During periods of economic crisis or contraction, financial institutions detect more fraud as hidden issues come to light. Insider fraud, however, is constant and more driven by motive and opportunity than changing economic conditions. The sudden shift to remote working due to the global pandemic has created even more opportunities for corrupt insiders to operate.
Is the incidence and risk of insider fraud growing? Many experts believe it is.
The Rise of Insider Fraud – Why Now?
The number of insider bank fraud cases is likely to be under-reported as financial institutions are often reluctant to publicize these events. Bringing cases to prosecutors means bringing them into the public eye, which creates concerns about undermining customer trust and creating negative exposure.
But that’s not to say that most banks don’t recognize the risks. According to the Kroll ‘Global Fraud & Risk Report 2019/2020’, 64% of financial services professionals ranked internal fraud as one of their top priorities.
Insiders pose the greatest risk to financial institutions because they have the knowledge and insight to manipulate their organization’s systems. Carnegie Mellon University’s Software Engineering Institute’s study on ‘Insider Fraud in Financial Services’ found that “insiders pose a substantial threat to financial services companies by virtue of their knowledge of and access to proprietary systems and their ability to bypass security measures through legitimate means.”
All banks and financial institutions face this problem to some degree. In other words – no bank is exempt.
Challenges to Combatting Insider Fraud
One of the key challenges for those responsible for preventing insider fraud is that there is no clear profile of the “corrupt bank employee”. Age, gender, demographics, location, number of years of service — none of these factors provides a strong correlation with insider theft or fraudulent activity.
What motivates an employee to engage in unethical and illegal activity is complex, whether it is dissatisfaction because they feel undervalued or it is simply opportunistic. To add to this complexity, while some corrupt employees use the money they steal for personal gain or to fund their lifestyle, in many instances, employees find themselves compromised by others –– such as organized crime groups — and, willingly or not, become accomplices, providing access to bank records and customer information or taking other actions that enable these thefts to occur. And the illegal activity may not always be outright theft — it could be the facilitation of money laundering or other illegal activity.
In recent years, the prevalence of social media has become yet another boon to criminals seeking to compromise or groom vulnerable bank employees. These often poorly monitored platforms have made so much personal information available at the click of a button, which in the wrong hands can be misused and exploited.
While the challenges to tackling insider fraud are vast and pervasive, there are now proven tools and tactics banks can use to improve their detection and prevention of fraudulent criminal activity.
Six Best Practices for Insider Fraud Detection & Prevention
There are several detection tools and methods which, if properly and consistently executed, can help combat insider fraud. These include:
- Monitoring bank employee transaction activity
- Sphere of influence detection (personal relationships)
- Anomaly detection re: employees’ behavior
- Uncovering undisclosed conflicts of interest (outside business / financial interest)
- Monitoring logon/access to IT and security systems (including changes made in contact details)
- Formalizing organizational learning based on past fraud events
Successfully implementing these tactics as part of a complete fraud prevention program requires utilizing a range of data and data types and having effective IT tools that enable the analysis of that data.
For instance, data from Human Resources can be combined with open source and other external data sources to enable an effective system for employee “sphere of influence” monitoring. Corrupt insiders often try to avoid detection by transferring money into accounts controlled by personal associates and/or family members, but with a sphere of influence database and an effective analytic tool, any links between a corrupt employee and collaborators – including telephone numbers, addresses, social media links, family relationships, past transactions, and so on – will be flagged immediately.
Similarly, in cases in which a corrupt insider makes improper transfers of money to or from commercial accounts, an effective analytics program can reveal links between that employee and receiving accounts.
Another key element of an effective insider fraud prevention program is Entity Resolution, which can ensure that common obstacles to resolving entities — variations in names, spelling, dates, addresses, etc. — do not prevent the clear, accurate resolution into a single entity, be that a person or a business. The more data that can be brought into a fraud monitoring system, and from a wider variety of sources, the better.
Data is Fundamental in Preventing Fraud
It is encouraging that more and more banks have recognized the value of using analytic tools to prevent fraud. The same Kroll research report cited above found that in Financial Services, data analytics was rated the most effective method of detecting incidents (by 75% of respondents).
One further challenge when working with financial institutions evaluating additional investments in their fraud prevention technology relates to cost accounting. Often, one department’s budget may be expected to absorb the full cost of the project, but in fact, benefits of an improved data analytics system are virtually always spread over a range of areas and — viewed properly — can be documented as contributing to many departmental and organizational objectives, not solely to insider fraud prevention.
The banks that recognize this fact are guaranteed to have a strategic advantage.
You may be interested in…

Scams: You Can Prevent More Than You Think
Learn how you can tackle the rising tide of internet-enabled crime by leveraging the power of advanced analytics technology.

Combatting the Rising Risk of Buy Now, Pay Later Fraud
Discover how you can overcome the fight against BNPL fraud with context, by leveraging the power of advanced analytics technology.

Leveraging Geospatial Data for More Intelligent Decision-Making
Discover the latest feature of the Quantexa 2.1 platform, Geospatial Search designed to make the most of geographical data to provide context.

How Financial Institutions Can Detect and Prevent APP Fraud
As instances of APP fraud continue to grow, discover how advanced technology can help outpace assailants and protect victims.

Celent Case Study: Automating KYC Investigations with ABN AMRO
Explore how an automated approach to KYC has improved the efficiency and effectiveness of KYC investigations for ABN AMRO.

The State of AI in Financial Services [Global Survey Results]
Gain an understanding of the evolution and adoption of AI in financial services in this global survey from AI Forum & Quantexa.
Related Solutions

Tax Authorities
Reduce the tax gap, identify fraud and non-compliance, and operate as efficiently as possible with limited resources.

Anti-money laundering
Reveal hidden risks and detect criminal activity faster. Reduce false positives to manage the cost of compliance. And improve investigations to make faster and more consistent decisions at scale.

Customs Agencies & Border Control
Contextual Decision Intelligence enables faster decisions, increased revenue collection and enhanced compliance. The Quantexa platform enables Customs and Border agency teams to analyze data successfully, automate and accelerate decision-making, and achieve improved results.

Fraud
Identify potentially fraudulent activity by looking at people or transactions in isolation. Understand the context surrounding the organizations you do business with to make fast, accurate decisions.

Fraud, Waste & Abuse
Empower your team with the best tools available for today’s challenges to identify and prevent fraud, waste and abuse with contextual decision intelligence software.

Credit Risk
Understand your customers, their business structures and supply chains. Make better lending decisions, faster. And support digital risk transformation.

Customer Intelligence
Generate a complete view of the context around your customers and prospects to build better relationships, reduce attrition and find hidden opportunities.

Revolutionize Your Financial Crime and Fraud Detection with Syneo

Syneo Investigations
Enhance the efficiency, effectiveness and consistency of your operational and complex investigations to empower your teams to expose and understand risk faster.

Master Data Management
Connect all data—internal and third party—to create a joined-up, contextual view of all the relationships between your customers and every other domain.

Compliance
See how we help to reduce costs and improve coverage for financial crime compliance.

CDO
See how our platform uses contextual analysis to turn data into a high value asset.

CIO
See how our platform uses financial crime technology to enhance your existing IT ecosystem.

Healthcare
Reduce the tax gap, identify fraud and non-compliance, and operate as efficiently as possible with limited resources.

Syneo for Contextual Monitoring
Reveal hidden risks and detect criminal activity faster. Reduce false positives to manage the cost of compliance. And improve investigations to make faster and more consistent decisions at scale.

Unified CRM Solution

Know Your Customer
Reduce significant manual effort across onboarding, refreshes and remediation. Automate checks, implement continuous monitoring, and focus on contextual decision making.

Growth and Retention

Contextual Engagement
Generate a complete view of the context around your customers and prospects to build better relationships, reduce attrition and find hidden opportunities.

Data Management
Connect all data—internal and third party—to create a joined-up, contextual view of all the relationships between your customers and every other domain.

Connected Customer View
Generate a complete view of the context around your customers and prospects to build better relationships, reduce attrition and find hidden opportunities.