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Detecting, investigating and preventing fraud: Can it truly be prevented?
Journal of Financial Compliance,
1
(4),
314-327
(2018)
Abstract
Employee fraud and conduct failures have caused some of the largest losses suffered by financial institutions, and led to the departure of several very well-respected CEOs and other senior management at those institutions. That includes the rogue trading incidents at UBS, Société Générale and Kidder Peabody, and the more recent conduct issues arising from the so-called rates manipulation cases and the account opening issues at Wells Fargo. Building an effective programme for the detection, identification and investigation of those risks is a crucial priority for all financial institutions. This paper reviews some of the most prominent incidents of employee fraud and conduct failures, and the important lessons learned from those incidents. Based on those events, this paper outlines the essential foundational elements for building an effective enterprise-wide monitoring and detection programme, including the type of organisation, skill sets, governance, tools, processes and culture one must have in place. The paper also focuses on some of the new technology tools available, including AI, natural language processing and data analytics, which will greatly enhance the ability of control departments such as Compliance, Risk and Internal Audit to detect and identify this activity.
Keywords: conduct risk; fraud risk; compliance; enterprise risk governance; compliance technology and innovation; risk assessment process
The full article is available to subscribers to the journal.
Author's Biography
Mark Kaplan spent the last ten years as Chief Operating Officer for Société Générale in the Americas, where he was responsible for managing its operations, including the IT, Operations, Finance, Product Control, Operational Risk, IT Security, Business Continuity Planning (BCP) Sourcing and Real Estate departments. Part of that role included helping develop and build the operational risk and anti-fraud functions in the region, and he co-chaired the firm’s anti-fraud and enterprise risk committees. Prior to that position, he was the General Counsel for Société Générale leading its Legal and Compliance departments. Before joining Société Générale, Mr. Kaplan was the General Counsel of the Canadian Imperial Bank of Commerce in the USA. Prior to that position, he was the Director of Litigation at Oppenheimer & Co., Inc. In each of those positions, and while in private practice at Schulte Roth & Zabel, Mr. Kaplan led, supervised or participated in many internal investigations and regulatory inquiries, including some involving allegations of internal and external fraud.
Elin Cherry is CEO of Elinphant, LLC, a collaborative and innovative Compliance Services Company. Previously, Elin was Director and Head of Business Unit Compliance, for CIT Group Inc., Head of Global Markets Compliance at Société Générale and held senior compliance positions at Deutsche Bank Securities Inc. and Banc of America Securities. She holds a JD from the University of Denver College of Law.
