Financial Crimes

Presented By Animesh Shaw (Psycho_Coder)Digital Evidence Analyst Trainee

Discussion Goals

• Introduction to Financial Crimes.

• Facts & Reasons.

• Basic Financial Concepts and Terminologies.– Equity Shares

– Sensex

– Derivatives

– Debentures

– Circuit Breaker.

– Insider Trading.

– Options

– Hedging

• Types of Financial Crimes– Tax Evasion.

– Online Bank Theft.

– Credit Card Frauds.

– Money Laundering.

– E-Commerce Frauds

• Protection against Financial Crimes.

• References.

• Questions ?

Financial Crimes – An Introduction

Introduction to Financial Crimes (FC)

• “Financial crimes are crimes against property, involving theunlawful conversion of the ownership of property (belongingto one person) to one's own personal use and benefit.”

• FC may involve fraud (credit card fraud, corporate fraud,securities fraud (including insider trading), bank fraud,payment (point of sale) fraud etc.); theft; scams orconfidence tricks; tax evasion; identity theft; moneylaundering; and counterfeiting, including the productionof Counterfeit money and consumer goods.

White-Collar-Crime

• White-collar crime refers to financially motivated nonviolent crime committed by business and government professionals.

• Defined by sociologist Edwin Sutherland in 1939 as "a crime committed by a person of respectability and high social status in the course of his occupation“

• Examples :- fraud, forgery,

cybercrime, insider

Trading, etc.

Facts & Reasons

Reasons for FC

• The Primary reason – “Money”

• Revenge, Grudge.

• Fun.

• Testing personal skillsets.

Why Financial Crime is so Widespread ?

• Lack of awareness.

• Lack of Knowledge and enthusiasm to learn.

• Unable to adapt to emerging technology.

• Lack of Training in Cyber Security.

• Carelessness.

• Tendency to stick to old methods.

Facts or Statistics on FC

• Cyber crimes in India have seen a sudden spurt.

• Cyber crimes have gone up by 60 per cent in 2012 at 3,500 as against 2,070 in the previous year.

• Age group involved – 18 to 30.

• Maharashtra topped the list with 561 (393 in 2011) crimes, followed by Andhra Pradesh with 454 (372) and Karnataka 437 (160)

..contd.• “Financial offences dominate cyber crimes. Of late, we have

noticed an increase where the fraudsters hacking into email accounts of companies and of customers. They read the entire email thread and lure the customers to deposit money in a fake account, duping both,” T.S. Uma Maheswara Rao, Inspector of Police (Cyber Crime Police Station, Hyderabad), told Business Line.

BASIC FINANCIAL CONCEPTS AND TERMINOLOGIESA Overview of Finance related terms.

Equity Shares

• Equity is a part of a company, also known as stock or share. When you buy shares of a company, you basically own a part of that company.

• Two Types :-

– Equity Shares : Both public and private corporations issue equity shares. Equity shareholders are the owners of a company and initially provide the equity capital to start the business.

– Preference Shares : A preference share is a type of share capital that generally enables shareholders to fixed dividends ahead of the company`s common shares and to a stated rupee value per share in the event of liquidation

Sensex ( Bombay Stock Exchange Sensitive Index)

• A figure indicating the relative prices of shares on the Mumbai (Bombay) Stock Exchange.

SENSEX FOR TODAY = OLD VALUE X (NEW CAPITALIZATION/OLD CAPITALIZATION)

Derivatives

Derivatives are financialinstruments whose value isderived from the prices of oneor more underlying assets.These underlying assets couldbe equity shares, foreigncurrencies, corn, wheat, silveretc.

1. Forward contracts are contracts between two parties whereby one party agrees to sell to another party at some point in the future for a price agreed upon now.

2. Futures contract is an agreement between two parties to buy or sell an asset at a certain time in the future at a certain price.

3. Option is a contract, which gives the buyer the right, but not the obligation to buy or sell an underlying security at a specific price on or before a specific date.

Derivatives

DERIVATIVES

FORWARDS FUTURES OPTIONS

ESP (EARNINGS PER SHARE)Earnings per share (EPS) is an important financial ratio that helps to compare theprofitability of various companies.

EPS = Net Profit (after tax and preference share dividend) /No. of shares

P/E RATIO• The price to earnings ratio (P/E ratio) is a ratio of the share price of a company

to the earnings per share.

P / E ratio = Market price per share/Earnings per share

Debentures

A debenture is an instrument of debt executed by the company acknowledging its obligation to repay a sum at a specified rate and also carrying an interest.

NCD•NON CONVERTIBLE

DEBENTURES

PCD•PARTIALLY CONVERTIBLE

DEBENTURES

FCD•FULLY CONVERTIABLE

DEBENTURES

MAJOR TYPES OF DEBENTURES

OTHER TYPES OF DEBENTURES

EXTENDABLE DEBENTURES

Circuit Breaker

Circuit breaker is the system in which the share price of aspecific stock (or the index as a whole) rises or falls bymore than a specified percentage, trading is thensuspended for some time (or for the rest of the day) to letthe market cool down.

Insider Trading

An Insider is a person who, because of his connections with a company, has access to unpublished price sensitive information in respect of securities of a company.

Options

An option is a contract,which gives the buyer theright, but not the obligationto buy or sell an underlyingsecurity at a specific price onor before a specific date.‘Option’, as the wordsuggests, is a choice given tothe investor to either honourthe contract; or ignore thecontract.

..contd.CALL OPTION: A Call Option is an option to buy a stock at a specific price on or before a certain date.

PUT OPTION: A Put Option is an option to sell a stock at a specific price on or before a certain date._______________________________

EUROPEAN OPTION: European options give the holder the right, but not the obligation, to buy or sell the underlying instrument only on the expiry date.

AMERICAN OPTION: American optionsgive the holder the right, but not theobligation, to buy or sell the underlying instrument on or before the expiry date.

Hedging

A hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment.

Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity.

Types of Financial Crimes

Tax Evasion

Tax evasion is using illegal means to avoidpaying taxes. Typically, tax evasion schemesinvolve an individual or corporationmisrepresenting their income to the InternalRevenue Service.

..contd.

Online Bank Theft

• Hacking into bank servers.

• Stealing Customers data, account information's, credit card details.

• Money Transfer from one account to another account.

• Huge loss in economy.

Credit Card Frauds

• Credit card fraud is a wide-ranging term for theft and fraud committed using or involving a payment card, such as a credit card or debit card, as a fraudulent source of funds in a transaction.

• The purpose may be to obtain goods without paying, or to obtain unauthorized funds from an account.

Statistics for Credit Card Frauds

Protection against Credit Card Frauds• Don’t give your account number to anyone on the phone unless

you’ve made the call to a company you know to be reputable. If you’ve never done business with them before, do an online search first for reviews or complaints.

• Carry your cards separately from your wallet. It can minimize your losses if someone steals your wallet or purse. And carry only the card you need for that outing.

• During a transaction, keep your eye on your card. Make sure you get it back before you walk away.

• Never sign a blank receipt. Draw a line through any blank spaces above the total.

• Save your receipts to compare with your statement.• Open your bills promptly — or check them online often — and

reconcile them with the purchases you’ve made.• Report any questionable charges to the card issuer.• Notify your card issuer if your address changes or if you will be

traveling.• Don’t write your account number on the outside of an envelope.

Money Laundering

Money laundering is the process in which the proceeds of crime are transformed into ostensibly legitimate money or other assets.

..contd.

E-commerce Frauds

• Falling victim to false e-Commerce sites.

• Losing Credit/Debit card/Online Banking Authentication Credentials.

• Due to Phishing.

..contd.

Distribution of e-Commerce Frauds around the world.

Protection Against Financial Crimes

We’re continually reviewing our approach to ensurewe’re doing our best to stop money laundering,terrorist financing and fraud and corruption. Thisincludes:• Regularly or periodically reviewing and amending our

policies and procedures so that they remain relevantand up-to-date

• Training ourselves on how to prevent, detect and reactto financial crime

• Checking our financial crime systems and controls toensure that they work efficiently and effectively

• Working closely with governments, law enforcementagencies, regulators and the banking industry to sharebest practice and contribute to ongoing initiativeswhich combat crime risk.

References

1. http://en.wikipedia.org/wiki/Financial_crimes

2. http://en.wikipedia.org/wiki/White-collar_crime

3. http://www.havocscope.com/amount-of-money-laundered-each-year/

4. http://en.wikipedia.org/wiki/Securities_fraud

5. Investigating Financial Crimes, Rohas Nagpal, Published by ASCL (Asian School of Cyber Laws)

6. Data64 Presentation – Financial Crimes.

7. http://www.thehindubusinessline.com/industry-and-economy/info-tech/financial-offences-top-cyber-crimes-in-india/article4901219.ece

8. http://en.wikipedia.org/wiki/Credit_card_fraud

Questions ? Doubts ?Queries ?

Thank you