Top Fraud Predictions for 2015: Technology will shape the fight

GUEST BLOGGER

Scott Patterson, CFE
ACFE Senior Media Relations Specialist

Technology will give fraudsters an edge in 2015, but it will also provide new tools for organizations and investigators. Three of our experts weighed in on digital currencies, information security and other issues that will help shape the effort to prevent and detect fraud in the new year:

  • Technology will increase the sophistication of fraud schemes. This is an existing trend that will accelerate in 2015, according to ACFE Regent Gerard Zack, CFE, Managing Director – Global Forensics for BDO Consulting. “More and more we are reacting to reports of fraud with, ‘how did they do that?’” Zack said. “It’s a reflection of schemes becoming more complex and capitalizing on technology, including some of the new technology deployed by companies in the interest of improving efficiency. While simple frauds still exist, we are seeing a distinct proliferation of more complex fraud schemes.”
  • But technology (like data analytics) will also help catch tomorrow’s frauds. Zack is quick to note that for fraudsters, technology is a double-edged sword – as it will also be leveraged by the professionals trying to catch them. “There will be more breakthroughs in the use of technology to detect fraud – particularly in the use of visual analytics and also in the use of tools to mine unstructured data.”
  • Improving information security will be a major priority. More massive data breaches, like the ones that have stricken Home Depot, Target Corp. and other large retailers over the past two years, are likely to occur in 2015, according to ACFE Vice President and Program Director Bruce Dorris, J.D., CFE. “These breaches have exposed widespread vulnerabilities among organizations that store and maintain personal information, putting millions of individuals at risk,” Dorris said. “Considering that storage of data continues to grow at an exponential pace, more trouble lay ahead – and there is an increasing need for information security and protecting against data breaches.”
  • Digital currencies will shake up fraud risks for retailers and consumers. An increased acceptance of bitcoin and other digital currencies among merchants will signal a shift in fraud risk, according to Jacob Parks, J.D., CFE, Associate General Counsel at the ACFE. “Vendors/sellers face reduced fraud risks from ‘friendly fraud,’ where customers fraudulently cancel credit card or bank payments after receiving an item,” Parks said. “Digital currency transactions are generally permanent, which makes this scheme untenable. However, consumers face an increased risk of fraud by dishonest sellers, since the transaction is often not insured or protected by an agreement with a financial institution. Additionally, consumers using digital currencies have a reduced identity theft risk because the transactional data stored by the seller cannot be used by malicious parties to charge the customer (this also means vendors have a reduced risk of data breaches involving these customers).”
  • With protections for whistleblowers increasing, more people will step forward to report fraud. Dorris said that a decade ago, few countries had whistleblower protections. However, increased awareness about the harm caused by major frauds at organizations has led to legislators looking to whistleblowers to prevent or mitigate such crimes. “France, South Africa, South Korea, Australia and other countries have all taken substantial reforms to protect whistleblowers, particularly those who identify crimes in the public sector,” Dorris said. “U.S. policy has moved beyond simply protecting whistleblowers; it now has several programs that financially incentivize whistleblowing regarding bribery, tax evasion and corporate accounting fraud. The programs are largely still in the beginning stages, but have already had major payouts.”

With a new year also comes new threats. But, as many anti-fraud professionals know, just as the fraudsters think of new techniques to wreak havoc, the fraud fighters standing on the other side are armed and ready to prevent and detect it. 

Want more? Visit ACFE.com to find two more fraud predictions for 2015.

The Wild West ... or Just Wait and See? What Anti-Fraud Professionals Should Understand About Digital Currencies

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Guest Blogger

David Long, JD, CFE, CAMS
Principal, Northern California Fraud Prevention Solutions

Recently the digital currency, Bitcoin, has exploded into the news. Much of the news coverage has been decidedly negative. A number of events occurred that have instilled in the public’s mind a vaguely negative impression about Bitcoin, to those at least, who have actually ever heard of Bitcoin. 

In October 2013, the FBI arrested Ross Ulbricht, a.k.a. “Dred Pirate Roberts,” who is alleged to have been the mastermind behind Silk Road, a website devoted to selling illegal drugs and other illicit items and services. The sole medium of exchange on Silk Road: Bitcoin. Then in January 2014, Charlie Shrem, a well-known member of the Bitcoin community and the CEO of BitInstant, one of the most well-known and largest bitcoin exchanges at the time, was arrested on money laundering charges.  Later, in early 2014, Mt. Gox, the Tokyo-based digital currency exchange collapsed and the ensuing loss of millions of dollars-worth of customer’s bitcoins spread through the news like wildfire.  Taken together, these events have caused many anti-fraud professionals working in law enforcement, regulatory agencies, compliance departments, as well as other institutions where digital currencies could conceivably be an issue, to eye Bitcoin and other alternative currencies with a healthy dose of skepticism.

Also, these events have hurt the relative strength of Bitcoin in relation to the dollar. The Bitcoin to dollar exchange rate reached a high of over $1,000 on some exchanges on November 27, 2013; however, the rate dropped to a low of $421.91 on April 7, 2014, and continues to fluctuate, further fueling skepticism about Bitcoin’s long-term viability. 

In spite of the negative news, Bitcoin continues to gain support commercially among merchants and retailers. The Sacramento Kings of the National Basketball Association, the Chicago Sun-Times and Overstock.com, among others, now accept bitcoins as a method of payment. In addition, thousands of small businesses scattered across the U.S. with notable concentrations in San Francisco and New York, also are accepting bitcoins.

Because Bitcoin is a disruptive technology, there were no real applicable regulatory or enforcement mechanisms in place when Bitcoin came into existence in 2009. The nature of the Bitcoin protocol is such that regulations already in existence, in most cases, could not be easily adapted to the Bitcoin protocol. The exchange, transmission, trade, securitization and commoditization of bitcoins all have regulatory implications. Regulators are rightly concerned about such issues as consumer protection, anti-money laundering/countering the financing of terrorism, fraud prevention and more. However, because of Bitcoin’s disruptive nature, the application of existing regulations often place Bitcoin into a regulatory grey area.

In March 2013, the U.S. Financial Crimes Enforcement Network (FinCEN) issued guidance that characterized certain Bitcoin companies, namely Bitcoin exchanges as non-bank financial institution “money services businesses,” namely “money transmitters.”  Money transmitters must register with FinCEN and follow the Bank Secrecy Act’s (BSA) anti-money laundering (AML) regulations and must develop bank-level AML and Know Your Customer compliance standards for their businesses. 

For anti-fraud professionals whose work might involve digital currencies, it is important to reach out and coordinate efforts with other professionals, whether they are employed in law enforcement, regulatory agencies, or compliance departments. Digital currencies are here to stay, and a proactive approach will go a long way in successfully facing difficult issues related to digital currencies likely to arise in the future.

If you would like to learn more about the Digital Currency Environment’s impact on the anti-fraud profession, register now for the David Long’s upcoming ACFE webinar: Anti-Money Laundering in the Digital Currency Environment.