Banking frauds presentation farrukh


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Overview of Banking Frauds with
Real life examples

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Banking frauds presentation farrukh

  1. 1. OVERVIEW OF BANKING FRAUDS WITH REAL LIFE EXAMPLES By Mirza Farrukh Baig Managing Director Lynchpin Consulting
  2. 2. About Myself • Originally from Pakistan, in UAE since 2004 Last Banking Job Held (2004 – 2012): • Unit Head Credit Risk – National Bank of Fujairah (Dubai) Professional Qualification & Training Experience: • Chartered Accountant (ICAP) • Associated with Consulting, Training & Coaching: Since 1999 Distinctions & Certification • Gold Medal in Chartered Accountancy Examinations • Holds Certificate in “Entrepreneurship” from Harvard Business School (USA) - 2013
  3. 3. How it happens?FRAUDS…. • Frauds by internal bank staff for self benefit • Frauds by customers with the help of internal bank staff for mutual benefit • Fraud by customers due to negligence of internal bank staff 70% of financial institutions saying they have experienced a case of fraud by one of their employees in the past 12 months Source: Actimize
  4. 4. What are the common bank fraudsTYPES • Fictitious Lending • Identity theft • Accommodation cheques • Forgery of documents • Embezzlement of funds Kabul Bank Fraud A report by an independent auditor leaked in November 2012 showed that the vast majority of the bank's loans - almost $900m (£561m) - were made to just 19 people and companies. An earlier finding by Afghanistan's anti- corruption office said that $467m (£290m) of outstanding loans had been made without appropriate collateral.
  5. 5. A..N Ventilation LLCEXAMPLE Fraud by a “Good Customer” Company Facts: • Turnover approx USD 30 million • Staff: over 100 people • Operative since: 2004 • Business: Manufacturing of Aluminum products Loan Granted: Asset Financing of USD 3M secured against charge over machinery How Fraud Happened? • Over the period of 6 months, all machinery was transferred to owner’s home country • One fine day owner left UAE!! Why Bank was not aware of this? • As the loan installment payment was regular, the Bank Officer never visited the client
  6. 6. S.. Food SupplierEXAMPLE Company Facts: • Turnover approx USD 10 million • Staff: over 10 people • Operative since: 2002 • Business: Sea Food Supplier to Hotels in UAE Loan Granted: Invoice Discounting (Factoring) facility for USD: 1 million How Fraud Happened? • Client discounted fictitious invoices which were never raised to clients • One fine day owner left UAE!! Why Bank was not aware of this? • Assignment of receivables was not obtained by Account Manager
  7. 7. A…. Flow Technical SuppliesEXAMPLE Company Facts: • Turnover approx USD 5 million • Staff: over 10 people • Operative since: 2002 • Business: manufacturer of brake pads Loan Granted: Cheque Discounting Facility of USD 2million How Fraud Happened? • Borrower discounted accommodation cheques of the company owned by his brother • Borrower bribed the bank officials • Bank officials submitted false information while discounting of cheques Why Bank was not aware of this? • It was intentional by a senior bank official • His team members were feared of revealing the crime information to his superiors
  8. 8. Common Fraud Products Tool! • Taking loan for company that does not exist • False Financial Statements • Export Bill Discounting with false shipping documents • Cheque discounting with accommodation • Assistance of bank employees in money laundering • Personal loans in the name of employees and used by company owner!
  9. 9. Prevention of FraudMEASURES Fraud can only be prevented by adequate measure as when it is detected, its too late!
  10. 10. Prevention of FraudMEASURES Pre-Loan Approval Measure • Have registered category of auditors • Set a minimum threshold of company’s period of operation like min 3 to 5 years • Data check on owners • Dig out ultimate ownership of the company • Identify cash flow diversion in financial statements • Look out for real purpose of loan • Sense abnormally urgent follow-up by Relationship Manager/Customer • Look for how the loan will be repaid??
  11. 11. Prevention of FraudMEASURES Post-Loan Approval Measure – Before Disbursement • Have a strong Credit Limit Activation Unit • Check that all pre-disbursal conditions/covenants are complied with or not? • Legal documentation is complete
  12. 12. Prevention of FraudMEASURES Post-Loan Approval Measure – AFTER Disbursement • Check the pattern of account transaction • Match the source of funds for export discounting • Maintain a drawer limit for factoring facilities • Have a whistle blowing culture in organization • Set SLAs to avoid “Urgent” transactions • Have an active market intelligence unit (most important)
  13. 13. Thank You