THE FINANCIAL CRIME EVOLVES

Because we know that in the financial world, there is also a history that precedes the best and greatest discoveries, we have decided to present a special feature to our readers about the timeline of the most notable financial crimes.

It’s easy to find information on the internet about fraud and money laundering, but it’s not as easy to decide which cases are the most relevant in our field.

There are several factors that influence this classification, some of which include: the amount stolen, the techniques used, the incredible credulity of the victims, and the time period that makes it easier or harder to access information.

Do you know what’s the most incredible part of all this? As technology advances, it becomes easier to access information, and cases of fraud and money laundering continue to occur more frequently than we would expect.

In this exciting six-part series, we will reveal our TOP 6 greatest fraudsters and why financial crime evolves.

TOP 6 – Elizabeth Bigley

The Carnegie surname helped her defraud banks for USD 20 million.

Back in 1891, a Canadian woman was released from a fraud charge by claiming insanity, and later perfected her technique.

Cassie Chadwick, or Elizabeth Bigley as she was actually named, married a doctor with the last name Chadwick in 1857 and began a career of making money at the expense of the banking naivety of that time.

She falsified her identity, posing as the daughter of the renowned millionaire Andrew Carnegie (a Scottish citizen), and forged a note with the signature of her fake father, which opened the door to a large amount of credit, helping her obtain between 10 and 20 million dollars.

Back then, they had no idea how to monitor transactions or verify a person’s or «machine’s» identity.

 

Font: Cassie Chadwick, la estafadora que convirtió al millonario Carnegie en su cómplice (lavanguardia.com)

TOP 5 – The Famous Italian Fraudster

The Ponzi Schemes: A Story of Money Laundering and Fraud

Carlo Ponzi, the famous Italian fraudster, is known for creating one of the largest fraud models in history: The Ponzi Scheme.

At the beginning of the 20th century, Ponzi moved to the United States with the belief that he could find a way to get rich quickly. Through his ingenious mind, he created a fraudulent system that appeared to invest in international postal coupons, offering investors the promise of high returns in a short amount of time.

Carlos Ponzi’s scam was based on the idea of buying and selling international postal coupons in countries with devalued currencies and then selling them in the United States for large profits. However, Ponzi wasn’t implementing his business model in a legal and transparent manner; instead, he used money from new investors to pay the supposed high returns to older investors, rather than making a real investment.

Many people, including famous entrepreneurs and community members, fell for this trap. The Ponzi Scheme became an uncontrollable snowball, and in no time, it collapsed. The investors were left with nothing, and Carlos Ponzi served a sentence for fraud and money laundering.

n summary, this individual’s experience and his scheme serve as a striking example of how what seems too good to be true is often, in reality, something negative. In this case, the business model turned out to be not only immoral but also criminal. Understanding these scams can serve as protection for the future, allowing us to make informed and conscious investment decisions.

TOP 4 – The Great Impostor

Desenmascarando a Ferdinand y sus muchas identidades.

Unmasking Ferdinand and His Many Identities

Ferdinand Demara was a prominent figure in the history of famous fraudsters and impostors. Known as «The Great Impostor,» Demara is famous for pretending to be a variety of characters, from a U.S. Air Force member to a Navy surgeon.

Demara had a particular skill for deceiving people and the power over their own perceptions and beliefs to shape each person’s reality. In 1941, assuming an identity was a matter of creating a fictional title or presenting oneself with another identity so that society would believe the word of the issuer or interlocutor.

Today, falsifying an identity is as simple as registering on an app with someone else’s information (knowing their personal details, which, thanks to technological advancements, has become public) and defrauding all types of entities without even having to appear in person. A digital signature or a security code is enough.

That’s why, as technology advances and the methods of fraud and money laundering evolve, organizations also change and implement information management tools that allow them to detect these crimes in time and act in favor of their businesses and clients.

TOP 3 – Catch Me If You Can

The Teenage Bank Fraudster Who Inspired a Movie

This international scam took place in the 1970s, using an identity theft method that helped Frank Abagnale, starting at the age of 16, to steal 2.5 million dollars through his fraudulent checks.

Among his many false identities, he was a pilot, teacher, lawyer, doctor, and more. For five years, he altered checks from his overdrawn account and placed them among valid documents to deceive banks and make “easy” money.

You might recognize the name from the Spielberg movie Catch Me If You Can, starring Leonardo DiCaprio, who portrayed this famous fraudster. After being released from prison, Abagnale collaborated with the FBI to catch other fraudsters by identifying their techniques.

Today, he has his own consulting firm focused on fraud prevention called Abagnale & Associates.

TOP 2 – Pyramid Schemes or Multi-Level Marketing

The Biggest Financial Scam in History: Fraud, Money Laundering, Perjury, and Theft

Bernard Madoff was a well-known businessman in the United States, but behind his successful career, there were many entanglements and deceptions that ultimately turned into a massive fraud.

The Madoff scam involved attracting supposed investors with the promise of attractive and consistent returns. He used his recognition and reputation to convince his clients to invest their money in a fund, but what they didn’t know was that he was diverting their funds to pay interest to earlier investors (what we now know as a pyramid scheme or multi-level marketing), thus creating the illusion of success.

The fantasy came crashing down in 2008, when Madoff confessed to his crime and was arrested.

What lesson can we learn from this case in terms of fraud prevention in financial institutions?

We must carefully analyze the background and track record of those offering financial services, questioning any opacity in their transactions.

Additionally, the Madoff case highlights the need to strengthen and improve oversight and regulatory mechanisms in the financial sector. Authorities must be able to detect and act quickly on signs of fraud, providing adequate protection to investors and preventing fraudulent schemes from perpetuating.

TOP 1 – Losses Over 1.4 Billion Dollars

This has been the biggest fraud scandal of the modern era, and maybe you didn’t know about it.

Back in the 90s, Nick Leeson brought down the bank where he worked, which at the time was also a client of Queen Elizabeth II.

The great fraud occurred in 1995, preceded by several events in which Leeson played a leading role.

At just 20 years old, Nick, a young man from the United Kingdom, started working as an employee at Coutts (Private Banking), then spent two more years at Morgan Stanley, before eventually joining Baring Brothers in 1989. It was there that he began to experience personal conflicts that led to the collapse of Baring.

Many say the first and biggest mistake was operating in futures markets without having the necessary license (which had been denied). However, with two years of «experience» in the sector, Baring gave him management of this business line, which would soon result in losses of over 1.4 billion dollars.

The man was good at what he did, so much so that he earned almost three times his salary in bonuses from the profits generated by his risky investments. However, one day he decided to help an employee who had made a mistake by selling 20 contracts instead of buying them, and since this would lead to losses for the company, Leeson’s brilliant idea was to create a hidden account called 88888 to cover up the issue and protect his colleague.

He hoped he could fix the mistake in the short term. What a bad idea that turned out to be, as this account became Leeson’s hiding place whenever he faced deficits in his operations. By the end of 1992, the losses had reached 2 million pounds, and in his desperate attempt to cover up his failed trades, he began a risky pursuit to recover the money at all costs, making increasingly dangerous and misguided investments.

By the time he realized the mess he was in, it was too late. With a note that simply said «sorry,» he left the office and fled.

Later, the institution had to be declared bankrupt and sold to ING for 1 pound in exchange for assuming its liabilities, which were twice the bank’s available capital.

Baring was the oldest commercial bank in the UK and was so important that «it participated in major operations, financing the construction of the Panama Canal or the purchase of Louisiana from France by the United States. It managed Guinness’s IPO in London, which required the intervention of the mounted police to prevent investors from flooding Baring’s headquarters with purchase requests.» – ElEconomista.es

In the end, Leeson was sentenced to 6 years in prison for the fraud crimes he pleaded guilty to, but he was released early due to a cancer diagnosis that supposedly gave him little time to live. However, he «miraculously» survived.

Nick never returned to the futures markets and dedicated himself to giving lectures and writing books to help others identify fraud in financial institutions.

For us, this case is the most prominent in history, and that’s why we place it at our TOP 1.