Features
Fraud in the 2020s

It’s all about connectivity and data

Police agencies have come a long way when it comes to financial crime investigation and the importance put on these cases. Although not necessarily considered a “top five” job to most officers, its importance is starting to show in almost every investigation. All we need to do is do start thumbing through the most recent Criminal Code of Canada and ask ourselves how many offences are motivated in some way by money. With the exception of crimes of passion, radicalized and psychopathic offenders, crime is driven by financial or property gain. Simply put, the biggest criminological driver of crime is financial reward of some kind.¹

In the interests of clarity, when we refer to financial crime, we mean the end-to-end process of this crime cluster. This could include the cyber aspects of the fraud or theft of personal information and other schemes, and the downstream laundering of the funds gained from the crime. With the proliferation of business email compromise (BEC), data breaches, social engineering for fraud, Ponzi schemes and tax avoidance, law enforcement is not in a position to be everywhere all the time—much like they can’t be in terms of physical patrols.

In assessing police response to financial crime, it is hard to measure as reporting rates for fraud are low. In 2020, the RCMP reported that approximately 5 per cent of mass marketing fraud is ever reported.² Such a phenomenon hinders the police in obtaining much needed intelligence when citizens don’t report. Going on partial reporting, police investigators can get pieces of fraud rings but not make substantive connectivity with all players nor track all outbound funds headed for laundering.

One strategy increasingly employed in Ontario by police agencies is the usage of Major Case Management system (MCM).³ First created after the Bernardo/Homolka investigation review, this system is mandatory for numerous crime investigations in Ontario. The system requires police agencies to implement key information and evidence pieces into the powercase framework for eventual analysis and linkage with other investigations. By taking a key criminological driver such as financial crime, which arguably underpins most crime, police in Ontario will and have seen better linkage analysis with other financial crimes and predicate offences found in the MCM software. By treating financial crime as a peer crime, law enforcement will realize better connectivity to other crimes and help mitigate the lack of reporting by citizens. Indeed, a law enforcement lead financial crime investigation with plenty of media coverage will encourage better reporting by citizens.

By treating financial crime as a peer crime, law enforcement will realize better connectivity to other crimes and help mitigate the lack of reporting by citizens.

In terms of strategies, law enforcement has also leaned heavily on the Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) and financial institutions. Through suspicious transaction reporting by financial institutions to FinTRAC and then subsequent disclosures to law enforcement, we have seen the maturation of an intelligence continuum between the three stakeholders. With law enforcement using voluntary disclosures to FinTRAC outlining their investigation and persons of interest, they are enabling a greater examination of what can be very complicated crime networks.⁴

Another strategy used by law enforcement is that of grid alerts. This system allows police to socialize lists of persons of interest with financial institutions that may be involved in criminal activities like financial crime. Financial institutions, although unable to disclose directly to law enforcement, can examine suspect customer activity for financial crime and, if warranted, file suspicious transaction reports to FinTRAC as per the Proceeds of Crime Money Laundering Terrorist Financing Act of Canada (PCMLTF).⁵ By giving financial institutions a heads up, the critical work of transaction analysis begins and ultimately goes to FinTRAC for eventual disclosure to the investigators.

Based on FinTRAC disclosures and tombstone information banks provide law enforcement as per PIPEDA, officers can piece together landing zones for the necessary production orders and warrants that will inevitably come.⁶ By piecing together these information silos, law enforcement can paint a picture required for a successful prosecution. The value add of a concurrent financial crime investigation with other investigations is enormous. The financials are what make criminals entirely vulnerable if law enforcement knows where to look and has adequate resources.

The last area of opportunity for law enforcement is that of media releases for arrests relating to crimes with a financial aspect. Officers may have missed evidence or simply did not have the time or resources to look far enough. Financial institutions employ elaborate tools to monitor adverse media reporting that may affect their risk tolerance of a small handful of customers. Financial institutions compare police reports of arrested persons with their data to determine if there is risk. If the media reporting leads to financial institutions exiting high risk customers and additional reporting to FinTRAC, then law enforcement will get the benefit of that extra piece of effort. It’s all about connectivity and data.

Law enforcement has so many competing interests when it comes to deploying officers and scarce resources. By increasing our awareness of the profound negative impact of financial crime on our societal fabric, those requests for additional support should be easier. In 2019, Crowe estimated that financial crime cost the global economy over five trillion dollars (USD). Given social challenges and the COVID-19 pandemic, that money was desperately needed elsewhere than in the hands of criminal enterprises.⁷

References

1. U.S. DOJ: Crime and Money: Motivation and Opportunity in a Monetarized Economy. Accessed at https://www.ojp.gov/ncjrs/virtual-library/abstracts/crime-and-money-motivation-and-opportunity-monetarized-economy
2. RCMP: Report scammers, prevent fraud. Accessed at https://www.rcmp-grc.gc.ca/en/gazette/report-scammers-prevent-fraud
3. Public Safety Canada: Ontario Major Case Management System. Accessed at https://www.publicsafety.gc.ca/cnt/cntrng-crm/plcng/cnmcs-plcng/ndx/dtls-en.aspx?n=471
4. FinTRAC: Providing voluntary information about suspicions of money laundering or of the financing of terrorist activities. Accessed at https://www15.fintrac-canafe.gc.ca/vir-drtv/public/
5. Justice Canada: Proceeds of Crime Money Laundering Terrorist Financing Act of Canada. Accessed at https://laws-lois.justice.gc.ca/eng/acts/P-24.501/
6. Office of the Privacy Commissioner Canada: PIPEDA. Accessed at https://www.priv.gc.ca/en/privacy-topics/privacy-laws-in-canada/the-personal-information-protection-and-electronic-documents-act-pipeda
7. Crowe: Fraud costs the global economy over US$5 trillion. Accessed at https://www.crowe.com/global/news/fraud-costs-the-global-economy-over-us$5-trillion#:~:text=Fraud%20is%20costing%20businesses%20and%20individuals%20across%20the,Counter%20Fraud%20Studies%20at%20the%20University%20of%20Portsmouth.

Cameron Field, BA, MSc, is the Senior Manager of BMO’s Anti-Money Laundering Team. He can be contacted at cameron.field@bmo.com.