Fraud Investigations

Wall Street institutions and retail banks are not the only targets for money launderers. Real estate loans are one of the top schemes used by criminals, fraudsters and money launders as an end to execute their plans. Banks and other institutional financial institutions dedicate substantial resources to ensure they are not taken advantage of by these types of schemes. Lately, criminals have been targeting private businesses as a means to launder their money. For example, in 2014, the FBI, IRS and US Treasury Department uncovered a multi-million dollar money laundering scheme in downtown Los Angeles’ fashion district in which drug money had been laundered through retail and wholesale fashion businesses.

In 2012, the U.S. Treasury Department, through the Financial Crimes Enforcement Network (“FinCEN”) expanded the applicability of the Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) regulations to include loan and financial institutions including non-bank residential mortgage loan originators (“Lenders”). This expansion imposes specific BSA and AML protocols to any Lender who makes or acquires loans secured by deeds of trust or mortgages on residential properties. This includes mortgage Lenders, bridge Lenders, and other investment purpose loans secured by residential property. Lenders are at clear risk for money laundering, fraud and tax evasion. In general loans provide a straightforward and simple artifice to launder money.

Specifically, FinCEN imposed these obligations on Lenders because Lenders, like banks, are at risk for fraud, money laundering, tax evasion and even criminal / terrorist financing. Many criminal and terrorist organizations can defraud Lenders by creating seemingly legitimate businesses and obtain substantial sums from Lenders and other financial institutions.

FinCEN also requires all loan and finance companies, including Lenders to create and implement an anti-money laundering internal compliance program which establishes certain company guidelines dictated by FinCEN. The core tenets of an AML program are the following: (1) establish internal controls and procedures compliance with AML regulations; (2) designate a compliance officer; (3) compliance training; and (4) independent testing.

Penalties for Non-Compliance

Many Lenders and other financial institutions are unaware they are subject to BSA/AML regulations. Some disregard the requirements because it is inconvenient and others disregard them because it is cost prohibitive. FinCEN has dictated specific penalties for non-compliance. Further, they can be applied retroactively. In other words, if FinCEN discovers fraud and/or money-laundering that implicates Lenders, FinCEN can impose civil penalties up to $1,000 per day for each day of non-compliance. Willful violations may result in civil penalties of up to $100,000 for the RMLO, its owners, officers and possibly its employees. Furthermore, any property involved in a transaction or traceable to the proceeds of the criminal activity including property secured as collateral for a loan can be seized and/or subject to forfeiture. Unfortunately, Lenders that do not establish these BSA/AML protocols will be unaware of any money-laundering or fraudulent activity until it is too late. Not only does this risk civil penalties, but they risk complete forfeiture of collateral and potential criminal penalties.

Conclusion

Financial institutions are all subject to risks of fraud and money-laundering. Lenders are no different. As the primary means of residential financing, Lenders are high risk targets for mortgage fraud and money laundering. To ensure Lenders comply with the BSA/AML regulations, they must establish an AML program that includes a regularly updated manual on AML regulations and SAR filings; and they must ensure they file SARs for various types of suspicious transactions or activity. These basic requirements will ensure the Lender is well equipped to identify, report and avoid potential fraudulent activity including money-laundering and mortgage fraud. Furthermore, federal law provides protection for Lenders from civil liability for all reports of suspicious transactions made to the appropriate authorities, regardless of whether such reports are filed pursuant to the SAR instructions.

Creating the compliance program, updating the manual, educating employees and filing SARs can be a confusion and daunting task. The Ingenium Consulting Group can assist you in establishing your compliance program, educating your employees. We have the expertise necessary to identify money laundering activities, fraudulent transactions and potentially dangerous borrowers.

Fraud: Prevention, Detection, Deterrence, Examination

Fraud negatively impacts an organization in many ways; fraudulent activity can damage an organization’s reputation and undermine a company’s financial security. On its face, most individuals see the damage incurred by fraudulent activity measured in terms of monetary loss which, depending on the size of the fraud can be significant. However, the full cost of fraud is immeasurable in terms of time, productivity, and loss of reputation. Therefore, it is important for organizations to implement a “Fraud Program” that includes awareness, detection and prevention.

Combating fraud before it occurs is vital to the survival of any business. Organizations should take the opportunity to consider, enact and improve measures to detect, deter and prevent fraud before it occurs. A combined effort must be made by the board of directors, the audit committee, internal and external auditors, risk management personnel, investigators, operations personnel and others to manage the risk of fraud.

Prevention

Virtually every entity suffers from fraud, though management might not know it. With fraud costing entities an estimated 5 percent of their annual revenues, organizations lacking proactive fraud prevention measures are the most at risk. The professionals at the Ingenium Consulting Group will show you why traditional internal controls can be ineffective in preventing many frauds and how to combat fraud more effectively and economically. We can show you leading techniques to manage the risk of fraud and cut its ongoing cost for all types of entities.

Detection

Fraud is a billion-dollar business and it is increasing every year. The PwC Global Economic Crime Survey of 2016 suggests that close to 36 percent of organizations worldwide have reported being victims of economic crime in the past year. Economic crime is ever-evolving, and becoming a more complex issue for organizations and economies. The regulatory landscape is also changing, bringing with it numerous challenges to doing business.

Fraud involves one or more persons who intentionally act secretly to deprive another of something of value, for their own benefit. Fraud is as old as humanity itself and can take an unlimited variety of different forms. However, in recent years, the development of new technologies has also provided further ways in which criminals may commit fraud. In addition to that, business re-engineering, reorganization or downsizing may weaken or eliminate control, while new information systems may present additional opportunities to commit fraud.

Fraud that involves cell phones, insurance claims, tax return claims, credit card transactions etc. represent significant problems for governments and businesses, but yet detecting and preventing fraud is not a simple task. Fraud is an adaptive crime, so it needs special methods of intelligent data analysis to detect and prevent it.

Our investigative teams at the Ingenium Consulting have the expertise to successfully complete these complex and time-consuming investigations that deal with different domains of knowledge like financial, economics, business practices and law often required to successfully solve this problem.

• Identify the point of loss
• Identify potential suspects
• Quantify the losses
• Work with attorneys, insurance companies, and other investigators to help you recover your losses.

Deterrence

Fraud is a significant business risk that must be mitigated. A well-designed and implemented fraud detection program, based on transactional data analysis of operational systems, can significantly reduce the chance of fraud occurring within an organization. The sooner that indicators of fraud are discovered, the greater the chance that losses can be recovered and control weaknesses can be addressed. Effective detection techniques serve as a deterrent to potential fraudsters – employees who know that experts are present and looking for fraud or that continuous monitoring is occurring are less likely to commit fraud because of a greater perceived likelihood that they will be caught.

Internal Investigations

Conducting an internal investigation can be a difficult task. An investigation into employee wrongdoing can be costly, disruptive and time-consuming, and can also lead to a variety of legal problems and other unexpected complications if it is not conducted with the utmost care and confidentiality. However, a well-run internal investigation can enhance a company’s overall well-being and can help detect the source of lost funds, identify responsible parties and recover losses. It can also provide a defense to legal charges by terminated or disgruntled employees. But perhaps most important, an internal investigation will signal to other employees that the company will not tolerate fraud.

Ingenium Consulting Chicago has consistently provided firms with the professional investigative expertise necessary to resolve conflict through fact-finding and critical analysis. We have conducted many investigations and have a great rack record of resolving disputes and working with in-house and outside counsel to successfully conduct and conclude internal or regulatory inquiries.

Our experts help organizations with their critical fact finding when they need to conduct internal investigations or to examine allegations of wrongdoing. Whether or not actual misconduct is discovered, such inquiries, and their aftermath, can pose serious risks to companies and their stakeholders, damaging their reputation, disrupting their business operations and exposing them to government scrutiny, as well as to potential criminal, civil and regulatory liability. Ingenium Consulting Chicago’s  investigative services and expertise have helped clients successfully resolve investigations promptly and with minimal business disruption.

 

Employee Theft 

Occupational fraud, also known as employee theft, fraud or embezzlement, generally reflects the full range of willful employee misconduct through which businesses lose money. In simple terms, it is when someone through a deliberate process misuses or misapplies the resources or assets of a business for their own personal benefit.   Generally, most frauds go undetected and are uncovered either by accident or as the result of a whistle blower.

About 5 percent of an organization’s revenue is lost to these fraud incidents. That translates into a potential total loss approaching $3 trillion a year, according to a new report by the Association of Certified Fraud Examiners (ACFE).

What makes this insider fraud so devastating is that most incidents take 18 months to detect — enough time to put a small business out of business or severely damage a corporation’s reputation and employee morale.

The two sectors most stricken by incidents of occupational fraud are two of the most regulated — banking/financial services and the government/public administration. The problem is that the controls put into place to find and combat many forms of fraud, such as internal audits, are not so effective when it comes to detecting occupational fraud.

Surprise audits also are effective at fighting occupational fraud, since most employees who commit fraud are not career criminals and would likely steer clear of a criminal act that could result in job loss or jail time. The fear of being caught is a strong deterrent.

Understanding the profile of an employee who is likely to commit fraud is key. Some red flags to watch:

• Does the employee live beyond his means?
• Is the business structured in a way that would make it easy for the employee to embezzle funds or compromise the company’s information?
• Does the employee feel like he is owed something; or when he gets away with stealing a little, does he rationalize the need to steal more?

At the Ingenium Consulting Group, our employee fraud solution detects fraudulent employee activity across the enterprise, business lines, and channels, providing protection from monetary losses, risk, and brand damage.