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Using your IT department to identify future trends in financial crime

Criminals and others who act against the interests of society at large are almost always ahead of financial crime and other risk managers when it comes to the the planning and execution of activity. Criminal and anti-social activity are magnified in relation to the effect on economies, even ultimately being an accelerant in the fires that led to the global financial crisis that only the most naive or self-centred deny is over. The fascinating thing is this: while they don't know it, the seeds of major, even pandemic, crime are easily visible. You just need to know where to look.

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In 2005, there was a massive upturn in the level of unsolicited marketing for easy money to buy a house or remortgage an existing loan. Although that marketing predominantly aimed at US borrowers, the mails were sent globally. Not only that, they were entirely indiscriminate. Then again, as we now know, so was much of the lending at the time. The emails lit fires under housing markets around the world including Australia.

Indiscriminate marketing of low-start, even self-certified, mortgages was not new: in the USA, the Savings and Loans crisis which had a handful of big winners and millions of losers arose out of poor lending practices but at that point the marketing had, largely, resulted from irresponsible PR by both lenders and government and newspaper advertising. In the UK in the 1980s, the same causes were augmented by direct marketing by telesales, post and, most disturbingly, on the doorstep. What Greenspan, with his parochial and (by his own admission) historically inadequate understanding of retail mortgage lending did not think of in the pre-cursor stage of the global financial crisis, was that the vast majority of borrowers trust the information they are given by those they consider experts or professionals. And while there were other factors in addition, the first early warning signs that something would go wrong, even before it went wrong, were those spam e-mails: criminals and chancers were using the fear of missing out and the promise of a more affordable life to millions who, within two to five years, would be failing to meet their obligations. In fact, by the end of 2006, we were getting data that the rate of repossessions (Americans call them foreclosures but a foreclosure is a legal step on the way to enforcing the security by taking possession and, hopefully ultimately, selling the property) was rising dramatically. That data was freely available if one chose to look for it.

The close to zero marginal cost of email has put ordinary people in the firing line for criminal activity. That is far from an erudite statement. It is also far from erudite to say that the range of threats, even actual harms, that email delivers is wide.

However, spam also delivers opportunities. Had the US government applied the lessons from the direct selling tactics in the UK, which led to an albeit domestic financial crisis, it would have worked out that the housing market was going to overheat and that there would be millions with debt exceeding their ability to repay.

If we monitor spam that comes into companies, we can identify broader criminal conduct i.e. conduct that is caused, encouraged or derived from those spams.

There are, of course, what we might term "directed spam" which has at least a degree of personalisation. This includes the "send me bitcoin or I'll publish dirty photos of you." They are not indicators of further crime: simply, they are what they are, a single use, dead end attempt at extortion.

However, other spams are indicators of other crimes or anti-social behaviour.

For example, in recent weeks there has been a significant increase in an old form of spam: the "buy your drugs here," type. It is interesting that during the heyday of the so-called "dark web," this type of spam dramatically reduced. As law enforcement agencies have been more successful in their harassment of hidden website operators, the incidence has returned using the old tactic of links in e-mails to single use URLs that divert to where the business is done so as to drive larger numbers of customers to websites where, either, they make dubious purchases and/or are victims of credit card, etc. fraud.

The most recent significant upturn in what we might consider pre-cursor spam is in relation to online gambling.

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This is a fascinating area given that, in the past several months, there has been significant press about the use of casinos for money laundering.

These are a few examples of how analysis of the supposedly junk mail that is received by companies can give an early warning of the type of conduct that money launderers and other criminals may be about to switch to, from fraudulent or money laundering loans to laundering via online gambling. None are new techniques but they are cyclical. Being alert to developing risk is far more valuable than reacting to it after it has developed.

Author: 
World Money Lau...