Often cited as the most prominent threat facing the UK, fraud and other forms of financial crime can have severe consequences on victims, whether businesses or individuals. As criminals continue to evolve their tactics and methods of committing fraud, the ongoing battle against financial crime requires more than robust systems and stringent regulations.
AML compliance professionals play a pivotal role in safeguarding financial institutions from the cunning tactics employed by fraudsters. To effectively counteract the rising threats, it becomes imperative to not only understand the mechanics of financial fraud but also the motivations of those who perpetrate these illicit activities.
In this article, we peel back the layers of deception and take a look at what makes these kinds of criminals tick. With real-life case studies from an ex-fraudster, we take a look at the motives, strategies and evolving methodologies being used.
Understanding the fraud triangle
An essential tool in the arsenal for compliance professionals is the fraud triangle, a framework that provides insights into the motivations behind fraudulent behaviour.
This triangle consists of three key elements – pressure, opportunity, and rationalisation – and understanding these components is crucial for developing effective anti-money laundering (AML) strategies.
- Pressure: Financial difficulties, personal problems, or a desire for a lavish lifestyle can create pressure on individuals. They may feel compelled to commit fraud as a means of addressing these issues. Financial pressure is a common motivator, as individuals may be facing debts, high expenses, or other financial challenges.
- Opportunity: Fraudsters require an opportunity to exploit weaknesses in a system or process. This could involve having access to financial systems, weaknesses in internal controls, or exploiting vulnerabilities in a company’s processes. The presence of opportunities increases the likelihood that an individual will act on their motivations.
- Rationalisation: Fraudsters often justify their actions to themselves through rationalisation. They might convince themselves that their actions are necessary or that they are somehow entitled to commit fraud. Rationalisation is a psychological mechanism that helps individuals reconcile their fraudulent behaviour with their personal values.
Source: Fit Small Business
The motivations of a fraudster
Fraudsters are motivated by a combination of factors that create an environment conducive to engaging in fraudulent activities. Common motivations include financial gain, pressure or stress, opportunity, addiction, revenge, greed, and even thrill-seeking.
Financial gain is often the primary motivation behind fraud, seeing individuals driven by a desire for personal enrichment, economic necessity, or in the pursuit of a lavish lifestyle. Some individuals may face financial difficulties, mounting debts, or other stressful situations, pushing them towards fraudulent activities as a perceived solution to their problems.
We were lucky enough to interview Alex Wood, ex-fraudster turned counter-fraud professional about his life committing financial crime recently, and he shared a hands-on insight into the situation that drove him to commit his first fraud.
“I was a classical musician, a classically trained violinist. I got injured and was unable to play any more. My whole life was focused on one career, one path, I had no real training. When I had to stop playing, I was left without any source of income and a whole load of overheads. My mortgage at the time was £6,000 a month which is fine if you’re earning £20,000 but as soon as you don’t have that income, you get unstuck pretty quickly.
“My first offence was unsophisticated. It involved setting up a company, asking some people to invest in it, purporting that it was going to be a real success. These people were friends of friends, they didn’t realise that my career had come to a halt, that I was this really successful guy so I had credibility. They paid the money into my current account and I paid my mortgage for a few months so it didn’t take the police long to work out what had happened!”
“And that was my first stint in prison. In that fraud, I stole just over £100,000 and that really led to a spiral of reoffending.”
Crucially for businesses, those that are motivated by the simple opportunity to commit fraud of any kind pose a huge risk to firms. Firms without robust systems, processes or defences in place risk employees believing they won’t get caught, thinking it will be ‘easy’ to engage in fraudulent activities. This lack of oversight or insufficient checks can make it easier for individuals to engage in fraudulent activities undetected.
In a subsequent fraud, Alex took to impersonating the 13th Duke of Marlborough in order to overcome his homelessness after being released from prison. Racking up hotel bills of more than £12,000, Alex targeted VIP managers at some of London’s most prestigious 5-star hotels. He explains how he preyed on the vulnerability of staff, leading them to overlook usual processes and systems when guests are checking in.
“The whole strategy of a fraud is geared around vulnerability. For example, I would target VIP managers at a hotel. Claridge’s, The Ritz would have a VIP manager that would handle bookings for royalty and so on. I was appealing to their vulnerability which was effectively greed. They wanted the Duke of Marlborough to stay at their hotel. They were blinded by having someone super-wealthy come to stay, but also stealing that business away from a competitor. A combination of that and social engineering led to them not even asking for a credit card when I checked in. I was duping these people to such an extent that they threw all of their normal regulations out the window.”
The ever-growing threat of fraud and financial crime in the UK emphasises the need for a comprehensive approach to fighting bad actors beyond systems and regulation. AML compliance teams are key players in this battle, playing a pivotal role in safeguarding financial institutions