What is financial crime?

Financial crime is a wider ranging term used to describe any crimes that relate to money, markets, or financial institutions; including fraud, money laundering, bribery, and insider trading. It is one of the world’s largest sectors.

Financial crime is more common and pervasive than most realise. In 2023 it was estimated to be worth at least USD$2 trillion globally, making it around 5% of the entire global GDP, and this amount is increasing rapidly.

In response to this, governments around the world have introduced a raft of new regulations, laws, and measures aimed at interrupting financial crimes and identifying financial criminals.

These are especially focused on businesses and generally put the onus on the private sector. Making individual companies responsible for ensuring they do not deal with criminals and effectively

In this article, we will look further into financial crime and its various subsectors.

What is financial crime?

The Financial Conduct Authority defines financial crime as:

‘Any kind of criminal conduct relating to money or to financial services or markets, including any offence involving:

(a) fraud or dishonesty; or

(b) misconduct in, or misuse of information relating to, a financial market; or

(c) handling the proceeds of crime; or

(d) the financing of terrorism’

Types of financial crime

Fraud

Fraud is an extremely common form of financial crime and is the UK’s silent epidemic. Fraud is where deception is used to steal money, assets, or services.

It constituted over 40% of all crime reported to the police in 2023, yet it is estimated that only 6-13% of frauds are even reported. Meaning that there was potentially over five times more frauds unreported than every crime reported to the police combined in that year.

Sadly, only around 1% of reported frauds end up in any form of conviction, making it incredibly appealing and effectively risk to criminals.

Despite it’s prevalence the UK government has been slow to act, with some small legislative steps being recently taken, but it is likely to become a more public issue as its damage to both businesses and individuals is increasingly difficult to ignore.

Within itself, fraud is extremely diverse in its schemes, targets, and even perpetrators. Modern technology and the interconnectivity of international banking systems has enabled criminals to target almost anywhere in the world. In practice this means that the world’s established economies are targeted by criminals across the globe.

Money laundering

Another incredibly common type of financial crime, money laundering is especially bad in the UK. It is estimated that £88 billion is laundered in our shores each year, with the UK being second only to the USA in terms of amount laundered despite only being the 6^th largest economy. It is also estimated that more money is laundered through London than any other city in the world.

The aim of money laundering is to turn physical cash that is linked to crime into digital currency by placing it into a banking system. It is then sent through a complex web of transactions, usually spanning the globe, until it is effectively impossible to trace its original source. Then is can be placed into a ‘clean’ bank account or used to purchase assets.

Terrorist financing

Terrorist financing involves:

• the raising of funds for terrorist organisations
• the facilitation of the movement of money to terrorist organisations
• collecting and receiving funds for terrorist organisations
• providing funds with the knowledge they will be used by terrorist organisations
• moving physical cash, money remittances, and other tender with the intention to fund terrorist organisations

Usually doing this involves committing other crimes such as drug dealing to raise money or money laundering to pass the funds to their destination undetected.

Bribery & corruption

Bribery and corruption are where a person in a position of power accept money, assets, or favours to abuse their position to award contracts, facilitate crime, or give individuals undue favour. It is present in every country, and in many it is institutional and an expected practice.

Whilst billions in bribes change hands every year its damage to local and the global economy is far greater. The United Nations and World Economic Forum estimates that it costs the world economy $5 trillion per year, meaning that the global GDP should be around 5% greater.

Insider trading

Insider trading is a form of corruption where an individual takes advantage of non-public information to gain an unfair advantage in the trading of public companies shares.

Insider trading can be done by an individual at the company in question who uses their insider, confidential knowledge to buy low and sell high or sell to avoid a large loss; or it can be done by a third party who has been fed information usually by an employee of a company or its partner. 

If you are worried about your company’s exposure to financial crime, such money laundering or fraud, speak to one of our experts about how we will allow you to do smarter, safer, and more informed business with our anti-fraud solution.