Financial Crimes

A Threat to Global Security

Maximilian Edelbacher, Peter Kratcoski, Michael Theil, Maximilian Edelbacher, Peter Kratcoski, Michael Theil

• Publisher: Routledge
• Year: 2012
• ISBN:
  9781466567931
• Edition: 1
• Topic: Business
• Subtopic: Finance
• Index: Business

Financial market reform has focused chiefly on the threats to stability arising from the risky, uncontrolled activity of the leaders of financial institutions. Nevertheless, organized crime, white-collar crime, and corruption have a huge impact on financial systems worldwide and must also be confronted if true reform is to be achieved. A collection

Financial Crimes: A Global Threat

II

MAXIMILLIAN EDELBACHER AND MICHAEL THEIL

Introduction to Financial Structure and Crime

Section I demonstrated that peoples’ needs for security have not changed over the centuries, but the concept of security has changed and some of the major threats to security have also changed. Even after we determine which individuals, organizations, and agencies are primarily responsible for providing security (from physical harm or from deprivation of basic physical needs such as food, clothing, and shelter), we still must analyze the factors that threaten these needs for security and ways to avoid them. In addition, as societies change, their potential security threats also change. Thus, it is necessary for those who provide security to be able to predict when new threats will appear and make recommendations for responding to these security threats effectively.

Changes in threat potentials always require the adaption of countermeasures. What adjustments must be made and how can these countermeasures be used effectively? These questions are not easily answered. Thus, the second part of this book is devoted to learning about some of the more promising potential responses to financial threats to the security of nations as well as global society.

It is always fruitful to predict what will likely happen in the future by studying the past and the present. Lessons learned from the past and present are many. First and foremost, it is necessary to first have a clear analysis of the status quo and how it is developed. Abstract analyses of the types of threats that may arise and what forms they will take should be made, even though these threats are not yet obvious. Otherwise new threat situations may be neglected.

This section of the book will present an analysis of the present state and models and plans for preventing financial crises on a more abstract level. The chapters selected for this section address the problem of responding to financial security threats.

In Chapter 6 titled “White Collar Crime,” Edelbacher and Theil start with an explanation of the many facets of this type of crime. Many manifestations of financial crime fall within this spectrum—various forms of fraud, for instance those linked with bankruptcy, insider trading, and pyramid schemes. Some white collar criminal events attracted significant public attention as in the case of Bernard Madoff.

Very often, white collar crime produces huge financial losses. Because this type of crime is often cleverly concealed, it creates manifold problems for the public. It is also worth noting, that people are unable or unwilling to see the criminal aspects of many types of white collar crime, for example, insurance fraud. And many are eager to participate in fraudulent activities such as Madoff’s schemes purely because of greed.

Seger notes in Chapter 7 on cyber and economic crime, that because electronic data processing used for communications and financial transactions is a key element in everyone’s daily life, it presents potential for everyone to become a victim of some form of cyber crime. In today’s economy, it would be impossible to conduct large-scale financial transactions without using computers. Seger concludes that cyber criminals can find unprecedented opportunities to organize and operate in a global context at relatively low risk and low cost. He predicts that criminals will continue to use new technologies for purposes of enhancing personal and public communications and transactions to exploit the vulnerabilities of individuals and public and private organizations including financial agencies that rely on computers as necessary tools for daily use.

In terms of combating cyber criminal activity, the most promising strategy is developing the technology and expertise required to combat cyber crime and trace the money earned through illegal practices. In Chapter 8, “Organized Crime, the Mafia, White Collar Crime, and Corruption,” Antinori, first distinguishes organized crime, white collar crime, and the Mafia and briefly traces the development of several of the more prominent criminal organizations operating in Italy and internationally. He notes that all these criminal organizations pose major threats to the global society. Through various forms of corruption, then can make huge profits by using illegal mechanisms, then connect with legal economic enterprises and eventually blend into legitimate business. He notes that considerable political will is a requirement for reducing and eventually eliminating the great influence of organized crime on the political and economic systems of the nations in the global society of today.

Clearly, financial crime can pose a considerable threat to a democratic society. Chapter 9 is titled “Rule of Law versus Financial Crime,” and Dobovšek explains how violations of the rule of law can threaten the very foundations of a democratic society and destroy its economic base. He notes that financial crime distorts the economic system and also harms the political structure when members of informal networks choose to ignore rules and legislation and perform actions that benefit only themselves and fellow members. Corruption and financial crime appear to have increased in Eastern Europe—a development many blame on the transition to democracy.

Is the financial crisis a turning point in financial regulation? In Chapter 10 relating the crisis to the pursuit of financial crime, Tomasic analyzes the effectiveness of new regulations in curtailing financial crises brought about by criminal financial activities. He notes that a period of minimal regulation of financial markets led to a number of unintended but certainly undesirable consequences such as insider trading, corrupt practices, tax avoidance, money laundering, and other frauds. Criminals were able to avoid detection and prosecution. Therefore, Tomasic sees the need for more effective control mechanisms and institutions.

Chapter 11 is titled “Global View on Organized Crime, White Collar Crime, and Corruption.” Mills discusses the dangers of reporting corruption. In fact, journalists face risks of death, assault, torture, intimidation, harassment, and wrongful imprisonment in many parts of the world for investigating and delivering information about corruption. It may surprise many people that covering corruption stories is more dangerous than reporting about war. Mills provides several examples to illustrate the hazards of investigative reporting, particularly when an investigation involves the alleged corruption of high level, powerful government officials. He also notes that corruption may be found in every country, not just certain countries we normally associate with high levels of political corruption.

Finally, in Chapter 12, Wolfgang Hetzer complains that the “financial crisis” term suggests that serious economic woes result from natural disasters—acts of God—and no one is to be blamed or held guilty for them. This is, of course, a misconception because human decision making is behind all financial crises. Hetzer, however, feels that penal law is not helpful for preventing such events or punishing those responsible. He sees a close network of bankers and politicians who are interested in business, not in trials. Therefore, those responsible for illegal practices in the financial area are in positions to influence legislation and jurisdiction.

White Collar Crime

6

MAXIMILLIAN EDELBACHER
MICHAEL THEIL

Contents

Conditions of Economic Life

Economic Life in a Secure Environment

Western Economic Model of Free Market

Factors Influencing Economy

Exogenous Factors

Movements of Populations

Causes of Movements

Increases in Crime Rates

Tendencies toward Violence and Terrorism

Endogenous Factors

Changes of Ethical Values

Changing Views of Rule of Law

Definition of White Collar Crime

Development of White Collar Crime

Shadow Economies

Financial Crimes

Spectrum of White Collar Crimes

Bankruptcy Fraud

Insider Trading

Bank Robbery

Investment Capital Fraud

Pyramid Schemes

Fraud in Opening Bank Accounts

Transaction Fraud, Fraud through Mediation, and Ghost Money Operations

Counterfeit and Stolen Securities and Gem Frauds

Check and Card Fraud

Debit Card Fraud: Bankomat

Credit Card Fraud

Counterfeiting

Document Falsification

Money Laundering

Insurance Fraud

Sociological and Psychological Aspects of Insurance Fraud

Fraud against European Union

Cyber Crime, Cyber War

Computer and Telemarketing Crime

Information Security

Employee Crime

Price Waterhouse Coopers Profile of Criminal Employees

Continuing Financial Crisis

Global Problems, Global Answers

Money Deals: Record Highs

EU Issues

Lessons Learned

Changes in Payment Systems

Eurocheque System

Bankomat system

Credit cards

Counterfeit Dollars and Euros

Weak Banking Systems

Money Laundering: Know Your Customer

Avoiding Risky Business

Avoiding Employee Crime

Vulnerabilities of Democratic Societies

Re-Establishing Ethical Principles

Efficient Police and Justice Systems

Efficient Prevention Tools

Political Will

Transparency

Control Mechanisms

Cooperation of Public and Private Sectors

Appendix: The Largest Insurance Company Fraud in American History

Weiss’s Gang: Lawyers, Businessmen, and the Gambino Family

First Offense: Special Consideration

Flight Risk Posts $500,000 Property Bond for Bail

Apprehension in Austria

References and Sources

Conditions of Economic Life

Growing up in the Western World, living in today’s rather wealthy states of Europe, you are used to the philosophy of free markets. You can afford nearly everything and can buy what you want. Supermarkets, financial institutions, insurance, industry, and food production are thriving. Europe has experienced sixty years of peace.

Younger generations did not experience conditions at the ends of the First and Second World Wars when money systems broke down, it was impossible to purchase goods with money, and unemployment rates were enormous. Especially after the end of the Second World War, countries like Germany and Austria that started the war were supported by the Marshall Plan and their economies recovered quickly after the end of the war. At first, people were supported by food and basic goods, then industrial production was financed by loans and a free economy following western market models was developed. In the 1950s and 1960s, Europeans spoke of their “economic wonder.”

Economic Life in a Secure Environment

In Western Europe, economic progress was possible because of peace and stability. Eastern Europe, dominated by the Communist regimes from 1945 to 1989 experienced a much different development. A regulated market is far less prosperous. Priorities in Eastern Europe were far different from those of Western Europe and therefore living standards improved very slowly. The Western Europe model compared to the Eastern Europe model was much more efficient in the view of the average citizen.

Western Economic Model of Free Market

The economies in democratic societies function through market mechanisms and also on deeper principles of a democratic society. Financial institutions and insurance companies exist on the principle of pacta sunt ...

Table of contents

• Cover
• Half-Title Page
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Series Editor’s Preface
• Financial Crimes Preface
• Foreword
• Acknowledgments
• Editors
• Contributors
• Section I: New Security Concepts
• Section II: Financial Crimes: A Global Threat
• Section III: Preventing Another Financial Crisis: Roles of Control Mechanisms
• Epilogue
• Index
• A Call for Authors