Know Your Employees: Are Bank Employees Conspiring to Commit Fraud?

Fraud continues to be an issue across all industries according to the Association of Certified Fraud Examiners’ 2008 Report to the Nation[1] and banks continue to be victimized. In fact banking and financial institutions are defrauded more often than any other industry based on the cases studied. The median loss was $250000. The top three types of fraud perpetrated against banks were cash larceny non-cash theft (generally Identity Theft) and skimming.

Fraud schemes can be quite simple while others can be very complicated involving multiple parties. And if dealing with external threats was not enough even more difficult to detect are crimes where a bank employee conspires with an outsider to commit fraud.   Being alert to some of these schemes will help protect your institution from both financial losses and damage to an institution’s reputation. Here are some examples.

Very Costly Widgets
There are a variety of different schemes involving trade finance which bank management should watch for.

Let’s imagine your institution acts as an intermediary to finance a deal involving a foreign widget manufacturer. The foreign company selling to a customer in the U.S. requires the buyer to get a letter of credit from your bank. Once the documentary requirements have been met you’ll release the letter of credit in the foreign company’s favor.

But what if the two companies were conspiring to move illicit funds across national borders? Were the widgets shipped? Partially shipped? Were the widgets over- or under-valued? And what if one of your employees recruited by these companies to assist made sure that the documents passed smoothly through your controls?

Setting an inflated price for the widgets the two companies might use your institution to get money out of the country paying $100 for each $10 widget and getting the funds safely offshore. Or setting an artificially low sales price they could get money into the U.S. buying the widgets for $1 each and then selling the shipped product in the U.S. for a profit. 

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