money laundering has been described as a cycle taking place in three different stages. Firstly, Placement, the stage at which illegal funds are introduced in the financial system mainly deposited in a bank account.Layering, the stage of the process in which the property is moved around from bank to bank and its ownership and source is covered-up in order to keep it away from its illicit source and the final stage at which the property is re-introduced into the legitimate economy.
According to williams (2006), embezzlement can be defined as the dishonest appropriation to personal use or benefit of property or money entrusted by another. The actor first comes into possession of the property with the permission of the owner. Embezzlement can often occur between trusted friends or even relatives, but also occurs in simple businesses as well. Conscientious examination of financial records by the fund owner can help reveal signs of embezzlement, such as missing funds, duplicated checks, or accounting errors.
Credit card fraud
Pickett and Pickett (2002) suggested that credit card fraud is the use of stolen credit card details to get access to the goods or services in the name of the cardholder. Sometimes a brand new credit card is falsified using known details. Cards can be stolen or details obtained from files that are not properly safe.
Securities and investment fraud
Securities fraud is a type of financial crime that is involved in illegal manipulation of values of financial market. It includes insider trading, preferential rates, and misrepresentation of value. The types of misrepresentation implicated in this crime include providing false information and giving bad advice. Insider trading occurs when a person reveals information about an investment then uses the information to buy or sell shares with a business. Preferential rates and misrepresentation both implicate inflating or deflating the value of stocks in order to manipulate the market.
Investment Property is the Property sold as a certified investment with high returns. The victim is influenced to buy investment property with a property management firm that will deal all the loan documents. The victim reassured and told that he or she has to do nothing other than be the buyer and borrower. Then the victim finds that the property was increased in value,no loan payments have ever been done, and any collected rents have been stolen as well.
Identity theft and Phising
Laundon and Laudon (2010) defines identity theft as a crime in which a pretender gets personal information, such as social security identification numbers, driver's license numbers, or credit card, name, address, driver's license, date of birth, Social Security number, account information, account login credentials, or family identifiers to pretend to be someone else.
According to Higgins et al., (2008), iIdentity theft is the illegal use of another's personal identifying information.It implicate financial or other personal information stolen with the intention of to be someone else.
Phishing is defined as the technology or social engineering used to attract victims to reveal their personal information such as account numbers, login IDs, passwords, and other confirmable information that can then be exploited for illicit purposes, including identity theft. Phishing is most often commited through mass emails and spoofed websites.
Counterfeiting is a pernicious crime as it corrupts the monetary system. Counterfeiting implaicates the use of fake money, such as manufacturing falsely bills and coins with a more valuable version. Therefore, counterfeiting can break up the flow of inflation and deflation by adding more falsely money into a controlled system and also threaten global security, as these activities are sometimes committed by terrorists and other dangerous criminals to finance their activities or disguise their profits (Interpol, 2009).
Internet sales or online auction fraud - The perpetrator agrees to buy an item available for sale on the Internet or in an online auction. The seller is told that he or she will be sent an official check (e.g., cashiers check) via overnight mail. When the check arrives, it is several hundred or thousand dollars more than the agreed-upon selling price. The seller is instructed to deposit the check and refund the overpayment. The official check is subsequently returned as a counterfeit but the refund has already been sent. The seller is left with a loss, potentially of both the merchandise and the refund.
This is criminal acts committed in connection with bankruptcy or liquidation
proceedings. A person filing for bankruptcy or a business that has gone into liquidation
can hide assets after proceedings have been initiated, thereby preventing creditors from
collecting their claims. However, most of the criminal acts are typically committed
before bankruptcy/liquidation proceedings are initiated, e.g. the debtor has failed to
keep accounts or has unlawfully withdrawn money from the business (Økokrim, 2008).
Bribery and corruption
THEORIES ON FINANCIAL CRIME : WHAT ARE THE FACTORS INFLUENCING FINANCIAL CRIME?
A theory is a forecasting or justification of a fact. According to Petter Gottschalk, (2010), the body of research of financial crime is divided into three branches:
According to Hansen (2009), distinction can be made between economic, business, and elite crimes. Participants employed in reputed financial institutions commit most of such crimes. Employees for their own benefits instead of for the business benefits, commit occupational or greatest crime. Hansen (2009) suggested that people commit crime because of low self-control. Duffield and Grabsky (2001) describe some of the key motivational and psychological factors that lead to financial crime. They stated that fraud can be explained by three factors:
1) An increased in motivated criminals,
2) The availability of suitable funds, and
3) The absence of security.
As Nettler noticed the intensity of desire and the perception of opportunity are personality variables. The balance between desire and opportunity moves. Temptation to steal fluctuates with individual temperament and situation (Nettler 1974, p.75).Motivation is, therefore, a combination of an individual's personality and the opportunity which they get. Fraud is mainly committed by motivated and determined organized participants for the only reason; financial benefits
Fraud is executed by motivated groups of organised actors determined only for financial profit. According to the Drugs and Crime Prevention Committee of Victoria,an increase in recent years of organised criminals in illicit and suspicious activity implicate mostly external attacks on banks, superannuation funds and business. Duffield & Grabosky (2001) noted that greed lies at the heart of much dishonest activity in the society.
Emerging Trends in ones lifestyle
People are convince to have recourse to financial crime due to the changes in financial condition that exceed their control. Unfortunately some are capitulated to commit illicit act to maintain a good standard of living.
Financial strain caused by gambling problem is an area of concern (Duffield & Grabosky 2001). The cost of suspicious drugs contributes also to financial stress on individuals who take part in them therefore they are tempted to commit crime in order to get money. According to the Drug and Crime Prevention of Victoria, relationship or marital breakdowns causes, both financial and emotional stress which can represent a sudden decrease in the standard of living of an indvidual together with a feeling of powerlessness and resentment, ones can have recourse to financial crime in order to earn a good living.
Duffield and Grabosky (2001) noted the desire some people have for power over others and over situations. In other words, the feeling of power over individual appears to be a determined force to perform illicit act by taking advantage on weak people.
Poor communication can arise some form of dishonesty. According to Neville (2000), complaints have been made each year in Victoria against sollicitors for misappropriation of assets or income that concern poor communication between practitioners and their clients. Practitioners may be found guilty for not following the standard of conduct.
A financial crime often takes place in form of an organized crime. According to Petter Gottschalk (2010), criminal organization acts as a monopolistic firm, and the theory of monopoly is used to estimate organized crimes. In organized crime, Shvarts (2001) suggests that rational choice theory can explain the rise of the Russian Mafia that is because of low income and financial difficulties allied with an exploiting police force, they had any choice to have recourse to crime to afford their standard of living. Rational choice theory states that people commit crimes after acknowledging the punishment for the crimes, as well as the rewards of completing these acts successfully. Examples of this theory include the bank teller who is experiencing personal financial difficulty and decides to loot funds from the bank in order to increase his standard of living (Lyman and Potter, 2007).
Gross (1978) argued in his classical article on the theory of organizational crime that studies of crime, and delinquency have a strong theoretical base. He gave two important theoretical relationships. Firstly, the internal structure and setting of organizations is that in order for the goals to be acheived , the organization will be forced to violate the rules and regulation set in the business. Secondly, the perpetrators will associate with the upward mobility of the organization and likely willing and able to commit crime for the business to attain its goals and to prosper.Bruinsma and Bernasco (2004) used social network theory to explain the differences in social organization between criminal groups that is criminal organization have a network structure which is related to the legal and financial risks associated with the crimes
According to Eisenhardt (1985), agency theory is involved with agreeing two problems that can occur in agency relationships. Firstly, the agency problem arises when the desires or goals of the principal and agent disaccord and it is fuzzy and costly for the principal to verify what the agent is doing. Secondly, is the problem of risk sharing that take place when the principal and agent have different risk preferences, goals and do not share profits which occur due to accessibility of new technology. Garoupa (2007) adapted agency theory to criminal organizations. He categorized the criminal firm as a family business with one principal and several agents. Alliance theory is concerned with partnership,often happens in criminal organizations, it reduce the risk of incompetent legal provision. Trust is an important factor in partnerships. Criminal organizations are often based on trust between its members.
Adverse government structures can also be a motivating factor to financial crime. An increased in economic activities together with a weak system in a country including weak government capacity and weak democracy, poor remuneration of public servants, lack of transparency in government institutions and weak rule of law has increased the opportunities for people to have recourse to economic and financial crime .