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Fraud Detection recipes
Daniel Tzvetkoff
An erstwhile Australian entrepreneur, who owned nightclubs, drove luxury cars, had his own cruising yacht and more than enough mansions and other property, has been arrested in Las Vegas. Appearing in a US Federal Court, he was charged with running a $US540 million money-laundering scam. That’s a lot to achieve by the age of 27, though the prospect of 75 years in a US penitentiary isn’t a great way to round off a career. All of this has transpired in a short space of time. Few people had heard of Queensland-born Daniel Tzvetkoff until the founder of online payment processing firm, Intabill, purchased a $A27 million luxury pad on that state’s Gold Coast – Australia’s Miami – in 2008.
His world fell apart in 2009 when his business partner slapped a $A100 million lawsuit on him, which led to him filing for bankruptcy in November. The mansion was one of the first things to go, at a greatly reduced price.
Now Tzvetkoff’s charges include gambling conspiracy, bank fraud conspiracy, money-laundering conspiracy and plain money-laundering. The main thrust of these charges is that he aided illegal online gambling enterprises in laundering that half-a-billion dollars into offshore accounts. Though banks prohibit internet credit card gambling, it is alleged that Tzvetkoff tricked them into accepting that the gambling deals were nothing more than routine business transactions. Having established his credentials in that way, he proceeded to utilise the automated clearing-house system to funnel millions of dollars between the United States and a network of firms in the British Virgin Islands. The FBI alleges that among his electronic correspondence it found messages that bragged how Intabill had hired computer experts to create distinctive websites for companies that would put anyone checking them out right off the scent. They would have no way of discovering the linkages between any of the firms involved.
If you feel there’s a chance that your business could have been unwittingly drawn into a dangerous web of intrigue like this, match cleverness with cleverness. Call in a team of professionals quickly. They’ll use advanced techniques like computer forensics to tell you exactly where you stand and what you need to do – fast.
World’s Dumbest Robbers: Could the Last Laugh Be On You?
Australian TV viewers were entertained on April 12 to the strange tale of two accidental bank robbers. They never actually planned to rob a bank but before they knew it, that’s exactly what they found themselves doing. Now that’s really stupid, you say to yourself. But how sure are you that that’s not what some of your employees are doing to you and your business right now? Intriguingly, many cases of staff fraud begin just that way, not with grand plans to embezzle large sums of money. Rather, the opportunity to pilfer is recognised when checks and balances aren’t seen to be in place. It starts with small amounts like $50 to cover the groceries, which aren’t paid back. Soon it’s hundreds, then thousands, and sometimes millions. Things get out of hand quickly.
It was one of the two young Australians involved, Anthony Prince, who was telling the nation his story. He’s recently completed a 4½-year prison stint in the US, where he and his accomplice were convicted in 2005. They were both 19 at the time and were on a working holiday in the famed ski resort of Vail, Colorado. “We didn’t really want to rob a bank,” Prince explained. “We were just talking about it … joking about how we could actually do it and then before we knew it, it just turned serious. You’d have to be retarded to think you can get away with it.” Arming themselves with replica pistols and wearing facemasks, they stormed the Weststar Bank – where they were regular customers – and stole $US132,000. They were wearing name-tags from the sporting goods store where they worked, and failed to disguise their stand-out Australian accents, which made it easy for the tellers to identify them.
Hours later, the pair went on a buying spree, photographed themselves in a public toilet posing with the stolen cash and then purchased one-way air tickets to Mexico. They were arrested at Denver International Airport and hauled off to court. Prince’s accomplice, Luke Carroll, was sentenced to 5 years because he pushed one of the female tellers to the ground and injured her arm during the robbery. You can’t help laughing, but when you stop, do consider calling in a professional team to scan your business for irregularities. Computer forensics is but one of the methods they’ll use to tell you what’s going on right under your nose.
New Zealand Fraudster Goes for the Jackpot
When Bernie Madoff’s massive fraud hit the headlines it was often said that it could ever only happen in New York. Well, on a per capita basis, New Zealand – a magical place, known as The Land of the Long White Cloud – is providing stiff competition. It might be as far away from the Big Apple as you can get, but therein lies the lesson: you need to be alert to fraud anywhere. In almost any business, especially banking, you must have sophisticated systems in place that offer protection. Financial analysis, transactional analysis and computer forensics are but a few of those involved.
The guilty New Zealander is investment banker Stephen Versalko, 51, who has just been sentenced to six years in prison for stealing $NZ18 million from his employer, ASB Bank. OK, that hardly ranks alongside Madoff’s billions and his 150 years in the slammer, but in a small community like New Zealand shame carries a lot of weight. Versalko’s prospects of ever running a business again are about as bright as Bernie’s. Details of the case revealed in court show how many warning lights were flashing. Two prostitutes received over $3 million from Versalko, while much of the rest went on wine, property and making interest payments to clients to keep the scam running.
The prosecutor described the fraud as the biggest employee theft in the country’s history – a classic Ponzi scheme in which investors received interest payments from their own capital or from newer investors. To top it off, Versalko was exposed when one of his 30 wealthy victims saw a TV documentary on Madoff and became suspicious. Versalko admitted that he felt he was Mr. Invincible.
Could Social Networking Kill Your Company?
Yes, it can. And probably before you have a clue about the fate that awaits you. It happens in a number of ways. But first, think how huge the global pool of networkers is, spanning well-known sites like MySpace, Facebook, YouTube and many others. The latest US data shows Facebook surging ahead, with its overall number of users now surpassing 400 million. To put that in perspective, only two countries have a greater population – China and India. One thing you can be dead sure of these days is that a vast number of your employees are swimming in that pool. And what’s going into the water with them could be your core intellectual property, private customer data, information on financial strengths and weaknesses, and even details of that tender you’re about to lodge. You know, the one you’re certain to win and which will guarantee your firm’s survival after the battering you’ve taken in the GFC.
‘Loose lips sink ships’ is an old wartime catchphrase that points to how most of this spillage occurs. Your staff talks without thinking and others pick up their banter. Bear in mind, surveys show 98% of users volunteer enough data for their identity to be readily stolen. How careful then, are they likely to be with your corporate secrets? Because advertisers increasingly use this medium to reach a mass audience, networkers perceive an aura of business legitimacy about it. But that’s only your ‘innocent’ employees. Think how much worse it is when they’re malicious. Even the FBI in the US, we now learn, is swimming in these same waters to track down a host of wrongdoers. Of course, FBI operatives are the goodies. Imagine the baddies targeting your operations?
If this frightens you, and it should – after all, your board would expect it to – call in a group of experienced professionals without delay. See how they can help you protect your business, or, to put it another way, fulfil your responsibilities. Their sophisticated methods, like computer forensics, stretch well beyond social networking and will throw up a range of other threats you may never have thought of. There are too many to mention, but fraud is commonly high on the list.
Two Ways to Rob a Bank
If you’re into robbery and you take the money, at least you have the hot feel of cash in hand. But if you’re a true professional you’ll go for the bank’s intellectual property, its customer details plus their spending and investment habits, and any other data with high value in the business world. Now that’s a much more sophisticated game and besides, one where you don’t need acetylene torches and gelignite. It’s also a pursuit where management may not know what’s been stolen from right under their corporate nose until it’s far too late. CEOs and senior executives have many nightmares and this is but one: staff resigning and taking the crown jewels with them. It can happen at almost any level of the hierarchical chart. Can you protect yourself from such a calamity? Yes, and transactional analysis and computer forensics are just two of the sophisticated methods that experienced professionals apply to help you stay on the front foot.
This scenario may well be exercising the minds of senior executives in Tokyo at Nomura, the Japanese investment bank that has only recently integrated the non-US assets of Lehman Brothers. That’s a lot for any python to digest and the last thing you want in the process is a burst in the seams. But early in March, Nomura’s head of equities in Asia, followed by the joint-head of fixed income, indicated they were stepping down. Then the bank’s head of telecoms, media and financial practice in India also left. Now Nomura’s been hit with its highest profile departure: its chief executive for Europe, the Middle East and Africa, who was actually the architect of the Lehman acquisition.
This is not to insinuate in any way that these high-calibre executives are “robbing the bank”. Rather, it’s to highlight the extreme danger that can confront a business when resignations – and especially sackings – take place. You can’t protect yourself after the event, but you can be proactive beforehand. The right professionals will equip your business with monitoring and analytical capabilities that not only detect fraud in standard times but also pick up variations that forewarn you of imminent departures. It’s state-of-the-art and fundamental to security. Ignore it at your peril.
The GFC Legacy: Is There Anyone Left You Can Trust?
The global financial crisis has thrown up so many examples of fraud and financial mismanagement on such a mammoth scale that cases like Enron pale into relative insignificance. Fallout from the GFC has impacted heavily on those who value integrity in business, with their state of confusion equalling the carnage wrought by the crisis itself. Now the release of the 2,200-page report by Anton Valukas, appointed by a US court to probe the reasons for Lehman Brother’s failure in 2008, leaves many again shaking their heads in disbelief. Valukas paints a damning picture, not only of the bank’s top management, but also of other major institutions that have a vital role to play in business everywhere. It is a further blow to the already battered credibility of the entire banking industry.
Central to the Lehman case are its off balance-sheet trades, using devices like “Repo 105”, which enabled it to shift some $US50 billion off its books. These transactions, never disclosed to investors, rating agencies or regulators, are described by Valukas as “an accounting gimmick” and “window-dressing”, making the organization look healthier than it was. Some of his heaviest criticism is levelled at Ernst & Young, the Big Four auditor, for the role it played in Lehman’s bankruptcy, raising again the spectre of Enron and shonky accounts. One experienced US attorney has said that the idea that such a firm would sign off on all this is “absolutely incredible”. He stressed that the auditor had a public duty beyond its client to say to Lehman Brothers, no, you just can’t do that.
Then there’s the question of Lehman’s elite London law firm that also signed off on the controversial transactions. And all this against a backdrop of other major GFC failures, like the key ratings agencies that were missing in action when they were most needed.
Another US Ponzi Scheme Hits the Dust
As The Wall Street Journal reported on December 3, a Minnesota jury has found the operator of a $US3.65 billion Ponzi scheme guilty of all 20 counts of wire fraud, mail fraud, money laundering and conspiracy, potentially consigning him to life in prison without parole. The racket dates back at least a decade.
At the time that 52-year-old Tom Petters was arrested in October 2008 and indicted two months later, the allegations against him amounted to one of largest Ponzi schemes in US history. But New York financier, Bernard Madoff, confessed a few months later to a much bigger fraud – an estimated $US65 billion – and is now serving 150 years in prison. Petters, a gregarious businessman, started out selling stereo equipment in high school and later became a liquidator of overstocked goods before his company ventured into retail-based fraud.
The US government has accused him of promising fat returns to investors who lent him money to purchase surplus merchandise, then resell it to big-box retailers such as Wal-Mart Stores and Costco Wholesale. But there were no such transactions and profits funded his ‘extravagant’ lifestyle, which included lavish homes in several states, a number of expensive boats, Mercedes cars and also a Bentley. Moreover, he acquired a number of legitimate companies, including Polaroid Corporation and Sun County Airlines. It all came crashing down in late 2008 when longtime Petters Company employee, Deanna Coleman, approached the US Attorney in Minneapolis. She laid out the nature of the fraud and her role in it, and agreed to wear a recording device that picked up damaging conversations with her boss and others in the following days. She later pleaded guilty to conspiracy to commit fraud, and testified for the government in the trial. In all, three co-workers and four business partners pleaded guilty to aiding the scheme and several testified against Petters.
During the trial, 42 government witnesses testified, compared with 12 called by the defence. Ms. Coleman’s tape recordings were key to the prosecutors’ case. In one of the tapes, Petters is heard saying, “This is one big [expletive] fraud.”
Guarding Against Corporate Fraud
The Indian outsourcing firm, Satyam Computer Services, which was the subject of the country’s biggest corporate fraud scandal in January 2009, has been hit with a tranche of supplementary charges. According to India’s Central Bureau of Investigation, the extent of the total fraud now stands at around $US3 billion. What the Bureau has revealed provides a salutary warning to any company in virtually any country that this could be happening right under your nose. If you suspect that might be the case, call in experienced professionals without delay. A wide variety of methods, ranging from detailed transactional analysis to computer forensics can be used by these experts to give you a clear picture of reality.
The original charges against Satyam’s former chairman revolved around his admission that he had misrepresented the company’s financial condition by inflating assets and understating debts. This included a fictitious cash balance of more than $US1 billion. He stunned India’s financial world when he made his confession. At the time, Satyam was rated as India’s fourth-largest information technology services group by revenue, with world-wide clients like General Motors, Nestlé and General Electric.
The new charges show that others at Satyam had been creating fake customer identities and generating fake invoices against them to boost revenue figures. They had also forged board resolutions and obtained unauthorised loans that were used to buy properties. Investigators have found over 1,000 such properties, purchased by the accused with the siphoned funds and involving 2,430 hectares of land as well as housing plots and building space.
Ten Ways to Protect Against Payroll Fraud
Australia’s Daily Telegraph ran a useful report in mid-November on payroll fraud, a form of financial crime that is often particularly difficult to detect. One victim, a whitegoods and electrical retailer, managed to retrieve the $A20 million stolen by its payroll officer, but most companies never see their money again. And the crooks involved don’t always gamble the proceeds away. In this case, the officer invested the money in property. If you want to avoid being targeted by a clever operator it pays to bring in a team of experienced professionals who use state-of-the-art technology, like computer forensics, to help you secure your system.
An Australian expert has stated that while cases of payroll fraud have increased in the past year, it is impossible to be sure what is happening. Estimates indicate that around 90 per cent of cases go undetected. That should set alarm bells ringing.
Clearly, top priority is to choose the right person for the job in the first place, which means careful screening and checking of references and background. Interestingly, the majority of those caught for payroll fraud have no criminal history as such. But they may have committed similar acts in the past, then been encouraged by their employer to quietly move on – without prosecution. Whether money is paid back or not, many companies avoid embarrassment by not reporting fraud to police. This merely passes the problem on to other employers.
McKinsey Partner’s Arrest Spotlights White-Collar Crime
The elite US consulting firm of McKinsey & Company, long known for its prudence and caution, must have been low on anybody’s suspect list of those likely to be involved in financial crime. Even the suspect himself was shocked when federal officers arrived at his California home recently to arrest him on charges of conspiracy and securities fraud. As The Financial Times reported on October 22, Anil Kumar fainted and had to be briefly hospitalised. Court documents reveal that he has been accused of passing inside information to Raj Rajaratnam, head of the Galleon Group, arrested in New York last week on insider trading charges.
Shocks like this come out of a clear blue sky. As McKinsey’s worldwide managing director, Dominic Barton, has said, “This issue is completely virgin territory for us. We have very clear policies that you do not invest in clients or situations even where it is legal.”
There are, however, protective measures that firms can take. Experienced professional teams of experts exist that can apply sophisticated investigatory methods and state-of-the-art technology to warn top management of possible fraud. Tell-tale signs are often buried in patterns of contact and in other areas where no one else would think to look. Expert financial analysis, coupled with computer forensic work, for example, can usually provide you with a running image of what’s actually going on inside your company, much as infra-red night-vision goggles allow you to “see in the dark”. Without any support of this nature, you’re basically flying blind. Far better to be pro-active and not sorry.
