fraud involving european funds · slide 19 • one person is an owner and director of significant...

FRAUD INVOLVING EUROPEAN

FUNDS

Dr. Eduard Ivanov

www.iaca.int Slide 2

• Fraud typologies

• Fraud and corruption

• Fraud and money laundering

• The role of inter-agency and international cooperation

• Cooperation with private sector

Fraud involving European funds

SCOPE OF THE DISCUSSION

www.iaca.int Slide 3

• Overpricing

• The use of intermediaries

• Payments for unnecessary services

• The use of front companies and the shadow financial infrastructure

• The use of corporate vehicles

Fraud involving European funds

FRAUD TYPOLOGIES

www.iaca.int Slide 4

OVERPRICING

Public

official

Municipal

patient care

institution Company-

importer of

medical

equipmentMedical

company

Front companies in

offshore zonesEuropean

manufacturers

Private

bank

accounts

www.iaca.int Slide 5

PAYMENTS FOR UNNECASSRY SERVICIES (CASH FUNDS)

1) Payment for

services according

fictitious contract

3) Payments for goods within

the country and abroad

2) Cash

www.iaca.int Slide 6

PAYMENTS FOR UNNECASSRY SERVICIES

(INSURANCE SECTOR)

“Clients” of

the

insurance

companies

Insurance

company

#2

Insurance

company

#3

Insurance

company

#1

Reinsurance

company X

Reinsurance

company Y

Insurance

company

#4

“Client”

Offshor

eReinsurance

company

Reinsurance

company

www.iaca.int Slide 7

Company „A“

Company „B“

Front

company

Payments

according

to fictitious

contracts

(marketing,

consulting,

etc.)

Front

company

Payments “on behalf of the clients”

Tax evasion, money laundering,

shadow economy

THE USE OF THE SHADOW

FINANCIAL INFRASTRUCTURE

www.iaca.int Slide 8

THE USE OF CORPORATE VEHICLES

Governmental

agency

www.iaca.int Slide 9

THE USE OF CORPORATE VEHICLES

Private

accounts

Private

accounts

Private

accounts

Governmental

agency

Offshore

Cash withdrawal

www.iaca.int Slide 10

• Scenario 1. Company´s employee, involved into corruption relationships

(Hiring a person with “good relationships” in the public service)

• Scenario 2. Company´s employee, involved into corruption relationships

(Infiltration of corrupt person in a company)

• Scenario 3. Intermediary, involved into corruption relationships

(licensing, public procurement, private intelligence)

• Scenario 4. Third party, involved into corruption relationships (general

contractor, subcontractor)

Fraud involving European funds

FRAUD AND CORRUPTION

www.iaca.int Slide 11

Fraud involving European funds

HOW PEOPLE PAY BRIBE?

www.iaca.int Slide 12

Fraud involving European funds

DO YOU THINK CORRUPT PEOPLE ARE STILL

PRIMITIVE?

www.iaca.int Slide 13

Distinctive features of modern schemes and typologies:

• Use of all opportunities of the global financial system

• Use of modern technologies and new payment methods

• Use of corporate vehicles to hide real beneficiaries

• Use of numerous intermediaries including non-profit organizations to

cut all the links between corrupt “partners”

• Use of professional consultants to prepare “ideal” documents for the due

diligence

• Planning corruption offences in parallel with following money laundering

Fraud involving European funds

THEY ARE NOT!

www.iaca.int Slide 14

USE OF NON-PROFIT ORGANIZATIONS

2) Financing a publishing

of a book

1) Charitable contribution

3) Payment of

honorarium

www.iaca.int Slide 15

USE OF NON-PROFIT ORGANIZATIONS

2) Financing a publishing

of a book

1) Charitable contribution

3) Payment of

honorarium

www.iaca.int Slide 16

• Use of new payment methods and e-currencies for payments in the

framework of criminal financial schemes

• Groups of professional criminal services providers

Fraud involving European funds

THE USE OF CYBERSPACE FOR CRIMINAL PURPOSES

www.iaca.int Slide 17

Country 2 Country 3

Offshore

2. Payments

for the

construction

work

3. For the

bills of credit

6. Payment

of bills3. For the

bills of credit

6. Payment

of bills

4. For

the

Shares

5. For

the Bills

of credit

Subcontractors

2. Payments for

the construction

work

Bank

Country 1

1. Credit

www.iaca.int Slide 18

• The first line of defense – Identification of suspicious business

associates

• The second line of defense – Identification of suspicious transactions

Fraud involving European funds

LINES OF DEFENSE

www.iaca.int Slide 19

• One person is an owner and director of significant number of companies

• One person is an owner, director and accountant of a company

• The owners and directors of a company are persons under 20-21 years

or over 60 years old

• The company is registered at the address at which registered a large

number of companies

• The apparent discrepancy between turnover on the accounts and the

amounts of tax payments

Fraud involving European funds

INDICATORS OF FRONT COMPANIES

www.iaca.int Slide 20

• The value of contracts of a company exceeds many times the net assets

and equity

• The company concludes mainly framework contracts which do not

contain information about the range, prices of goods, delivery dates and

other terms and conditions

• The company concludes mainly contracts with offshore companies and

uses bank accounts in the offshore banks

Fraud involving European funds

INDICATORS OF FRONT COMPANIES

www.iaca.int Slide 21

• Beneficial owners of legal entities, trusts and physical persons

• EU approach to the identification of beneficial owners

• Various approaches to the identification of beneficial owners in financial

institutions

• Recognizing a CEO as a beneficial owner

Fraud involving European funds

IDENTIFICATION OF BENEFICIAL OWNERS

www.iaca.int Slide 22

• Payments to shell companies

• Controversial incoming and outgoing payments

• Overpricing

• Payments in offshore territories, payments through offshore bank

accounts

• Payments to third parties„ accounts

Fraud involving European funds

SUSPICIOUS TRANSACTIONS. SHADOW

INFRASTRUCTURE

www.iaca.int Slide 23

• Risk insurance under the overestimated insurance rates

• Unusual proportion of insurance premiums and indemnities in an

insurance company

• Reinsurance in offshore "reinsurance" companies

Fraud involving European funds

SUSPICIOUS TRANSACTIONS. INSURANCE SECTOR

www.iaca.int Slide 24

• Payments under framework contracts

• Too high amount of commission, which can include corrupt payment

Fraud involving European funds

SUSPICIOUS TRANSACTIONS. USE OF

INTERMEDIARIES

www.iaca.int Slide 25

• Participation in the control of assets and incomes declarations of civil

servants

• Analysis of financial transactions

• Detection of fraud and money laundering within the financial

investigations

• Detection of financial institutions which provide services for corrupt

officials

Fraud involving European funds

THE ROLE OF FINANCIAL INTELLIGENCE UNITS

www.iaca.int Slide 26

• Support of AML/CFT and Anti-corruption compliance implementation

• Raising awareness

• Training

Fraud involving European funds

COOPERATION WITH PRIVATE SECTOR

www.iaca.int

Thank you for

your attention!