Common Types of Financial Crime

Financial crimes, such as tax evasion, money laundering and embezzlement, can have serious consequences for individuals, businesses, and corporations alike.  There is an array of illegal activities that can be considered financial crime. In a broad sense, the term refers to any act involving deception or dishonesty for financial gain. Unfortunately, these criminal acts remain common due to their discrete nature and the complexity of the national and international laws that govern them.

What is Financial Crime?

Financial crime, also known as financial fraud or financial abuse, is a catchall phrase that encompasses any illegal activity involving financial transactions and financial services. This includes activities such as tax evasion, money laundering, embezzlement, bribery and corruption, insider trading, counterfeiting and more. 

Financial crimes can be perpetrated by individuals, businesses or financial institutions, and can range from financial scams to large-scale financial fraud. Victims of financial crime often experience financial loss as well as emotional distress and trauma. 

Financial crimes are serious offences that require legal action, and they can have severe consequences for all parties involved. It is important to be aware of financial crime in order to protect yourself, your business and your assets.

9 Types of Financial Crime

Among the most common types of financial crime include tax evasion, money laundering, embezzlement, forgery and counterfeiting, identity theft, bribery and corruption, terrorism financing, wash trading and pump-and-dumps, and insider trading. 

Tax Evasion

Tax evasion is a financial crime in which individuals, businesses or organisations evade paying taxes by not reporting income and profits, hiding money, underreporting income or misusing foreign accounts. 

Individuals who commit tax evasion can face hefty fines and even jail time as a result of their illegal activities. Companies who engage in tax evasion may also be subject to financial penalties and have their business licences revoked. For this reason, it is important for individuals and businesses to ensure that they are accurately reporting any financial information required by the government, as well as making sure that all taxes due are paid on time.

Money Laundering

Money laundering is an insidious financial crime that takes advantage of financial systems to conceal the proceeds of criminal activity. 

It typically involves three steps: placing illicit funds in a financial system; layering or cycling those funds through complex financial transactions to obscure their source and ownership; and integrating them back into the legitimate financial system. 

In essence, criminals use money laundering to disguise the origin of funds obtained through illegal means, making them appear as if they were acquired from a legitimate source.

Embezzlement

Embezzlement is a type of financial infraction in which someone entrusted with financial resources, such as a manager or employee of an organisation, illegally uses those financial assets for their own personal gain. Embezzlement can range from the misappropriation of funds or goods to outright theft. This type of financial crime can have serious implications for organisations, both financial and reputational.

Forgery & Counterfeiting

Forgery involves the illegal production of financial documents or instruments to make it appear they are genuine when they are not. Counterfeiting involves the illegal replication of financial documents or instruments such as banknotes and checks in order to obtain money illegally.

Identity Theft

Identity theft is a financial crime that occurs when someone wrongfully obtains and uses another person’s personal information to commit fraud or other crimes. 

This type of crime can include accessing financial accounts, applying for credit cards in another person’s name, using stolen National Insurance numbers to open bank accounts or apply for government benefits, and using medical insurance information to make fraudulent claims.

Bribery & Corruption

Bribery and corruption are forms of financial crime that involve the offering, giving, receiving or soliciting of any type of financial gain or other advantage in exchange for an improper performance. 

Bribery is a form of financial crime when someone provides money, goods, services or something else of value with the intent to influence another person’s decisions or actions. This can range from receiving preferential treatment on auctions to bribing a public official for financial gain. 

Corruption is when someone in power misuses their authority to obtain financial advantage or other personal gains, such as awarding contracts to firms with which they have a personal financial interest. 

Both bribery and corruption involve the intentional misuse of financial resources for financial gain.

Terrorism Financing

Terrorism financing is an illegal activity that takes place when financial resources are used to promote or support terrorism. It can come from individuals, businesses, or organisations. 

Terrorist groups use financial crime to fund their activities and operations by collecting donations, using financial institutions, or laundering money through criminal activities. Financial crime related to terrorism financing also includes engaging in financial transactions that hide the true source or intended use of the funds, as well as exploiting financial systems to move and store illicit funds. 

The financial sector must mitigate terrorism financing through proper risk management. Financial institutions are expected to meet stringent AML (anti-money laundering)/CFT (combating the financing of terrorism) compliance requirements.

Wash Trading & Pump-and-Dumps

Wash trading and pump-and-dumps are financial crimes that involve manipulating financial markets for personal gain. 

In wash trading, investors typically trade with themselves or through a third party to create false market activity. This can artificially increase the price of an asset, making it seem more attractive than it would be in normal conditions. 

Pump-and-dumps are a form of financial market manipulation where investors artificially inflate the price of an asset by making false and misleading statements in order to convince others to purchase it. Once the price is inflated, they quickly sell off their own holdings and make a profit while leaving other buyers with financial losses.

Insider Trading

Insider trading is a financial crime that comprises the use of confidential, non-public information to make investments on financial markets. It involves the exchange of such information by those with access to it, such as corporate officers, for personal financial gain. 

It is important to note that insider trading is not limited to financial markets. It can also include the use of confidential information in other financial activities such as corporate mergers or acquisitions.

How Nexis Solutions UK Can Help

At Nexis Solutions UK, we understand the evolving landscape of financial crime and develop products and services to help our customers stay one step ahead. Our solutions give you visibility into high-risk activities, enabling you to make more informed decisions about who to do business with and how best to protect yourself and your organisation from fraudulent activity.

Nexis Diligence offers enhanced due diligence for your business or organisation. In addition to researching a company or individual, Nexis Diligence can help you to stay abreast of critical news updates to deliver targeted results as well as updated information on watchlists, sanctions and PEPs.