Moody’s Analytics recently provided a comprehensive view of the enduring problem of financial fraud and its current cost to society.
Financial fraud, a deceptive practice with historical roots, is defined by the FBI as the intentional distortion of the truth to induce someone to part with something valuable. Ancient cases, such as a Greek merchant attempting insurance fraud in 300 B.C., exemplify its long-standing existence.
The global economic impact of financial fraud is staggering, estimated at approximately $3.7 trillion annually. Recognizing its significance, the UK government has elevated financial fraud to the level of a “threat to national security,” putting it on par with terrorism.
One of the primary challenges in combating financial fraud is its diverse and ever-evolving nature. In July 2023 alone, Moody’s Analytics Grid database recorded over 16,000 new fraud risk alerts. Criminals exploit various avenues, from diverting public funds allocated for COVID-19 relief to targeting individuals through romance scams.
Addressing this complex issue requires better fraud intelligence, especially during customer or business onboarding. Measures like “know your customer” (KYC) and “know your business” (KYB) processes can thwart fraudsters by incorporating checks like identity verification (ID&V), address verification, and negative news screening.
A comprehensive fraud risk management program must include ongoing control and mitigation. Companies like Moody’s Analytics offer digital solutions to help organizations establish robust reporting and investigation mechanisms, enabling swift responses to emerging fraud threats.
To effectively combat fraud, organizations need to adopt a dynamic, risk-based approach. Static controls alone will widen the gap between fraud risks and preventive measures, leaving organizations and society vulnerable to evolving threats. By integrating diverse data sources and remaining adaptive, organizations can bridge this gap and contribute to a more secure financial landscape.
By FCCT Editorial Team
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