An Insight into Financial Crime and the Role of Banks in It

Overview

In this article, we will be going over the topic of financial crime and how it involves the banks.

Financial crime is mostly about frauds and money laundering. Let us go over both of them one by one.

Fraud in financial industry

There are innumerable types of frauds when it comes to the financial industry. Some frauds are huge, while some are so small that they are yet to be discovered. Some frauds are really big but are covered up very nicely, while some might be of small-scale but come to public attention in no time.

Regulators are responsible to check the companies’ balance sheets and financial happenings to ascertain whether there is an ongoing fraud or not. These regulatory institutions have to work day and night, scan tons of data, and make lots of investigations to catch frauds.

Frauds can be simply credit card forgery or entire multinational companies not disclosing parts of their income, thus avoiding tax on it.

The percentage of fraud in the financial industry is huge. If all the black money was properly taxed, the economy will be much farther than it is now.

Money laundering

Money laundering is a situation that starts with money which should be taxed but is not made public (called black money). Instead, this amount is sent to a bank account (often offshore, some banks being more suitable for money laundering than others). The bank then transforms the money into white money by the means of financial tools like investments, registration of new companies, announcing quarterly losses in existing companies, and so on. This money can now be brought back to the country of origin or not. Risks are involved, for sure. If some institution is found laundering money or some individual or company is found keeping the black money, the severest of financial penalties and jail terms await them.

Many banks maintain a very strict policy about how they accept money. This eradicates the possibility of money laundering prospects. However, not all banks do this. Many banks that are in tax havens do money laundering for their clients, who could be a complete continent apart or further away.

Credit Suisse is known as a bank that has potential money laundering scope. That is largely because of the law in the country. People from around the globe can utilize the difference in financial law and regulation and launder money. It is surprising how another bank with a similar name, the SUISSE BANK GROUP, is obedient to the rules and avoids money laundering at all costs.

Role of banks

The role of banks in financial crime starts and ends with money laundering, except in the case of a private bank hiding its own profits. Banks usually do not engage in crimes of that kind for obvious reasons. However, they can be a tool for laundering.

Many international banks have the necessary tools to launder money. Most of these choose not to indulge in such activities. The profits of a bank are huge as they are. However, many times businesses or individuals find certain loopholes and exploit them to launder money without the express knowledge of the bank that is facilitating it in the first place!