Право/5. Уголовное право и криминология

Oleg Sobko

Doctoral student of the Financial Police Academy Kazakhstan, Astana

Fraudulent practices: international tendencies and threats

Fraud has existed always and everywhere. For example, principles of the Ponzi-scheme have been known for a long period of time, but people all over the world still want to believe in its easy money-making scheme. Fraud as a manifestation of ‘intellectual’ crime shows continuous development of new methods of theft through deception, which is necessary to compile and analyze in order to fight it. In the globalization period of the world economy, the growth of interdependence and conflict of laws of different states, necessitate a comparative analysis of criminal prohibitions, criminal trends and thereby the experience of fighting against them will increase. By the report, that has been made by the CFE “the average organization annually loses 5% of its revenues to fraud. Applying this percentage to the 2009 estimated Gross World Product of $58.07 trillion would result in a projected total global fraud loss of more than $2.9 trillion”[1]. The most recent prominent example : “In March 2009 US citizen Bernard Madoff was pled guilty to 11 felony counts related to a massive Ponzi scheme, including securities fraud, investment adviser fraud, mail fraud, wire fraud, three counts of money laundering, false statements, perjury, false filings with the U.S. Securities and Exchange Commission, and theft from an employee benefit plan. He also estimated the losses from this fraud to be at least $50 billion”[2].

For 6 months of criminal activity in 1994 a number of participants of the financial pyramid “MMM” in Russia reached 10 million people. Sergey Mavrody, who was a founder of the corporation, had stolen money from trusting people, a sum equivalent to billions of dollars, and was the creator of the largest criminal scheme on the territory of the Russian federation [3].
Economic, financial, cyber fraud –fraud using credit cards, financial pyramids, and much more are prevalent in our globalized world today. Over time, criminals are finding new and more modern ways of deception and theft. Despite the constant preventive actions carried out by law enforcement coverage in the media, the data of criminal statistics consistently shows an increasing number of acts of fraud, and an increase in damage as a result of such crimes. In this context, it seems important to study this phenomenon more in-depth, a study of its historical aspects, as well as major trends in various countries. This paper examines the legal regulation of the rules on criminal liability for fraud in countries with different legal systems, the general trends of fraud, the most commonly used schemes. The study will examine in greater detail comissions under consideration and how to develop the necessary measures to effectively counter this type of crime.

In the contemporary world, processes of globalization affect all spheres, and we can view the rising importance of new technologies, that are used in advertising, buying and selling goods, and as an instrument of payment. In this regard one also has to note the growth of similar crimes committed with using of growing market of internet services. In addition, the rising trend of fraud in electronic payment systems, growth of swindle with the using of payment cards, electronic service accounts, e-commerce should be taken into account. “Small and medium-size businesses in the U.S. lost more than $11 million over the past year in online scams in which stolen banking credentials were used in fraudulent wire transfers to companies only in China, the FBI said”[4].

According to the analysis made by Association of Certified Fraud Examiners, the following statistics on occupational frauds by category — median Loss in 2008 and 2010 all over the world are presented. The financial statement fraud is the most costly form of occupational fraud.

Financial statement fraud

4 100 000 $ – 2010

2 000 000 $ – 2008

Corruption

250 000 $ – 2010

375 000$ - 2008

Asset misappropriation

135 000$ – 2010

150 000 $ – 2008

For a better understanding situation, we will consider the frequency of different categories of white – collar crime committed in 2008 and 2010 Occupational Frauds by Category (U.S. only) — Frequency

Financial

Statement Fraud 4.8 % 2010

10.3% 2008

Corruption

32.8 % 2010

26.9 % 2008

Asset 86.3% - 2010

Misappropriation 88.7% 2008 [5]

According to the U.S. Department of Justice the following property crimes were committed:

Property crimes 1 194 632 – 2004 y. rate 568.2 per 100 000 inhabitants

1,369,658 - 2009 y. rate 571.1 per 100 000 inhabitants

A rising tendency not only in the number of property crimes, but also in the percentage of property crimes can be seen.

In 2003 - 208,469 Fraud crimes, and the rate on 100 000 of population was102.2

In 2004 - 199,974 Fraud crimes, and the rate on 100 000 of population was 95.1

In 2005 - 231,721 Fraud crimes, and the rate on 100 000 of population was 106.4

In 2007 - 185,229 Fraud crimes, and the rate on 100 000 of population was 82

In 2008 - 174,598 Fraud crimes, and the rate on 100 000 of population was 75.6

In 2009 - 162,243 Fraud crimes, and the rate on 100 000 of population was 67.6

In 2010 - 187,754 Fraud crimes, and the rate on 100 000 of population was 79.8 [6]

The analysis of the statistics confirm the theory of the unsustainability of the crime rate and periods of criminal rise and fall.

In 2008, the total losses of the Property crimes $16,207 000 000 $ from 16,319,180 property crimes. And total loses from the theft crimes was 6,468 000000 $ from 12,335,400 crimes [7].

We can make the following conclusions on fraud tendencies

- non-physical type of fraud.(computer technologies, internet, payment cards e.t.c.)

- criminal world’s priorities changing. (specializing of white-collar crimes)

- enlarged scale of damage

- international scale

- unstable raise and fall

- trend on form of occupational fraud

Threats

Bank systems (sustainability, safety, trust) as a result of criminal activity and growth of the facts of fraud in financial sphere, in sphere of insurance, decrease of the level of citizen’s and juridical bodies’ trust to these institutions, decreases of the funds circulation and slower growth of economy may be expected. These circumstances may cause an increase of cash financial operations, reducing the government's ability to control the circulation of money. That will create favorable environment for the growth of an economic shadow circulation of goods, reduction in income tax payments, the lower efficiency of the bureaucracy. Fraud-related losses are directly related to the position of the perpetrator. Fraud by the owner or senior executive of an organization causes losses 6 times larger than fraud perpetrated by managers, and 14 times larger than fraud perpetrated by employees[8]. Effect of corruption, raising of influence of organized criminal groups create an unhealthy business climate, reduce its efficiency, income rate, that affect state’s budget and create ideal environment for the development and formation of organized crime. All these factors affect:

- business development

- state budgets

- criminality expansion (financing of terrorism and organized crime)

- increase in corruption

- undermining of a state’s economic security

Decisions on the matter.

Economic security is very complicated definition and consists of a huge amount of parts. And one of the threats is white-collar criminality, that has a tendency of growth, that is able to cause the other more different threats, like organized crime, corruption and destabilization of a state’s economy, that is the basis of existence of every sate.

Decisions on a matter can not be absolutely the same in different states, all problems of fighting against white – collar crime can not be solved during the short period of time or by one-time measures. We need a comprehensive and multipurpose approach, that will include measures of law enforcement, legislative, multilateral international cooperation and other blocks.

Shortly they can be expressed in:

- international agreements –

- reinforcement of a control

- an increase in law-literacy

These missions may be considered in next detail variety:

- prevention of fraud on the Internet and social networking sites to inform users about the common types of fraud schemes;

- improving the legal framework and enforcement practices to strengthen its fight against fraud;

- collecting and analyzing information about incidents, documenting, and transfer of materials to law enforcement agencies;

- interaction between the companies and law enforcement agencies in investigating fraud and computer incidents;

- organizational and technical measures for the prevention of fraud;

- the adaptation of international experience in combating fraud in the IT sector.

- prevention of internal fraud

- provide the management, board and audit committees, owners and other stakeholders with a reasonable basis to rely on the company’s financial reporting, which includes accurate financial reporting, retention of business records, and the prevention of unauthorized acquisition and removal of assets[9]

- risks assessment and corporate plans for responding to incidents;

-usage of competitive intelligence to prevent possible fraud;

- analysis of the efficiency of anti-fraud solutions for specific industries;

- feasibility study for the introduction of systems to combat fraud, the analysis of payback;

- methodological and psychological preparation of personnel.

- international framework of coordination

In conclusion, it should be noted that currently there are many differences in the legislation of the countries with the Anglo-Saxon and continental law systems. Differences in many cases, are fundamental, but there is a tendency for their mutual rapprochement. In respect of global tendencies in sphere of economic criminality, the criminal codes of the states with continental legal system will be added with more specific norms on fraud. In countries with Anglo-Saxon system of law the trend of further codification of criminal law will be continued.

In the context of globalization, growth of economic and business cooperation between the various states, it is necessary to provide not only the safety of these relations, but also the effective cooperation among law enforcement agencies of various states in the context of fighting against international fraud.

However, there are different approaches to the concept of it’s definition and features in the legislation of various states. For example, the same scheme of fraud, that is committed in the U.S., CIS and France, can be interpreted in different ways. As civil - law relations in France, as a crime in the United States and as s tort in the CIS countries. This circumstance prevents an effective interaction between law enforcement authorities, complicates the issues of extradition and other legal procedures. In this regard, we believe in necessity of unification of the criminal law, which regulates liability for economic crimes, particularly fraud.

Sources:

1.Association of Certified Fraud Examiners. 2010, Report to the nations on occupational fraud and abuse. Certified Fraud Examiners, http://acfe.com

2.Federal Bureau of Investigation. 2009. Report on fraud issues, http://fbi.gov

3.Ministry of internal affairs of Russian Federation. Report, 1998, http://mvd.ru

4.Federal Bureau of Investigation. 2008. Report on white collar crimes, http://news.cnet.com.

5.Association of Certified Fraud Examiners. 2010, Report to the nations on occupational fraud and abuse. Certified Fraud Examiners, http://acfe.com

6.Criminal Victimization in the United States, 2008 Statistical Tables, U.S. Department of Justice Office of Justice Programs Bureau of Justice Statistics March 2010, www.bjs.gov

7. Department of Justice, Federal Bureau of Investigation, Crime in the United States, 2009, Table 31,http://www.fbi.gov

8.Certified Fraud Examiners 2004 Report to the Nation. Available at: http://www.cfenet.com/pdfs/2004

9.PCAOB Auditing Standard 2, “An Audit of Internal Control over Financial Reporting Performed in Conjunction with an Audit of Financial Statements,” March9,2004.Available at: http://www.pcaobus.org/Rules/Rules_of_the_Boar /Auditing_Standard_2.pdf.

Summary: In this article are considered some aspects of fighting against fraud and fraudulent practices, main tendencies, threats and perspectives.

Резюме: В данной статье рассмотрены общие тенденции в развитии мошеннических технологий, возможные угрозы, а так же вопросы законодательного и организационного противодействия.

Key words: fraud, scam, deception, anti-fraud legislation, anti-fraud measures