How Decision Intelligence Can Transform Financial Crime Investigations  

What are financial crime investigations?

Financial crime investigations involve investigating financial activities and transactions that are suspected to be illegal or fraudulent. These investigations aim to uncover incidents of illicit activity, such as fraud, money laundering, embezzlement, insider trading, bribery, identity theft, terror funding and other illegal financial activities.

Law enforcement investigators and analysts typically analyze various data sources – including financial records, transactions, documents and more – to trace the flow of money, identify suspicious patterns and anomalies, and gather evidence of illegal activity. They often collaborate with various entities, including international law enforcement agencies, financial institutions and regulatory bodies to conduct investigations.

Financial crime isn’t restricted to “white-collar” activities. There is typically some financial component in many criminal investigations, whether drug smuggling, human trafficking or organized crime, and those components can include, financial fraud, tax evasion and money laundering. These crimes can range from basic theft or fraud committed by individuals to large-scale operations masterminded by global criminal organizations, having serious economic impacts. In fact, Deloitte estimates that the amount of money laundered globally is 2% to 5% of global GDP, or between 715 billion and 1.87 trillion Euros.  

Financial crime is evolving with the use of technology, creating complex challenges for law enforcement and regulatory agencies, such as tax authorities. Modern investigations must grapple with the use of cryptocurrency, encrypted communications, virtual transactions, and more. Many crimes are transnational and demand international cooperation among law enforcement agencies across multiple jurisdictions. These multi-faceted financial investigations require teams to fuse and analyze data from multiple sources and formats, such as bank transactions, mobile payments, blockchain ledgers, and company ownership records. Forming a cohesive and digestible investigation picture is crucial for analysts to deduce actionable insights. Read on to learn how the right tools can help follow the money trail without getting lost in the data.  

Types of financial crime

The term financial crime covers a wide range of illegal activities that target financial institutions or illicitly generate or use money for personal gain.

Here are the most common types of financial crime:

• Money laundering: Imagine receiving a large sum of money from an unknown source. Money laundering is the process of making such funds appear legitimate. It typically involves three stages: placement, where the money is introduced into the financial system; layering, which involves moving the money around to obscure its origin; and integration, where it is reintroduced as legitimate income. This practice can have serious repercussions, undermining trust in financial institutions.

• Forgery and counterfeiting: Have you ever encountered a fake check? Forgery is when someone alters genuine financial documents, while counterfeiting involves creating unauthorized replicas. Both can lead to significant financial losses for individuals and businesses alike.

• Embezzlement: Picture a trusted employee diverting company funds for personal use. Embezzlement occurs when an individual misappropriates funds entrusted to them, often through deception. This breach of trust can devastate organizations.

• Tax evasion: Deliberately avoiding tax payments by underreporting income or using offshore accounts is a serious offense. Tax evasion not only harms public services but also erodes the integrity of the tax system.

• Fraud: From identity theft to falsifying business records, financial fraud encompasses a range of deceitful practices. It’s a growing concern in our increasingly digital world, with victims often facing long-term consequences.

• Identity theft: This crime refers to stealing personal information to commit fraud or access accounts under someone else’s name. Methods include phishing, hacking, and purchasing stolen credentials.

• Insider trading and market abuse: Insider trading involves buying or selling securities based on non-public information. Market abuse includes wash trading and pump and dump schemes to manipulate stock prices.

• Corruption and bribery: Corruption refers to the abuse of power for personal gain, while bribery is the illegal offering of financial incentives to influence decisions. Both can involve embezzlement and other financial misconduct.

• Cybercrime: As technology advances, so do the tactics of criminals. Cybercrime leverages digital channels for illicit activities, from hacking into bank accounts to executing sophisticated phishing schemes.

• Terrorist financing: Providing financial support to terrorist organizations is a grave crime that poses threats to national security. Similar to money laundering, it involves obscuring the source and destination of funds.

Consequences of financial crime

Financial crime carries consequences beyond immediate financial losses. These repercussions affect individuals, businesses, and entire economies, highlighting the critical need for effective investigation and prevention strategies.

• Economic Impact: Financial crimes can lead to substantial economic losses for businesses and economies alike. For organizations, crimes such as theft, fraud, and embezzlement directly impact profitability and operational stability. On a larger scale, these crimes disrupt markets and erode investor confidence, contributing to broader economic instability. Money laundering, for example, obscures the true flow of money, distorting economic activity and increasing financial volatility.

• Legal and regulatory consequences: Organizations caught up in financial crime face severe legal and regulatory penalties. Fines, sanctions, and legal fees can strain finances and damage an organization’s standing. Additionally, regulatory bodies often impose strict compliance requirements, which increase operational costs and complicate business processes.

• Reputational damage: A business or financial institution involved in a financial crime risks significant damage to its reputation. Trust and credibility with clients, investors, and the public can be severely impacted. Restoring a damaged reputation requires extensive efforts and often involves substantial changes to business practices.

• Social and personal consequences: Individuals involved in financial crimes can face severe personal repercussions, including legal consequences and financial losses. Victims of crimes like identity theft or fraud often experience emotional and financial hardship, with effects that can ripple out to their families and communities. The broader social impact includes potential increases in crime rates and diminished community resources.

• Impact on financial systems: Financial crimes undermine the integrity of financial systems and institutions. Activities like money laundering and fraud can erode confidence in financial markets, potentially leading to market disruptions and financial crises. Maintaining the integrity of financial systems is crucial for economic stability, and financial crimes pose a direct threat to this stability.

Understanding these consequences emphasizes the importance of thorough investigative and preventative measures. By addressing financial crimes effectively, we can mitigate their impact and work towards a more secure financial environment.

Top challenges for investigating financial crimes 

The proliferation of technology and data surrounding financial investigation has created an information overload for analysts seeking to collect intelligence, follow the money trail and build cases. Data is often siloed in different sources and systems, and insights are similarly siloed across teams. Major roadblocks come from being unable to properly access the right data needed for an investigation and analyze it in conjunction with other pieces of information. Some common challenges include:  

• Data overflow: Analysts must leverage vast amounts of data from different sources to formulate information about entities and events. This siloed data may be structured or unstructured, and in a variety of formats, including audio, text, image, etc., which must be fused and correlated to present a cohesive investigation picture. It is virtually impossible to use traditional methods and manual analysis to accomplish these tasks.  

• Technological barriers: New technologies pose new challenges to financial investigators, including encryption, cryptocurrency, mobile payments, and use of the Dark Web. These digital means increase anonymity, obscuring critical details needed to build an investigation. It is often critical that investigative teams collaborate with other teams among different disciplines to overcome these issues. Fine-grained permission and authorization protocols are often necessary to facilitate this cooperation while keeping sensitive data confidential.  

• Globalization: Financial crime teams must frequently investigate transnational and cross border crimes, requiring them to decipher data in different languages and across databases. The problem of “not knowing what you don’t know” is apparent here, since the language barrier might prevent investigators from identifying and collecting the data they need to build a case.  

Accelerate financial investigations with data fusion and analytics for decision intelligence 

Leveraging a decision intelligence platform allows financial crime investigation teams to accelerate decision making and boost financial investigations through multi-source data fusion and analytics. The right solution can convert and collate data to quickly derive relevant patterns, profiles and connections, regardless of data formats and languages. Analytics tools can enable better financial crime investigations by: 

• Unifying your financial investigations into a single workspace: Save time and money by fusing scattered data, regardless of their original language, into unified profiles and entities with a single-pane-of-glass interface. Standard APIs allow users to independently add data sources to enrich insights.   

• Multiplying your case rate & discovering more illicit transactions: Investigation teams can easily customize advanced analytics and risk scoring to optimize their investigations.  Decision intelligence platforms can be used to tag and correlate images, financial records, Dark Web interactions, blockchain transfers, encrypted communications, social media posts and more to discover previously undetectable insights, uncover hidden relations, and highlight suspicious entities or transactions.   

• Facilitating collaboration between teams: Multi-layered access control and a fine-grained permissions model are essential to handle sensitive financial data, especially when fostering collaboration between teams. A platform allows a collaborative approach that leverages the expertise of multiple domains within your organization.  

To learn more about how Cognyte’s NEXYTE decision intelligence platform can transform your financial investigations, download our financial crime investigation use case.