Financial fraud meets Islamic terrorism, with dire brand and security implications. Here's how financial executives can identify, mitigate and resolve the risks.

An enormous amount of fraud goes on undetected. Unfortunately, instead of investing in strategic and technological anti-fraud solutions, many companies have simply written it off as a credit loss.

But with the obvious risks to financial assets, brand image and sensitive business intelligence, financial executives are realizing the critical importance of using analysis, information technology and data-mining tools to detect fraud, money laundering and leaks of valuable data. Moreover, they now understand the need for solutions that can immediately get up to speed with the latest fraud techniques, instead of requiring long-term installation and training.

Why? The implications of financial fraud in an era of Jihadist terrorism necessitate nothing less.

Fraud has overrun our financial institutions.

Corporate/Private/Small Business Banking – Whenever legitimate business thrives, fraudulent activities are sure to follow.  UK banks reported a 55% increase in losses from fraudulent online transactions in the first half of 2006 compared to the same period in 2005.(1)

Retail/Consumer Banking – Online banking customers face a continuous onslaught of phishing, Trojans and man-in-the-middle attacks. Result? In the last two years, more than 100 million personal records have been lost or stolen.(2) Total cost of identity fraud in 2006 – an estimated $49.3 billlion.

Hedge Funds – These are private investment pools that have a great deal of freedom and flexibility in leveraging their assets. Today, US hedge fund-managed assets total over $1 trillion(3) (in Europe it's $325 billion and in Asia $115 billion). The SEC, however, has cited 51 fraud cases involving hedge funds between 2000 and 2004. In 2004, 400 hedge funds and at least 887 hedge-fund advisers were under investigation.

And that's just the beginning…

Phishing, fraud and terrorism.

Phishing is an attempt to criminally and fraudulently acquire sensitive information – such as user names, passwords and credit card details – by masquerading as a trustworthy entity in an electronic communication.

While online fraud poses a serious problem to the commercial banking and investment sectors, the implications are far worse: Through online fraud schemes, terrorists have used stolen identities to acquire cover employment within the United States, and access to bank and credit card accounts and even secure locations.

When terrorists can pick and choose new identities and manipulate digital currencies, the result is limitless danger not just from a security standpoint, but also from the ability to move resources under the radar using IT and the web. (An example can be seen in the way the Citibank-al-Aqsa Islamic Bank connection enabled Hamas to move funds to its operatives.)

What is the cost to the brand?

Financial institutions grow their business based on the strength of their brands to provide financial security so that customers are confident that their assets are both well managed and well protected. As the internet expands and business channels proliferate, financial institutions need to adapt protective solutions so customers can conduct their banking online with ease, convenience and security.

How can risk be managed?

As consumer acceptance of the brand grows, markets around the world will now require financial institutions to step up their efforts. First, banks need to take responsibility to protect customers from online threats and other kinds of fraud. And second, they have to employ security strategies beyond user name and password and adopt new technologies that provide multi-layered bullet-proof protection against the threats of today and tomorrow.

The role of due diligence

Knowing who to do business with – and on what basis – is the key to market success. Companies need investigative expertise to identify potential representatives, agents and business partners and carry out due diligence checks on individuals, organizations and projects to ensure that claims made about them match the facts on the ground.

It's time for key decision makers to act. Financial fraud may well be written off as a credit loss. But there's no denying that its business and security implications could cost companies – and countries – far more. It's time to start looking into defensive solutions.

Where to turn to for help.

Global specialists in geopolitcal security can provide commercially relevant strategic, analytical and practical intelligence services to financial institutions with current or future business interests in conflict or post-conflict regions. Working closely with clients to provide customized solutions, these seasoned thought leaders can provide comprehensive support worldwide – guiding organizations through risk analysis, ISO certification, program development, soft skills training all the way to field implementation.

1 Kirk, Jeremy. 2006. Sharp rise for online banking fraud. UK banks lose £22.5m. P.C. Advisor. November 8, 2006. Also available at http://www.pcadvisor.co.uk/news/index.cfm?newsid=7549.

2 Privacy Rights Clearinghouse

3 Hedge Funds Intelligence

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