FRAUDSTERS UNITE! A LOOK AT THE RISE OF COLLUSIVE FRAUD NETWORKS

April 22, 2009 by Mike Mulholand

Field evidence and industry reports point toward one clear fact—fraud is becoming a team sport. More fraud is committed by teams of pros working together to commit fraud. And that’s bad news for banks.

Why? Because teams can generate larger, more damaging fraud losses. Their schemes tend to be more sophisticated and better-planned than the work of fraudsters working alone on quick-hit attacks. Their work can be harder to detect. And collusive fraud covers all fraud types—from new account fraud to employee fraud. A lot of times, it means cross-channel fraud, and most banks struggle to find it, much less shut it down completely.

Consider these recent stories:

15 person ring commits new account fraud, HELOC fraud, mortgage fraud and wire fraud.
Gangs such as the Crips, Armenian Power Gang and the Mexican Mafia are turning to identity theft and bank fraud. Stolen identities give thieves the ability to open new accounts, deposit counterfeit or altered checks and withdraw the money.
Use of “money mules” is on the rise.

It’s clear that organized crime doesn’t mean bands of goodfellas, though there is some evidence that traditional organized crime figures are in the game as well, especially Eastern European. Fraudsters may simply share a country of origin, zip code, cell phone number, computer, or neighborhood. It appears that they may be loosely related, and groups change in their makeup over time. Regardless of how they are connected, they need to control their fraud operations, and in the process may do suspicious things like change their address right after opening an account. They may reveal sketchy access patterns, like multiple accounts accessed from the same IP address or phone. Open multiple accounts with the same funding source or make suspicious deposits or withdrawals. But they all want one thing-your customer’s money.

So what can be done? Addressing the problem of collusive fraud requires identifying high-risk groups, detecting and linking suspicious clusters of accounts, and shutting them down-early and thoroughly. A partial shutdown can tip off remaining fraudsters causing them to execute their plan enmasse, racking up even more losses.

Collusive behavior accounts for nearly 50% of new account fraud.More sophisticated schemes like on-line account takeover are often performed by organized fraudsters (from virtually anywhere in the world). New account fraud detection strategies need to be focused on protecting your bank from organized fraudsters. Only then can you protect your customer base from victimization and your bank from eroding profits.
Fraud is a business. When the going gets tough, the tough get together. They figure out how to exploit your policies and loopholes. And they pool their collective fraud smarts to get to the money.

April 7, 2009

Satyam Officers Had Help in Fraud, Investigators Told

Top executives at the large Indian outsourcing company Satyam did not act alone when they committed a multibillion-dollar fraud that left the business struggling for survival: They apparently tapped a team in the company’s finance department to help them. Several managers and about 10 junior staff members in the finance department of the company created a paper trail to cover up the fraud, the former chief financial officer told investigators over the weekend.This team fabricated and prepared false documents like sales invoices, bank statements and bank confirmations, the former chief executive, Srinivas Vadlamani, told India’s top accounting body. He said that he also had taken part in the fraud. Mr. Vadlamani, who is now in jail, said that he had tried several times to resist the instructions to commit the fraud but that he could not because of a “master-servant relationship.”

His description indicates that the “scam had occurred owing to a carefully crafted fraud by creating normal trails and backup support documents and records,” the Institute of Chartered Accountants of India said in a statement Monday. The accounting body said it had questioned Mr. Vadlamani in its effort to determine whether Satyam’s auditing firm, PricewaterhouseCoopers, had been involved in the fraud.

Two of the global accounting firm’s auditors have been arrested in connection with the Satyam fraud. Neither the auditors nor the company’s independent directors were involved in the fraud, the former chief financial officer told his questioners. The Indian accounting group’s president, Prakash Agarwal, said the interrogation had “vindicated his belief about the credibility of the auditing profession.”

In January...the Satyam chairman, shocked Indian markets and his company’s hundreds of global customers when he said he had faked operating margins at the company and falsified its books. At the time, Mr. Raju said he had acted without the knowledge of the company’s board and many top managers. He has been jailed...

...the Central Bureau of Investigationof said three additional people from the finance department had been arrested. They were identified as G. Ramakrishna, a vice president; Srisailam Chetkuru, an assistant manager; and Danthuluri Venkatpati Raju, a senior manager; it was not clear whether he was related to the chief executive.

At its apex, Satyam served more than a third of the Fortune 500 companies; its clients have included General Electric, General Motors, Nestlé and the United States government. It asserted it had a work force of 53,000.

Satyam’s market capitalization on the New York Stock Exchange was $7 billion at the end of May 2008; it is now around $835 million.