FBI Organization

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FBI Organization

• 56 Field Offices
• Operations in dozens of countries worldwide
• Paradigm shift following Sept. 11, 2001

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FBI Newark

• Headquartered in Newark
• Five Resident Agencies
• Atlantic City
• Trenton
• Red Bank
• Franklin Township
• Garret Mountain (Woodland Park)

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FBI NATIONAL PRIORITIES

• Protect the US from terrorist attack
• Protect the US from foreign intelligence and
  espionage
• Protect the US against Cyber-based attacks and
  high-tech Crime
• Combat Public Corruption at all levels
• Protect Civil Rights

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Priorities (contd)

• Transnational and national criminal organizations
  and enterprises
• Combat Major White Collar Crime
• Combat significant violent crime
• Support federal, state, local, and international
  partners
• Upgrade technology to support FBIs mission

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White Collar Crime?

• In the words of Gordon Gecko
• Greed is good!

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White Collar Crime?

• Some Characteristics
• Less risk
• More reward
• Often very complex
• Often very simple
• Color of authority invoked

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Financial Crimes

• Corporate/Securities Fraud
• Health Care Fraud
• Financial Institution Fraud
• Insurance Fraud
• Mass Marketing Fraud
• Money Laundering

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What is Corporate Fraud?
CHEATING

STEALING
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Corporate Fraud Definition

• Part One Accounting Fraud
• (Cooking the Books)
• The falsification of financial information,
  including
• False accounting entries
• Bogus trades designed to inflate profits or hide
  losses
• False transactions designed to evade regulatory
  oversight

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Part 1 Accounting Fraud

• Accounting 101
• Profits Revenue - Expenses
• Accounting Frauds are committed by
• Falsely decreasing expenses
• Falsely increasing revenues

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Corporate Fraud Definition

• Part Two Self-Dealing
• (Me First)
• Self-dealing by corporate insiders includes
• Insider Trading
• Manipulating stock option dates
• Kickbacks
• Misuse of corporate property for personal gain
• Individual tax violations related to
  self-dealing

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Part 2 Self-Dealing

• Examples of Self-Dealing
• Executive loans with no intention to repay
• Extraordinary personal expenses charged to the
  company
• Trading on material, non-public information
• Accepting stock in another company in return for
  awarding a contract
• Manipulating exercise/issue dates of executive
  stock options

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Corporate Fraud Definition

• Part Three Obstruction of Justice
• (The Cover-Up)
• Obstructive conduct is designed to
• Conceal
• Accounting Fraud
• Self-Dealing
• Impede
• SEC inquiries
• Other regulatory agencies investigations

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Corporate Fraud Victims

• Individual Shareholders
• Employee Pension Plans
• Mutual Funds
• Financial Institutions (Lenders)
• Market Stability and Reliance

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Securities and Commodities Fraud

• General Types
• Market Manipulation
• High Yield Investment Fraud
• Advance Fee Schemes
• Fraud Schemes via Hedge Funds
• Market Timing (Late day trading)
• Commodities Fraud
• Foreign Exchange Fraud
• Broker Embezzlement

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Securities and Commodities Fraud

• Market Manipulation
• A.K.A. Pump Dump
• Penny stocks falsely inflated
• False Corporate Filings
• Deceptive Sales Practices
• Boiler Room Tactics
• Fraudulent Public Information
• Computer Intrusion
• Perpetrators receive kickbacks or profit from
  trades while stock is inflated

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Securities and Commodities Fraud

• High Yield Investment Fraud
• Too good to be true offers
• Unusually high rates of return
• Claims of little or no risk
• Common Forms
• Ponzi Schemes
• Prime Bank Schemes
• Advance Fee Schemes

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Bernie Madoff
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Securities and Commodities Fraud

• Fraud Schemes via Hedge Funds (HFs)
• Common Forms
• Insider Trading
• Market Timing/Late Trading
• Overstatement of Assets
• Misappropriation of Assets
• Miscalculation of Performance Fees
• Ponzi Schemes

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Securities and Commodities Fraud

• Market Timing Schemes
• Late day trading
• Profit from material information released after
  market close.
• Betting on yesterdays horse races
• Use of international exchanges
• Mergers of foreign market exchanges

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Financial Crimes

• Corporate/Securities Fraud
• Health Care Fraud
• Financial Institution Fraud
• Insurance Fraud
• Mass Marketing Fraud
• Money Laundering

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Financial Institution Fraud

• Bank Fraud
• Check Fraud
• Mortgage Fraud

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Mortgage Fraud

• At the heart of current economic crisis
• Several Types
• Origination fraud
• Foreclosure rescue
• Builder bailout

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Sub-Prime Lending

• A problem of Underwriting
• No-doc loans
• NINJA loans
• False appraisals
• Collateralized securities

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Appraisals.
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Matter!!!!!!
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Check Fraud

• American Bankers Association
• The biggest threat to international finance is
  check fraud.

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Method of Operation

• Counterfeit checks are primarily manufactured by
  desk top publishing
• Lap top and desk top computers
• The accounts of large corporations often targeted
  based on the size of corp., geographic location,
  and amount of funds in account.

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Check Fraud Schemes

• Straight alteration of real checks.
• Duplication of checks from legitimate accounts.
• Fraudulent orders for check drafts through
  legitimate check draft supply houses.

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Desk Top Publishing Tools

• Offset print press
• Desk Top Publishing
• Color Laser Copiers
• Combination of both (cut and paste)

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Check Fraud Defense

• Positive Pay
• Low-cost
• Virtually eliminates customer liability
• Requires customer compliance

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Identity Theft

• Involves the use of personal identifiers such as
  names, social security account numbers, and
  credit card numbers, typically for criminal
  purposes.

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Identity Theft

• Rarely the sole objective of the crime.
• Almost always employed as a means to commit other
  crime
• Unique in that it is a component of many types of
  crimes and spans multiple investigative programs

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Points of Compromise

• Outsiders Stealing documents from businesses that
  contain personal information from business
  offices or through dumpster diving
• - Rental contracts, loan applications,
  employment applications, medical records, video
  membership card applications, hotel records,
  grocery store discount cards
• Electronic Means hacking into servers
  containing customers or employees personal
  information
• Public Records

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Points of Compromise

• Point of Sale
• U.S. Mail
• Data Repositories
• Social Engineering
• Family Members, Associates

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Fraud Containment Challenges
As the skimmer is removed, you notice that part
ofan existing label on the ATM was partially
obscured(see the previous slide).
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Money Laundering
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Money Laundering

• Process by which criminals conceal or disguise
  the proceeds of their crimes and/or convert those
  proceeds into goods and services.

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Who Needs Money Laundered?

• Terrorists
• Kidnappers
• Bank robbers
• White collar criminals
• Illegal drug operations
• Organized Crime
• Tax evaders
• And so on and so on

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Money Laundering Methods

• Bulk Smuggling cash or monetary instruments
• Stored Value Cards (eg. Smart cards, gift cards)
• Informal Value Transfer Systems aka underground
  banking (eg. Hawalas)
• Black Market Peso Exchange

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Schemes (contd)

• Global Financial System (ie. Banks, securities
  firms, insurance companies)
• Money Service Businesses
• Corporate Laundering Schemes
• Digital Currency

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Emerging Trends

• Cyber-based Pump-n-Dump
• Collateralized Loan Fraud
• Internal Embezzlement
• Ponzi Schemes

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Cyber Pump-n-Dump

• Hack-n-Dump
• Boiler rooms and cold calls vs. computers to
  artificially inflate worthless stock
• Computer intrusions into brokerage accounts
  designed to buy/sell stock without owners
  knowledge
• Subjects sell stock at inflated price to obtain
  profits

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Collateralized Loan Fraud

• Common requirement for daily operating cash for
  many businesses
• Loans against Accounts Receivable
• Loans against inventory
• Combination of both
• Governed by strict covenants to establish
  borrowing limit
• Often mezzanine lenders also extending credit
• Lenders may be TARP recipients
• Motive????

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Internal Embezzlement

• The greatest threat to businesses regardless of
  size
• Separation of duties/responsibilities
• Victims often have poor controls
• Use of fictitious vendors
• Misuse of expense accounts
• Subjects range from bookkeepers to board members

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Ponzi Schemes

• Old or new?
• Investment schemes range from simple to complex
• Investments of all kinds real estate,
  commodities, precious metals .
• Caveat Emptor
• Transparency
• Returns too good to be true
• Returns consistently outperforming the market

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Questions
SSRA Doug Veivia Garret Mountain
RA douglas.veivia_at_ic.fbi.gov [phone]