What is financial crime?

Financial crime often takes place either at the higher levels of management or at the "edges" of
the system, where seemingly innocuous transactions can be handled by a trusted employee. But
crimes can be committed by anyone in an organisation, from the top down, who is motivated
by some need or desire, prepared to rationalise their actions to themselves, and has an
opportunity which involves them not getting caught.
The most common motivation for financial crime is greed but there are others:
Bored or over-qualified individuals may see it as a challenge to beat the system.
Disaffected employees who try to damage the organization in some way or get their own
back.
Financial pressures on individuals due to poor economic conditions or cutbacks can
encourage fraud as people need extra money to meet personal commitments.
Employees given unrealistic targets or objectives or those fearing unemployment for
some reason may falsify results.

Opportunity creates temptation but if financial crime prevention measures are successful the
opportunity to commit financial crime will be limited. Fundamental to this is the way that
management:

create the right kind of corporate culture within the organisation

influence ethical behaviour by example, through a commitment to honesty, probity
and openness
set out the policies and procedures they implement to guide staff

create and monitor internal control structures

deal with financial crime when incidences are uncovered

It is useful to look at a taxonomy of financial crime to consider what it is any crime prevention
programme has to deal with.

What types of crimes do managers commit?

The creation of a joint stock company results in the separation of ownership and control as
businesses grow. So although a company is owned by the shareholders it is run by managers paid
to act as agents for them. The principles of Agency Theory hold that managers will tend to act in
their own best interests, even if that conflicts with the interests of their principals, the
business owners.

Many of the most egregious financial crimes in business history have been carried out by the
very managers expected to be the cornerstone of financial crime prevention.

The biggest corporate scandals in recent business history, Enron and WorldCom in the US,
Parmalat in Italy and Satyam in India, have all, at least in part, arisen from a desire by
executives to maintain their own remuneration levels at a time when company fortunes are in
decline. These now highly publicised financial crimes all shared some common features.

Managers can also be responsible for a variety of other white collar crimes including price
fixing and misrepresentation which can bring them to the attention of regulators and economic
crime units. Occasionally these acts are committed for what misguided executives see as good
reasons, for example the rationalisation for price fixing cartels is that they avoid wasteful
competition in established markets and allow companies to focus on expanding elsewhere.

In reality what has happened is that the interests of the consumer have been subordinated to the
best interests of an organisation, and thus the best interests of the managers of that organisation.

What types of crimes do individuals commit?

Lower level employees are often restricted by internal controls or by the nature of their
employment, so they have less influence than managers or directors. Unless they work in very
small organisations or those with lax controls, the opportunities for diverting income streams
or large assets are limited. Employee financial crime should therefore be much less difficult to
prevent and detect, unless it is of a very minor or incidental nature.

So what crimes do individuals commonly commit?

Veteran employees can influence dysfunctional or unethical behaviour in new or easily

dominated employees to encourage or "legitimise" the behaviour as a normal business practice.

Crimes may also be committed by employees who collude so that a single person cannot be
easily identified, for example a group of cashiers stealing from tills in a random way, so no
obvious pattern can be established by analysis. Consequently one of the aims of good financial
crime prevention is to create an organisational culture which discourages participation in crime
and encourages the reporting of it.