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WHITE-COLLAR

CRIME

6

Unit

NACP

2019-2023

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“Renowned audit firm PricewaterhouseCoopers (PWC) recorded an increase in the white-collar crime index in this country in 2018.”

Datuk Seri Akhbar Satar,

President, Transparency International Malaysia

Astro Awani, 26 November 2018

“25,000 investigation papers involving commercial crimes were opened nationwide involving a loss of RM6.2 billion from January to December 2019.”

“Police arrested 15,000 individuals involved in the crime”

Datuk Seri Mohd Zakaria Ahmad,

Director, Commercial Crime Investigation Department, Bukit Aman

BH Online, 30 January 2020

Why is it important for us to know?

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White-collar Crimes

This term was introduced by an American sociologist, Edwin Sutherland in 1939.

"A crime committed by a person of respectability and high social status in the course of his occupation"

- Edwin Sutherland, 1939 -

Edwin Hardin Sutherland

13 Aug. 1883 - 11 Oct. 1950

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White-collar Crimes

General meaning - crimes that do not involve violence, is financially motivated. Committed by professionals in the public and private sectors.

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White-collar Crimes?

In general, professionals wear white shirts with ties.

Why is it called

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Blue-collar Crimes vs White-collar Crimes

Crimes committed by

the lower social group,

causing injuries and property damage.

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White-collar Crimes

Misappropriation

Cyber crimes

Fraud

Accounting

fraud

Ponzi Scheme

Corruption

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White-collar Crimes

Effect of

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- Study by ACFE in 2013 -

USD3.7

trillion

Each year, businesses suffer a 5% loss due to fraud activities. Worldwide, the total amount of loss is USD3.7 trillion.

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Case 1: Enron Scandal

In 2001, energy giant, Enron went bankrupt due to fraud in its financial report.

Enron’s auditor was stripped of their license. Due to the Enron scandal, Arthur Anderson was badly impacted and was no longer the biggest firm in the world.

Founder/CEO, Kenneth Lay and COO, Jeffrey Skilling were involved in fraud in Enron’s financial report. Despite the loss, Enron’s financial statement was ensured to look ‘pretty’ to attract investors.
The tactic used to manipulate Enron’s financial statement was mark-to-mark accounting, which is to place contracts acquired as company profit.
Jeffrey Skilling also introduced an online trading platform to allow any individuals to trade natural gas commodities online.
This really attracted many investors from Wall Street to invest in Enron.
In a period of 3 years, Enron’s stocks increased sharply to $90 per unit, making Enron worth $60 billion, although the actual profit was too little.
The fraud was exposed when the dot-com bubble crisis happened. SEC conducted an investigation on Enron due to suspicions towards their financial statement.
Kenneth Lay and Jeffrey Skilling were found guilty for deceiving investors’ money.
Kenneth Lay did not make it to prison as he dies of a heart attack. Jeffrey Skilling was imprisoned for 12 years. Enron was declared bankrupt and 28,500 people lost their jobs.

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Case 2: Collapse of Barings Bank

Barings Bank - oldest bank in United Kingdom.

Once owned the account of Queen Elizabeth II.

Went bankrupt in1995, after 233 years of operation.

Cause - fraud activity, illegal speculation activity by a manager, Nick Leeson.

Leeson caused Barings a loss of US$1.4 billion.

Leeson was imprisoned for 6½ years.

Leeson was 28 years old.
In 1992, Leeson was appointed as the general manager for Barings Securities in Singapore. Leeson was responsible for trading and ‘back office’ transactions (office administration, trading and accounting document processing tasks).
Authority over trading transaction and ‘back office’ activities gave way to misappropriation, document manipulation and abuse.
Leeson created a secret account under the name ‘88888’, which is used to hide all the losses incurred by Leeson.
Leeson manipulated transaction documents to show a false profit of £28.55 million.
In reality, Leeson’s transactions suffered one loss after another.
23 February 1995 – He fled after leaving a brief note saying “I’m sorry”. The total amount of losses caused by Leeson’s transactions reached £827 million (US$1.4 billion).
Consequently, Barings Bank was declared bankrupt on 26 February 1995.
Leeson was imprisoned for 6½ years. In 1999, he was released from prison without a home and a job.

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Bernard Lawrence Madoff (born 29 April 1938) - Ponzi Scheme legend.

Also known as Pyramid Scheme.

Madoff was once the president of National Association of Securities Dealers Automated Quotation (NASDAQ).

2008 - Madoff was arrested, $65 bililon was in his account.

Madoff admitted that one of his subsidiary companies conducted Ponzi Scheme on a large scale.

Case 3: Bernie Madoff’s Ponzi Scheme

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On 12 March 2009, Madoff (71 years old) pleaded guilty to 11 charges.

Madoff was sentenced to 150 years in prison.

Ordered to pay back $170 bilion to his investors.

While in prison, two of Madoff’s children died. One due to suicide while the other because of cancer.

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Aman Shah - 24 years, executive at Hock Hua Bank, RM1,800 monthly salary.

In 1990, Aman stole 1 cent every day from customers’ bank accounts.

The money was transferred to a proxy account in another bank.

Lavish lifestyle. Owns 6 supercars, i.e Lamborghini Countach (RM1.3mil), Mercedes Benz 300SL (RM502,000), Mercedes Benz 300E (RM192,000), Porsche Carerra 928 S4 (RM638,000) and BMW 329i (RM68,000).

Case 4: The tale of the 1 cent robber

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Exhibiting 3 of his cars at a showroom, Bukit Bintang (June 1990).

Appeared live on the show Sekapur Sireh (TV3), sharing the advantages of each of his cars. (3 June 1990).

Former manager became suspicious after watching the show and lodged a report.

Aman was charged with fraud amounting to RM4 million.

He was found guilty and sentenced to 5 years in prison.

Since his school days, Aman had been obsessed with luxury cars. With the money he possessed, Aman purchased 6 luxury cars in cash.
Aman also likes to show off.
Around June 1990, Aman placed three of his luxury cars in an exotic car exhibit at Bukit Bintang Plaza. He was also often seen driving around in his luxury cars in the afternoon.
On the show Sekapur Sireh TV3 on 3 June 1990, Aman who then had resigned from Hock Hua Bank, explained each of his cars’ specialties.
Aman’s former manager at Hock Hua Bank who was coincidentally watching the show, became suspicious of Aman’s wealth.
He straightaway requested for every transaction that involved Aman to be re-checked and re-audited.
With the evidence of misappropriation found, his former manager lodged a police report on 8 June 1990.
Subsequently, Aman was arrested in his luxury condominium in Bangsar.
On 25 June 1990, Aman was found guilty and was sentenced to 5 years’ imprisonment.

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Ponzi scheme in Malaysia.

Popular around the 80’s, in Taiping, Perak.

Founded by Pak Man Telo, former reporter.

This scheme used the money of new investors to pay dividends to earlier investors.

Pak Man’s company - Pestama Enterprise received money from people, promised a 10% return each month.

50,000 investors with a total investment of RM99 million.

Case 5: Pak Man Telo Scheme

Pak Man Telo’s (PMT) real name – Osman Hamzah and originally worked as a freelance reporter for Bernama in Taiping.
Pioneer of get-rich-quick scheme in Malaysia.
The scheme was conducted through the company Pestama Enterprise, beginning around the 1970’s in Taiping, Perak.
He founded a complex investment scheme worth millions of ringgit.
The scheme was operating illegally, receiving deposits from many people (investors) while promising a return in dividends around 10% each month.
The 80’s era saw the peak in popularity of the PMT Scheme.
Investors in this scheme comprised senior government officers, retirees, businessmen and villagers.
Participated by more than 50,000 investors with an investment value of RM99 million.
At the end of 1989, PMT was arrested by Bank Negara Malaysia BNM) and was charged on 11 January 1990 with receiving money from the people without a legal license. PMT pleaded guilty and paid a fine of RM250,000 in cash.

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1989 - Pak Man was arrested by Bank Negara.

He was charged with illegally accepting deposits from the people.

The scheme became unstable. Investors demanded their money.

Commotion broke out at Pak Man’s residence.

Peak of anger - Pak Man’s child was kidnapped for ransom.

Court - Pak Man was found guilty, imprisoned for 2 years.

The PMT scheme continued due to the strong support from its investors.
Popularity of the PMT Scheme rose, new investors increased and dividends were also increased to 12%.
September 1990 saw the PMT Scheme beginning to crumble. Dividend rate fell to 5%. There were some investors who did not receive dividend payments at all.
Investors gathered at PMT’s front yard, urging him to return their investment money. 6 men kidnapped PMT’s son and locked him up in Tropicana Hotel, Kuala Lumpur from 28 February to 5 March 1991.
PMT also faced lawsuits from 639 of his investors.
11 April 1991 – Police arrested PMT. He was exiled in Kampung Terong, Kuala Berang, Hulu Terengganu, Terengganu.
17 July 1991 – PMT was charged and he pleaded guilty. PMT was imprisoned for 2 years.
After his release, he was sent back to Terengganu. PMT made a living by repairing radio and television. At age 70, PMT passed away from old age on 22 December 1997.

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CURRENT CRIMES

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Masterminded by Taiwanese and Chinese syndicate - using international lines from Hong Kong and domestic.�
4 most popular modus operandi:
Winning a lucky draw.
Kidnap scam and asking for ransom.
Impersonating a police officer, court officer or other government agencies.
Impersonating officers from Bank Negara or commercial bank.

MACAU Scam

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Lucky draw

Victim receives a telephone call - informing him that he has won a lucky draw worth millions of dollars from a company in Hong Kong and Macau.

The syndicate provides a phone number to contact if the victim wishes to claim the prize.

After the victim agrees, he has to pay taxes and insurance by depositing money in certain accounts to claim the prize.

After the transaction is complete, the caller cannot be contacted and the promised prize money is not received.

MACAU Scam (1)

KUALA LUMPUR, 18 April 2015 – Police busted a Macau Scam syndicate that has been operating for 2 months involving a loss of almost RM20 million. 52 Chinese citizens were arrested in a raid at 6 luxury condominiums. The syndicate spent RM100,000 a month to rent 6 condominiums, cooks and domestic helpers.
Among the MO – the syndicate told victims that they have won a lucky draw worth millions of ringgit and asked the victims to call certain numbers to claim their prize. The syndicate then asked the victims to make payments for tax charges and insurance protection. Payments must be made through bank transfer.
KOTA KINABALU, 23 August 2019 – A senior citizen’s dream of owning a Perodua Myvi through lucky draw not only fell apart, but he was deceived by 2 salespersons, leading to a loss in savings of RM35,600. Subsequently, 2 suspects were arrested.
The victim allegedly purchased a beauty product from the 2 suspects.
The victim was informed that he won a Perodua Myvi as a lucky draw prize.
He believed this and paid RM35,600 through bank transaction and cash. However, he did not receive the prize and lodged a police report.

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Police officer / government agency ‘spoofing’

Victim receives a telephone call from an individual claiming to be a court officer or police.

Victim is accused of being involved in illegal activities (such as ah long, mafia and drug dealing)

Victim is asked to transfer money from his account to certain accounts, supposedly to avoid the victim’s account from being frozen by authorities.

POLIS

(scam)

MACAU Scam (2)

KEPALA BATAS, 3 Mei 2020 - A female teacher lost RM138,900 after being deceived by Macau Scam. The victim (50 years old) received a call from a man who introduced himself as an officer from LHDN Kedah. He informed the victim that there is an outstanding amount of RM15,000 from a company registered under the victim’s name. The victim denied this. The victim’s call was redirected to a ‘police officer’ in Kedah IPK who informed her that she was also involved in drug smuggling and money laundering. The call was then redirected to an ‘Inspector’ in Bukit Aman. The ‘Inspector’ requested her bank account details. The syndicate threatened to arrest the victim if she refused to provide her bank information and password. The scared victim revealed information on 2 of her bank accounts to the suspect.
K. TERENGGANU, 24 July 2020 – A female teacher was deceived by a Macau Scam syndicate tactic who claimed that there is an arrest warrant for her for money laundering case. The syndicate impersonated a Police ASP and asked the victim to transfer money to suspend arrest. The victim provided 68 TAC numbers to the syndicate before discovering 68 funds transfer transactions amounting to RM655,046.95

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Bank Negara or commercial bank officer ‘spoofing’ (credit card)

Victim receives a call from someone claiming to be a bank officer.

Victim is accused of failing to pay credit card bills.

Victim is ordered to contact someone, allegedly an officer from Bank Negara Malaysia (BNM) to avoid from being blacklisted or accounts frozen.

Victim is asked to transfer money to certain accounts through e-banking or via a cash deposit machine (CDM).�

MACAU Scam (3)

BAYAN BARU, 6 August 2020 – The savings of a 76-year-old retiree from a statutory body worth RM1.84 million vanished as a result of being deceived by Macau Scam.
The syndicate contacted the victim and said that the victim sent a package from Kepong to Kota Kinabalu containing a blue identification card and 8 bank debit cards. The victim received a telephone call and spoke to 3 suspects impersonating police officers who alleged that the victim is involved in money laundering worth RM1.48 million.
The victim, afraid, made a payment to the syndicate to avoid any action.
BERA, 6 February 2020 – A female entrepreneur lost RM89,208 after being deceived by a Macau Scam syndicate impersonating police and bank officers.
The victim (66 years old) received a call from a woman who introduced herself as a bank officer in Kuala Lumpur. The suspect informed the victim that she took a loan from the bank at Serdang Perdana branch and there is an outstanding amount in loan repayment totalling RM50,000. Then, the call was connected to a ‘police officer’ for verification purposes before the victim was then informed that she is also wanted for a money laundering case.

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Kidnapping scam and demanding ransom

The victim receives a telephone call from someone, claiming that his / her child or family member has been kidnapped.

The victim is deceived to transfer ransom money to a third-party account number provided by the caller (syndicate).

Other tactics - alleged hit and run and failure to pay loan from bank / financial institution. �

MACAU Scam (4)

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The victim meets on the internet and falls in love.

The suspect wants to come to Malaysia to marry the victim.

After arriving in Malaysia (allegedly), the suspect / syndicate member will contact the victim and claims that the suspect has been detained by authorities for several offences.

The victim was asked to pay a certain amount of money to free the suspect.

Love scam

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The victim becomes acquainted with the suspect via social media platforms.

The suspect convinces the victims that he / she has fallen in love with the victim.

The suspect wishes to send a parcel to the victim as a sign of love.

The victim is contacted by someone who claims to be a customs officer or courier service company - informing that the parcel sent to the victim has arrived.

The victim is ordered to pay taxes or insurance kerana as the parcel is detected to contain undeclared cash / valuables.

Victim only realises he / she has been scammed when the item promised is not received, even though payment has been made.

Parcel scam

KUALA LUMPUR, 5 March 2020 – A female entrepreneur suffered a RM260,000 loss after she was deceived by a ‘parcel scam’ syndicate last December.
The victim (aged 50’s) was contacted by a foreign man who supposedly wishes to purchase a luxury condominium in this country as investment.
The victim was then contacted by a syndicate member disguising as a courier company employee who informed her that the parcel contains documents and a sum of money sent to her from the United States of America, but it was detained by customs.
The victim was asked to pay a sum of money for customs, insurance and the like. The deceived victim transferred RM262,700 in several transactions to the bank account provided by the syndicate.

BERA, 12 April 2018 – A housewife lost RM34,150 after she was deceived by a ‘parcel scam’ syndicate as she easily believed the sweet words from a foreign man. The victim (56 years old) got acquainted with the man through Facebook. The suspect then supposedly sent her shoes and US$300,000. The victim was asked to pay for the charges and GST to receive the items.

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Caused by customer’s carelessness for revealing password to a third party.

Victim receives SMS for supposedly winning a cash prize.

To claim the prize, the victim is instructed to open his internet banking account and then follow the instructions given.

The instruction includes revealing password and making the syndicate’s mobile phone as the medium to receive bank verification SMS code.

e-banking scam

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A syndicate that deceives victims to reveal their bank account or credit card information.

The syndicate sends a fake e-mail that seems to be from a legitimate party (banking institution).

The e-mail requests the victim to reveal their personal information.

There are also cases where a victim is redirected to a fake website that looks like a legitimate website.

Phishing

The phishing scheme is the most serious threat to companies.
Internet giants Google and Facebook were also deceived of $100 million through email phishing schemes when a hacker disguised as a computer vendor.
One of the reasons why email fraud works well is because everyone uses emails.
Emails are prone to attack because: Anyone can send anything to anyone and there is no way to see whether the attached link or spreadsheet is malicious.
Phishing is launched to illegally obtain someone’s personal information.
Phishing activities are conducted with the purpose of deception or malintent such as looking for usernames, password, bank account PIN and others.

28 April 2017 – Google and Facebook were phished for over $100m, it has been reported, proving not even the biggest technology companies in the world are immune from the increasingly sophisticated attacks of online scammers. Last month it was reported that two major tech companies were tricked by a Lithuanian man into sending him over $100m.

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Fraudulent applications

Syndicate makes a credit card application by forging identification card, salary slip and employer confirmation letter.

Syndicate turns an empty house with no residents as the shipping address.

Credit card scam (1)

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Account takeover / Identity theft

Involvement of ‘insider’ in an financial institution.

They provide all information on account holders to a syndicate.

Syndicate will contact the ‘Card Centre’ an introduce themselves as the card owner and report the card as missing.

Syndicate will apply for a change of address.

After getting approval, the bank will replace the card that was reported as missing without the knowledge of the original card owner.

The new card will be posted to the syndicate’s address.

Credit card scam (2)

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Non-received issue fraud

Delivery of credit card applied by a customer is stolen or intercepted.

Postal workers are most likely involved.

The original card falls into the hands of a syndicate, who maximises the credit card spending.

Cash withdrawal will happen if there is an ATM PIN on the original credit card for cash withdrawals.

Credit card scam (3)

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Identifying the profile of a fraudster

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KPMG: Global profiles of the fraudsters

The report was published in May 2016.

Study on 750 fraudsters around the world.

Stud period: March 2013 - August 2015.

Looks at fraudster profile - involves deception and misappropriation in organisations.

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GENDER

Male (79%)

AGE

36 - 55 years old (68%)
26 - 35 years old (14%)
Older than 55 (8%)

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A majority of fraud are committed

by ‘insiders’, conspiring

Company employees (65%), mostly have been working for more than 6 years

Former employees (21%)

62% of fraud incidents are committed by more than one person (conspiring)

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Fraud is committed by respected individuals with position

Executive / Non-Executive Director (34%)
Manager (32%)
Employee (20%)

A majority of fraudsters are respected individuals in an organisation (38%)

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Weakness in internal controls leads to fraud being committed in organisations (61%)

Main cause of fraud?

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Fraud that occurs most frequently:

Asset misappropriation (fraud in procurement) - (47%)
Fraud in financial report - (22%)

Technology is an enabler in committing fraud.

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Fraud detection

Reports from complainant / whistleblower (43%)

Company management inspection - for example, through audit (22%)

Coincidence (14%)

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Why is fraud committed?

For personal gain and greed

Because there is capability

Culture of organisation

To reach target - hide losses to gain bonus

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Why is fraud committed?

To reach target - hide losses to protect organisation

To reach target budget - hide losses to remain in the organisation.

Other motives (loss of stakeholder’s trust, avoid legal action, for publicity, for rating)

Other motives previously mentioned

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Is a type of white-collar crime.

Effects from corruption are more serious.

CORRUPTION