Fraud email key phrases revealed by new software

BBC 07/01/2013

A number of banking scandals have tarnished the reputation of the City

 

• Explaining the Libor scandal

The most common phrases used by fraudsters in emails are "cover up", "write off" and "illegal", research has found.

Rogue traders can be caught by searching for key words in their emails scanned by software developed by accountants Ernst and Young, using US Federal Bureau of Investigation tools.

The software found there are more than 3,000 key terms used in emails.

"Nobody will find out" is another common phrase the researchers found.

The software can alert management about suspicious trends.

"Most often such email traffic is only seized upon by regulators or fraud investigators when the damage has been done," said Rashmi Joshi, director of Ernst & Young's fraud investigation unit.

 

TOP 10 MOST COMMON PHRASES USED IN FRAUD EMAILS

• Cover up
• Write off
• Illegal
• Failed investment
• Nobody will find out
• Grey area
• They owe it to me
• Do not volunteer information
• Not ethical
• Off the books

Source: Ernst and Young

"Firms are increasingly seeking to proactively search for specific trends and red flags - initially anonymously - but with the potential for investigation where a consistent pattern of potential fraud is flagged."

'Very revealing'

The software uses an analysis of language, statistics, and call data.

"The language, which is a mix of accounting phrases, personal motivations and attempts to conceal, are very revealing," Ms Joshi said.

A wave of banking scandals has undermined faith in the banking industry over the past few years.

Both Barclays and UBS have been fined for attempts to rig Libor, a benchmark rate used for more than $300 trillion worth of loans and transactions. In addition, reports have said at least 15 banks globally are being investigated for possible Libor manipulation.

Meanwhile, UBS was also fined over failings that allowed a trader, Kweku Adebole, to lose $2bn (£1.2bn) in speculative trading. Mr Adebole was jailed for seven years for fraud after a trial in London.

10 Biggest Banking Scandals Of 2012

Halah Touryalai, Forbes Staff 12/27/2012 @ 11:39PM

Jamie Dimon, chairman of the board, president and CEO of JPMorgan Chase & Co. testifies before a US Senate Banking Committee full committee hearing on 'A Breakdown in Risk Management: What Went Wrong at JPMorgan Chase?'

No year would feel complete without a few high-profile financial scandals.

It’s been just fours years since the financial crisis hit yet there’s been no shortage of bad behavior among the world’s powerful money men and women since then.

Libor Scandal Just Took A Nasty Turn,

Know Your Financial Scandals: Libor, Peregrine And The London Whale

This year’s financial scandals and trouble makers resulted in billions lost and  included a too-big-to-fail bank, a small Iowa-based futures brokerage and a once boring benchmark rate that is suddenly at the center of a massive, global investigation. Criminal charges and prosecutions were few and far between but that’s not anything new for the industry. Many of these scandals ended like many before it-with a monetary settlement.

1.First up is perhaps the biggest financial scandal this year. It stemmed from the nation’s biggest and arguably safest bank, JPMorgan Chase. In May chief executive and Wall Street poster boy Jamie Dimon revealed that his bank had suffered a massive trading loss initially reported to be $2 billion. That $2 billion turned into roughly $5.8 billion loss.

While there was no wrongdoing at hand Dimon did find himself front and center testifying not once but twice before members of Congress. His long-time, trusted CIO Ina Drew lost her job amid the loss as well as a handful of other executives. The trading mess left JPM with billions less but perhaps more significantly put a mark on Dimon’s previously stellar reputation.

2. The Libor manipulation scandal was the year’s most far-reaching, hitting dozens of banks across the U.S. and Europe. This summer Barclays was the first bank to settle allegations that it manipulated the London Interbank Offered Rate–a benchmark rate tied to hundreds of trillions of dollars worth of financial contracts and derivatives.

Robert E Diamond, former Barclays CEO, lost his job after the bank paid $450 million for its role in Libor-rigging.

Barclays paid up $450 million and American CEO Bob Diamond lost his job over the matter after regulators lost their faith in him.

There’s plenty more where that came from as over a dozen other banks are under investigation for their own role in Libor rate-rigging.

3. UBS learned that the hard way last week when it paid a jaw-dropping $1.5 billion to settle Libor allegations. The Swiss bank admitted its wrongdoing and some of its former traders were arrested in Europe as a part of the investigation.

The UBS settlement doesn’t bode well for the remaining banks under investigation. Why? The charges made against UBS show the bank not only manipulated the Libor rate to make itself look healthier to outsiders but also, and perhaps more often, to make money by apparently colluding with other banks. From a regulator’s perspective that’s a lot worse than lying a bit to appear in better condition.

4. The UBS settlement amount was only outdone by the one paid by HSBC just a week prior. The British bank paid a record $1.9 billion to UK and U.S. regulators over money laundering. More specifically, HSBC settled charges that its lax money-laundering policies allowed billions in Mexican drug money and Iranian terrorist money to be transferred into the U.S. financial system.

5. That wasn’t the only money laundering settlement this year. Standard Chartered, a UK bank, paid $327 million to U.S. regulators in December over alleged illegal transactions with Iran, Sudan, Libya, and Burma. The countries are all subject to U.S. sanction and the U.S. Department of Justice and Federal Reserve say Standard Chartered Bank moved millions of dollars between 2001 and 2007 illegally through the U.S. financial system on behalf of Iranian, Sudanese, Libyan and Burmese entities.

Earlier this year in August, Standard Chartered paid $340 million to a New York state regulator over similar allegations. The NY Department of Financial Services said the British bank schemed with the Iranian government for nearly a decade, reaping hundreds of millions of dollars in fees through thousands of secret transactions involving $250 billion.

6. Back at UBS the scandals keep rolling. Late last year UBS disclosed one of its traders had gone rogue and lost the bank over $2 billion as a result. According to documents Kweku Adoboli’s bets exposed the bank to $12 billion in losses even though his unit was only authorized to risk $100 million intra-day and $50 million overnight. He was found guilty on two counts of fraud in November after a 10-week trial.

7. Not all scandals involved billions of dollars. A small futures brokerage firm in Iowa went under after its CEO allegedly engaged in fraud losing over $215 million of client money.

CEO Russell Wasendorf Sr. was indicted by federal prosecutors who say he submitted false information for his U.S. futures and currency brokerage firm. Wasendorf pleaded not guilty even though last month he confessed in a suicide note that he  had been using fake bank statements to embezzle millions of dollars from customers.

8. A larger brokerage firm faced another type of mess. Market-maker Knight Capital Group this summer suffered a $440 million loss after a problem with its trading system resulted in unwanted securities purchases. The loss forced it to be saved by outside investors including TD Ameritrade, Blackstone and Jefferies.

It ended up selling itself to one of its investors, Getco, for $3.75 a share. Knight shares were trading around $10 before the trading screw-up.

9. Insider trading has been a big focus for regulators over the last year. The prosecution of former hedge fund titan Raj Rajaratnam over illicit profits he made on inside information also shined a spotlight on one of his informants. Rajat Gupta, a former Goldman Sachs director, was fined $5 million and jailed for two years for sharing inside information with Rajaratnam. Among the secret information was a $5 billion investment Warren Buffett would make in Goldman Sachs amid the 2008 financial crisis.

10. Prosecutors have been circling billionaire hedge fund manager Steven Cohen and his firm, SAC Capital, for quite some time. In recent weeks it appears they’ve been getting closer in their attempt to take him down.

A former portfolio manager at an affiliate of SAC Capital Advisors was indicted this month for allegedly trading on inside information. Mathew Martoma worked for a unit of SAC and according to documents his inside information was apparently used by Cohen–though he isn’t named in any of the prosecution’s documents.

It won’t be the last we hear of Cohen, SAC and the regulators. After all, 2013 is just around the corner and will require its share of financial scandals.

Too big to jail? HSBC executives avoid money laundering charges

18 DEC, 2012, 02.03PM IST, AP The Economic Time

NEW YORK: When the Justice Department announced its record $1.9 billion settlement against British bankHSBC last week, prosecutors called it a powerful blow to a dysfunctional institution accused of laundering money for Iran, Libya and Mexico's murderous drug cartels.
But to some former federal prosecutors, it was only the latest case of the government stopping short of bringing criminal money laundering charges against a big bank or its executives, at least in part on the rationale that such prosecutions could be devastating enough to cause such banks to fail.
They say it sounds a lot like the "too big to fail" meme that kept big but sickly banks alive with the support of taxpayer-funded bailouts. In these cases, they call it, "Too big to jail."
"Shame on the Department of Justice. Shame on them," said Jimmy Gurule, a former federal prosecutor who teaches law at the University of Notre Dame.
"These are actions that facilitated major international drug cartels to continue their operations," he said. "Now, if that doesn't justify criminal prosecution, I can't imagine a case that would."
Oregon Democratic Sen. Jeff Merkley shot off a letter to U.S. Attorney Eric Holder after the HSBC settlement, saying the government "appears to have firmly set the precedent that no bank, bank employee, or bank executive can be prosecuted even for serious criminal actions if that bank is a large, systemically important financial institution."
Neil Barofsky, the former inspector general of the government's Troubled Asset Relief Program and a former federal prosecutor in New York, warned that big banks could interpret the Justice Department's leniency as "a license to steal."
Since 2009, several European banks have paid heavy settlements related to allegations they moved money for people or companies on the U.S. sanctions list: Switzerland's Credit Suisse, $536 million; British bank Barclays, $298 million; British bank Lloyds, $350 million; Dutch bank ING, $619 million; and the Royal Bank of Scotland, $500 million for alleged money laundering at Dutch bank ABN Amro.
While those cases involved deals with such countries as Iran, Libya, Cuba and Sudan, the HSBC case was notable for the government's allegation that the bank also helped launder $881 million in drug-trafficking proceeds for Mexican drug cartels.
As bad as those allegations were, prosecutors say they could not prove HSBC executives conspired to aid drug organizations or rogue nations. Breakdowns in security controls within the company had occurred gradually, over decades, with a motive of increasing profits rather than committing crimes, prosecutors said.
Prosecutors also expressed fear of "collateral consequences" _ that going further could have sunk a company that employs tens of thousands of people and is tied tightly to the economies of the roughly 80 countries where it does business.
Such a collapse has happened in white-collar prosecutions before, most notably in 2002 when the huge accounting firm Arthur Andersen was convicted for destroying Enron-related documents before the energy giant's collapse. It was forced to surrender its accounting license and to stop conducting public audits. Only after 85,000 people worldwide lost their jobs did the court case ultimately play out, with the Supreme Court overturning the conviction too late to save the doomed Chicago-based business

Picture source: Google Search.

Corporate Governance and Corruption in Ghana

By Kwesi Atta Sakyi* 31st December 2011

Following a series of major corporate failures and scandals in the 90s, it became apparent that something had to be done to rein in the way limited companies are directed, controlled and governed. The problem was more pronounced with the public limited companies which have directors, some of whom are external. The principal-agent problem came to a head as shareholders expectations often diverged widely from those of directors, who irrespective of poor performance, awarded themselves hefty perks such as golden handshakes, annual bonuses (which in some circumstances were unsustainable and undeserved), golden parachutes, executive mansions and vehicles, paid-for holidays, among many other mouth-watering fringe benefits. These fat cats and captains of industry constituted themselves into sacred cows, untouchables and a clique. Many engaged in insider-trading, off-balance sheet accounts, creative or window dressing accounts and questionable business decisions which were often suicidal. Cases which readily come to mind are the Enron, WorldCom and Anderson and Anderson companies.
Tenets of Corporate Governance
In Britain, there were many commissions which were set up to come up with proposals and recommendations on the way forward for listed companies. Some of he Commissions were the Cadbury, Greenbury, Hampel, Higgs, and Turnbull Commissions. In South Africa, we had the King’s Report. Apart from the resultant Stock Exchange Rules and Guidelines, there have been other corporate governance models around the world such as the Singapore Model, South African Model, Australian Model, OECD Model, EU Charters and the Sarbanes-Oxley Act of the USA, 2001. While the British-based models are principles-based, those of the USA are rules-based. It is said that there is flexibility with the guidelines in the English Model as the spirit of the law rather than the letter of the law is of essence, while the regulatory environment in the USA is one of rigidity, absolute compliance and no room for flexible interpretation of the law. Directors of companies fall into two categories, namely Executive Directors (EDs) and Non Executive Directors (NEDs). EDs are the ones who deal with the day to day running of the company while the NEDs only attend Board Meetings once or twice in a month. The various Commissions of Enquiry in their reports, recommended that there should be equal balance of the number of NEDS and EDs as well as a mixture of talent so that different perspectives can be brought to bear on issues. Furthermore, directors have to be rotated every 3 years through democratic elections in order to bring in fresh blood and new ideas. Directors are to be fully inducted and orientated on appointment and they should be appraised and rewarded on the basis of performance, competence and zeal for work. There should be segregation of duties and on no account should the Board Chairman be the same as the CEO or MD. This is to avoid the over-concentration of power in the hands of a single person. Directors are required to behave in a morally upright and ethical manner so as not to dent the image of the company. They are to ensure that the rules are obeyed, taxes paid, stakeholders are treated fairly, the environment is protected and they perform their duties with the highest levels of due care, probity, transparency, integrity, competence and diligence. They are to promote best practice and perform their fiduciary duties to ensure the company is big, strong, reliable, viable and a going concern. Directors should ensure that the due process of the law is followed in all transactions such as tendering for suppliers, outsourcing contracts, and appointment of top executives. They should avoid conflict of interest and take steps to appraise corporate risks, so as to classify them into low, medium and high risks, with mitigating and contingency plans put in place. The NEDs should be the controlling authorities in establishing internal and external audits. The Board’s Audit, Risk, Nominations and Remuneration Committees should be chaired and driven by the NEDs to provide checks and balances, and to safeguard minority interests. In the past, the principal-agent problem has been a thorny issue in corporate governance. Here, we can cite the Dodge vs Ford classic case in 1911, which ruling established the dictum that the agent (Ford) erred in principle in not consulting his benefactor/principal/financier, Dodge, when distributing rewards to esteemed customers during one Christmas time. Also there is the classic Carlill vs Carbolic Smokeball case of (1835) which also ruled that Mrs. Carlill was misled by Carbolic Smokeball advert, which claimed that their product would cure influenza after bathing with their soap for two weeks. Directors should be thorough and scrupulous in their dealings with the public, who are increasingly becoming sophisticated, knowledgeable and more demanding this day and age.
Implications of Corporate Governance and Corruption
The principles of Corporate Governance apply to both listed and non-listed Companies and institutions in the private and public sectors in Ghana, such as parastatals, NGOs, Charities, churches and government boards, trusts and agencies. To avoid corruption or to minimize the incidence of corruption in Ghana, the Ghana government should legislate that all institutions should establish strict governance structures which take into consideration the various corporate governance models. Also many workers in the NGOs, charities and public institutions should be made to belong to professional bodies so that the strict oversight, gatekeeping and sunshine rules can be applied to them. Many public institutions and not-for-profit organizations are these days being required to publish their social charters, social audits and mission statements in a bid to ensure efficiency, transparency, probity, accountability and effectiveness in public service delivery, and also to satisfy the varied expectations of all valued stakeholders. Professionals always ensure that they act responsibly, according to their norms, in order not to tarnish their individual image, that of their professional bodies and the organizations they work for, plus safeguarding the interests of patrons, donors, cooperating partners and sponsors, and probably not to incur the wrath of the penalty of having their licences suspended or cancelled or their activities prohibited.. All our teachers, immigration officers, customs and accounting personnel, should be made to belong to professional bodies in order to bond them. Some of the professional bodies are Institute of Bankers, Chartered Institute of Marketing, ACCA, CIPS, CILT, CIMA, CFA, IoD, AAT, ABE, CPA, among others.
Conclusion
I think that in theory, we can be upbeat about the tenets of Corporate Governance but in practice, we may falter where self interest, greed, avarice and cut-throat competition threatens our very existence. Besides, powers that be may twist our arms to do their bidding. What is important in such circumstances is to have high personal value clarification to guide one in such moral dilemmas. Above all, we need to be having the public interest uppermost in our minds all the time. We also have a personal locus of control not to pass the buck when matters come to the head. We can whistleblow, report to relevant authorities or form ethical committees to enforce ethical standards. We should take pride in our professional training and practice what we have been trained to do. Our motto should be ‘to whom much is given, much is desired’.
Reference
ACCA Paper 1 – Governance, Risk and Ethics
London: BPP Learning Media Ltd

*Kwesi Atta Sakyi, 62 years old, is an Economist from Ghana, writer and Teacher of International School of Lusaka. He is a columnist for ghanaweb.com. Hi lives in Winneba, Ghana

To contact him: E-mail: fasakyi@yahoo.co. Cell: +233 242715612

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Picture Source: Children gather on a fishing boat in Ghana by Robin Pierro