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ISBN:978-93-89097-90-0eISBN:978-93-89097-91-7

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TABLEOFCONTENTS

Author’sNote

WhyPeopleCommitFraudorCheat

PartOne

1. MeaningofFraud2. EvolutionofFraudsandCrimes3. ThePsychologyofaFraudster4. VarioustypesofFrauds

PartTwo

5. FraudsDetectionandPrevention6. RoleandImportanceofForensicAccountingandFinancialFraud

Examination

PartThree

7. ABriefCollectionandCompilationofHigh-ProfileFinancialFrauds8. TheGreatIndianScams9. DifferenceBetweenScamsVsFrauds10. Independence&Integrity

Acknowledgements

References

A

1.MEANINGOFFRAUD

Fraud isadeceptionbyapersonorgroupofpersons to secureunfairorunlawfulgainatthecostof“VICTIM”whotrustedsuchapersonviz.the

Fraudster.“. . . . . . .Thenatureof fraud is that itworksoutsideyour fieldofvision

subvertingthenormalchecksandbalancessothattheworldchangeswhilethepictureremainsthesame.......”(Ref:LyingforMoneybyDanDavis).

“Afalserepresentationofamaterialfact,eitheramisstatementoromission,withknowledgethattherepresentationisfalsewithtotaldisregardfortruth”.

“Fraudissimpleforlying”.“Fraudisalegalconceptbutnotanaccountingconcept”.“The incidence of fraud is so common that its occurrence is no longer

remarkable,onlyitsscale....”(AlvinToffler).Fraudisadeliberateanddeceitfulactivity inorder togainanadvantageor

generateaprofit,wherethe“Victim”offraud,placesfulltrustandbelieves,theperson,committingthefraud.

“Fraudisallaboutpeople”.

“Fraudisagreysubjectwithfullofmystiqueandapathy”.“Fraud can be simply explained—Behavior of one person, to gain by

dishonestmeansanadvantageoveranotherperson.”“AFraudcanbeafalserepresentationknowingittobefalse....”“AfraudmaybeamisstatementoromissionofmaterialFact”.“AFraudisnothingbutloveforMoney...”“AFraud can bemanipulation ofBooks of account” commonly known as

Fudgingthebooksbyfalseentriesinthebooksofaccount.“Cheatingthepublicwithmisleadingandfalsepromises...”Thus,itisaptlysaidthatFraud,isnothingbut“people”.Thus,aFraudster,isapersonwhoperpetratesafraudulentactknowingitto

be falsewith the sole intentionof cheating another personwho is a “Victim”.Thedevelopment of technology in the detection andpreventionof crimes andfrauds has simultaneously increased the sophisticated methods used by thecriminals and fraudsters to overcome such technological developments, thusmakingitdifficulttopreventfraudsbeforetheyoccur.

However, it is to be noted that even a fraudster is up to date with thedevelopmentsandalwaysaheadofa stepor twoof fraudexaminers, statutoryauthorities and auditors that inmost fraud instances fraud is detected but notpreventedfullybeforeoccurrence.

Frauds have become a global problem with no geographical boundaries.Thereshouldbeinplaceaneffectivefraudpreventionprogrammes,continuousriskassessment,share informationonfraudsfromacross theworldand join tofightfrauds.

F

2.EVOLUTIONOFFRAUDSANDCRIMES

rauds existed since long. The following chronology, reveals, that fraudsexisted since17th Century on.A few instances are given, briefly here, to

understandthatfraudsandcrimesexistedsince17thCenturyorbefore.

1770s-PhilipAlston:WasabigAmericancounterfeiterofcoins.HeandhisbrotherJohnAlstonwerewantedforcounterfeitingactivitiesinNorthCarolina.

1840s-WilliamThompson:CommittedaseriesofScamsonstrangers in thestreetsofNewYorkCity.He

was coined byNewspapers as the “ConfidenceMan”meaning (“ConMan”)!!Hewas finally arrested in theyear1849.Heused a confidence trick—it is anattempt to gain confidence first and then defraud—a person or a group ofpersons.

1869s-JamesGould&JamesFisk-Speculators:

TheyplottedbutfailedtomanipulatetheUSGoldMarket.September24thwastermedas“BlackFriday”asGoldpanicwascaused,by these twospeculators.Withinsiderinformation,closetothepresidentUlyssesS.Grant,18thPresidentoftheUnitedStatesofAmerica.Thesetwowerecalled“GoldRing”.

1874-JamesReavis:Hewas anAmericanForger andFraudster.Hewas associatedwith amassiveland scam and it amounted to $5.30 Million in cash and $160 Million inPromissorynotes,(inthepresent-dayterms).

1855sawtheGreatSouthEasternBullionTrainRobbery(AlsoknownasTheGreatGoldRobberyof1855):GBP12,000(Intoday’sworth,Pounds1.10Million)worthofmonthlyshipmentofGoldwasstolen,duringshipment,fromLondontoFrance.Itwasplannedbyabandof15criminalsmostlyfromSouthLondon.Ittookplaceonthenightof15thMay1855.

1879-CharlesDeVilleWells:Hewasarrestedin1892andwasconvictedandwasguiltyon23countsoffraudandwassentencedtoeightyearsofimprisonment.

But again in 1910 he started a Private Bank and promised 365% PA anddefrauded more than 6,000 investors of 2 Million French Francs and wasarrestedinParisin1912andwassentencedtofiveyearsinprison.

1903–1920CharlesPonzi:Charles Ponzi was the infamous American Italian Swindler and con artistinvolved in a Ponzi scam. Swindling the greedy investors promising a 10%interest per week, with his Ponzi schemes. He was buying discounted postalcoupons in other countries and redeeming inUnited States and takingmonies

withapromisetopayveryhighrateofinterest.

1964–1969-FrankAbangale:“CatchMeIfYouCan”Book&HollywoodMovie.Hewasoneofthebiggestconartistsandalegendaryimposter-expertinchequemanipulation.

Inhisbook“TheArtoftheSteal”hehimselfrightlydescribedtheconmen...“Theyliveachameleonexistence”!!

1992-MichaelSabo-MasterImposter:Hewasnotoriousin1970sand1980s,forgingcheques,bondsandsecurities.In1992 was charged with Forgery, bank fraud, identity theft. He has served 14yearsinfederal&Stateprisonsandhadplasticsurgery,whilehewasafugitive.

1991–2009-AllenStanford:He is a financial fraudster and ran a $7 Billion 20-year scheme through hisAntiguabasedBank.HethenbecameaBillionaireandsubsequentlyinmateofaprison.Hewasgivena110-yearprisonsentence.

1998-JohnRuffo:FormerUSBankExecutive swindledup to $350Million.Hewas involved inbankfraud,moneylaundering.Heisstillontherunandisnotcaught.

2001-EnronScandal:TheMassive and the Biggest Accounting Fraud. Kenneth L. Lay and JeffreySkillingwho are the chief executives and responsible for ENRON’s fallwereheldguiltyofthefraud.

2007–2008-SocieteGeneralBank:JeromeKervielMakesunauthorizedTradesandalmostbrings theBankdown.TheylostapproximatelyEuros4.90Billion.Oneofthelargestfraudsinbanks.

2005–2012-BernieLawrenceMadoff:ThebiggestconartistofPonzischeme—hascheatedoneandalltothetuneofUS$70Billion.HewasamarketmakerandanInvestmentconsultanttoo,hence

committedthebiggestfraudandcheatedseveralpersons,institutions,corporate.Afterthefraudwasexposedandtriedincourtsoflaw,hewasgivena150yearssentenceinafederalprisonanda$170Billionrestitution.Hewasconvictedandsenttoprisonin2012,afterhisarrestin2009.

2009-SatyamComputersServices:Biggest accounting Fraud in India like—ENRON in United States. Mr.Ramalinga Raju, Chairman of SatyamComputers Services, Hyderabad, India,admitted to the Rs. 7,000/Crores accounting scam, planned, perpetrated andexecuted by himwith the assistance of hismanagement team.Mr. RamalingaRajuwas sentenced to sevenyears inprisonandwas finedRs.5.50Crores in2015.Heispresentlyonbail.

2013-AleksanderPanni:A Russian, was arrested for hacking millions of dollars through Malware ononlinebankingaccounts.

2015-VolkswagenEmissionsScandal:US Environmental Protection Agency has uncovered the biggest fraudperpetrated by the reputed carmanufacturerVolkswagen.The companyput in2015,afinancialtollof$18Billion.Thecompanyrecalled4,15,825carmodelyears2010–2014.

2018-PunjabNationalBank-Fraud:NiravModiinvolvedinCriminalconspiracy,moneylaunderingandcheatingthebanks.PunjabNationalBankofIndiawasinvolvedinanotherbiggestBankingrelatedscamofIndia.

PunjabNationalBankdetectsfraudulent transactionsofover$1.77Billion.NiravModithemainarchitectwhowasinvolvedinthescamisafugitiveIndianbusinessman.He is wanted by the Interpol for Criminal conspiracy breach oftrust,money laundering, cheating and embezzlement.He slipped away toUKandpresentlytheIndianGovernmentismakingalleffortstoextraditehimbackto India andputhim to trial for the fraudshe committed alongwithhisuncleMehulChoksi.

Year2018:ICICI,CEO

ChandaKochar,theformerMDandChiefExecutiveOfficeroftheICICIbank,isbeinginvestigatedfortheallegationsofcorruptionandfinancialfraudsinthesanctionoftheadvancestoherhusbands’Groupofcompaniesin2012misusingher position. A whistle blower accused her of nepotism and favor in thesanctioningoftheadvances.

2019-PMCBankFraudPunjab Maharashtra Cooperative Bank Fraud amounting to Rs. 6,500/crores,facilitating money laundering too. There are criminal cases filed against theallegedpersonsinthemulticrorefraudcase.Over21000dubiousaccountswerecreated over a five-year period to hide the loans given to HDIL. HousingDevelopmentandInfrastructureLimitedtosiphonthefunds.

Thus, the above few instances of Frauds & Crimes show us, that, theirexistence, dates to 17th century to date and are growing each year despite allefforts by Governments, Regulators and Fraud examiners. The fraudsters arethusalwaysastepaheadofthefraudexaminersandkeeppacewiththechangingtechnology.

                  

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