Catch Me if You Can! Exposing and Stopping Financial Crime

From left, Eddie Chan, Claudius Tsang, Tyler Hodgson, and Tony Tan (moderator).

A banker swindles a fortune out of his clients in Country A and flees to Country B. Should prosecutors seek extradition, persuade the authorities in Country B to press charges and take him to court there, or kidnap him and bring him back to Country A for trial? At Thomson Reuters’s 2016 Pan Asian Regulatory Summit, held in Hong Kong, hundreds of business men and women responded to this intriguing question during a panel discussion hosted by CFA Institute. The summit was attended by more than 700 regulators, compliance professionals, and senior financial services practitioners from the region.

Cheekily titled “Catch Me If You Can: Exposing Financial Crime,” the CFA Institute panel featured Eddie Chan, CFA, director of Professional Conduct; Claudius Tsang, CFA, board member of the Hong Kong Society of Financial Analysts (HKSFA); and World Bank senior investigator (Integrity Vice Presidency) Tyler Hodgson. Tony Tan, CFA, head of Global Society Advocacy Engagement, moderated the lively 40-minute session.

Panelists discussed financial crimes commonly seen in the region, the recourse available when crimes cross borders or perpetrators flee elsewhere, how CFA Institute deals with members involved in such cases, and the ethics of short-sell reports. Throughout the highly interactive session, the audience was invited to share their views through real-time polls, word clouds, and of course, questions and comments directed at panelists, all via special conference iPads issued to every delegate (in case you’re wondering, the iPads were not gifts; they had to be returned at the end of the event).

Money Laundering Top Financial Crime

The session kicked off with a question posed to the audience: Which of these four financial crimes — insider trading, market manipulation, misselling, and money laundering — were most commonly observed in your market? Money laundering was the top pick, with more than 4 in 10 (41.6%) votes. Misselling was next with just more than two thirds (36%) of votes, and slightly more than 1 in 10 (13%) cited market manipulation. Finally, less than 1 in 10 (9%) chose insider trading.

Hodgson from the World Bank said he expected the results. A majority of the referrals that he deals with from national authorities relate to money laundering. He has a very simple explanation: “The definition of money laundering is dealing with any proceeds of crime. Once you have committed any of the other three crimes [insider trading, market manipulation, or misselling], you will have to deal with the proceeds of that crime, and that would be money laundering.”

Cross-Border Crime is Biggest Challenge

Chan, whose team administers the disciplinary process for CFA Institute, said the organization encounters numerous cases of misselling, insider trading, and money laundering. But no matter what type of crime, the thorniest issue arises not so much from the nature of these crimes, but where and how they are committed. “Cross-border financial crime is the biggest challenge for our work,” he said.

He cited a case in which a member based in Boston placed an illegal trade on the Hong Kong exchange before flying to London and placing more trades elsewhere. Although the Hong Kong authorities eventually banned the member from the Hong Kong markets, it did not stop the member from operating and repeating those tricks in other markets.

Extradite or Kidnap?

So, how does one deal with financial criminals who have escaped overseas or are ensconced in another jurisdiction? This question was posed to the audience, and a large majority (almost two thirds or 64.3%) suggested extradition proceedings. Another third (32.9%) chose to persuade the authorities in the relevant jurisdiction to prosecute the criminal locally; only 2.9% proposed kidnapping the criminal and bringing him or her back to the country for legal proceedings.

But is the third option even legal? Yes in the United States, but no in Hong Kong or the United Kingdom. Hodgson explained that in the US legal system, as long as the defendant turns up in court, the court turns a blind eye to how he or she gets there. Hence, the existence of bounty hunters, who are contracted to “kidnap” defendants on the loose. In the UK legal system, however, if the defendant is brought to court unlawfully, any evidence obtained via illegal means is considered compromised.

The good news, says Hodgson, is that “the world is becoming a smaller place” as law enforcement and regulatory bodies take more action to tighten loopholes. It is not only becoming more common to be able to extradite defendants to the regulatory regime where the crime was committed, but as more countries sign mutual legal assistance treaties, it is also becoming easier for countries to obtain evidence of wrongdoing from another jurisdiction. Hodgson also addressed the issue of criminals who have been punished with cease trade orders in a particular jurisdiction but might be free to act in other markets:

Does that cease trade order apply globally? No, but there are mechanisms to get that order to apply in the broadest context, such as reciprocal orders. For example, Hong Kong could sign a memorandum of understanding with the United States such that any regulatory cease trade order would have effect in the other jurisdiction. A lot of these settlements that you see requires the defendant to fully cooperate with any jurisdiction if that jurisdiction is investigating that particular conduct, and part of that cooperation involves entering into a cease trade order.

Best Line of Defense: Ethical and Educated Financial Practitioners

The panelists recommended some solutions to deter financial crime or bring financial criminals to justice. Tsang said, “I would put more emphasis on prevention. Practitioners know a lot of the tricks in financial crimes, so it would helpful to involve them in the drafting of rules and regulations.”

Adding to that, Chan commented that “it comes down to awareness, ethics, and education. It’s important to get practitioners actively engaged in fostering an ethical culture. We work with our volunteers not only to help us do what we do, but at the same time it is an opportunity for them to give back to the industry, to play a part in prevention, and to raise education levels on these issues.”

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Photo Credit: CFA Institute