Financial crimes include activities ranging from fraud through to the active manipulation of the stock market, or laundering the proceeds of crime.
Serious and organised criminals are always looking for vulnerabilities to exploit, and fraud and the manipulation of markets provide attractive opportunities for making money. Exploiting financial systems also gives organised crime groups opportunities to launder illicit funds and facilitate or disguise criminal activity.
Financial crimes cover a broad range of activities often combining licit and illicit financial transactions. This intermingling makes it difficult to fully gauge the extent of these activities.
It is generally accepted that opportunities for financial crimes have increased as the market has diversified, and globalisation and technology continue to change the way financial transactions occur and business is conducted.
There is no single model for how financial criminals work. Their activities cross a broad spectrum of society and can range from the crude to the highly sophisticated, for example:
- looking through a person’s rubbish for bank and credit card statements, using pre-approved credit offers and tax information, or obtaining old gas and electricity bills and using their personal information to apply for a bank loan
- ‘ponzi’ or pyramid investment schemes, where criminals typically offer victims an unrealistically high rate of return on investments
- facilitation of money laundering
- insider trading.
The manipulation of the stock market is a sophisticated form of financial crime and may include:
- Wash trading—where an investor simultaneously buys and sells shares in the same company through two different brokers.
- Pooling and churning—where sales or pre-arranged trades are executed to give an impression of active trading, increasing investor interest in the stock.
- Pump and dump schemes—where worthless or fraudulent stocks are promoted to increase the share price, and then selling—or ‘dumping’ them at an artificially inflated high price, leaving investors with shares that are worthless or valued at a fraction of the purchase price.
Individual citizens also suffer the effects of serious financial crime. Some market frauds have taken in thousands of people, with many losing their savings, security and often also affecting their emotional wellbeing, physical health and relationships.
Other impacts include:
- increasingly volatile exchange rates and interest rates due to unanticipated transfers of illicit funds
- damage to the reputation of individual sectors and businesses
- damage to the country’s financial reputation
- loss of consumer confidence in businesses
- negative effects on economic growth when resources are diverted to less productive activities
- reduced ability to attract foreign investment
- increased costs of security and regulation.