The Risk of Economic Crime

Transcription

1 The Risk of Economic Crime 0 ACFE European Fraud Conference London, March 7, 0 GROUP SECURITY HERE TO PROTECT OUR WORLD Torsten Wolf Group Head of Crime and Fraud Prevention

2 Agenda Introduction Economic Crime Landscape Economic Crime Framework

3 Introduction About Zurich Zurich is one of the world s largest insurance groups, and one of the few to operate on a truly global basis. Our mission is to help our customers understand and protect themselves from risk. With over 60,000 employees serving customers in more than 70 countries, we aspire to become the best global insurer as measured by our shareholders, customers and employees.

4 MISSION VISION Introduction Group Security: Vision and Mission Group Security is a trusted advisor of choice, viewed as business partner with security expertise, providing world-class service that can adapt at the speed of change. One Group Security acts as a business enabler, taking both preventive and reactive measures in order to secure Zurich s aspiration of becoming the best global insurer. We accept responsibility for the security and safety of Zurich employees, assets and activities, protecting them from internal and external threats. 4

5 Toolbox Technology Introduction Business Protection Model Governance Quality Security Threat Management Emergency Management Travel Security Employee Reputation Assets Personnel Protection Event Security Business Customer Shareholder Security & Safety Governance People Networks People Economic Crime Prevention & Detection Processes Processes Standards 5

6 Agenda Introduction Economic Crime Landscape Economic Crime Framework 6

7 Economic Crime Landscape Definitions Claims Fraud Exaggerated claims Fictitious claims Financial Crime Money Laundering/ Terrorist Financing Bribery/Corruption Sanctions Economic Crime Internal/employee crime and fraud External non-claims crime and fraud Theft 7

8 Economic Crime Landscape Impact of Economic Crime Hidden costs by far outweigh direct financial impact! Impact on customer including increased premiums Loss of confidence in organization Damage to reputation and brand Damage to stock value Possible loss of market share Closer regulatory focus and possible fines (Regulator) Cost of investigations and new internal controls Accountability of company senior executives and possible legal action against them Decline in staff morale Impaired business relations 8

9 Economic Crime Landscape Key players in the insurance industry Intermediary External Party Focus areas Distribution crime Insurance Carrier Third Party Service Provider Internal crime Customer Identity crime Vendor Reinsurer 9

10 Economic Crime Landscape Key players in the insurance industry Intermediary External Party Focus areas Distribution crime Insurance Carrier Third Party Service Provider Internal crime Customer Identity crime Vendor Reinsurer 0

11 Economic Crime Landscape Distribution crime (/5) Customer! Policy Premium Investment Intermediary!! Policy Premium Investment Insurance Carrier Refunded premium! - internal - external Refunded premium Claims/ Maturity! Claims/ Maturity Commission!! Policy Premium Investment Refunded premium Claims/ Maturity!!! Risk areas

12 Economic Crime Landscape Distribution crime (/5) Indemnity commission fraud (incl. Ponzi-type schemes) Commission Converting direct business (no commission) to intermediary business; collusion required Generation of unjustified commission payments

13 Economic Crime Landscape Distribution crime (/5) Withholding customer premium Policy and premium Providing incorrect information on policy application, for example - Nationality - Age - Membership of associations - Smoker status - Medical history - Dangerous hobbies Insufficient premium to cover risk (insurance carrier) and lack of insurance cover (customer)

14 Economic Crime Landscape Distribution crime (4/5) Withholding customer money Investment - Legitimate company investment product - Fake investment product using company brand Impaired reputation (insurance carrier) and loss of capital (customer) 4

15 Economic Crime Landscape Distribution crime (5/5) Preventive controls Comprehensive due diligence when appointing new intermediary Due diligence checks for existing intermediaries (sample basis) Second approval/independent counter signing Documentation to policyholder not the intermediary Detective controls Regular monitoring of new business Qualitative and quantitative analyses of management information Red flags that may indicate potential crime Consider: commission exposure based on length of relationship 5

16 Economic Crime Landscape Key players in the insurance industry Intermediary External Party Focus areas Distribution crime Insurance Carrier Third Party Service Provider Internal crime Customer Identity crime Vendor Reinsurer 6

17 Economic Crime Landscape Internal crime (/6) Insurance Carrier!! Financial statement/ accounting Salary/payroll Incentives/bonus Expenses Vacation/overtime Claims (by employee) Employee 7

18 Economic Crime Landscape Internal crime (/6) Claims (crime committed by employee) Transfer of unclaimed legitimate claims into own bank account Falsification of claims for existing policyholders; payment to friends, family or own bank account Reopen closed legitimate claims to generate additional payments for invented additional services Inflate the cost for settling a claim (collusion with third party) Unjustified claims payments (insurance carrier), loss of money and negative claims history (customer) 8

19 Economic Crime Landscape Internal crime (/6) Underestimated value of salvage goods for onward selling to third parties (collusion), for example Salvage - Stolen and recovered cars (after claims settlement) - Scrap value of accident cars Lower than expected return on salvage goods 9

20 Economic Crime Landscape Internal crime (4/6) Sales incentives (bonus and commission) Submission of fake policy applications Alteration of policy applications (cover not requested by customer) Entering (with knowledge of customer) incorrect details on policy application to reduce the policy premium Unjustified incentive payments, but also: insufficient premium to cover risk (insurance carrier) and lack of insurance cover (customer) 0

21 Economic Crime Landscape Internal crime (5/6) Purchasing goods on company account and reselling for personal gain Expenses Entertaining friends or relatives at company expense Submitting fraudulent expense claims Unjustified cash outflow and potential impairment to reputation if not addressed

22 Economic Crime Landscape Internal crime (6/6) Preventive controls Pre-employment screening (in accordance with local law and regulations) Vetting of staff when promoted into sensitive positions Execution of management controls (deterrence) Detective controls Execution of management controls (detection) Qualitative and quantitative analyses of management information (e.g., credit card expenses) Red flags that may indicate potential crime

23 Economic Crime Landscape Key players in the insurance industry Intermediary External Party Focus areas Distribution crime Insurance Carrier Third Party Service Provider Internal crime Customer Identity crime Vendor Reinsurer

24 Economic Crime Landscape Identity crime (/4) Customer Intermediary Insurance Carrier! - internal - external Claims/ Maturity Claims/ Maturity Claims/ Maturity 4

25 Economic Crime Landscape Identity crime (/4) Acquisition of victim s personal information Misuse of the information Criminal: Enjoying the benefits Victim: Repairing the damage Identity theft 5

26 Economic Crime Landscape Identity crime (/4) Acquisition of victim s personal information Misuse of the information Criminal: Enjoying the benefits Victim: Repairing the damage Identity fraud Account takeover Surrender fraud Reputation damage Regulator action Financial indemnification 6

27 Economic Crime Landscape Identity crime (4/4) Stewardship of customer data Avoid customer data from falling into the hands of fraudsters Implement and execute preventive/ detective controls Control environment Identification and verification procedures Training of call handlers System blocks preventing electronic processing Due diligence (intermediaries/employees) Use of economic crime indicators Maintain the effectiveness of controls Business quality control checking Learning from mistakes Regular, assessed economic crime awareness training Internal audit reviews 7

28 Agenda Introduction Economic Crime Landscape Economic Crime Framework 8

29 Economic Crime framework Mandate Economic Crime Prevention and Detection, prevent and detect criminal activities and security incidents to mitigate business damage from crime. Provide investigative support on request. Fraud Triangle Opportunity Pressure Rationalization 9

30 Economic Crime framework Overview Governance & Quality People & Networks Ethical policy ( Zurich Basics ) Anti-crime Policy ( Zurich Risk Policy ) Anti-crime guidelines ( Global Security Standards ) 7 Adherence monitoring Site visits Audit reviews Identify crime risk Crime detection Zurich anti-crime professionals Internal support External support Peer organizations Communication/ training Processes & Standards Internal Control Framework 4 Process Benchmarking Data mining Reporting of economic crime statistics 5 Escalation of significant incidents Staff vetting 6 Investigations Continuous process Improve control environment Assess crime risk Response to incident Root cause analysis Investigation Toolbox & Technology Awareness training Fraud Risk Questionnaire Whistleblowing ( Zurich Ethics Line ) Reporting database Web conferences 0

31 Economic Crime Framework Improving the control environment Crime detection Identify crime risk Continuous process Assess crime risk Response to incident Investigation Improve control environment Root cause analysis

32 Economic Crime Framework Organizational set-up Group CAO Group Security Expertise Center Group Security Governance and leadership Strategy, policy, framework, and methodology Driving execution Interfacing with other functions Objective setting CEO COO GSCC Countries Execution of strategy Implement policy requirements Development support Collaboration across entities Subject matter expertise Country support GSCC = Group Security Country Coordinator

33 Economic Crime Framework Employee crime awareness training Global training (Zurich Basics) Ethics training Anti-crime module Close collaboration with Compliance Participation mandatory Execution of local training mandatory Crime awareness training Generic all employee training developed Minimal local adaptation necessary (language) Deployed via HR system (tracking of participation) Option to continue with own solutions

34 Economic Crime Framework Fraud Risk Questionnaire (/) Comprehensive coverage Modular approach Crime risk scenarios and anticrime controls Mandatory Entity and/or Business Area level Fully integrated into strategic/ operational risk assessment processes 4

35 Management Request Economic Crime Framework Fraud Risk Questionnaire (/) External observations Execution facilitated through guidelines, training and individual consulting Continuous enhancement (external/internal trends, management requests) Continuous FRQ enhancement Development of new modules Refinement of existing modules Internal analysis 5

36 4 Economic Crime Framework Internal Control Framework Goal: Strengthen the internal control environment Consistent view of crime risks and associated controls Set of minimum controls to address crime and fraud - Governance, roles and responsibilities - Risk assessment and response - Collection and reporting of incidents - Investigations Mandatory for all Business Units Process owner: Member of local executive management Quarterly sign-off evidences adherence 6

37 5 Economic Crime Framework Reporting Quarterly Economic Crime Report Statistics of all incidents Goal: Transparency of economic crime and crime attempts Local collection central consolidation and analysis to identify trends Number of cases, potential loss, actual loss Report shared with governance functions and external auditor Key findings shared with the members of anticrime network Escalation of single economic crime incidents Business Group Security Senior Management Board of Directors Escalation criteria Senior Manager involved Employee in anti-crime control role involved Risk of significant reputational damage Notification regulator required Police investigations against employee Potential or actual loss exceeding USD 50,000 Systemic occurrence of particular incidents Any new type or unusual incident/activity 7

38 6 Economic Crime Framework Pre-employment screening Key component of effective anti-crime governance framework Obvious benefits - Best hiring decision - Safe working environment - Avoiding cost of bad hiring decision Investigations of incidents revealed perpetrators had criminal records Various practices across the organization; impacted by local laws and regulations 8

39 7 Economic Crime Framework Monitoring adherence Self-assessments Review of work products - Operational risk assessments - Economic crime statistics - Investigation reports Visits to selected countries Regular sign-off of Internal Control Framework Internal audit reviews 9

40 Economic Crime framework Wrap-up Governance & Quality People & Networks Ethical policy ( Zurich Basics ) Anti-crime policy ( Zurich Risk Policy ) Anti-crime guidelines ( Global Security Standards ) Adherence monitoring Site visits Audit reviews Identify crime risk Crime detection Zurich anti-crime professionals Internal support External support Peer organizations Communication/ training Processes & Standards Internal Control Framework Process Benchmarking Data mining Reporting of economic crime statistics Escalation of significant incidents Staff vetting Investigations Continuous process Improve control environment Assess crime risk Response to incident Root cause analysis Investigation Toolbox & Technology Awareness training Fraud Risk Questionnaire Whistleblowing ( Zurich Ethics Line ) Reporting database Web conferences 40

41 Economic Crime framework Added value Economic Crime Prevention and Detection Prevent and detect criminal activities and security incidents to mitigate business damage from crime. Provide investigative support on request. Business added value Reduced cash outflows Recovery of damages No bad press hurting reputation Fraud Triangle Opportunity Increased confidence of investment community Lesser attention by regulators Reduced likelihood of fines Deterrence of crime attempts Positive staff morale Pressure Rationalization 4

42 Questions

43 Thank you! GROUP SECURITY HERE TO PROTECT OUR WORLD Contact details

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