2015 ACFE ASIA PACIFIC FRAUD CONFERENCETHURSDAY, NOVEMBER 5, 2015

GUNAWAN HUSIN

Fraud Crime as Predicate Act to Money Laundering & Financing of Terrorism

Offences“Going behind recent headlines and what really went wrong”.

©2015 Association of Certified Fraud Examiners, Inc. 1

Outline

• About Predicate Crimes• Issues and Trends – Sanctions Violations• Counter Measures – Governance

UNODC “Circulations” (2012)

Source: www.unodc.org

Predicate Crimes• Corruption;• Bribery;• Narcotics;• Psychotropic

substances;• Smuggling of workers;• Smuggling of

immigrants;• Banking Fraud /

Crime;• Capital market Fraud

/ Crime;

• Insurance Fraud / Crime;

• Customs Fraud;• Human Trafficking;• Illegal trade in arms;• Terrorism• Kidnapping;• Theft;• Embezzlement;• Deception;• Currency

counterfeiting;

• Gambling;• Prostitution;

• Tax Evasion;• Forestry;• Environmental;• Maritime; and / or• Other offences with

jail sentence of > 4 years

Adopted from Indonesian Legislation No. 8, 2010, on Criminalisation of ML and FT.

Legislations, Regulations and Good Practices

0 10 20 30 40 50 60 70 80

BOFA

Lloyds

RBS

BNP Paribas

Deutsche

Morgan Stanley

Goldman Sachs

Rabobank

Soc Generale

Bank of Tokyo

8039

2014

1110

99

55

44

2111111

US BILLIONS

Source: Thomson Reuters.

The Cost of Market Misconduct.. ( Up to 2015)

Circumventing Sanctions

• A “Cut and Paste” or “Box Ticking” Exercise• Withholding adverse or negative information • Allocating low risk ratings to avoid case escalation• “Stripping” transaction or payment details to circumvent sanctions• “Wilful Blindness”, “Deliberate and Intentional”

VS

Financial Incentives - Massive compensation when sales targets are metLavish Lifestyle Culture of GreedWeak Management Supervision and Controls. Rewards often tied closely with excessive risk taking

Why the Disconnect - What drives excessive Risk Taking Activities ?

Crippling Criminal/Terrorist Funds WILL Disrupt the lifeblood and Block Criminal/Terrorist Activities and as such, lowers the risk of crime / terrorist attacks.

With no money, less harm can be done.

We all play critical roles to fight Financial Crime

We Can:• prevent criminals/terrorists from using our infrastructure, as they

plan to raise, store and move their funds • establish robust means to understand, identify, escalate and

report suspicions to the appropriate authorities.

We are not Investigators? What can We DO ?

The estimated amount of money laundered globally in one year is 2 - 5% of global GDP, or $800 billion - $2 trillion in current US dollars.

Source: UNODChttps://www.unodc.org/unodc/en/money-laundering/globalization.html

Risk Governance And Culture

• Policy, Procedures, Guidelines and Good Practices

• Risk governance model – drive meaningful reporting, escalation, measurement and management of risks

• Enhance risk control and regulatory management – proactive keeping abreast of legal & regulatory development

• Develop systems and people – training, networking and recognition

• Create environment with strong risk culture– Transparent, acknowledge, responsiveness against risks.

Value Creation

• Self• Customers• Shareholders• Legal and Regulatory• Financial Sector• Entire community

Concluding Remarks

• Senior Management still see risk management as a compliance activity rather than helping them achieve their objectives

• The ability to manage risk must be an essential management skill rather than a separate function and process

• Management of risk beyond a compliance exercise, thus contributing to an organisational success

• Management of risk includes seizing opportunities as well as avoiding hazards – A new BAU

14