Breaking records

It was a record-breaking year for the Association of Certified Fraud Examiners (ACFE) as more than 5,500 fraud examiners from across the globe met in June for the 34th Annual Global Fraud Conference held in Seattle, Washington. ACFE’s hybrid in-person and virtual conference in the Pacific Northwest surpassed the record set last year in Nashville, Tennessee, with 5,300 attendees.

Virtual and in-person attendees had 101 educational sessions to choose from, addressing some of the biggest topics in the anti-fraud field. Topics included ChatGPT’s effect on fraud prevention and best practices for using it in fraud investigations; improving interviewing skills and reducing bias during investigations; managing fraud risk in the post-COVID-19 landscape; and managing teams in hybrid work environments.

“The remarkable turnout at our conference is a testament to the power of shared purpose where like-minded professionals come together. The energy and excitement felt in the air in Seattle was unmatched. Handshakes turned into friendships and conversations into collaboration,” says ACFE Vice President of Events Leslie Simpson, CFE.

And there were plenty of opportunities for attendees to socialize and learn from their fellow fraud fighters. In-person participants could explore tools and technologies to assist in their fraud examination from vendors in the ACFE Market. At the women’s networking reception, participants practiced their elevator pitches. Country and blues artist Lee Roy Parnell and his band entertained attendees on the rooftop terrace of the downtown Seattle convention center during the penultimate networking reception. And virtual attendees could unwind with brain breaks when they weren’t in sessions, with cooking demonstrations by Chef Brad’s Kitchen, a puppy cam and workouts with Coach Amy.

“The Annual ACFE Global Fraud Conference is an extraordinary gathering of individuals devoted to combating fraud. The conference’s unique feature is its reach to both in-person and virtual attendees, making it a critical learning opportunity for fraud fighters around the world,” says John Loftis, CFE, marketing director for the ACFE.

The Seattle conference had a stellar lineup of keynote speakers led by award-winning journalist and CBS Senior Business and Technology Correspondent Jo Ling Kent, who emceed. Xavier Justo, the former Swiss banker who blew the whistle on the 1MDB scandal, received the Cliff Robertson Sentinel Award and spoke about his experience with whistleblower retaliation. (See “Unfairly thrown in a Thai jail for 547 days” for an in-depth interview with Justo.)

Author and psychotherapist David Lieberman, Ph.D., imparted his wisdom on human behavior, detecting lies, behavioral cues of innocent and guilty people and best practices for coaxing confessions. (See “Understanding the art of deception” for an in-depth interview with Dr. Lieberman.)

And no conference would be complete without an interview with a convicted fraudster. John Gill, J.D., CFE, ACFE’s incoming president, got inside the mindset of Billy McFarland  who spent four years in prison for organizing the fraudulent Fyre Festival.

The following are some of the highlights from keynote speakers during the conference.

Crypto panelists call for regulatory reform

The U.S. lacks a comprehensive regulatory framework to cryptocurrency fraud and is falling behind other countries on this front, panelists warned during the keynote discussion on cryptocurrency assets. But the panelists also expressed hope that the U.S. could catch up if a bill to regulate cryptocurrencies gains momentum in Congress, a move that would help define which regulatory agencies are responsible for fighting crypto frauds.

“If we set our minds to it, we could have something done in six months,” said Hester M. Peirce, commissioner at the U.S. Securities and Exchange Commission (SEC). “It is a question of whether Congress does the first pass and regulators work from there. But if we all sat down and worked together it wouldn’t be that hard.”

Without clear rules on crypto assets such as bitcoin and digital tokens, regulators have taken a hands-off approach or enforced existing laws to prosecute crimes, often years after they’ve taken place. That approach is broadly seen as a failure amid an explosion of complex fraud cases that culminated last year in the downfall of crypto exchange FTX and its CEO Sam Bankman-Fried.

“Regulation-by-enforcement approach means that you wait until the harm has happened and then you try to fix it after the fact,” said Sheila Warren, CEO of Crypto Council for Innovation. “That just means that consumers and average people are left holding the bag, and that’s shameful.”

And by clamping down now on potential crypto fraud that occurred as far back as 2017 — when there was no real enforcement — the SEC caused considerable confusion. “In the intervening years, people have relied on that fact that there hasn’t been enforcement, so everyone is very confused,” said Pierce. “Lawyers don’t know how to advise [their clients]. Good lawyers are saying, ‘I really don’t know what to tell you to do.’ So, people go down the street to a bad lawyer who says, ‘I guess you can do anything you want.’ So, the regulatory void leads to bad activity.”

Even so, the blockchain technology has proven useful for U.S. law enforcement officials who’ve realized that tracking bitcoin and other crypto assets used by fraudsters is much easier than originally thought. Wired reporter Andy Greenberg said that experts had been watching blockchain movements in millions of dollars of crypto stolen at FTX following its bankruptcy last November. (See “Sleuths on the cyber trail,” by Paul Kilby, Fraud Magazine, March/April 2023.)

“It’s almost like watching the getaway car and following its every turn as they look for somewhere to hide the money or cash it out,” said Greenberg. “This is the crazy thing about blockchains; we can all see this happening. We don’t know still if it was an FTX insider or opportunistic hackers, but it will be very difficult to cash out or liquidate that money without being identified.”

FTX is a good example of how the U.S. remains behind in the race to erect regulatory barriers to prevent crypto fraud, said Warren. Notwithstanding FTX’s more scandalous aspects, most countries are less obsessed with the crypto exchange’s problems, not least because they have rules in place to prevent or lessen the damage caused by crypto frauds. “The impact [of FTX] both optically and practically on consumers in other parts of the world is just not the same as here because they had more robust rules in place,” she said.

The U.K. is moving fast to get crypto rules in place by the end of the year, while Japan and Singapore already have established regulations, said Warren. And the European Parliament just this year passed its first law regulating crypto trading across the continent. The law, Markets in Crypto-Assets Regulation (MiCAR), requires anyone trading cryptocurrency to get regulatory authorization first and allow for the tracing of digital asset transfers to stop money laundering and terrorist financing.

MiCAR is a “comprehensive, massive legislation that had to get a buy-in from all the different countries in Europe, from different agencies and parties, and was incredibly complicated,” said Warren. If that’s achievable, she added, U.S. lawmakers should have little trouble putting together similar legislation that would prevent crime and give fraud examiners standards that clearly distinguish between when someone is committing crypto fraud and when a person is simply carrying out normal business activity. “I am really hopeful that we will get it together and really look out for American consumers,” she said.

Regardless of whether the U.S. Congress passes such legislation, learning how to use crypto tracing, or at least understanding how the technology works, is becoming increasingly important for anyone working in the anti-fraud field. “If you don’t already have those skills, I would strongly recommend familiarizing yourself with what it is,” said Warren.

Greenberg said it’s important because people in law enforcement often lack the skills to catch many of the lower-level fraudsters who aren’t part of high-profile cases but nonetheless cause considerable damage. “This group of thousands of fraud examiners, I hope, can rally to seek out those smaller-scale criminals who are adding up to billions of dollars (in fraud),” he said.

Telling fraud stories through film

Brian Lazarte and James Lee Hernandez are storytellers by trade. But the directors and producers of the HBO docuseries “McMillion$” and the Apple TV+ docuseries “The Big Conn” align themselves with fraud examiners. During their keynote session in Seattle, the Emmy-nominated pair discussed their process of “investigating an investigation,” conducting effective interviews with both criminals and their victims, and understanding the long-term effects of fraud.

“We want to build a case. We want to make it the most convincing version of the story as possible so that we take you on a ride,” Lazarte said of the pair’s filmmaking process. “What we know with any storytelling is it’s driven by your emotions, right? When you’re a prosecutor, when you’re talking to 12 jurors, you want to take them on a journey. You want to tap into the emotions of the story you’re telling.”

Understanding the full scope of a story is essential to Lazarte and Hernandez. While riding the rollercoaster of emotions keeps documentary viewers engaged, the reality is that there are real victims and people affected by these scams, which brings gravity and relevancy to the stories they investigate as filmmakers.

Filmmaking, much like fraud investigations, starts by conducting effective interviews. Whether it’s interviewing someone with intimate knowledge of the case or sitting down with fraud victims, patience is vital for Lazarte and Hernandez.

Getting someone to speak on camera isn’t easy — especially if they’re already hesitant to do so in a private setting. But as they’ve found through persistence (often, many months of it), criminals find catharsis in speaking their truths. By using empathy and understanding to break down the wall, a criminal’s true character is unveiled, and real reflection rises to the surface. “Everybody else can talk about you,” Lazarte tells interview subjects. “But if you have a certain position on this, you need to speak for yourself.”

For the victims of these crimes, successful interviews require sensitivity. In reinforcing early on that their journey is incredibly personal, Lazarte and Hernandez connect with subjects on a deeper level and begin to slowly understand the root causes of why they succumbed to a crime. It’s through these relationships that valuable perspectives emerge, which can ultimately help other victims understand that they’re not alone, and furthermore, deter others from falling victim to similar scams.

“For [‘McMillion$’ fraud victim Gloria Brown], it was the catharsis of setting the record straight,” Hernandez said. “She’s showing that she’s a real person. Yes, she made a mistake. But sometimes, good people make bad decisions and that shouldn’t define your entire life.”

Understanding the roots of corruption: Michael Horowitz

“It is unusual for those of us in the inspector general community to have people, when you are introduced, to actually stay in the room to listen and talk to you. Usually, people run for the doors,” joked Michael Horowitz, the inspector general for the U.S. Department of Justice (DOJ), as he addressed attendees during his keynote session.

Horowitz was in Seattle to receive this year’s Cressey Award, which the ACFE bestows annually for a lifetime of achievement in the detection and deterrence of fraud. Coincidently, one of his most recent cases involved a DOJ lawyer who helped facilitate a friend’s dealings with Jho Low, the businessman who allegedly stole billions of dollars from Malaysia’s sovereign wealth fund 1MDB. And it was that corruption case that was exposed by Xavier Justo, winner of the ACFE’s Sentinel Award.

“It gives you a sense of how enormous the tentacles are of that fraud and just the enormity of the work Xavier has done to uncover it,” said Horowitz.

Looking back over his career, Horowitz recalled what he learned from being involved in New York City’s biggest ever police corruption case, the “Dirty 30,” in which dozens of police officers in Manhattan’s 30th Precinct colluded with drug dealers at the height of the crack epidemic in the early 1990s. “It was evident in that case what you see over and over again about the corrosive effect of fraud and corruption, and they often go hand in hand,” he said.

The experience helped Horowitz understand the dynamics of the Fraud Triangle developed by Donald Cressey, his award’s namesake. The three legs of the triangle that explain why fraudsters do what they do — namely opportunity, pressure/motivation and rationalization — applied to the corrupt cops. “None of those officers came to the NYPD because they were corrupt and looking to engage in corruption,” he said. “They were corruptible.”

The cops were largely young, with no college education and were starting their first jobs at low pay. “We talked to upward of 20 of these officers and we heard in some of the stories what Dr. Cressey had laid out,” he said.

Those police officers rationalized their actions, saying that they spent more time doing paperwork than the drug dealers stayed in prison. They were also under financial pressure and saw an opportunity to make more money. And as they saw that others were getting away with corrupt acts, they could rationalize it further by thinking, “Everyone is doing it.” And hence the corruption spread among other police officers.

“It was clear to me at that stage of my career the importance of the work we all do to prevent, detect and deter wrongdoing because of the terrible impact it has on community,” said Horowitz.

Exposing truth: Miranda Patrucic

When Miranda Patrucic first started out as an investigative journalist, her editor Drew Sullivan would tell her, “Go get me a miracle.” Patrucic never quite understood, but she was soon to discover what he meant after being assigned to write a profile of Milo Dukanovic, the longstanding leader of the small Balkan nation Montenegro.

“I didn’t know anything about Montenegro, and [here I was] deciding to go investigate a prime minister, the most powerful person in the country,” recalled Patrucic to a packed opening session in Seattle.

While local gossip about Dukanovic’s substantial wealth was common, there was no evidence the talk was true. Looking through the property registries seemed like an obvious starting point, but Patrucic needed the politician’s national insurance number, which she didn’t have. So, she went through the registry street by street, building by building, until one night she stumbled upon a property owned by Dukanovic. She excitedly called Sullivan, who said, “You got your miracle.”

Patrucic and other reporters eventually found that Dukanovic — who’d held power in the small Balkan country either as prime minister or president since the 1990s — owned or controlled properties or shares in companies worth $14.7 million, which stood in sharp contrast to his monthly salary of $1,700.

That story was Patrucic’s first big scoop. Since then, Patrucic has broken stories about corruption across the globe and was recently promoted to the position of editor-in-chief of Organized Crime and Corruption Reporting Project (OCCRP). She is also the recipient of the ACFE Guardian Award, which is bestowed on someone whose determination, perseverance and commitment to the truth has contributed significantly to the fight against fraud.

Patrucic’s determination has made all the difference in uncovering the truth about fraud and corruption. Shortly after exposing Dukanovic’s illicit wealth, she went on the hunt for information about a bank owned by his family. The Dukanovic administration had bailed out the bank in 2008 during the global financial crisis and it was thought to be a vehicle for loans to family and friends. An elusive PricewaterhouseCoopers (PwC) audit was nowhere to be found. “I would ask reporters and they would tell me, ‘Just forget about it. You will never get it,’” said Patrucic.

Three years later, Patrucic asked the same question to a source, and they handed her piles of documents showing evidence of money laundering and the opening of accounts for drug lords. That clinched Patrucic another high-profile story about Dukanovic.

But the life of an investigative reporter has its own unique dangers. She recalls how she asked her editor why someone in Montenegro was asking her how much her life was worth, not realizing that it was a death threat. “He was like ‘Get the hell out of the country,’” she said. Since then, a former MI6 operative has trained Patrucic in counter surveillance and how to know when someone is following her.

She also highlighted the need for fraud examiners to share information and their skills with journalists in their work to uncover corruption. “We also need people to care about our work, and this is why this award is meaningful because I am much safer now with this kind of recognition,” she said.

Having grown up during the brutal civil war in Bosnia in the 1990s, Patrucic is no stranger to such dangers. “My war years really shaped me into who I am today and why I care so much about corruption,” she said.

“[During the war] one thing that mattered was to tell what was going on because unless you were in the country nobody knew. So why do I expose corruption even if nothing happens? I expose it so nobody can say we didn’t know. Everything is now online so you just choose not to know.”

Jennifer Liebman, CFE, is assistant editor of Fraud Magazine. Contact her at jliebman@ACFE.com.