FINANCIAL INSTITUTIONS can be victimized by a wide variety of criminal acts, including bank robberies, check fraud and money laundering schemes. However, at the 1993 American Bankers Association ABA) National Security and Risk Management Conference held in Orlando, Florida on February 7-10, financial institution security specialists, as well as agents for the Federal Bureau of Investigation (FBI), discussed three other perennial security concerns for risk managers: white collar crime, private branch exchange (PBX) fraud and automatic teller machine (ATM) robberies. In their presentations, the speakers offered various security strategies that can help risk managers of financial institutions decrease the incidence of these crimes - and thereby reduce their companies' losses.
White Collar Crime
BECAUSE FINANCIAL institutions manage and transact enormous sums of money, white collar crime is a prevalent problem in the industry, said Joseph K. Judge, special agent for the FBI. To illustrate how serious these crimes can be for a financial institution, Mr. Judge described how a team of white collar criminals set up a sophisticated dummy loan scheme at a Florida bank that ultimately led to the bank's collapse. "In this scheme, the criminals bribed the bank president to pass about 60 loans, all of which were fraudulent."
The plan was devised so that the loans flowed through about 30 intermediaries, each of whom was working for the criminals. "A simple background check of the borrowers would have revealed that all of these loans were going to only four addresses," said Mr. Judge. "To prevent this from happening, banks should always run UCC checks on borrowers."
Risk managers should also look for other indications of illicit activities, said Mr. Judge. "The sale of a bank to people who are highly leveraged should put up a red flag," he said. "Other activities that should arouse suspicion include loans that have interest reserves set aside for an extended period of time, such as 12 to 18 months." Mr. Judge also recommended that bank officials examine the collateral that is used for loans. "At the Florida bank, the dummy loans were backed by fraudulent collateral, such as apartment buildings that were nonexistent," he said. "Banks should always check the collateral to determine its authenticity, instead of relying on the photographs of it provided by the borrowers."
Whether the suspected crime is a fraudulent loan scheme at a bank or the embezzlement of funds from a corporation, white collar crime represents a big part of the FBI's caseload, said David Gomez, supervisory special agent for the FBI. However, the FBI offers assistance for companies attempting to deal with white collar crime. "For example, we can help a company perform an analysis of a particular crime, develop an investigative strategy and provide them with techniques for interviewing suspects." And, if a case comes to trial, the FBI can help the company develop a prosecution strategy, and sometimes even provide expert witness testimony, he added.
INCREASINGLY, BANKS and other companies are facing enormous losses from the theft of telephone services by hackers, said Herbert W. Whiteman Jr., vice president and security advisor at the Federal Reserve Bank of New York. "Toil fraud is the theft of long distance telephone service codes from companies or individuals by criminals," he said. "These individuals access the codes through the company's PBX, then sell them for profit on the underground market."
The problem has become particularly acute since the breakup of AT&T in 1984, said Mr. Whiteman. "Before 7984, toll fraud was the phone company's problem," he said. "They supplied all the equipment and were responsible for enacting the necessary security measures." However, today companies must purchase their own telephone equipment from a wide variety of vendors, and are therefore responsible for developing their own security procedures. …