Money, they say, is the root of all evil. For something ever so elusive and always changing hands, the power it has on many is as baffling as it is curious. A little overboard, the obsession can and has turned many ordinary people into criminals.
Brazen acts like fraud, embezzlement, scam, money laundering, extortion, forgery, cyber-crime and tax evasion among others are without a doubt emerging from the woodworks in Fiji, underscoring the vulnerability of the country to the social ills of white-collar crimes.
Did you know that last year alone, the Fiji Financial Intelligence Unit (FIU) disseminated 246 reports to law enforcement agencies after procedural intelligence gathering based on Suspicious Transaction Reports (STRs) it received from financial institutions?
The dissemination of these reports—the FIU calls them Case Dissemination Reports (CDR)—is usually made because there are strong possibilities that organisations or individuals linked to them are breaking the law.
And the trend over the last five years has seen investigation and referral to law enforcement agencies of no less than an average of 240 CDRs a year.
Last year, 168 CDRs were forwarded to the Inland Revenue Services of the Fiji Revenue and Customs Authority (FRCA), suggesting tax offences as still problematic for our small economy.
Over the last five years, according to FIU’s 2012 annual report, an annual average of 150 CDRs were passed on to FRCA’s Inland Revenue Services for “possible violations under the Income Tax and VAT Decree”, compared to an annual average of two CDRs to FRCA’s Customs Division.
What’s interesting though is the number of CDRs dispatched to the Fiji Police Force and its Transnational Crimes Unit, as these are cases that involve more complex financial crimes.
“The FIU analyses financial transaction information received from financial institutions and develops intelligence,” the FIU said in its 2012 annual report.
“The FIU then disseminates the appropriate intelligence to relevant law enforcement agencies for their formal investigations. These investigations may be linked to suspected proceeds of crime, money laundering and other serious offences.”
The Fiji Police Force last year received 61 CDRs for “possible violations under the Proceeds of Crimes Act and serious offences under the Crimes Decree”, while its Transnational Crimes Unit received eight compared to 15 and 83 in 2011 and 2010 respectively, and together, the Police Force and its Transnational Crimes Unit were forwarded a yearly average of 76 CDRs over the last five years.
Fraud among us
What this exercise translates to are financial crime cases like the now well-known Turtle Islands Resort forgery case where close to a million dollars were stolen by corrupt workers. Central to that conspiracy was the betrayal by a prime banker in a local bank of the trust placed on her by Turtle Islands Resort owner Richard Evanson. It took place over close to two years before formal police investigations into the case began. Bank accounts of the woman’s friends and relatives were used to siphon off close to F$1 million from the resort’s account, money used to buy a life of luxury and indulgence. When police and state prosecutors finally moved in to confiscate assets, they were only able to seize a house in Nadi, bought for over F$100,000 cash, and six vehicles. State prosecutors say the assets at today’s value are worth around F$200,000 while the rest, over F$700,000, remained unaccounted for.
Another exemplary case shedding light on the emerging cyber crime trend was the Johnny Albert Stephen case, where so-called “cybercriminals” use new technologies to carry out their misdeeds. The offence took place in 2009 and was successfully prosecuted last year, landing Stephen, a Vanuatu national, seven years in Fiji prison.
Individuals lost over F$38,000 through online banking fraud where the perpetrators used Stephen as a “mule” based in Fiji. As a “mule”, his role was to facilitate unauthorised fund transfers from both local and overseas bank accounts to other overseas accounts.
“The case was a typical cybercrime internet banking fraud case which involved two bank account holders in Fiji and one bank in the Cook Islands. They were being tricked into divulging their bank account details and password to the cybercriminals who had set up a bogus website of a local bank,” the FIU said in its assessment of the case.
“Seven unauthorised transfers were made from the two local bank accounts totalling F$17,420.90 and one unauthorised transfer of F$21,440.56 was made from the bank account in the Cook Islands. Funds totalling F$38,861.46 were transferred by the cybercriminals into the bank account of Mr Johnny Albert Stephen in Fiji. The funds were to be then transferred out of Fiji by Johnny Albert Stephen to the cybercriminal in another country. Mr Johnny Albert Stephen was unable to remit the last transaction of F$21,440.56 to the cybercriminal as he was arrested by the Fiji Police Force as he was about to conduct the transaction on that day.”
By no means have these types of activities using Fiji’s financial system declined. Through the FIU and its role as a money-laundering watchdog with powers to follow the money trail, more and more of these blatant acts are surfacing.
No doubt they have cost individuals, companies and government thousands of dollars. In the 2012 Global Fraud Study by the US-based Association of Certified Fraud Examiners (ACFE), it was revealed that the typical organisation loses five percent of its revenue to fraud each year.
“Applied to the 2011 Gross World Product, this figure translates to a potential projected annual fraud loss of more than US$3.5 trillion,” the ACFE said in its report. “The median loss caused by occupational fraud cases in our study was US$140,000. More than one-fifth of these cases caused losses of at least US$1 million.”
Asset misappropriation schemes, involving cash thefts and fraudulent disbursement, were recorded as the most common yet least costly type of occupational fraud, comprising 87 percent of cases reported and a median loss of US$120,000. Financial statement fraud—or typically ‘cooking the books’—made up just eight percent, yet caused the greatest median loss of around US$1 million.
The 2012 ACFE report is based on data compiled from a study of 1,388 cases of occupational fraud that occurred worldwide between January 2010 and December 2011.
To provide a “truly global view into the plague of occupational fraud”, the cases in this study are said to come from 94 nations, with information provided by Certified Fraud Examiners who investigated those cases.
These 94 countries included the United States, Canada and the rest were from five geographical regions—Latin America and the Caribbean, Africa, Asia, Europe, and Oceania.
Fiji, New Zealand and Australia were part of the Oceania study. In the Oceania region, cases of corruption were the most common while overall, industries most commonly victimised were found to be the banking and financial services, government and public administration, and manufacturing sectors.
In Fiji, corruption cases against companies and government entities continue to surface and make their way to court.
Among the documented money laundering cases that involved financial intelligence gathering by behaviour and successful prosecution by the state were those against the Fiji Electricity Authority (FEA) and Vinod Patel hardware.
The FEA lost over F$100,000 through a series of forged cheques that involved a bank teller, her de-facto husband and his friend who was an FEA employee.
The FEA fraud began when one Erami Tute, a finance officer at FEA at the time, started producing FEA fraudulent cheques, between June 2008 and February 2009.
The state successfully prosecuted the bank teller, Doreen Singh, who was sentenced last year to six years imprisonment with a non-parole period of five years.
“Some of these fraudulent cheques found their way to ANZ Bank Samabula, where the accused (Singh) worked as a teller,” court documents on her sentencing revealed.
“According to the prosecution, Mohammed Mukhtar Maqbool, the accused’s de-facto husband, often did jobs for FEA. He somehow became acquainted with Erami Tute, and some of these FEA fraudulent cheques found their way to Samabula ANZ Bank through Mohammed Mukhtar Maqbool. When the fraud at FEA was discovered, Erami Tute and Mohammed Mukhtar Maqbool fled to Australia in April or May 2009. The case against them is still pending.”
Things were much worse for Vinod Patel. It lost over F$470,000 in a case that took place between December 2005 and May 2007. According to court documents on the case, the accused, a Monika Monita Arora laundered a total of F$472,466.47 and used the money for her and others’ benefit. She worked in the accounts section and was falsifying cheques, writing them out to different companies and depositing them into her bank account. When internal investigation by the company began, she bribed one of the investigators by offering him F$10,000 to stop the investigations.
When the case made it to court in 2011, Arora had only repaid a mere F$41,272 to Vinod Patel. Over F$431,000 could not be traced.
Arora was sentenced to seven years in jail for money laundering, a lenient sentence considering the maximum sentence for the offence was a maximum of 20 years in jail or a fine of F$120,000.
Motivation
While corporations and individuals tend to lose much from fraudulent activities, just why perpetrators do what they do is insufficiently documented in Fiji.
FIU’s role does not extend to figuring out the psychology of those who rip people off and Fiji has a long way to go in the field of criminology before it can undertake such complex studies.
However, studies have been carried out in the more developed countries on the profiling of their financial crimes. Their findings are worth noting as much of it boils down to human behaviour and the environment in which they find themselves.
Contrary to what some may believe, greed is not the only thing that can push perfectly ordinary people to carry out what they would not have normally done. There are for instance documented cases of those who do it more for the thrill of being able to pull off a complex and daring white-collar crime and much less for financial gain.
Interestingly, the ACFE 2012 study—in essence, this report focuses specifically on corporate frauds—also provides an insight into the perpetrators of financial crimes.
While the ACFE has provided six updates since 2002 (one after every two years), it noted: “one of the most interesting findings in our data is how consistent the results tend to be from year to year, which indicates that many findings regarding the perpetrators in our studies might reflect general trends among all occupational fraudsters.”
The perpetrators were scrutinised on a number of grounds including level of authority; age; gender; tenure with the victim; education level; department, criminal and employment history; and behavioural red flags. More males, for example, were shown to commit fraud than females. In fact, two thirds of fraudsters in the study were males while most fraudsters were between the ages of 31 and 45.
Tenure also had a strong correlation with fraud losses. “Individuals who have worked at an organisation for a longer period of time will often enjoy more trust from their supervisors and co-workers, which can mean less scrutiny over their actions.
“Their experience can also give them a better understanding of the organisation’s internal controls, which enables them to more successfully carry out and conceal their fraud schemes,” the report said.
“Approximately 42% of occupational fraudsters had between one and five years of tenure at their organisations. Meanwhile, fewer than 6% of perpetrators committed fraud within the first year on the job.”
The six most common departments in which fraud perpetrators worked were accounting, operations, sales, executive/upper management, customer service and purchasing. Collectively, the six departments accounted for 77% of all cases examined in the study.
What also emerged was that most perpetrators were first time offenders and have never been punished or terminated by an employer for fraud-related offences before the frauds in question. Just seven percent of fraudsters had previously been terminated by another employer for fraud.
For most of the cases studied, money or the lack of it was the motivating factor. “Most occupational fraudsters’ crimes are motivated at least in part by some kind of financial pressure.
In addition, while committing a fraud, an individual will frequently display certain behavioural traits associated with stress or fear of being caught. These behavioural red flags can often be a warning sign that fraud is occurring,” the AFCE sad.
“Consequently, one of the goals of our study was to examine the frequency with which fraudsters display various behavioural red flags. Based on prior research, we compiled a list of 16 common red flags and asked survey respondents to tell us which, if any, of these traits had been exhibited by the fraudsters before the schemes were detected.
“In 81% of all cases reported to us, the perpetrator had displayed at least one behavioural red flag, and, within these cases, multiple red flags were frequently observed.”
Of fraudsters analysed, 36 percent were living beyond their means, 27 percent were experiencing financial difficulties, 19% had an unusually close association with vendors or customers while 18% displayed excessive control issues.
“The consistency of the distribution of red flags from year to year is particularly remarkable. Despite the fact that the group of perpetrators analysed in our 2012 study was completely different than the perpetrators included in our 2010 and 2008 studies, each group seems to have collectively displayed behavioural red flags in largely the same proportion,” the study said. One other interesting point is that the rate at which financial difficulties were cited has decreased nearly 7% from our 2008 study. This is particularly unexpected, as our studies focus on frauds that were investigated in the two years prior to each survey. For instance, the cases that were reported in our 2008 study would have been investigated in 2006 and 2007, prior to the onset of the global financial crisis in 2008.
“Yet financial difficulties were cited as a red flag more often in the 2008 survey than in either the 2010 or 2012 surveys, both of which included cases that occurred during the peak of the global crisis.”
Increased vigilance
Would-be fraudsters whether local or overseas are warned that if they’re thinking of using Fiji’s financial system to hide ill-gotten gains, they will be caught.
In fact, vigilance has gradually been stepped up over the years that scrutiny is now more sophisticated than it was when the FIU first began operation in 2006.
“We have seen that in the past people were using the traditional banking sector to launder their money,” FIU director Razim Buksh told Fiji Business.
“The FIU is aware of this and I am pleased to say that the anti-money laundering system in Fiji also extends to non-traditional financial service providers such as lawyers, accountants and real estate agents.
“The policies and rules that are developed by the FIU for the banking sector equally applies to providers of financial services such as all the money remittance providers, finance companies, law firms, accounting firms, insurance companies, real estate agents and also the mobile phone banking service providers.”
Add to that, the network it has built over the years, has put it in a very strong position to gather intelligence on a case involving either locals or international perpetrators.
“The FIU has formal MOU arrangements with the Fiji Police Force, FRCA, Immigration Department, Ministry of Justice, Investment Fiji, FICAC, Land Transport Authority and other agencies. That shows that we provide support, Cassistance and information exchange to each other when dealing with complex cases,” said Buksh.
“This should also send a strong message to the transnational and organised criminals that we stand ready to handle those who try to abuse our financial system for laundering their criminal proceeds. You will also note that the FIU has MOU on information and intelligence exchange with a number of foreign FIUs. The FIU is also a member of the Egmont Group of the FIUs of the world that allows us to seek financial transaction and other information from 130 other FIUs,” he added.
This year, FIU’s work and indeed the Fiji government’s policies on money laundering were taken to another level with the William Ross MacArthur case. That saw the return of A$88,979 to the Australian government of criminal proceeds hidden by MacArthur in Fiji banks. MacArthur had defrauded the Australian government by failing to pay excise duties owed by his company Concourse Oil Pty Ltd.
“As we know, financial crimes are generally difficult to investigate and proceeds that are generated from such crimes can be laundered across the borders. Criminals also hide their criminal wealth using sophisticated techniques, including the use of bank accounts,” said Buksh.
“In this particular case, MacArthur was able to siphon to Fiji part of his fund that was subject to investigation by the Australian authorities. The provisions in our Fijian laws were to be invoked for the first time by our Attorney-General, the Office of the Director of Public Prosecutions, the FIU and the Fijian judiciary for proceeds that were located in Fiji and subject to an Australian Court Order or Pecuniary Penalty Order.”
The process was a success for all parties involved, a good sign for similar cases that may come in the future.
“The success of the case and the repatriation of the funds demonstrated Fiji’s effective implementation of the relevant laws and at the same time showed that Fiji was a committed global member to combat transnational and financial crimes. The success of this case also showed Fiji’s high level of mutual legal assistance and cooperation with the Australian authorities,” said Buksh.
“Secondary, the Fijian Government made a principled decision to repatriate the entire funds that were restrained and forfeited in Fiji in the Australian Ross William MacArthur fraud case.
“This has proven that Fiji always had an effective and conducive environment for the Fijian law enforcement authorities, including the FIU, to cooperate with foreign counterparts notwithstanding any differing foreign relation and policy.”
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