The Drug Trade Ruins Lives, But Why Is Fraud Ignored?

GUEST BLOGGER

Martin Kenney
Managing Partner of Martin Kenney & Co., Solicitors

Fraud has become a global “pandemic.” That was the view of bestselling author and organized crime and fraud expert, Jeffrey Robinson, when he spoke at the 2016 ACFE Middle East Fraud Conference last week.

Robinson said, “If fraud were a disease, political leaders of all our nations would have to declare a global health emergency.” I couldn’t agree more. I know that many of my colleagues attending the conference would also concur with Robinson’s perspective.

What I particularly liked was Robinson’s overview concerning drug trafficking and fraud, with the comparative cost of both crimes. Law enforcement focuses on terrorism first, he said, then drug trafficking, followed by firearms and sex offenses. In terms of monetary impact, fraud was second only to drug trafficking, yet it remained far down on the list of crimes that get investigated.  I personally consider fraud as having the greatest intrinsic value of the two crimes. I will explain why.

The former U.K. detectives who lead my investigations unit described how “value is attached to a consignment of drugs. Effectively, the pure drugs (let’s use cocaine as the example) leave the shores of South America/wherever in a nearly 100 percent pure state. The wholesale value of the drugs is what the next purchaser values them at, currently in the region of $1,800 per kilo of cocaine.

As the drugs pass through the marketing chain, they are constantly being “cut” or “bashed,” meaning they are mixed with other materials to bulk them up. So the kilo of cocaine reaches New York, for example, and will now be represented by multiple kilos of the cut drugs — one can see the fiscal sense this makes to a drug dealer. The new price per kilo of the bashed cocaine is now approximately $30,000. This figure can be extrapolated further when we commence talking about the street value of the drug.

Once we apply this rationale to the equation, it is easy to see why the drug business is a multi-billion-dollar enterprise. But herein lies the paradox: if a fraudster like Bernie Madoff steals $17.5 billion, the value of the loss to the victims is $17.5 billion (putting aside damages claims). If the Drug Enforcement Agency (DEA) intercepts a $17.5 billion shipment of cocaine, they actually acquire nothing (other than a problem over how to safely destroy the consignment) — the drugs are effectively worthless in law enforcement hands, and only acquire a value once they hit the streets.

However, the losses in fraud cases are tangible. They are made up of real money that has a face value. Therefore, by any comparison, fraud should be dealt with as a policing priority.

Drugs ruin lives, but so does fraud. When pensioners invest their savings in a boiler room scam, the effects on both the pensioners and their families are devastating (and they have done nothing illegal, either). The impact is compounded by families having to bail out elderly relatives and the state having to contribute to their welfare. Businesses, too, that are ripped off may end up having to lay-off employees, leading to severe hardship. The effects of fraud can be endless.

So while the drug trade is a major issue, fraud is real money and real dollars, with genuine innocent victims. It deserves to be a law enforcement priority.

Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors of the British Virgin Islands, a specialist investigative and asset recovery practice focused on multi–jurisdictional fraud and grand corruption cases www.martinkenney.com | @MKSolicitors

Fraud Fighters are Tackling a Pandemic

FROM THE ACFE MIDDLE EAST FRAUD CONFERENCE

By Emily Primeaux
Assistant Editor, Fraud Magazine

"In case you haven't noticed, and I'm sure you have, fraud has become pandemic around the world," said Jeffrey Robinson, bestselling author and international expert on organized crime and fraud, in his keynote session at the 2016 ACFE Fraud Conference Middle East in Dubai, February 14-15. "I mean seriously, it has become pandemic. If fraud were a disease, political leaders of all our nations would have to declare a global health emergency."

And why has fraud spread like this? According to Robinson, it's not getting the attention it should. "If you are Bernie Madoff and you've stolen 50 billion dollars, yeah, that does get an awful lot of attention." But it only garnered attention after the fact — after $50 billion had been stolen and even though the clues were there all along.

"The problem is that except for you guys, the ACFE, no one's really paying attention to it." Robinson went on to highlight law enforcement's priorities. The No. 1 priority for law enforcement is terrorism, then drug trafficking, followed by firearms and then sex offenses. "Yet fraud, if you put a monetary value on fraud, it's second only to drug trafficking of all the crimes. It's right up there with drug trafficking. But it's really far down on the list of crimes that get investigated."

But people aren't reporting fraud either. Businesses that get hit by fraud feel embarrassed and don't want to report it to their shareholders. Individuals that suffer a loss from fraud feel violated or stupid, and decide to forget about it because of the feeling of foolishness for allowing it to happen in the first place.

Robinson referred to this as a "two-way street crime." For a fraudster to be really successful, the victim has to cooperate in some way, and that's why victims "feel so stupid." For example, take a victim of a hacking that used the word "password" as their password. They've easily set themselves up to become a victim of fraud.

Robinson explained that the best defense any company can have when it comes to fraud is total transparency. Remove the theory of "unshareable problems." Pay attention to your employees. Help them. Tell your people that you're going to share in their problems.

Robinson finished by expressing the value of fraud fighters. "If it weren't for you — and I am so high on this organization, because you're really the only people standing in the way of the fraudsters and havoc — if it weren't for you asking at every turn ‘How come nobody died?' the 21st century is guaranteed to belong to the fraudsters. You're my heroes."

Read more about the first-ever ACFE Middle East Fraud Conference on Fraud-Magazine.com.

The Power of Addressing the Human Element of Fraud

FROM THE ACFE MIDDLE EAST FRAUD CONFERENCE

By Emily Primeaux
Assistant Editor, Fraud Magazine

Under the kind patronage of His Highness Sheikh Maktoum Bin Mohammed Bin Rashid Al Maktoum, the Deputy Ruler of Dubai and Chairman of the Financial Audit Department, and hosted by the FAD of Dubai, the inaugural ACFE Middle East Fraud Conference brought together more than 400 anti-fraud professionals to learn the latest anti-fraud techniques and tools.

Featured speakers at the event, February 14-15 in Dubai,  included Prof. Dr. Marco Gercke, Director of the Cybercrime Research Institute; Jeffrey Robinson, author and international expert on organized crime and fraud; and Hamed Kazim, CEO of HK Consulting. Concurrent sessions focused on the global nature of fraud by teaching attendees how to address cybersecurity risks in the Middle East, taking fraud examinations to other countries, and how to navigate global expectations for addressing fraud risk and the investigative process.

During the first keynote presentation, Hamed Kazim spoke about the importance of tackling what he calls the "common denominator" of fraud: the human being. While we live in a world that's filled with huge global challenges, including the impact of technology on our lives, businesses and governments, the human element shouldn't be ignored.

"When you look at the resources dedicated to addressing the human element, it's minimal in comparison," said Kazim. "We spend billions of dollars globally on fraud detection, on professionals, on technology, etc. … But it all boils down to that human being."

Kazim used an example from his own experience. He heads the audit committee for his organization, so he commissioned the internal audit team to use data analytics to compile data from the past 10 years to look at fraud findings. The results showed that 70 percent of fraud was committed by people that shouldn't have been hired in the first place, so they implemented new steps into the organization. Kazim said they began emphasizing the induction of entry-level employees with much more scrutiny beyond the norm; he advised that other organizations go beyond normal reference checks in the hiring process.

It doesn't stop at the hiring process, though. Kazim said you have to monitor employees' behavior and performance during their careers, and you have to create a culture of healthy awareness in your organization. Make it easier for people to report tips or to blow the whistle on fraud.

Kazim also discussed the importance of how companies handle budgetary constraints or budgetary cuts, especially when it comes to employee layoffs. "The way you go about laying off employees can make a huge difference," said Kazim. "You're either upfront to your employees and you tell them, ‘We're going through an economic recession, we have to tighten our belts, and that's how we're going to go about it, in a very transparent way.' Because if you don't actually handle it well, it will demoralize the staff. When you demoralize the staff, what will happen? Productivity will drop and the incentive for creating fraud increases substantially."

Kazim wanted attendees to takeaway these key points from his presentation: It's important to focus on technology. It's important to have firewalls, to have fraud detection systems, to have awareness, etc. "They're all important, I'm not taking away the importance of having these functions," said Kazim. "But we have to go back to the basics. Focus on the single most important element in these things, and that's the human aspect."

Read more about the first-ever ACFE Middle East Fraud Conference in the full article on Fraud-Magazine.com, and register today for the 2017 ACFE Middle East Fraud Conference.

Also, read news coverage from the conference:

Fraud incidences go up substantially during slowdown, recession 
Gulf News | 14 February 2016

Speakers discuss fraud prevention techniques 
Khaleej Times | 15 February 2016

Empower supports global integrity, transparency 
The Gulf Today | 14 February 2016

Live From Toronto: The Future of Fraud

GUEST BLOGGER

Allan Bachman, CFE
ACFE Education Manager

A couple of years ago at the ACFE Canadian Fraud Conference in Toronto my friend from Vancouver jokingly taunted me by saying, “You just think of Canada as America’s hat.” Not rising to the bait, I simply replied that it was not so, but I did think of it as very North America. Well I’m back in very North America, Toronto, Ontario at our 17^thAnnual ACFE Canadian Fraud Conference.

This year’s conference got off to a great start Sunday afternoon with Don Rabon, CFE and 2011 Baker Award winner, presenting an advanced interviewing session on detecting deception. Don’s self-deprecating humor, native intelligence on interviewing and his instructional style easily crosses borders. Attendees raved about the session for the next two days.

ACFE President and CEO James D. Ratley, CFE, opened the Conference by speaking on the future of fraud. His presentation included enlightening video clips on risk and how to avoid the coming threats from hidden uses of technology.

The luncheons session featured Carmen Lapointe, CFE, Under-Secretary-General for the Office of Internal Oversight Services. Her five-year appointment is a challenge worth noting including audit, investigation, inspection and evaluation of UN functions. Her staff vacancy rate upon taking the post a year and a half ago was a daunting 25 percent. Today it is about half that. Her goals and objectives for the OIOS are realistic and obtainable. Her comments about her role and the role of her office were eye-opening for our audience.

Tuesday featured Richard Hernden from CIBC and former HealthSouth co-founder and CFO Aaron Beam. Beam spoke about his role in the HealthSouth financial statement fraud, making this the second year for us to feature a fraudster as a keynote speaker at our Canadian Conference.

Though it took place in Canada, this was truly an international conference. With 13 nations represented, including Canada and the United States, this was the more diverse representation of attendees since the Annual and European Conferences earlier in the year.

Wednesday a panel on bribery and corruption will kick off the day and the closer will be noted author Jeffrey Robinson, whose latest book The Takedown was popular at the ACFE Bookstore in anticipation of his talk. Robinson spoke at the European Conference in April and made such a great impression he was asked back for this Conference as well.

Jeffrey Robinson on the "New Fraud"

INTERVIEW WITH JEFFREY ROBINSON

Renowned Financial Crime Author and closing ceremonies keynote speaker at the 17th Annual ACFE Canadian Fraud Conference

Nov. 27-30, Toronto

Why do you call your topic, "The New Fraud?"?

You know those movies where there's some asteroid heading towards the earth and the heroine says, "This is what killed the dinosaurs," and as the hero takes her in his arms, he laments, "This is what could kill the human race, too." Scary? Yes. But only a remote possibility. Yet, when you hear that over the next 12 months, every man, woman and child in the country will be targeted by professional fraudsters multiple times. And when you hear an estimated one in nine people will lose money as a result of fraud... that ain't remote! And that's terrifying. Consider this: Corporate fraud is pandemic. And yet, corporations are reluctant to prosecute for fear of alarming their clients, shareholders and board members. Fraud against the government (start with Medicare) is at an all-time high when much of the good guys' attention is being directed away from non-violent crimes; and the economic crisis has thrown the field wide open to amateurs, weekend-fraudsters and wannabees. Put another way, if fraud were a disease, the president would have to declare a national emergency. We're living in unique times. Maybe I should call it "new and improved."

What is unique about the group of fraud fighters you address?

The 9-11 attacks polarized law enforcement. Ten years later, we're still trying to protect the streets so that Grandma doesn't get hit over the head and have her purse stolen and also protect the Homeland from future attacks that are, clearly, being planned. That's left a no-man's land in the middle where the good guys are over-burdened, under-budgeted and under-staffed, and the bad guys believe they can flourish. What's more, statistical reporting inadvertently prioritizes triage. Why would a detective take on a case unless it's big enough and with a probable success rating of, say, 50 percent? (And in some cases, the bar is often higher). No one wants open cases and unsolved crimes on his or her books. Don't believe me? Go to your local precinct in Lincoln, Neb., (or Eufala, Ala,, or Pocatello, Idaho) and tell the sergeant at the desk that you've been defrauded of $350 by a Nigerian prince in Lubeck, Germany, and see how far you get.

What do you most hope attendees will take away from your address?

There is an old Irish expression - "begrudgers." Those are the people whose role in life it is to remind you, "It can't be done," and, "Don't bother," and, "Stop wasting everyone's time," and, "Who do you think you are, Colombo?" Unfortunately, they're everywhere. There are so many of them and they say it so loudly and frequently that, after a while, you start thinking to yourself, maybe they're right. What do I want attendees to take away from my little bit in all of this? That ACFE members are the final frontier. If you don't do it, it's simply not going to get done. And that there is an old Latin expression --- "Illegitimi non carborundum." It means, "Don't let the bastards grind you down."

Read more about Jeffrey and the other keynote speakers at this year’s ACFE Canadian Fraud Conference here.