November 2023

The costly lessons learned from 5 real-life FinCrime cases

What were the compliance failures that led to these crimes? And the changes in regulations and practices? The costly lessons learned from 5 real-life FinCrime cases

Financial Crime or FinCrime: a term used to describe a broad range of illicit activities - anything from fraud, money laundering and cybercrime to bribery and corruption.

FinCrime has become an increasingly complex issue for companies across the globe. In 2022 alone more than £1.2billion was stolen through fraud in the UK, with nearly 80% of app fraud cases starting online. While in the US most financial institutions (FIs) report an increase in the volume of financial attacks, with smaller organisations being attacked most frequently. The average cost of an FI scam in America between 2021 and 2022 was $102million.

In this blog, we’ll explore five famous case studies in financial crime compliance, focusing not only on the compliance failures that led to these crimes but also the changes in regulations and practices that have resulted from them.

(1) Money Laundering: The Danske Bank Case

Danske Bank, Denmark's largest bank, was embroiled in one of the most significant money-laundering scandals in history. Over $200billion of suspicious transactions flowed through its Estonian branch from 2007 to 2015, largely unchecked due to a significant number of compliance failures. These included insufficient AML procedures, legal breaches, a lack of integration including migration onto IT systems, insufficient focus on the risk of money laundering, and a lack of parent company oversight. Overall, the bank was accused of being too slow to recognise and rectify issues and any initiatives that were taken came too late.

This scandal led to the resignation of the bank's CEO who stated “It is clear that Danske Bank has failed to live up to its responsibility in the case of possible money laundering in Estonia. I deeply regret this.”

This case also prompted significant changes in European Union (EU) money laundering regulations. The EU adopted the 6th Anti-Money Laundering Directive (6AMLD), which clarified the definition of money laundering crimes and imposed stricter penalties.

 

(2) Cybercrime: The Equifax Data Breach

In 2017, consumer credit reporting agency Equifax reported a data breach that affected approximately 147 million people. The breach, resulting from inadequate cybersecurity measures, allowed hackers to access the personal data of millions of people and exposed UK consumers to the risk of financial crime. It also led to a significant loss in consumer trust.

Following the cybersecurity breach, one of the largest in history, Equifax agreed to a settlement that included significant fines and mandated changes to its security practices by the financial watchdog. This case led to increased scrutiny of data protection practices within companies and underscored the need for robust cybersecurity measures.

 

(3) Bribery and Corruption: The Odebrecht Scandal

Brazilian conglomerate Odebrecht, once one of the largest construction companies in Latin America, was at the heart of a massive corruption scandal. The company admitted to paying nearly $800 million in bribes to secure contracts in 12 countries.

The scandal led to significant changes in anti-bribery and corruption laws in many countries. For example, Brazil enacted the Clean Company Act, which holds companies accountable for the corrupt actions of their employees and introduces stringent penalties for non-compliance.

 

(4) Insider Trading: The Martha Stewart Case

Martha Stewart, a well-known businesswoman and TV personality, was convicted in 2004 for insider trading. After receiving non-public information about the biopharmaceutical company ImClone Systems, Stewart sold her shares to avoid losses.

The case highlighted the need for robust compliance systems within companies to prevent the misuse of inside information. And it led to tighter enforcement of insider trading laws and increased corporate transparency requirements.

 

(5) Tax Evasion: The Paul Manafort Case

Paul Manafort, President Trump's former campaign chairman, was convicted in 2018 on eight counts including tax fraud, bank fraud, and hiding foreign bank accounts. This high-profile case involved shell companies, off-shore tax shelters, and millions of dollars in unreported income.

Manafort had failed to report his income from consulting work for the Ukrainian government and used it to finance a lavish lifestyle. In an attempt to conceal his activities, he laundered the money through offshore accounts and misrepresented his financial situation to secure loans in the U.S.

The case was a significant development in Special Counsel Robert Mueller's investigation into Russian interference in the 2016 Presidential election. It also highlighted the importance of international cooperation in investigating financial crimes, as Manafort's charges stemmed from his work in Ukraine.

This case added to the growing conversation about tax evasion and money laundering, leading to calls for more stringent regulations and greater transparency in international banking. It also underscored the importance of tax compliance and the severe consequences of tax evasion.

For more real life stories like these check out our blogs on Famous Fraud Cases and Audit Case Studies.

 

So, what can we learn from case studies like these? Well, they serve as stark reminders of the importance of robust compliance systems in preventing financial crimes. They also highlight the need for constant vigilance, regular audits, and a strong culture of compliance within organisations.

On the other hand, while costly and damaging, these cases have led to significant improvements in regulations and practices. While unpleasant for those at the centre of FinCrime scandals, their existence has made it harder for these kinds of crimes to occur in the future. But the battle against financial crime is ongoing, requiring continuous efforts from regulators, companies, and individuals alike.

As John G. Heimann (Controller of the Currency appointed by US President Jimmy Carter from 1977 to 1981) famously said, “You can’t keep fraud out of the system. The key to good regulation is how quickly you catch it.”

The key to catching FinCrime and compliance issues quickly? It’s not only about robust systems and practices, but the proactive hiring of competent, experienced professionals who can guide you through the complexities of compliance.

At Apollo Solutions, we understand the importance of compliance to your business and we have relationships with some of the best FinCrime and Compliance experts available.

If you’re an employer looking to strengthen your compliance capabilities, get in touch. Or if you’re a FinCrime professional looking for your next venture, browse our latest vacancies or upload your CV below.

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