Jan 17 - 23, 2011

Issues relating to financial crimes are taking considerable importance in modern world economies. Almost all economies, particularly world's major economies are taking concrete steps to control major as well as minor incidences of financial crimes.

Financial crimes bring jolting effects on a country's economy, investors lose confidence and economic uncertainty starts prevailing, adversely affecting lives of common people. International terrorism is also sponsored by financial crimes. In many countries huge undocumented black economy runs parallel to country's documented economy; fermenting lawlessness, drug trade, and terrorism. At present, almost all economies of the world are facing issues of financial crimes in one form or the other.

The world has not reached any unanimous definition of financial crime. Fraud is a generic term embracing all the ways one person can falsely represent a fact to another in order to induce that person to surrender some thing of value1. Keeping this definition in view, we can define financial crime as, a crime which results in financial loss by means of illegal practices.

Financial crimes basically have three elements: 1. Human Element 2. Technology weakness 3. Lacunas in legal regulatory systems. Human element is said to be the basic element for a financial crime. It is said many a times financial crimes are committed by insiders and by the most trusted employees. Some times, voice is raised by middle management but it is put down by senior management because they are themselves corrupt. Weak technologies enhance the chances of risk so does lacunas in legal/regulatory system.

Financial crimes usually include 1. Corporate Frauds 2. Tax Evasion 3. Embezzlement 4. Financial Fraud (credit card, mortgage, insurance fraud) 5. Money Laundering 6. Undocumented Business (usually in developing countries).

Tax evasions, embezzlements and financial frauds have always existed in the world but these are corporate frauds and money laundering which are having far-reaching effects on masses. Corporate frauds came to the glare of publicity after the scandals of Enron and WorldCom. Enron was named "Americas most innovative company" by fortune magazine and was on "Fortune's 100 best companies to work in America" list in 2000. However, it was later discovered that many of Enron's assets and profits were either non-existent or were inflated. As the scandal came to public in 2001, share price of Enron dropped from over $90 to $.30.

It also caused dissolution of Arthur and Anderson (one of the world's leading accounting firm). In case of WorldCom, the company wrongly presented its financial position to public by under reporting costs and inflating revenues with bogus accounting entries. "Money launderers, tax evaders, and crooked politicians are for the most part respected pillars of society".

In order to avoid incidences of financial crimes, it is imperative to have a sound accounting system along with sound regulatory and audit mechanism. To address this issue, developing economies have to look towards developed economies to import their mechanism, specially U.S., because they have developed a sound mechanism towards financial crimes post September 11, 2001, "but the U.S. government lacks an integrated strategy to coordinate the delivery of counterterrorism financing training and technical assistance to countries vulnerable to terrorist financing".

The world after becoming a global village needs to have a more mature and concentrated approach towards common issues so that people living in it have financially safe and peaceful living.

A financial approach to detecting and resolving crimes By Don Vogel.

2. Page 4. A Financial Approach to detecting and resolving crimes By Don Vogel.

3. Page.14 Terrorist Financing : Better Strategic Planning Needed to Coordinate U.S. Efforts to Deliver Counter Terrorism Financing Training and Technical Assistance Abroad.


1. International monetary fund, Financial abuse, financial crime and money laundering-background paper prepared by the monetary and exchange affairs and policy development and review departments in consultation with legal and other departments approved by Jack Boorman and Stefan ingves February 12, 2001.

2. CORPORATE FRAUDS-OVERVIEW, DETECTION AND PREVENTION (INAUGURAL ADDRESS IN THE DMA-PWC Seminar, New Delhi,6-02-2002) N Vittal, Central vigilance Commissioner.

3. Implication of economic and financial crimes on the nations economy by NUHU Ribadu, Chairman, economic and financial crimes commission (EFCC)

4. International Monetary fund November 2004, IMF country report No.04/344 France: Financial System stability Assessment, including reports on the observance of standards and codes on the following topics: monetary and Financial Policy Transparency, Banking Supervision, Securities Regulations, Insurance, Regulations, Payment Systems, Securities Settlements, and Anti money laundering and combating the financing of terrorism

5. Federal Bureau of Investigation (USA) website.

6. U.S. State department web site

7. Special thanks to Asad Munir and Azeem Bhatti for review of this article.