Private-bank Internal Controls

Fraudster 'Teaches' Important Lessons


2009-JanFeb-Private Bank Internal Controls 



The fraud: A private-banking assistant steals more than US$600,000 from an inactive account.

The method: The assistant had virtually unlimited access to active, inactive, and dormant accounts so it was easy for her to transfer funds to relatives' personal accounts in other banks.

The fraud examination: The bank detected the fraud after another bank at which she had worked had opened a criminal case against her. An audit showed that she had made 12 illegal cash transfers on one inactive account.

Lessons learned: The bank is establishing new internal controls: "four-eyes" review, limited account access for assistants, control listings now sent in protected PDFs, embedded IT controls, and more.

 Stella, an assistant at an exclusive Switzerland private bank, had unlimited access to accounts - active, inactive, and dormant. Unfortunately, that little privilege cost the bank more than US$600,000. Learn how it established strict internal controls that could deter other fraudsters like Stella.

Stella Inmany's position as a private-banking assistant in Switzerland was based on trust. Her wealthy clients depended on her to discretely manage their accounts. But auditors later found that nobody should have ever trusted Inmany.

During the 13 months she worked at Zellon Bank in Geneva - from September 2006 through October 2007 - she had transferred more than US$600,000 from a large inactive account directly into her relatives' personal accounts in other banks. Zellon only detected the fraud because another bank, Stella's former employer, had opened a criminal case against her. (All names and dates in this article have been changed.)

Private banks, unlike retail banks, offer top-quality services for very wealthy clients. They target clients with large accounts who want their money invested and managed for the long term. Private banks don't specialize in mortgage business and merger and acquisition activity and don't offer checking accounts.

A private-banking assistant is responsible for administering the relationship between the bank and particular clients. He or she handles money transfers, buying and selling of financial products, foreign exchange transactions, fiduciaries, credit card management, and opening and closing of accounts, among other tasks. A private-banking assistant usually reports to a relationship manager who's mostly focused on client acquisition, development, and money management.

Relationship managers and their assistants perpetrate most of the internal private-bank frauds because they personally know their clients and have gained their trust. Moreover, these employees often have full powers to invest and transfer money on behalf of their clients from their accounts.

Private-bank executive managers often feel that they can't touch relationship managers, especially if they hold senior positions, because they reap large profits. So, banks often quietly resolve internal fraud cases without telling even their employees.

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