FRAUD A MULTIFACETED PHENOMENON TYPES OF FRAUD PREVENTION AND PROTECTION

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1 FRAUD A MULTIFACETED PHENOMENON TYPES OF FRAUD PREVENTION AND PROTECTION Vadym NESTERCHUK Chairman, Director, Optima-leasing /SIXT Oleksandr SHAPOVALOV Authorised Operation Officer Organised Crime Control Administration

2 WHAT IS FRAUD? NO PRECISE LEGAL DEFINITION OF FRAUD EXISTS The term is used to describe such acts as deception, bribery, forgery, extortion, corruption, conspiracy, false representation, misappropriation, theft, embezzlement, concealment of material facts and collusion. For practical purposes fraud may be defined as the use of deception with the intention of obtaining an advantage, avoiding an obligation, or causing loss to another party.

3 HOW IT HAPPENS... This most often occurs in the context of a relationship with a customer, client, or colleague on an individual or organisational basis. There are four basic ingredients which are necessary for a fraud to occur: People to carry out the fraud Assets to acquire Intent to commit the fraud Opportunity

4 CATEGORIES OF FRAUD Internal fraud: This is fraud perpetrated by individuals inside the organisation and is most often carried out by staff who have access to liquid or moveable assets, such as cash or stocks. Organisation It may be opportunistic, though it may also be planned and committed over a long period.

5 CATEGORIES OF FRAUD External fraud: This is fraud which is perpetrated by individuals outside the organisation and covers activities such as theft, deception and computer hacking. It is very often committed as a result of inadequate safeguards. Organisation

6 CATEGORIES OF FRAUD Collusion: This type of fraud involves two or more parties, either both internal, or internal and external, working together. Organisation This type of fraud can be difficult to detect as controls may at first appear to be working satisfactorily.

7 TYPES OF FRAUD Frauds according to the type of victim involved. The most common groups of victims include: Investors Creditors Businesses Banks or other financial institutions Central or local government Fraud by manipulating financial markets

8 TYPES OF FRAUD Frauds according to the technique or activity used by the fraudster include: Advance fee frauds Bogus invoices Computer hacking of information or property Corruption and bribery Counterfeiting, forgery, or copyright abuse Credit Card fraud False Accounting - manipulation of accounts and accounting records Fraudulent bankruptcy - exploitation of cross-border corporate structures Insurance fraud Internet online scams auctions, credit card purchases, investment scams Investment fraud Long Firm fraud Misappropriation of assets Money laundering Mortgage Fraud Payroll fraud Principal agents - failure of systems to restrict key individuals Pyramid schemes Unsolicited letter frauds

9 Type of Fraud: Victims: Category of Fraud: TYPES OF FRAUD A newly-detected emerging type of fraud: Leasing and Rent companies External Fraud Level of Professionalism: Expansion: Car Rent fraud Fraudsters: Highly professional Schemes of fraud: Carefully planned City Country Commonwealth Continent World

10 Rent companies victims of car rent fraud: 2003 Ukraine Hertz 1 car 2004 Ukraine Optima-leasing Ltd. 6 cars 2005 Slovakia, Ukraine Europcar 1 car 2006 Czech Republic Sixt 1 car Fraudsters: International Criminal Group consisting of citizens of different countries (Ukraine, Slovakia, Hungary)

11 TECHNIQUES USED BY CAR FRAUDSTERS: Falsified documents stolen/lost/bought passports of Ukrainian citizens stolen/lost/bought passports of citizens from the countries of Central, Eastern and South-Eastern Europe Registration of enterprises for a few days with all the required official documents available upon request Registration of enterprises for a longer term business activity in a certain industry staff working correctly at an equipped office (even knowing nothing about the real purpose of the director)

12 As there is no action in fraudsters cop car frauds become: repeating perpetual more and more often Reasons of non-responding to frauds: We learn from our own experience Losses calculation FEAR

13 Leasing and rent companies: WHAT IT ENDS WITH... get indemnification for losses from insurance companies fear and do not want to deal with the fraud anymore do not want to waste time or resources for investigation Result: no cooperation in dealing with crimes car fraud expansion

14 WHAT IT ENDS WITH... Insurance companies: In Ukraine: pay indemnification for losses to their clients are not concerned about the problem of car fraud In Europe: do not want to waste time or resources Result: no cooperation in dealing with crimes car fraud expansion

15 WHAT IT ENDS WITH... Police: poor financing not enough cooperation between NBI, Interpol, SAI, other countries police forces lack of information sources lack of leasing, rent and insurance companies support not efficient coordination of work of police departments lack of interest in car fraud investigation Result: no cooperation in dealing with crimes car fraud expansion

16 In essence, the advice is simple: PREVENTION IS BETTER THAN CURE

17 DEALING WITH FRAUDS Where: Central, Eastern and South-Eastern Europe How: Creation of Security Committee What for: Contribution to investigation on national, international and transcontinental levels Cooperation between leasing, rent and insurance companies and organisations Cooperation between associations Cooperation between countries and continents Creation of world wide monitoring systems

18 OUR MISSION: Is to provide and promote crime prevention, technical assistance and professional development to consumers and businesses to improve their quality of life.