Investor’s Financial Fraud

Financial fraud imposes costs on market participants, including retirees, depositors, creditors and even employees. Capital markets should have vigilant and helpful corporate sovereignty to ensure the transparency, integrity and quality of financial data (Kim et al. 2015). Fraud is a serious threat to the confidence of market participants and has recently received considerable attention from traders, intellectuals, regulators and accountants (Wells, 2017). Financial fraud is defined as international fraud involving financial transactions for commercial gain. This is both a criminal offense and a violation of civil law. Most of the frauds involve complex deals done by the white collar criminals and business professionals with exceptional skills and criminal intentions. A crooked investment broker can present a customer to a given business with an opportunity to buy shares, for instance, his position as investors offers him credibility that can also lead to the same to the customer. Those believing that the opportunity is legitimate are forced to contribute colossal cash and in turn, receive genuinely looking bond credentials. If the broker is aware of the nonexistence of such a repository but goes ahead to earn money, then that is a fraud, and the victim can sue him (Luca & Zervas, 2016). One of the questions that people have to ask themselves is why clients are comfortable to invest in illegitimate platforms that they do not have actual information based on their analysis.

Fraudsters has many different methods of contacting the victims including face to face interactions, voice calls, emails and short messages among others. Sometimes it becomes difficult for businesses and individuals to check their identity. They are masters of diverting people to dumpy sites and steal their financial details. They have an international web angle at which they hide their actual location at ease. All those characteristics results to the internet becoming a mega platform of fraud. The scheme of getting rich quick is a plan with high and unrealistic returns from just a small stake in ease and risk-free investment. The advice given to many people is that, if the offer is too good, then they should identify the legitimacy of the business or the concerned individual and also the promised high returns. Most of such schemes also emphasize that wealth can be created with little time, skill and effort. They usually advertise through cold calling or spam. Some of these projects market themselves through selling compact discs and books about quick wealth instead of offering advice on direct investment to the good schemes. People can get rich instantly if they accept the idea of high risk found in the gambling industries. Gambling gives odds that are near losing the initial stake although some people get rich through them and hence find it appealing. People still invest in businesses even when knowing that they could be frauds but think that the first investor shall have a benefit before more customers come to spend. They believe it to be beneficial in the short term but retrogressive in the long run. The central aim of this paper shall be to find details and analysis about frauds and al their mechanism, the rate at which they hit the market and complains of most victims. At the end of the paper, it shall have conclusions and recommendations.

Literature review

There exist different types of frauds among them being the illegal investment scheme, foreign exchange, unauthorized withdrawals and use of debit or credit cards. The last one is the misuse of banks and officer’s positions and names. If people think that fraud does not exist, they should fear the worst. In this paper, I shall also explain these types and means at which people can avoid them.

Illegal internet investment scheme

It is a variation of illicit deposit activities involving the internet usage such as websites and emails as the primary methods of interactions transactions as well as communication concerning the fund management and advice without being licensed (Neisius & Clayton, 2014). The illegal investment consists of companies and individuals dealing with securities, future trading contracts and also provides fund management services without the license of the relevant body (Jayabalan et al. 2014). Moreover, fund managers should have the appropriate permit according to the stipulated laws of every nation worldwide. With the extensive usage of internet, fraudsters have started to utilize the cyberspace in haunting new preys. Everything has been made simple enhancing these guys to capture a large number of victims without much cost. Most of today’s online scams were used also used long time ago to fleece offline investors. How do they do it? Well, look at these explanations: such scheme operators lure the unsuspecting victims to engage in an online investment or even receive information online. They offer the investment opportunity with high returns above the market rates and also assure minimum risks. If questioned, they claim to be foreign operators that do not need licenses from the business regulator in that given region, or they claim to have the required legal documents from the relevant controllers (Barnes, 2017.). Most of the unsuspecting victims end up being enticed by the offer since such operators start by paying high returns at first and that becomes the tactic of recruiting other new preys. The scheme survives depending on the recruitment of new investors, and funds gotten from them used to pay the already existing one and eventually fails upon lack of capital from new people. However, after realizing of a possible fall of the scheme, the operators abscond with the collected revenue and leave the investors at huge loss.

For people to protect themselves from such businesses, they should always remember that if the deal is too good, then probably it is a lie. They should deal only with the licensed institutions and dealers; also confirm from the relevant authorities before investing, and they should not be under any pressure of spending (Cross et al. 2016). Extra care of internet investment is also required; every person should be sceptical of opportunities not in writing. In the place where the investment is made already, the investor should keep all the investment and communication documents.

The illegal foreign currency trading scheme

Such schemes refer to the selling or buying of the foreign currency by companies or individuals in any given region from unlicensed person or business. Fraudsters operate small business enterprises and claim to provide remittance without any available documents or identifications (Batten et al.2017). By dealing with such people, it is possible for the invested money to never reach the intended destination. Those dealers portray reputable professionalism with advanced IT technology such as displaying the exchange rate movements to show the legitimacy of the business (Abdullah & Chan, 2016). Such facilities are just false fronts. Depositors usually trade using accounts opened with the dealer. In some situations, the investors are allowed to use internet accounts. They are also demanded to sign some business contracts with the company and have to send them overseas for the management to hire although most of them are never approved rendering the investor powerless because there shall be no binding document between them (Dion, 2013). At first, depositors get huge returns that convince them to invest back with more money. In the case of a loss, the company may try to convince the investor to continue depositing may be for a chance of recovery.

Unauthorised withdrawals

It involves transfers or withdrawals of money at a given account without the required authorization or even the owner’s consent (He et al.2014). Such issues happen after the fraudster discovers the individual financial details such as account pin as well as passwords. Mostly, the victims receive anonymous messages informing them of winning a guaranteed cash prize, and for them to accept it, they have to open an internet bank account (Mason & Bohm, (2017). The prey reaches the messaging number and taken at a process of registering and activating internet banking accounts by use of the ATM terminal. Eventually, an authorization code is sent to the operator’s mobile phone and gets the preys bank accounts (Tade & Adeniyi, 2017). People should not respond to such messages or even unknown contacts; they should also protect their bank account details but more so, never become convinced of winning a prize in a game not participated.

Unauthorised debit and credit card usage

The mentioned fraud involves charging another person’s card when buying goods without the owner’s consent (Bird & Radojkovic, 2015). Such issues occur after its loss, not received, stolen or even issued in a fraudulent situation. Fraudster does not only use text messages to lure a prey in the efforts of extracting personal banking details for unlawful reasons. Here, victims receive a text message requesting them to confirm card transactions on charges purported to have taken place. Fraudsters identify themselves as the agents of the bank that the client is the cardholder and again request for confirmation on whether the transaction had taken place. When given a “NO” answer, they shift the game and start pretending to be concerned and eventually convince the prey to report to the bank and provide an available telephone number (Koivunen & Tuorila, 2015). If the victim contacts using the given details, the call shall be received by another person who shall request for further information about your bank account in the pretence that they want to confirm the transaction for you, and eventually the fraudster gets the opportunity to use your card at any time (Lusardi & Mitchell, 2014). People should never respond to individuals requesting for their bank account or the card details, if there is any suspicion with the report, it is better for the victim to go to the bank and enquire at the counter and not via phone. If one receives a call requesting for any detail concerning the card number, then they should disconnect the phone with immediate effect. Mostly, bank agents do not call to ask for the card or bank account details.

Misuse of bank and senior officer’s names and positions

Here, the fraudster uses the bank name and logo. Also, they operate with the job and name of a top bank officer to convince the prey. Those are a fraudulent activity aimed at misleading the public (Azim et al. 2017). They run the scheme by use of letters, emails, voice calls or any method of communication. The public should always disconnect calls concerning their bank account details and should also verify or identify the claims of the said bank. In the situation of any arrangement with another person or bank, it is recommendable to keep the relevant documents and if possible record the calls made (Sanusi et al. 2015).

Some of the reasons that cause fraud are greed when people see an opportunity to make quick money; lack of transparency in complex transactions, making it impossible to trace any fraudulent method. Such processes included the use of the dumpy account understood by few people. Poor information management where the company’s system does not produce instant information, and hence lead to helping the obscuration of business mis-conduct is the third reason of fraud. The fourth reason could be the extreme and charitable performance of the bonus payment; non-independent audits within the organization primarily where employees report to the financial director instead of the audit committee. Poor leadership that does not give clear ethical directions and help the seniors to engage in some unethical actions such as adjusting upwards the expense is one of the other reasons as to why fraud occurs.

Research methods and data collection

In this section, I shall describe the financial data for the year 2016 according to the financial fraud UK. The financial fraud losses from the card payments, cheques and remote banking were £768 million by 2016 which was an increased figure by 2% from the year before. These numbers come from the financial fraud UK. Companies and banks were able to prevent £1.38 billion by last year which equates to 64%. Deception scams, impersonation and the online data scamming becomes the primary causes of financial losses in 2016, and the operators look for personal details such as the card and bank data. These are the data for the 2016 fiscal fraud: payment card losses due to fraud totaled to £618.0 million which was a 9% increase from £567.5 million in the previous year. Card companies and banks prevented £982.4 million from attempted frauds which equates to £6.10 in £10. Over the financial year, the spending of cards increased by 6% which means that the scam as a spending proportion in every £100 spent equates 8.3 percent (West & Bhattacharya, 2016). The card purchase losses made in foreign banking increased by 9% to £432.3 million. And the external investment experienced a loss of £137.1 million which was 19% decrease from £168.6 in the previous year. £205.4 million of the attempted fraud in the remote banking was barred equating to 60%. The losses from cheque fraud reduced by 28% to £13.7 and there was a 94% prevented fraud which equals £196.2 rescued. The year had 1,857,506 reported cases of financial fraud.

According to the 2016 experimental data looked at household and personal experiences with fraud victimization; found that the victims exhibited various patterns as compared with the Crime Survey of England CSEW type of crime. Also, there were typically less variations as compared to other kinds of evil in the victimization rate in different societal groups. The victimization was recorded higher in the middle age distribution at 45 to 54 having 7.9% 16 to 24 have 5% and those above 70 years with 4%. Fraud victimization was also high in households with more than £50, 000 at 9.1% than the low-income families with £10, 000 at 5.6%. People in the professional and managerial occupation also recorded a higher level than the rest with 8%. Those in manual jobs held 5.3%, students with 4.4% and the unemployed with 3.8%.

According to Worobec, the director of Financial Fraud Action (FFA UK), banks should handle the fraud threats with extreme seriousness and should also continue to invest in improved detection as well as verification systems to protect their customers from this thugs. Because criminals also, are working hard to ensure they get the clients personal details, it is essential for them to ensure that they protect their bank details (Mayer et al. 2014). The financial industry cannot stop fraud by itself and hence every organization should take a part in fighting this criminal activity (Bush, 2016). The law enforcers and the government should also work closely with the industry through the Joint Fraud Taskforce to ensure a better fight. Organizations holding personal data should make sure they have the recommended systems to avoid breach of information.

Research analysis and discussion

The UK is one of the primary targets by the scammers due to its internet infrastructure, but citizens should be careful on this. People usually do not know the other party at which they transact, and that means they could be dealing with overseas individuals and it is difficult and expensive to trace and stop them. People feel safe in our streets but don’t realize that scammers use this sense of complacency (Bada & Sasse, 2014). Sometimes the government is forced to warn the public through road shows and TV advertisements to inform the public against the online scammers and in turn, has helped in stopping people from sending money to other unknown individuals. Some people have the mentality that they are safe when conversing online, but it is effortless for any person to hide their identity and intentions behind technology. Sometimes, scammers start with love messages and women are usually the primary target, they befriend them and then through the process take their details or even convince them to send money. The most targeted are the mature and higher income individuals and families. Mostly, scammers are foreign syndicates (Ryder, 2016). Due to some teachings, many people have become more impulsive to pay. Victims of such kind of misfortune usually become emotionally vulnerable because of being naïve and not internet savvy. They then become too embarrassed after being conned and never report the incidence.

Almost one in three people admit that they are likely to take financial risks and get a deal such as unfamiliar websites with younger one aged between 16 to 34 recording 46%. 31% of those citizens is an indication that there could be more than 15 million citizens putting themselves into such a danger. Moreover, 22% of shoppers never check the online authenticity such as checking the padlock icon before purchasing. 19% of them also click on any email as long as it seems a better deal. 36% indicate that they have a changing shopping habit depending on the available bargain opportunity. A quarter of them fears being left out of a great deal and hence guard down their online shopping processes. With all these details, it is necessary that people should be made aware of the online scammers that may utilize their carelessness to make them victims. To avoid so, citizens should ensure they do thorough research on any website before deciding to spend their money. Such consumer carelessness has resulted in raising the percentage of scammer success (Ruggiero, 2015). But Financial Fraud Action (FFA UK) urges shoppers to be more vigilant with such processes.

Police have also intensified their search for criminals. Banks and other financial institutions are on the first line of informing the relevant law enforcers. Police from the Dedicated Card and Payment Crime Unit (DCPCU) executes warrants across the UK, especially during the Black Friday. They also work closely with Europol, visa, banks, high profile retailers and card companies to identify criminals concerned with purchase frauds. They also help in capturing goods bought with fraudulent transactions, false cash and ID documents.

Police are determined to proactively continue with retailers and the industries that take actions against fraudsters. Visa continues its determination of delivering an efficient and safe payment solution to customers. The activities of fighting the fraud criminals by the police in connection with the financial institutions bored some positive result since most of the offenders refute from such actions due to fear. Courts have also taken parts in ensuring reduced criminal issues; caught fraudsters faces severe sentencing making them have second thought concerning their deeds. An example is James Koma who was jailed for five years when the DCPCU officers raided his house and found items that could be used in the production of counterfeit cheques and fake IDs. Such sentence to criminals can scare others who may intend to engage in frauds (Grant et al. 2014).

Those are some of the reasons that caused an improved card fraud prevention attempts. More than a quarter of businesses have ever fallen victim of fraud or attempted scams, but the primary targets are the managers is SMEs and employees in big companies. 69% percent of businesses accept that they have not protected their firms and employees against financial fraud according to the FFA UK data. 48% are never concerned about falling victims of scammers, and more than that percentage believe they are not likely to be affected by any means. Also, 37% of managers have never spoken to their employees about fraud even when more than a quarter of employees were approached directly by scammers. This means that their businesses are already exposed to financial losses. The most affected targets are managers in small SMEs, business owners, as well as employees in big companies (Ishida et al. 2016).

The most common scams include an invoice fraud where fake invoices are issued and sent to the organization demanding payments for a given good and services. More than three businesses in four admitted of not knowing of such an impersonation that leads to signing if false invoice. All those in business sector should be more vigilant and also be aware of the tactics used by the fraudsters. For instance, such criminals pose as a regular supplier and make requests for changing bank account details. The truth is that all businesses are affected in one way or the other, and that is the reason as to why they are encouraged to pause and think before taking action concerning any financial request, and that can help in staying far from fraudsters.

Conclusion and recommendation

Financial institutions are working hard to protect customers from fraudsters through the use of innovative systems that have helped to prevent most of the attempted frauds. Something has to be done differently to ensure that these actions shrink to negligibility. FFA UK does not have to see this issue as complicated but should intensify its operations and encourage people on methods of evading such misfortunes; they should teach them to stop and think before taking any financial action. Maybe, most of the citizen knows what to do and what not to, for instance not revealing their account PIN and password and also to never feel pressured into deciding on any financial matter. But the challenge comes when most people fall into the trap of forgetting. Also trusting people is something on the rise, and many tend to believe anyone who can convincingly claim to be from a particular financial institution (Harvey et al. 2014). It is essential for everyone to take the five which is the new awareness campaign championed by FFA UK in partnership with the city of London police and Cifas (Zalata & Roberts, 2016). They urge people to pause and think about the legitimacy of the situation before accepting any request from unknown people or even whether what you are told makes sense.

Consumers should never reveal account details to any individual even the bank attendants unless it is in a sure situation (Krambia-Kapardis, 2016). They should also never rush to act, legitimate businesses do not mind to wait. People may receive phone calls from different unknown people but, if they request for any bank detail, they should never be assumed to be genuine and so do emails and texts. Stay in control by not panicking and making regrettable decisions and finally, always listen to your instinct and if something feels confusing, just leave it (Aris et al. 2015). If you come across a suspicious request, it is advisable to pause without replying and then contact the organization on any trustable number especially those on the organization’s official website. Business management should consider talking to their employees about fraud and provide to them with details on how it can occur and how to go about it. Lack of doing so is exposing the business from possible financial losses. The message I would give to the employees is always to practice the five whenever anything seems suspicious.

Customers should be attentive to any voice calls, emails and texts especially after the report of the breach of mobile operators. Fraudsters use the publicity around such breach to make scams, and they appear more credible. They utilize their prey’s fears such as claiming of a transaction on the victim’s account hence triggering panic and eventually forces the victim to respond quickly in an attempt to safeguard money. Then they convince him to reveal the bank details or even transfer money. FFA UK responsibility is to lead the war against fraud in the UK financial industry. The organization seeks to defend consumers and businesses from financial frauds by creating a terrifying environment for fraudsters (Whitty & Buchanan, 2016). The body should enact more fundamental rules and intensify the campaign against such crimes by use of simple methods that most people can understand.

To criminals, it is true that their days are numbered and should refute from depriving off the people’s resources (Barak, 2016). Employers should be more vigilant in anything that may cause financial loss to the business and should advance the technology to ensure perfection in the operations such as instant messaging on any activity conducted on the client’s account. If firms take such precautions, it will help in arresting the criminals before they escape. Financial companies should also lay an available contact line that customers can use in the case of any suspicion.

Now because people are familiar with different types of fraud, how fraudsters behave and even what to do when encountered by such criminals, I hope that everyone shall be careful and tactical if anything is thrown to them. I would recommend people to be keen on everything that the paper states and they shall see better fruits. I can be so glad if this research shall help an individual by saving money.

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