FRAUD

A representation about a material point, which is

false, and intentionally and recklessly so, which is
believed and acted upon by the victim to the
victim’s damage.
FRAUD IS NOT
⋆ Taken by physical force
⋆ A mistake or error
⋆ Victimless
⋆ Insignificant because no one is hurt
⋆ Acceptable or justifiable
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 FRAUD
FRAUD IS SELDOM OBSERVED
⋆ Other crimes like murder or robbery can be
observed through the body discovered or the
bank robbed to indicate crime has been
committed as proofs.
⋆ With fraud, it is not always apparent that a crime
has been committed
⋆ Thus, RED FLAGS are looked at for the
symptoms of fraud.
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 FRAUD THEORIES
⋆ Fraud Triangle
⋆ Fraud Diamond & Fraud Pentagon
⋆ Other theories
⋆ Tip of the iceberg
⋆ Potato Chip
⋆ Rotten Apple

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FRAUD TRIANGLE

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FRAUD DIAMOND

CAPABILIT
Y

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FRAUD PENTAGON

ARROGAN
CE

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 TYPES OF FRAUD
⋆ There are several classifications of fraud
⋆ Fraud can also be divided based on victims
⋆ Fraud can be divided into those committed
against organisations and those on behalf of
organisations

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 VICTIMS OF FRAUD
VICTIM: COMPANY OR ORGANISATION
Employee Embezzlement
⋆ Direct
⋆ Directly steals company’s cash, inventory, tools,
supplies etc.
⋆ Indirect
⋆ Taking bribes or kickbacks from vendors,
customers or others for lower sales prices, higher
purchase prices, non-delivery of goods or
delivery of inferior goods
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 VICTIMS OF FRAUD
VICTIM: COMPANY OR ORGANISATION
Vendor Fraud
⋆ Done by 2 ways:
⋆ Vendor alone
⋆ Through collusion between buyers and
vendors
⋆ Results in: overcharge for purchased goods,
shipment of inferior goods, non-shipment of
purchased goods
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 VICTIMS OF FRAUD
VICTIM: COMPANY OR ORGANISATION
Customer Fraud
⋆ Customer not paying for goods
⋆ Receiving something for nothing
⋆ Deceiving the organisation into giving them
something they should not have

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 VICTIMS OF FRAUD
VICTIM: SHAREHOLDERS & DEBT-
HOLDERS
Management Fraud
⋆ Known as Financial Statement Fraud
⋆ Top management deceptively misstates financial
statements
⋆ Accounts manipulations and earnings
management

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 VICTIMS OF FRAUD
VICTIM: UNWARY INDIVIDUAL
Investment scams & Consumer Fraud
⋆ Worthless investments sold to investors
⋆ Example:
⋆ Ponzi Schemes
⋆ MLM Schemes or “Get Rich Quick”
Schemes
⋆ Internet Fraud
⋆ Unlicensed agents selling
insurance/securities
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⋆
MONEY LAUNDERING
Money laundering is a process of converting cash or property derived from
criminal activities to give it a legitimate appearance
⋆ A process to clean ‘dirty’ money in order to disguise its criminal origin
⋆ The history of money laundering is, primarily, that of hiding money or assets from
the state - either from blatant confiscation or from taxation - and, indeed, from a
combination of both
⋆ Ancient merchants would hide their wealth from rulers who would simply take it
off them and banish them. In addition to hiding it, they would move it and invest it
in businesses in remote provinces or even outside their country
⋆ In this way, the offshore industry was born, and - depending on your point of view
- so was tax evasion.
⋆ And so were the principles of money laundering - to hide, move and invest wealth
to which someone else has a claim. 13
 MONEY LAUNDERING
Section 4 – Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful
Activities Act 2001
Any person who -
⋆ engages, directly or indirectly, in a transaction that involves proceeds of an
unlawful activity or instrumentalities of an offence;
⋆ acquires, receives, possesses, disguises, transfers, converts, exchanges, carries,
disposes of or uses proceeds of an unlawful activity or instrumentalities of an
offence;
⋆ removes from or brings into Malaysia, proceeds of an unlawful activity or
instrumentalities of an offence; or
⋆ conceals, disguises or impedes the establishment of the true nature, origin,
location, movement, disposition, title of, rights with respect to, or ownership of,
proceeds of an unlawful activity or instrumentalities
14 of an offence, commits a
MONEY LAUNDERING
 PLACEMENT METHODS
⋆ Loan Repayment: Repayment of loans or credit cards with illegal proceeds
⋆ Gambling: Purchase of gambling chips or placing bets on sporting events
⋆ Currency Smuggling: The physical movement of illegal currency or monetary instruments
over the border
⋆ Currency Exchanges: Purchasing foreign money with illegal funds through foreign currency
exchanges
⋆ Structuring or Smurfing: Cash is broken into smaller deposits of money, used to defeat
suspicion of money laundering and to avoid anti-money laundering reporting requirements
⋆ Cash-intensive business: Business typically expected to receive a large proportion of its
revenue as cash uses its accounts to deposit criminally derived cash. (example: car wash)
⋆ Shell companies and trust: Trusts and shell companies disguise the true owners of money
⋆ Black salaries: Unregistered employees without written contracts and pay them cash salaries
with dirty money
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 LAYERING METHODS
⋆ The money launderers may begin by moving funds
electronically from one country to another,
⋆ Then divide them into investments placed in advanced
financial options or overseas markets
⋆ Constantly moving them to elude detection; each time,
exploiting loopholes or discrepancies in legislation and
taking advantage of delays in judicial or police
cooperation.

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INTEGRATION METHODS
⋆ The major objective at this stage is to reunite the money
with the criminal in a manner that does not draw attention
and appears to result from a legitimate source.
⋆ For example, the purchases of property, art work,
jewellery, or high-end automobiles are common ways for
the launderer to enjoy their illegal profits without
necessarily drawing attention to themselves.

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