Unit 1 - Understanding finansiel crime

Question 1

What constitutes financial crime

Answer 1

There are two types of conduct

1. activitives that dishonestly generate welth for those engaged in the conduct in question. Ex the exploitation of insider information
2. activities that do not involve the dishonest taking of af benefit but the protect af benefit that has already been obtaioned or facilitate ex. money laundery

Question 2

Definition of financial crime

Answer 2

Financial Services and Markets Act 2000 section 6 (3) and (4):

It includes any offence (including any act or omission that would be an offence if it had taken place in the UK) involving:

1. fraud or dishonesty (including financial e-crime and fraudulent marketing of investments)
2. misconduct in, or misuse of information relating to, a financial market, or
3. handling the proceeds of crime (including money laundering).

Question 3

Financial crime activities

Answer 3

1. Fraud
   -2. cybercrime
2. money laundering
3. terror financing
4. bribery and corruption
5. market abuse and insider deadling
6. information security

Question 4

Definition of fraud

Answer 4

1. deprivation or loss to the victim
2. deception or concealment

Question 5

Conspiracy to defraud

Answer 5

Conspiracy is essentially an agreement between two or more parties and there must be an element of dishonesty

Question 6

Fiscal fraud

Answer 6

Fraud again governance funds involving tuties and taxes

1. missing trader intra-community (MITC) fraud
2. alcohol and tobacco fraud
3. oil fraud
4. tax credit fraud
5. benefit fraud
6. direct tax fraud (tax evasion).

Question 7

Non-fiscal fraud

Answer 7

These include frauds against the financial services industry, businesses and members of the public.

It occurs when criminals take money but fail to supply the goods, services or rewards promised; receive goods, services or rewards but fail to pay for them; obtain loans but fail to repay them; manipulate …

Types of non-fiscal fraud include:

1. mass marketing fraud (including advance fee fraud, also known as 419 fraud), fake lotteries and internet sales frauds
2. share sales fraud (‘boiler room fraud’)
3. market abuse
4. payment card crime
5. account takeover and application fraud
6. mortgage fraud

7.insurance fraud.

Question 8

Cybercrime

Answer 8

Cybercrime can include:

1. online fraud
2. generating and sharing images of child exploitation
3. hacking, cracking and unlawful intrusion
4. denial of service
5. facilitating criminal markets (such as the darknet)
6. instruction on crime and making criminal communications
7. creating or spreading computer viruses and other malware
8. copyright infringement.

Question 9

To types of computer fraud

Answer 9

1. computer-assisted fraud, where the computer is used to process a fraudulent transaction; in computer-assisted frauds, the computer is functioning exactly as it should
2. genuine computer fraud, where, for instance, the computer generates a fraudulent transaction – in other words, the computer has been tampered with so that it does not function correctly.

Question 10

Difinition of money laundery

Answer 10

Article 6 of the UN Convention against Transnational Organised Crime defines money laundering as:

the process of disguising illegal sources of money so that the money looks as if it came from legal sources.

FATF’s definition widens the scope of what is considered laundering as:

under this definition, it does not have to involve actual money; the proceeds that can be laundered can involve any form of tangible or intangible property or benefit that has been derived from criminal activity. It should also be borne in mind that criminally derived property does not need to actually move for it to be considered laundered.

Question 11

Difinition of corruption

Answer 11

Corruption can be defined as the misuse of entrusted power for private gain.

Corruption by government leaders and public sector officials (often referred to as politically exposed persons – PEPs) invariably involves serious crime, such as theft or fraud. The proceeds of such corruption are often transferred to another jurisdiction and concealed through private companies, trusts, or foundations, or under the names of relatives or close associates.

Question 12

Difinition of political corruption

Answer 12

Political corruption is the use of legislated powers by government officials for illegitimate private gain.

A state of unrestrained political corruption is known as a kleptocracy, literally meaning ‘rule by thieves’.

Question 13

Definition extortion

Answer 13

Extortion has been defined as ‘unlawful demanding or receiving by an officer, in his official capacity, of any property or money not legally due to him‘

Question 14

Difinition of bribery

Answer 14

The UK Bribery Act 201012 defines various types of bribery for the purposes of the Act:

Case 1: The Payer is guilty of an offence where they offer, promise or give a financial or other advantage to another person when the advantage is intended to bring about an improper performance of a relevant function or activity, or to **reward such improper performance. **(The nature of a ‘relevant function or activity’ and an ‘improper performance’ are each described in Sections 3 and 4 respectively).

Case 2: The Payer is guilty of an offence where they offer, promise or give a financial or other advantage to another person and the Payer knows or believes that the acceptance of the advantage would itself constitute an improper performance of a relevant function or activity.

Section 2 defines the offence of being bribed. Four cases are recognised and the Act continues the case numbering used in Section 1. Thus, in Section 2, the cases are numbered 3 to 6.

Case 3: The Recipient is guilty of an offence where they request, agree to receive or accept a financial or other advantage intending that in consequence a relevant function or activity should be performed improperly (whether by the Recipient or another person).

Case 4: The Recipient is guilty of an offence where they request, agree to receive or accept a financial or other advantage and the request, agreement or acceptance itself constitutes an improper performance by the Recipient of a relevant function or activity.

Case 5: The Recipient is guilty of an offence where they request, agree to receive or accept a financial or other advantage as a reward for the improper performance by the Recipient or another person of a relevant function or activity.

Case 6: The Recipient is guilty of an offence where in anticipation of or in consequence of the Recipient’s requesting, agreeing to receive or accepting a financial or other advantage, a relevant function is performed improperly – by the Recipient or by another person at the Recipient’s request or with the Recipient’s assent or acquiescence.

Question 15

Difinition of market abuse

Answer 15

The term market manipulation describes a deliberate attempt to interfere with the free and fair operation of the market and create artificial, false or misleading appearances with respect to the price of, or market for, a security, commodity or currency.

1. used information that was not publicly available (insider dealing)
2. distorted the price-setting mechanism of financial instruments
3. disseminated false or misleading information.

Question 16

CASE: FCA and PRA jointly fine Mr James Staley £642,430 and announce special requirements regarding whistleblowing systems and controls at Barclays

Answer 16

The investigation found this to be a breach of the requirement to act with due skill, care and diligence (Individual Conduct Rule 2) but not a breach of the requirement to act with integrity (Individual Conduct Rule 1). As CEO, Mr Staley should have identified that:

• He had a conflict of interest in relation to the letter, and needed to take particular care to maintain an appropriate distance from Group Compliance’s investigation.

-There was a risk he would not be able to exercise impartial judgement in relation to how Barclays should respond.

• Once the complaint was in the hands of the Group Compliance team, it was important that Group Compliance retained control over its investigation process.