Fraud Down Under

Like any good fraud examiner, Russell Smith, Ph.D., looks at fraud from every angle. He wears the interchangeable hats of a lawyer, criminologist, researcher, educator, and historian. “I was brought up in a family that valued education and a love of reading, and this helped to shape my inquisitive nature and desire to explore people and the world,” Smith said in a recent interview with Fraud Magazine.

As principal criminologist and manager of the Global, Economic and Electronic Crime Program at the Australian Institute of Criminology, Smith is able to use his inquisitive nature to find some answers to fraud’s thornier questions – not just for Australia – but for other regions around the globe.

“Each of my professional work experiences has entailed an element of investigation and research,” he said. “Lawyers are required to investigate the background circumstances of matters their clients bring before them; social scientists investigate the ways in which people behave by using disciplined research methods; criminologists investigate patterns of crime and how society responds to them; and historians investigate the factors that were present at given moments in history to understand what took place and how previous events can be interpreted.”

Based on his research and discernment, Smith conjectures that fraud will increase globally in such areas as gambling, social networking sites and three-dimensional virtual communities, “cloud computing” and the use of external storage of data and applications, ATM skimming for those countries still using cards with informational stripes, and the online delivery of governmental services. (Read “Pulling the Plug on ATM Skimmers.”)

He believes that fraud best flourishes globally when anti-fraud practitioners in all sectors don’t share their knowledge and experience among themselves and with their communities. Smith will share some of his own knowledge and experience as a keynoter at the ACFE’s Pacific Rim Conference, Nov. 14 – 16 in Melbourne.

You spent a number of years as a barrister and solicitor before you entered criminology studies and research. What precipitated the progression? 

Crime and justice always fascinated me – and, of course, I come from a country that was established as a penal settlement in the late 18th century! I was also an avid reader of accounts of the exploits of Australian bushrangers of the 19th century, and I loved exploring police and folk museums in Australian bush towns. So, when I first studied law at the University of Melbourne, I reveled in studying criminal law, the law of evidence, and certain elective subjects including criminology and legal history.

In legal practice, unfortunately, there were few criminal matters I handled. Instead, I specialized in probate litigation, medical misconduct and commercial leasing. Criminology remained an academic interest and so I undertook graduate studies in criminology while working as a lawyer. I then commenced a master’s degree in law and took subjects on sentencing, tenancy law, and medical ethics.

Once again, my interest in the more deviant aspects of society led me to undertake doctoral research into the regulation of medicine, which essentially looked at the history of professional disciplinary action taken by the General Medical Council in Britain [the licensing and regulatory agency for the profession] against doctors since 1858 when the regulator was first established. So it was not so much that I had desired to leave legal practice but more that I wanted to spend more time doing research, and medical misconduct was a field open for new research at the time. This also provided me with an opportunity to travel and to live in Europe for a number of years. Having completed doctoral research, one is naturally drawn to the attractions of an academic career with the temptation to publish one’s thesis, which I managed to do a few years later in the form of a book, “Medical Discipline,” published by Clarendon Press in Oxford in 1994.

What are some major global fraud trends (and corresponding anti-fraud practices) that our members should be aware of? Is there a type of fraud just appearing on the horizon we should know about? 

As we all know, the enduring drivers of fraud remain fairly constant over time: greed, the desire to maintain a lifestyle, the need to feed a gambling problem, or to shore up a failing business. Gambling as a motivator of fraud will continue to be a major factor in countries that continue to promote gambling, often amongst their less well-off citizens. As gambling becomes established online, this will exacerbate the problem. A number of educational measures, and also technology-driven approaches, are being developed to minimize risks of harmful gambling, and these will also, hopefully, lead to a reduction in gambling-motivated fraud.

Other types of technology-enabled fraud will continue to develop including fraud that makes use of social networking sites and three-dimensional virtual communities. Already, we have seen instances of theft of virtual chattels from gaming sites, and consumer scams will work just as well in virtual worlds as in terrestrial communities. Anti-fraud measures used in the non-digital world should be applied to those who engage in gaming activities in virtual communities, as, after all, those at risk are real human actors, not just their avatars.

The other recent innovation that will create crime risks in the future is the move toward “cloud computing” and the use of external storage of data and applications. Unless accompanied by adequate security and back up, this will create opportunities for fraudsters and make the work of financial crime investigators all the more difficult. Already, we have witnessed police having problems executing warrants to search data held by corporations when they find that servers are located in other countries, beyond the jurisdiction of their warrant, or in places that make execution practically impossible or impractical. Criminals who are aware of these developments – and there are many IT-savvy fraudsters around the world – will seek out jurisdictions that are the most desirable places from which to base their operations, in terms of having the greatest impediments to law enforcement.

Finally, governments should be aware of the many risks that the delivery of government services electronically creates. As benefits continue to be provided using online payment systems, and as revenue is collected online, opportunities will be created for such systems to be compromised by dishonest citizens and corrupt insiders alike. Government agencies need not only to have secure systems in place but also guard against risks of corruption from insiders who may be tempted to allow third parties to gain access to networks without authorization.

This is a broad question, but how are Australia and New Zealand similar to, and different from, the United States in anti-fraud legislation? How does it compare to the UK? The EU? 

Australia and New Zealand inherited the English approach to criminal law and criminal justice administration and we still follow developments in Britain closely. In Australia, however, as a federation of states and territories with a separate federal administration, we struggle to achieve harmonized laws in many areas. Although model fraud, theft, and bribery laws have been created, they are still not implemented throughout the nation, and the chances of Australia achieving a single, uniform fraud act, such as exists in the United Kingdom with its Fraud Act 2006, are remote. This has implications not only for the effectiveness of criminal prosecutions for fraud, but also for the collection of fraud statistics, as each local agency adopts slightly different data collection practices, creating problems for calculating national figures on the incidence and cost of fraud.

Similar problems have arisen in connection with cybercrime and identity crime offenses, although there is now a move toward harmonization in both these areas. The United States moved quickly to pass its federal Identity Theft and Assumption Deterrence Act of 1998 (18 USC 1028), which became effective on Oct. 30, 1998. Only some states in Australia have passed legislation to proscribe various forms of identity crime, which were largely driven by the continuing problem of skimming of magnetic stripe information from plastic cards.

The other main difference between Australia and New Zealand and European countries, concerns our reluctance to introduce national identity cards. From Nov. 25, 2008, Britain began issuing identity cards to foreign nationals from outside the European Economic Area and Switzerland who were given permission to extend their stay in the United Kingdom as students; husbands, wives, civil partners, or unmarried or same-sex partners of permanent residents; and as the applicant’s dependents.

By 2015, it is expected that 90 per cent of nationals from outside the European Economic Area or Switzerland will have identity cards. The identity card for foreign nationals is the first part of the national identity scheme to be phased in over the period 2009 through 2012 for all those coming to the United Kingdom for more than six months or extending their stay in the United Kingdom. Proposals to introduce identity cards in Australia have met with opposition largely from privacy advocates, although this may be changing now that the community is seeing the problems that online user authentication systems have created. Having universal identifiers, such as in the United States, can, however, create more problems than solutions in connection with identity crime because once a single number is compromised, it can be difficult to rectify the problem.

Your job is extremely diverse. With so many types of fraud on your plate, how do you choose those on which to concentrate? 

The Australian Institute of Criminology (AIC), where I work, is Australia’s national research and knowledge center on crime and justice. As such, we are the designated agency to collect information on fraud against all federal government agencies, which results in an annual confidential report to government. This means that public-sector fraud remains a high priority for our research work.

We are also a member of the Australasian Consumer Fraud Taskforce and undertake an annual online survey of the personal fraud experiences of Australian consumers. Much of our research and public outreach is in the area of consumer fraud victimization which, in Australia alone, costs almost A$1 billion a year in losses. The other focus of our research concerns business fraud and money laundering, and this tends to involve the preparation of risk assessments of new fraud and money laundering typologies that identify threats for the future. So, my choice of which fraud type to concentrate on is somewhat restricted, simply because of the government research agenda that we undertake. 

What are some of the latest developments in the link between money laundering and terrorism?  

Much has been written about the relationship between financial crime and terrorism, but hard evidence and actual case studies are rather hard to find. There have been some documented cases of terrorist groups engaging in various forms of financial crime such as credit card fraud and online scams and also of funds being laundered through the use of nonprofit organizations. Terrorist groups are also making use of non-banking services to transfer funds in order to avoid detection under international anti-money laundering and financing of terrorism [AML/CTF] controls created by the Financial Action Task Force.

In Australia, instances of abuse of alternative remittance systems and the misuse of nonprofit entities are rare and isolated, although the risk is clearly present. Limited evidence is also present of criminals reverting to the cash economy to transfer value in order to ensure that transactions are not recorded by banks or are able to be detected during border crossings. In Australia, however, the reported cases have involved individuals who have supported overseas terrorist groups, as well as those who have planned terrorist activities within Australia – fortunately without success to date.

Although the incidence of Australian-based financing of terrorism is minimal, there remains an ongoing need to continue counter-terrorism efforts, which include the gathering of financial intelligence. Continuing education is needed for those individuals, organizations, and communities most at risk of becoming involved in funding illegal activities, both intentionally or inadvertently, in order to minimize risks of terrorist attacks. In addition, education can effectively be used to enhance social inclusion of ethnic communities and to counteract the process of radicalization, which may lead to terrorist activities occurring in the first place.

What are some of the barriers to successful investigation of cross-border high-tech crimes? What are some viable policy responses to these crimes? 

At the September 2003 ACFE Pacific Rim Conference in Sydney, I presented a paper on barriers to the effective investigation of cybercrime and identified seven areas of difficulty: identification of suspects, application of criminal law and securing extradition of suspects, choice of jurisdiction, problems of search and seizure, difficulties associated with encryption of evidence, securing mutual legal assistance across borders, and a number of logistical and practical problems for investigators.

The solutions to these concerns are gradually beginning to be solved, although much remains to be done. In Australia we are starting to see improvements in the verification of evidence of identity documents with issuing authorities, implementation of treaties and harmonization of high-tech crime laws both locally and internationally. There is also now enhanced awareness of these issues by the United Nations Office on Drugs and Crime including moves towards developing a protocol on the determination of jurisdiction in cross-border criminal cases, legislative reform of powers of search and seizure and targeted use of warrants, legislative reform to compel disclosure of encryption keys and to allow police to undertake covert key recovery activities, streamlining of mutual assistance procedures, and increasing of resources to agencies to respond to requests. Overall, the solutions lie in enhanced international cooperation and increased funding to expedite investigations.

What are other cross-border frauds with which law enforcement is struggling? 

One of the most recent concerns involves the skimming of credit card information at Automated Teller Machines or EFT terminals in convenience stores, and the transmission of the captured details for use by criminals overseas. In Australia, the number of counterfeit/skimmed card transactions has almost doubled over the last three years.

A recent example of a large-scale card-not-present fraud in Australia that resulted in arrests in March 2009 concerns a syndicate of individuals based in New South Wales who were alleged to have purchased more than A$4.5 million in goods using credit cards bearing bank account details skimmed or stolen from legitimate card-holders. The goods, including brand-new LCD televisions, laptop computers, cameras, power tools, GPS systems and iPods, were then allegedly sold on various online auction sites at reduced prices, allowing the syndicate to launder the profits. The syndicate had been in operation for some time and had allegedly sold 6,000 items for A$1.3 million before its activities were detected and law enforcement action taken.

It is often only when offenders, or their “money mules,” try to cash-out the proceeds of the frauds that they have undertaken that their activities are detected. Where this occurs overseas, law enforcement faces many difficulties in terms of the cost and logistics associated with pursuing the suspects.

What are some rudimentary effects of the global financial crisis in Australia and New Zealand, and other regions? 

In understanding the ways in which the global financial crisis [GFC] has affected all developed nations, it is possible to identify aspects that might promote risk of fraud, as well as factors that would impede fraud from occurring. My colleague, Professor Michael Levi, of Cardiff University, reminded me recently of Warren Buffett’s observation in 2001 that “in assessing the soundness of their reinsurance protection, insurers must apply a stress test to all participants in the chain, and must contemplate a catastrophe loss occurring during a very unfavorable economic environment. After all, you only find out who is swimming naked when the tide goes out.”

It has certainly been the case that the GFC has led to a number of serious frauds being uncovered as businesses undertake scrutiny of their accounts in order to secure savings. The GFC may also mean that individuals engage in dishonest practices in order to maintain their existing lifestyle. By the same token, however, the fact that many in the developed world are suffering a financial crisis may make restraint in consumer activities more acceptable than in better times. Fraud can also be promoted simply because of the availability of funds injected into the economy by governments implementing recovery packages – sometimes with undue haste and poor governance in place.

Opportunities for fraud can also be reduced in a financial crisis simply because fraudsters might lose their jobs and no longer be in a position to act dishonestly against their previous employer. To take one example, in Australia, on Feb. 3, 2009, the Australian government announced a A$42 billion Energy Efficient Homes Package, of which A$3.3 billion was set aside for the Home Insulation Program, an incentive program for Australians to install insulation in their homes. Due to the alleged fraudulent misconduct surrounding the program that emerged in early 2010, financial management and payment of rebates have been closely examined by the Australian National Audit Office. The Department of Climate Change and Energy Efficiency issued a statement on June 15, 2010 highlighting that approximately 25,000 of 1.2 million claims for work completed under the program were being withheld for investigation for possible fraud or noncompliance. In difficult financial times, a balance needs to be struck between acting swiftly in order to address a crisis and acting with appropriate anti-fraud measures in place.

Dr. Joseph T. Wells, CFE, CPA, founded the ACFE in 1988, in part, to promote fraud deterrence principles and practices. How do you promote not just detection, but deterrence? 

Fraud prevention, like other types of crime prevention, has been described in terms of three stages – primary, secondary, and tertiary. Primary prevention tries to stop the problem before it happens, such as by reducing opportunities for crime and strengthening community and social structures. Secondary prevention seeks to change people, typically those at high risk of embarking on a criminal career. Tertiary prevention focuses on the operation of the criminal justice system and deals with the offending after it has happened. The primary focus is on intervention in the lives of known offenders in an attempt to prevent them from re-offending. This is where deterrence comes into play.

Because fraud is often complex in its methodology, crosses jurisdictional borders, and is accompanied by sophisticated attempts to prevent detection, criminal prosecution and punishment are often difficult, slow, and costly. Although it is always necessary to have the possibility of prosecution and the imposition of sanctions in order to promote general deterrence, far greater benefits in terms of fraud reduction can be achieved through the use of strategies designed to ensure that fraud is detected early and promptly. If potential fraudsters believe they will be detected there is a chance that they may desist from their activities. Of course, situational factors may lead some offenders to continue to offend regardless of the possibility of detection or the imposition of sanctions – such as those driven by the need to fund an addiction to gambling or to promote a failing business – and it is for these individuals that community supports to address their personal circumstances will be most effective. Ensuring that those with gambling problems are provided with help is a much more effective way to prevent fraud than to rely on the uncertain outcomes of criminal prosecution. So my answer, in short, is that by promoting detection, you will in most cases also achieve enhanced deterrence.

What changes in technology are affecting anti-fraud efforts? How about globalization? 

The most obvious technological approach to fraud prevention lies in target hardening, such as through the use of computer chip cards authenticated through PINs or biometrics. In addition to target hardening, however, are the many systems designed to monitor transactions that enable high-risk or suspect transactions to be drawn to the attention of consumers at the time of purchase.

The global anti-money laundering regime has greatly enhanced the prominence and importance of transaction monitoring by regulators. This not only assists in enabling law enforcement to follow the proceeds of crime, but also has many fraud detection and reduction benefits, which are often not considered in attempts to evaluate the effectiveness of AML/CTF laws.

Transaction monitoring has also helped to address fraud, which takes place across jurisdictional borders – thus also assisting in dealing with the globalization of fraud. The concern for the future lies in the various ways in which offenders seek to circumvent AML/CTF controls such as through the use of remittance transactions or the movement of bulk cash and bearer negotiable instruments, which may be more difficult for regulators to detect.

What are some ways the Australia and New Zealand governments are working with governments throughout the world in cooperative anti-fraud efforts? 

One of the most prominent examples of international cooperation in anti-fraud initiatives is the work of ICPEN – the International Consumer Protection and Enforcement Network, which is a network of consumer protection law enforcement authorities in more than 40 economies. ICPEN provides a forum in which authorities can cooperatively share information and look at combating consumer problems that arise in connection with cross-border transactions in goods and services, such as e-commerce fraud and international scams.

The mandate of ICPEN is to encourage practical action to prevent cross-border marketing malpractice. ICPEN also aims to share information about cross-border commercial activities that may affect consumer interests and encourage international cooperation among law enforcement agencies. Each year Australia and New Zealand participate in Fraud Prevention Month, which is an education campaign that aims to inform consumers about fraud and to raise awareness of scams. ICPEN also conducts an Annual International Internet Sweep, which is a global web-surfing exercise designed to improve consumer confidence in e-commerce by demonstrating a law enforcement presence online. Participating enforcement agencies search for websites that may potentially be deceiving and/or defrauding consumers. As a result of last year’s sweep, a bogus 2010 FIFA World Cup™ soccer ticketing website was detected.

Other international forums in which Australia and New Zealand participate include the OECD Committee on Consumer Policy and the International Mass Marketing Fraud Working Group which consists of a number of domestic and international law enforcement agencies focussing on mass-marketed fraud. This aims to improve intelligence, increase disruption of scam/fraud operations, expand public awareness and prevention measures, and enhance cooperation and coordination in enforcement actions against mass marketed fraud activity. Consumers International, which is an independent body consisting of representatives from 115 countries, founded in 1960 to campaign for the rights of consumers across the world, also seeks to address consumer fraud issues.

You’ve compared the ACFE’s 2010 Report to the Nations on Occupational Fraud and Abuse with your statistical data. What are some of the similarities? Differences? 

Interestingly, the nature of fraud in Australia – the typology of methods used, and the profile of offenders and victims – are remarkably similar to those in the U.S., as reflected in the results of the ACFE’s 2010 Report to the Nations and comparable Australian surveys. For example, in its survey of business fraud in Australia and New Zealand, KPMG found that for fraud in non-financial institutions, 57 percent was committed internally, with management responsible for more of the total value of fraud than non-management employees. Almost half of the fraud incidents were committed by external parties. While non-management employees were responsible for more fraud incidents than management, the value of fraud was higher for the incidents committed by managers.

The major difference between the results of the ACFE survey and that of KPMG, lies in the scale of the losses sustained with far higher losses being reported in aggregate and individually in the U.S. as opposed to in Australia and New Zealand. There is also clear evidence that gambling problems lie behind the largest proportion of serious fraud incidents in Australia. The influence of gambling is not clearly documented in the ACFE Report, although it is likely to be high on the list of principal motivating factors.

What encouragement and advice can you give our hard-working members as they fight a never-ending battle against fraud? 

Probably my best advice is to not be deterred by ever-increasing workloads and to maintain high standards of investigation and ethical standards in the work they do. It is better, in the long run, to have investigations undertaken carefully, thoroughly, and diligently, than to have speedy, but less intensive work undertaken. The outcomes may be delayed, but in this area of complex financial crime, thoroughness and care will eventually be rewarded. I’d also encourage members to share their experiences with the public as much as possible. An informed public is much less likely to fall prey to fraud, but individuals need to know the risks they face and exactly how they will be targeted, in order to change risky behaviors that could lead to victimization.

What kinds of organized crime groups do you see in Australia and New Zealand and their prevalent schemes? 

As in the United States, organized crime is infiltrating many aspects of society. We continue to have problems with drug-related organized crime, but some groups are now putting effort into new areas such as fraud, people smuggling, trafficking in arts and antiquities, and financial services fraud. Australia and New Zealand continue to have problems from outlaw motorcycle gangs and traditional organized crime groups, some of which are based in Asia but with links to counterparts in Australia. Organized computer-based fraud that emanates from Eastern Europe also affects Australians to a similar extent to those in other developed countries.

Is identity fraud a crime in Australia by law? What new legislation do you see coming in the future? How does anti-fraud legislation stack up against other developed countries? 

In Australia, four states have specific identity fraud legislation. Although they differ in some details, these jurisdictions now have specific offenses of assuming a false identity with intent to commit a serious offense; making, using, or supplying identification information with intent to commit an indictable offence (which carries a maximum penalty of five years of imprisonment); possessing identification information with intent to commit an indictable offence (which carries a maximum penalty of three years of imprisonment); and possessing equipment capable of making identification information with intention to use in the commission of an indictable offence (which also carries a maximum penalty of five years of imprisonment).

Such legislation generally does not apply to using one’s own identification information and it is not a defense to a charge that the victim consented to the use of the victim’s personal information. Attempting to commit these offenses is not a criminal offense, and the law applies even if the commission of the indictable offense is impossible. These laws also apply to deceased persons’ identities that have been misused and to entirely fictitious identities. Finally, some of these laws give power to courts to issue an identity crime certificate to victims to verify the fact of their victimization. This can be used to assist victims in reestablishing their stolen identities and in ensuring that they are not liable for crimes committed in their name. The certificate is, however, not a remedy in that it does not compel others to take restorative action. For example, it does not compel financial institutions to reinstate a person’s credit rating. Rather, the certificate provides a means to present the outcome of a court’s decision in a way that may be readily used by the victim to ensure the outcome of the legal proceeding. In those jurisdictions without specific identity crime laws, prosecutors need to rely on conventional computer crime laws or laws of theft and dishonesty that often are not entirely well-suited to identity crime.
      
Australia, unlike the United Kingdom, does not have a separate fraud act to deal with all types of financial fraud. This would be beneficial, not only in facilitating prosecution, but also for enabling uniform crime statistics to be recorded on fraud offences. At present, there are hundreds of offenses that can be charged in cases of dishonesty and these often differ across jurisdictions. Harmonizing laws, as I said before, would be highly beneficial in Australia and, indeed, in other countries.

What further research are you conducting?  

The most recent research at the AIC has examined the AML/CTF regime locally and internationally as it affects Australia. It also examines new areas of risk for money laundering and financing of terrorism. This has included research on alternative remittance systems, the nonprofit sector, trade-based money laundering, and bulk cash smuggling, as well as surveys of the regulated business sector and surveys of some of the currently unregulated sectors such as the legal profession. Next year we’ll continue this line of research and also conduct further work on technology-enabled fraud and consumer mass-marketed fraud.

What do you enjoy most about criminology research? 

Criminology lies at the interface between a number of social scientific and related disciplines and, as such, involves inter-disciplinary research using a range of research methods. It is a constantly evolving discipline in which policy-relevant research can be undertaken to investigate some of the most interesting and important questions affecting society today.

Although much research addresses the enduring questions of understanding and explaining conventional crimes of violence, juvenile offending, and the addictions, I have chosen to focus on the areas of financial crime, cyber crime, and transnational crime. These entail challenges in terms of the knowledge base needed to understand the crime typologies employed, as well as to obtain data upon which to base research activities. New challenges emerge constantly, and new crimes are evolving all the time. There is also a real opportunity to change policy and legislation by undertaking research and contributing to the process of law making, both locally, nationally, and internationally.

In what ways do you collaborate with academics in the region in your research efforts?  

As president of the Australian and New Zealand Society of Criminology, I have excellent opportunities to collaborate with criminal justice academics and practitioners throughout Australia and New Zealand and, indeed, internationally. The society comprises almost 600 members including academics, criminal justice practitioners from law enforcement, corrections and other government agencies, and other interested criminologists. It is managed by a committee representing all states and territories in Australia and New Zealand and publishes an academic journal and a newsletter a number of times each year.

We meet annually in a different city for our annual general meeting and conference. This year, the conference was conducted in Alice Springs, in Central Australia. This provided an excellent opportunity to discuss the many crime and justice issues that face the Indigenous population. I presented a paper on “Fraud in the Outback” in which I examined opportunities for fraud in outback Australia, which included fraud against government benefit programs, fraud targeting Indigenous Australians, fraud in Indigenous communities, fraud involving Aboriginal counterfeit artworks and fraud in connection with the mining and pastoral industries in remote settings.

I then considered the limits of capable guardianship in preventing such fraud from taking place and provided suggestions for strengthening approaches to financial crime prevention in outback Australia. Other papers on financial crime examined the problem of consumer scams, mass-marketed fraud, fraud in the wine industry, trafficking in antiquities, transnational and organized fraud and fraud against government services and programs.

We welcome new members. We have a category of membership for those who reside in other countries. Some of our members live in the United States, Canada, Britain, and EU countries.

What are some of your recommendations for reform of the criminal justice system? 

In Australia, the necessity for harmonization of laws is ever present, and, in the context of fraud and cybercrime, harmonization needs also to take place internationally. Hopefully, we’ll see a UN cybercrime or financial crime convention in the future to guide nations in the introduction of normative approaches to these global crime types. I’d also like to see enhanced services for victims of fraud, similar to those that exist for victims of sexual offenses and victims of domestic violence. Fraud, although not a violent crime, can ruin people’s lives and destroy their otherwise well-planned retirements. Ensuring that financial, as well as personal, support is available through access to counseling services is a part of the criminal justice system that remains sadly lacking in many jurisdictions.

What do you do outside of work to balance your intense efforts? 

My leisure activities also have a link to my research interests in history, as I enjoy 18th century opera and chamber music, and have a couple of old English cars that I restore and maintain. Researching spare parts for my partner’s 1967 Hillman Gazelle and my 1948 MGTC can be just as challenging as researching current fraud trends – although you end up with more grease on your hands than working at a computer! I keep as fit as time allows by cycling and kayaking in some of Australia’s most beautiful bushland, lakes, and rivers.

Russell Smith’s views are personal and don’t necessarily reflect the policies of the Australian government.

Dick Carozza is editor-in-chief of Fraud Magazine.

Smith Delineates Primary Drivers of Fraud

Russell Smith believes the three primary drivers of fraud and its prevention that affect Australia and New Zealand and other developed countries are: technological development, changes in the delivery of government services, and globalization.

“In terms of technological change, there has been an integration of technology into personal and professional life such that many workers, including myself, are now able to work remotely from home with access to government and business networks provided by secure – or sometime insecure – connections,” Smith said.

He said that technology has also enhanced the ways in which individuals and corporate entities identify themselves such as through the use of biometric systems. “In addition, we have seen the widespread adoption of new payment systems including chip cards, e-cash, virtual currency and contactless payment terminals, each of which carry their own vulnerabilities for fraud,” Smith said. Developments in cloud computing are beginning to create problems for law enforcement in executing search-and-seizure processes when data are held remotely in other countries, he said.

“There has also been a change in the delivery of government services with increasing use of information and communications technologies to provide infrastructure for claiming benefits and paying tax,” Smith said. “Allied to internal fiscal measures, there has been expansive globalization in the delivery of commerce. The rapid development of industry in the new economies of China and India has meant that greater opportunities exist for fraud and corruption than existed previously.”

Smith Encourages CFEs to Glean More Information From Fraudsters

Russell Smith said that CFEs should seek to gather “criminogenic” information from convicted fraudsters to understand how they share methods among themselves.

“Thanks to the ever-expanding scope of online services … information about new fraud typologies is quickly disseminated across the globe,” Smith said.

“Engaging with the criminal community may require court authority, or police sanction, but the information obtained can be valuable,” he said. “The trouble, of course, lies in the scale of the task and the underground online research skills needed.”

Smith said eliciting the help of some of our youngest high-tech fraudsters could help CFEs understand how information moves around the Internet and criminals’ strategies for disguising data trails.

“Fraud examiners also need to maintain a broad education on new developments in online services and electronic payment mechanisms as these will be the location from which the latest fraud typologies emerge,” he said. “Undertaking qualitative research by interviewing convicted fraudsters can also be productive – as long as steps are taken to verify the authenticity of what emerges from conversations.”

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