Abuse of Payment Systems in Fraud, Money …...©2015 Association of Certified Fraud Examiners, Inc....

©2015 Association of Certified Fraud Examiners, Inc.

WELCOME Abuse of Payment Systems in Fraud, Money

Laundering, and Other Financial Crimes

Andrew Koh, CRMA, MSRM, MSGF

Deputy Chief Manager, Risk Control

China Construction Bank Corporation

PRESENTED BY:

ANDREW KOH

2015 ACFE Asia-Pacific

FRAUD CONFERENCE

4-6 November 2015 |

Singapore

3

LINKEDIN Power Profiles S’pore 2015: https://lists.linkedin.com/power-profiles/sg/industry/finance

Thought leader, speaker, moderator, panelist, writer, advisor

• Selected conferences: World Cards & Payments; Financial Times;

RiskMinds Asia; Bloomberg; Cards & Payments Asia; Asian Banker.

• Presented to: Central banks, regulators, government agencies, financial

institutions, varsities, private equity, and fin-tech firms.

• Published articles for award winning magazine: StrategicRisk Asia.

25 years in banking, finance, payment, and cards sectors

• Experience in Fraud, Basel, ERM, GRC, Outsourcing, RCSA, KRIs, Stress

Testing, Security Incidents, BCP, Audit frameworks & systems.

Avid Lifelong Learner

• CRMA (The Institute of Internal Auditors, U.S.)

• MS Risk Managment (NYU Leonard N. Stern School of Business)

• MS Global Finance (HKUST + NYU Stern School of Business)

• MBA (University of Manchester, Manchester Business School)

JUST HOW MUCH ABUSE IS DONE ON PAYMENT SYSTEMS?


FRAUD CONFERENCE

4-6 November 2015 | Singapore

AGENDA

1. Actionable and effective controls to manage frauds, ML,

and other financial crimes

2. How to analyse transaction patterns to detect financial

crimes and e-payment frauds

3. Effective use of fraud filter rules to sift out false positives

4. How should an institution operating in several countries protect

countries protect its operations against cross border

fraudulent activities through its services?

5. Rise of new fraud threats from alternative e-payment

systems: e-wallets, crypto-currencies, mobile payments

6. Challenges in adopting advanced payment technologies

and best payment practices


FRAUD CONFERENCE


1. ACTIONABLE AND EFFECTIVE CONTROLS TO MANAGE

FRAUDS, ML, AND OTHER FINANCIAL CRIMES

1. CUSTOMER DUE DILIGENCE covering on-boarding of

merchants / content providers prior to signing up

mobile/digital payment services

DO NOT BOARD applicants engaging in ILLEGAL

ACTIVITIES.

Get applicant’s name, address, and bank account

details at a minimum.

Conduct business and credit searches.

Collect multiple screen shots of online content that the

e-commerce merchants offer.


FRAUD CONFERENCE


2. ANTI-MONEY LAUNDERING RULES apply on entire end-to-

end business transactions

Finding the source of money and who owns them Filtering out potential suspects on sanction lists

Escalating issues to senior management and the board

for approval and oversight

3. RISK MONITORING ON SUSPICIOUS / UNUSUAL

TRANSACTIONS on merchants / end users / purchasers

Understanding of root causes

Effectively filtering out on false positives to focus on

real / genuine cases




FRAUD CONFERENCE


4. INDUSTRY COLLABORATION and INFORMATION SHARING

Volunteer participation in informal working groups to

discuss practical issues across different industries

5. COMMERCIAL CONSIDERATIONS

Commercial advantages of credit card rules favouring:

(i) Merchants--can sign up just once to transact with

global credit card holders

(ii) Consumers--can request refunds and charge-backs

6. CASE STUDY A

How one financial institution created a risk-based fraud

policy to effectively fight against digital payment abuse




FRAUD CONFERENCE


9 9 9

CASE STUDY A (ADAPTED FROM ACFE)

FRAUD PREVENTION

FRAUD DETECTION

FRAUD RESPONSE

AND REPORTING

FRAUD MONITO

RING

• Sound fraud risk mgmt structure

• Comprehensive fraud controls.

• Regular fraud awareness training

• Monitoring of key risk indicators

• Detect early fraud warning signs

• Who is responsible for escalating

suspected or confirmed fraud cases to

senior management, Board, or the

regulator?

• Everyone’s business to monitor

fraud


FRAUD CONFERENCE

4-6 November 2015 |

Singapore

2. HOW TO ANALYSE TRANSACTION PATTERNS TO

DETECT FINANCIAL CRIMES AND E-PAYMENT FRAUDS

1. BE AWARE OF PHISHING WEBSITES

Sometimes bogus sites look better than the real ones!

2. HOLIDAY SEASON TRANSACTIONS Potential areas to transact illicit transactions

Matching merchant transactions with business nature

3. CANCELLATIONS OF MAJOR EVENTS Large volumes of refunds and cancellations

High potential possibilities of processing “errors”

4. CASE STUDY B How an FI set up specialised fraud teams to detect and

address illicit financial activities & payment fraud issues


FRAUD CONFERENCE

4-6 November 2015 |Singapore

A good fraud team should have the following qualities:

• Be very familiar with product design, rules, and processes

• Be very familiar with police investigation procedures

• Ready to be called into action 24/7 anytime, anywhere

• Dedicated and experienced staff with “never-say-die”

attitude

• A few small teams are better than one big team

• Establish and record a comprehensive audit trail supported

with credible evidence

CASE STUDY B


FRAUD CONFERENCE


3. EFFECTIVE USE OF FRAUD FILTER RULES TO SIFT

OUT FALSE POSITIVES

1. ESTABLISH EFFECTIVE TRANSACTION FILTER RULES to

sift out false positives.

Allocate full resources in investigating real cases

Review of filter rules matching changing risk profiles

2. EFFECTIVE RISK & FRAUD GOVERNANCE.

Compliance team to inform regulator / police

Fraud team do the ground investigation work

Risk management team to perform txn monitoring work

Internal audit to report to senior management / board

3. CASE STUDY C

How data analytics can be used to sift out false positives


FRAUD CONFERENCE


In the case of duplicate e-payments, data analytics can help

remove the frequent false positives such as:

• Removing voided checks / e-payments

• Removing cancelled invoices

• Reposting of an invoice after removing it.

• Removing cancelled checks / e-payments

• Removing intercompany account

• Removing credit value invoices (requires reconciliation)

CASE STUDY C


FRAUD CONFERENCE


4. HOW SHOULD AN INSTITUTION OPERATING IN SEVERAL

COUNTRIES PROTECT ITS OPERATIONS AGAINST CROSS

BORDER FRAUDULENT ACTIVITIES THROUGH ITS SERVICES?

1. Must ESTABLISH A BASELINE POLICY & PROCEDURAL

FRAMEWORK for its global operations.

2. List down the list of “must-haves” driven by regulatory

and/or compliance requirements.

3. Enforce these across its global operations via risk

champions stationed across each country where it

operates and direct reporting to global headquarters.

4. Based on each country’s specific requirements, tailor

SPECIFIC POLICIES AND PROCEDURES.

5. CASE STUDY D: How a major bank uses technology

platform to monitor their global transactional activities


FRAUD CONFERENCE


CASE STUDY D (FALCON PLATFORM)


FRAUD CONFERENCE


5. RISE OF NEW FRAUD THREATS FROM ALTERNATIVE

E-PAYMENT SYSTEMS: E-WALLETS, CRYPTO-

CURRENCIES, MOBILE PAYMENTS

1. What are the drives behind the rise of new fraud threats?

2. INNOVATION > GOVERNANCE, RISK, COMPLIANCE

3. Lack of knowledge and understanding of how

alternative e-payment systems are designed and work

4. Stakeholders are still figuring out how to secure codes

to prevent abuse and hacking

5. CASE STUDY E

What are the new fraud threats from alternative e-payment

systems?


FRAUD CONFERENCE


CASE STUDY E – VERIZON 2015 DATA BREACH REPORT

NEW FRAUD THREATS


FRAUD CONFERENCE



FRAUD CONFERENCE


CASE STUDY E

6. CHALLENGES IN ADOPTING ADVANCED PAYMENT

TECHNOLOGIES AND BEST PAYMENT PRACTICES

1. Need to have CLEAR CORPORATE OBJECTIVES in

using advanced technologies and adopting global payment

practices

2. Can be achieved with very HIGH SET-UP AND MONITORING

COSTS

3. Advanced technologies can either help or hinder business

operations based on user understanding and requirements

4. Global payment practices may not be effective in countries

where card rules not enforceable as cash is still king

5. CASE STUDY F: How a financial institution failed to set-up

AML system to monitor payment transactions


FRAUD CONFERENCE


CASE STUDY F


FRAUD CONFERENCE


AML SYSTEM

[email protected]

https://www.linkedin.com/pub/andrew-koh

@KohWee

Contact Information


FRAUD CONFERENCE


mailto:[email protected]




https://twitter.com/KohWee

Q&A


FRAUD CONFERENCE


©2015 Association of Certified Fraud Examiners, Inc.

WELCOME Abuse of Payment Systems in Fraud, Money

Laundering, and Other Financial Crimes

Andrew Koh, CRMA, MSRM, MSGF

Deputy Chief Manager, Risk Control

China Construction Bank Corporation

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