Financial fraud is becoming one of the most challenging issues facing financial institutions around the world, including banks, since it causes huge losses and depletion of wealth and assets. Financial fraud also hurts institutions’ reputation, competitiveness and economic value.
The Manual of Combating Embezzlement and Financial Fraud and Control Guidelines 2008, issued by the Saudi Arabian Monetary Authority, defined financial fraud as “any act involving deceit to obtain a direct or indirect financial benefit by the perpetrator or by others with his help, causing a loss to the deceived party.” The fraud definition includes financial gain in addition to other benefits, such as the right to have access to or obtain information by deceit or any other dishonest conduct related to an intangible benefit, such as intellectual property rights.
Modern technology and advanced communications, especially wireless communications, have been proven to be a double-edged sword because, aside from their intended purpose, they have been employed by fraudsters to commit their operations and also help them to sharpen their skills and capabilities in connection with committing fraud.
It is worth noting that there is a strong connection between financial fraud and money laundering, since the proceeds obtained from financial fraud are considered to be “dirty money,” which ultimately needs to be cleaned up by money laundering operations. The latter is a common expression for describing the methods by which fraudsters hide the source and ownership of their dirty money and try to recycle it in the economy. The International Monetary Fund has estimated the amount of money that is being laundered each year is between 2 and 5 percent of the world’s gross domestic product, which equates to an amount between $1.6 and $4 trillion. Saudi banks have realized the negative impact of financial fraud and what harm it can cause their customers. For that reason they have committed to educating customers on the different fraud techniques and ways to protect themselves. Moreover, Saudi banks are constantly advising customers how to act and react in case they have been exposed to a financial fraud of any kind.
However, the Saudi Arabian financial system is considered to be world-class when it comes to combating money laundering and financial fraud.
Talat Zaki Hafiz
To get their message across, Saudi banks run an annual national awareness campaign. Last month, they launched the 10th edition of the anti-fraud campaign, under the name of “Do not disclose it” and the slogan “Drag them before they pull you.”
It is worth mentioning that, despite the world’s efforts in connection with combating financial fraud, it is being perpetrated on an increasing scale through the use of the Internet and virtual financial dealings, such as cryptocurrency and other types of fishy financial transactions.
However, the Saudi Arabian financial system is considered to be world-class when it comes to combating money laundering and financial fraud. As such, Saudi banks have recorded very few financial fraud cases, both in terms of volume and value. For example, the total number of reported fraud or attempted fraud cases in 2016 amounted to 4,275 cases worth SR573 million ($152 million), dropping in 2017 to 2,046 with a value of SR214 million, down 63 percent.
The most common types of fraud techniques that bank customers in Saudi Arabia were exposed to last year were: Anonymous phone calls asking victims to update their banking record and personal information through such calls; electronic fraud to steal banking records and personal information; and credit card fraud, especially when traveling.
• Talat Zaki Hafiz is an economist and financial analyst.