Bank Fraud Management – 1

Introduction

Every bank is faced with manual or electronic fraud attempts daily.  The success rate in each bank depends on prevention, detection and control methods built into the standard operating procedures (SOPs). The fraud attack may be manual or electronic or both.  In the next few postings, we will focus on all the aspects of bank fraud including the Regulatory dimension.

Definition

Experts on the subject have not agreed on one definition. Therefore there is no single definition for fraud.  However, we can review the following definitions by different    Authorities and choose the appropriate one that suits the context in which are writing or discussing:

  1. Webster Dictionary: “Fraud is a crime of falsely and with fraudulent intent making or altering a written document or other instrument.”
  2. Oxford’s Dictionary: “Criminal deception; dishonest artifice or trick”

iii.         City of London Police: “Fraud is theft by lying.  When someone steals your property they commit theft, the fraudster by a lie, persuades you to part with your property.”

  1. Encyclopaedia World Dictionary: “Fraud is defined as deceit, trickery, sharp practice or breach of confidence by which it is sought to gain some unfair or dishonest advantage.”
  2. Legal Definition: “Fraud is an act of depriving a person, dishonestly, of something that belongs to him or something that he would have been entitled.”
  3. John Wood, Serious Fraud Office, London: (In a press release) confirmed the problem of fraud definition as follows:

“…There is a constant snag in investigation and prosecution of fraud due to the difficulty in defining fraud, there is not, even in statute law, an outright definition of fraud; people are charged not with fraud but with charges such as embezzlement or theft…”

vii.        In the official magazine of the Chartered Institute of Bankers of Nigeria (CIBN) for October – December, 2006 fraud was defined as:

“The use of deceit and tricks to alter the truth so as to deprive a person of something that belongs to him or something to which he might have been entitled.”

Based on the above definitions, any of the following character traits or behaviour of a Banker may be described as bank fraud:

  • Deception – the act of a Banker deceiving a Customer to get something that belongs to the Customer by false pretext e.g. deceiving a Customer to invest his or her funds in a scheme e.g. Ponzi – which is not one of the Bank’s products.
  • Dishonesty – the act of a Banker lying to obtain value from a Customer e.g. asking a Customer to pay a bribe so that his or her credit application can be approved quickly.
  • Deprivation – the act where a Banker engage in falsehood or lying to deprive others of their assets or property.
  • Sharp practice – the wrong use of knowledge or skill by a Banker to gain undue advantage over their Customers. In Nigeria this is popularly known as “419” which is an indirect reference to Section 419 of the Criminal Code devoted to such act.
  • Breach of confidence – this is a disappointing and fraudulent act of a trusted Banker.
  • Impropriety – this is an abuse of office or betrayal of confidence by a trusted and top Banker e.g. a General Manager who is entitled to two official cars converting one of the marketing cars in his Division into his private use without authorization by the Executive Management. This form of fraud is common among the Executive Directors or Managing Directors of Banks.  The confidence to engage in this fraud is based on the fact that the Staff would not question the top person who is involved.  It is normally done brazenly by such “big men” as if it is normal.

Causes of Fraud in Banks

Fraudsters’ Objective

The most important objective of fraudsters is to make money – however, in practice we have met some fraudsters that simply consider fraudulent acts as fun! Banks therefore provide very attractive and conducive environment to commit the crime. The intermediation roles of Banks where moneys are received from and payments are made on behalf of Customers provide the unique opportunity for Fraudsters to operate manually or electronically.

Fraud that does not involve a bank (dis-intermediation)

The main objective of a fraudster remains the same even when the crime is perpetrated outside the banking system.  Fraud can occur in an organization or between two organizations without involving a bank.  This type of fraud usually occurs where there is dis-intermediation i.e. the organizations do not involve a bank in cash or cheque exchanges. Pilfering and selling of movable assets or stationery items by a fraudulent Staff can also fall into this category.  Petty cash and Payroll manipulations are very common among fraudulent practices that may be carried out in various industries without involving banks – the ultimate goal of every Fraudster is to make money!

 

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