(An Autonomous Apex Institute Established by RBI & Banks)
(An Autonomous Apex Institute Established by RBI & Banks)
Banking fraud in general, and credit fraud in particular, are often seen as a ‘people issue’. In this article, we argue that while people risk is an important aspect of fraud, the detection and prevention of fraud can benefit from a system and process-driven approach. While it is not possible for banks to be always cognizant of changes in the moral compass of their employees, it is possible to create robust systems and processes that minimise the opportunity window for fraud. This is in keeping with the discussion in the theoretical literature on fraud as a triad of pressure, opportunity, and rationalisation. This article extends the argument with examples of red flag indicators for frauds involving international trade financing and complex structures like merchanting trade transactions. In view of the red flag indicators, this article further discusses how a system and process-driven approach can plug the loopholes that provide opportunities for fraud. ‘The fraudster’s greatest liability is the certainty that the fraud is too clever to be detected’. --Louis J Freeh, American attorney and former judge, 5th Director of the Federal Bureau of Investigation (Forbes, 2022).