Financial Fraud: A Modern Corporate Threat
Financial Fraud is a growing threat that has dire consequences on both those who commit the offence and those who are victims of the crime. Due to the rapid growth in technology, financial fraud has become commonplace within the corporate world. This article will examine the different aspects of financial fraud and its legal implications.
What is Financial Fraud?
Financial Fraud is a term that encompasses various deceitful conduct that creates a false appearance to the victim. Financial crimes can be grouped into two general categories. The first involves deriving financial benefit from deception or criminal activity, for example, theft of company funds or the invention of fictitious financial instruments. The second involves committing crime for the purpose of facilitating or concealing other financial benefits, for example, money laundering or the use of shell companies to hide assets and evade taxation. It materialises into many different types such as:
1. Identity Theft: occurs when the offender assumes the victim’s identity to commit damaging acts, such as stealing sensitive data from the victim’s company or inducing others to provide sensitive data.
2. Cryptocurrency Investment Fraud: The offender induces victims to invest in a cryptocurrency account, which will become frozen when they are ready to withdraw their investments. To unlock their account, offenders ask for a large lump of fees that are valued more than what the victim has invested in. This type of fraud has been increasing as more institutions adopt digital financial services that prioritize consumer experience over a robust approach to security. This in turn makes them a more attractive target for cyber-attacks, including hacking and fraud.
3. Credit Card Fraud: The offender assumes a victim’s identity to use their credit card to make unauthorised or illegal transactions- incurring monetary loss to the victim.
4. Embezzlement: The offender, often in a position of trust and power, uses or steals assets and funds from a business or company. Such crimes will often be accompanied by many other fraudulent behaviours.
What are the Implications for the Victims?
The NSW Government website expresses the emotional and financial trauma faced by victims. Within the current social framework, a person or entity’s financial state often dictates their quality of life. As such, financial crimes can cripple or severely disadvantage a person’s ability to access institutions such as hospitals, law firms and education. Financial crimes enacted on companies or entities may push these institutions into bankruptcy or insolvency. The vulnerability of victims amplifies the severity of financial crimes, thus increasing the severity of the consequences.
What are the Implications for the Offender?
The legal ramifications of financial crimes are extensive and can be severe. The extent of the ramification depends on several factors such as the type of offence, the amount of money involved, jurisdiction and the specific details. Some consequences may be:
Legal Consequences:
1. Fines: Perpetrators may face large monetary penalties, which compensate for the amount taken, legal fees and also the losses that have been incurred during this process. Furthermore, the gravity and magnitude of the offence may contribute to the amount of compensation.
2. Restitution: Part 5 of the Victims Rights and Support Act 2013 allows courts to mandate specific restitution for their financial, emotional and potential revenue loss.
3. Imprisonment: Depending on the severity of the crime, the court may deem it appropriate to order a lengthy prison sentence As per the Crimes Act (1900) (NSW), the maximum imprisonment length for fraud is 10 years. Often, individuals charged with financial crimes are found guilty of several offences. As a result, the imprisonment time may increase.
4. Community Service: An alternative to a sentencing judgment, courts may impose an order for the offender to partake in community service work as restitution for the damage created by their financial crimes. However, this consequence depends on the severity of the crime committed and how the court perceives the circumstances of the crime in relation to the community’s well-being.
Social Consequence:
1. Collateral damage: Financial crimes are known for impacting the perception of a person’s character. Individuals who commit such crimes receive a ‘black mark’ against their name, thus reducing their chances of retaining future employment. Socially, this may mean that these individuals become isolated and shunned by society.
Example of Financial Crimes
The infamous Ponzi scheme conducted by Bernie Madoff remains the biggest fraudulent scheme in history. Worth $65 billion, Bernie Madoff, the offender, falsified trade reports and financial reports. Under this false presentation, Madoff illegally transferred money from investors to clients, retaining ownership over illegally obtained cash provided by clients. As a result, Madoff was sentenced to 150 years in prison.
Navigating through Financial Crimes:
To navigate through financial crimes, Businesses should conduct regular risk assessments to identify and evaluate potential financial crime risks that may be susceptible to be taken advantage of such as insecure systems that do not employ an encryption process to mask sensitive information. Entities should continuously implement robust procedures to verify identities of those who have access to sensitive information and potential areas for exploitation, while monitoring transactions and business relationships to detect suspicious activity. Ultimately, there is a greater need for awareness of such crimes. This would allow individuals to detect suspicious activities, thus increasing vigilance regarding internal and external threats to the financial wellbeing of a person or entity.
Navigating the Risks surrounding Financial Fraud:
Financial fraud is a complex and increasing phenomenon that causes long-lasting damage to both victims and offenders. With the development of digital technologies, fraud has become more elaborate, and individuals and businesses are today more vulnerable than ever. Offenders experience severe legal and social repercussions, ranging from high fines and imprisonment to social exclusion. Understanding the nature of financial fraud and its legal consequences is significant in gaining insight into the potential for being involved in such crimes.
Contact OpenLegal today at enquiries@openlegal.com.au or 1300 982 068 for a confidential consultation to discuss your situation and explore the best path forward.
Yaashvanthi Murugan, Intern at OpenLegal
