This article is part of Kyckr’s new Future of Financial Crime Series, which will feature interviews with leading industry professionals and thought leaders to learn more about the evolution of financial crime and the trends shaping the future.
The following is an interview we recently had with Vic Hartman, J.D., CPA/CFF, CFE, Former FBI Agent, Author of The Honest Truth About Fraud, Principal at The Hartman Firm, LLC.
What is the state of financial crime today?
Businesses lose on average about 5% of their top line revenue to fraud. When this amount is multiplied by the gross world product of $88 trillion U.S. dollars, the amount of fraud is $4trillion dollars. These losses are attributable to insiders, or occupational fraudsters, and outsiders, or predatory fraudsters. The losses are also attributable to traditional financial crimes, e.g., investment frauds like Ponzi schemes, healthcare scams, insurance fraud, and banking crimes. Tax evasion and theft of intellectual property also account for an enormous amount of fraud. These financial crimes account for a significant amount of wealth transfer and retention among individuals, business sectors, and countries. Fraudsters are changing with the times and make creative use of technologies like computers, cell phones, and the internet to commit their crimes. Accordingly, the fraudsters may be in a different country and not even really know the organisations they are victimising.
How has financial crime evolved over the past 5 years?
The year 2020 saw the emergence of COVID-19 related frauds involving medical supplies, testing and vaccines. Predators understand weaknesses in medical supply chains and took advantage of organisations that lowered their due diligence procedures as they raced to obtain much needed supplies. There is also a continued evolution of the digital platform by fraudsters to commit crimes and then launder their ill-gotten gains. Ransomware attacks and business email compromise (BEC) are now mainstay financial crimes. The dark web provides all the tools and training for criminal enterprises that want to exploit these frauds. Despite the widespread knowledge of both ransomware and the BEC, the criminals behind these schemes are able to advance their tradecraft by staying one step ahead of their victims. These attackers are also being enabled by cryptocurrencies and the anonymity they provide.
What's the future of financial crime?
The future of financial crime will still consist of the traditional financial crimes, but digital crimes will continue to grow. There is no sign that ransomware and the BEC will stop anytime soon. The international community is at a pivotal time for the acceptance of cryptocurrencies. As China bans cryptocurrency use by financial institutions and the United States Department of Treasury’s designation of cryptocurrency as a capital asset for tax purposes, the decisions of these and other worldwide players in the financial markets will have an impact on the opportunities for cybercriminals in the future. Cryptocurrencies have made crimes like ransomware possible, and they are also enabling new money laundering schemes. For example, the transfer of assets from one type of cryptocurrency to another cryptocurrency in a jurisdiction that has lax AML laws creates tremendous challenges for regulatory and criminal enforcement authorities.