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This article is written by Ilashri Gaur, a student pursuing B.A LLB (Hons.) from Teerthanker Mahaveer University. This is an exhaustive article which deals with financial crime and the technology which helps for prevention.

Introduction of Financial Crime

Before going to deal with the prevention of financial crime, let us first know what exactly ‘’Financial Crime’’ means. Who do you picture when you imagine a criminal or a victim of a crime? Do you imagine someone attacking you on the street? What if you came to know that the criminal isn’t a stranger, but is known to you. While this person does not take money by force or through violence but still steals from you.

‘Financial Crime’ has been a pivotal issue all over the world for several decades now. Authorities are constantly looking for new ways to tackle financial crime as criminals are always ready with new and innovative tactics to stay ahead of the same. If you are working in finance or business sectors, it is critical that you understand what financial crime is and how it works. Financial crime is a type of crime that is specially done against the property, such types of crimes are always committed for personal benefits of the criminal and they involve an illegal conversion of ownership of property. 

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These crimes are occurring in different forms and crimes happen all over the world. So, you all might think what could be the examples of such crimes. Some of the most common crimes which the financial sector is facing are money laundering, Terrorist financing, financial fraud, Tax evasion, counterfeiting currency, identity theft and much more. Such types of crimes are committed every day and the government across all over the country are constantly working to prevent it. They are prosecuting financial criminals while searching for new ones. Nowadays the two most prevalent types of financial crimes faced by India are money laundering and terrorist financing.

The criminals who do such types of crimes generally use very sophisticated techniques which means those techniques are difficult to detach and catch.

Types of financial crimes

Identity Theft

Identify theft is mentioned under the Information Technology Act, 2000. Identity theft as from the name you can understand that it is related to the identity of someone else. It involves using someone else’s personal information for financial gains. The theft could be stealing another individual’s credit card or banking information to make unauthorized purchases. This could use another personal identity as I said earlier to apply for a loan or for their personal use. Identity Theft is considered as one of the most serious crimes. The punishment for such crime depends upon the amount of the money taken and the number of offenses committed. Section 66C of the Information Technology Act defines the punishment for the same. It says that any person shall be punished with imprisonment of either description for a term which may extend to three years and will also be liable to pay fine which may extend to rupees one lakh.

Financial Fraud

Financial fraud includes different types of fraud (cheque fraud, credit card fraud, mortgage fraud, corporate fraud, bank fraud, insurance fraud) it simply means that an intentional act of deception involves financial transaction for the purpose of one’s own gain. The scams that took place in India regarding the same are:

  • Satyam Scam: A major IT company of that time, Satyam was found to have inflated the revenue of the company through false sales invoices and showed corresponding gains by forging the bank statements. The stock prices of the company soared due to this which helped it raise over Rs2,700 crore. The annual financial statements of the company with inflated revenue were published for several years and this led to higher price of the stocks in the markets. In the process, innocent investors were lured to invest in the company.
  • Punjab National Bank Scam: A major banking fraud was uncovered in the Punjab National Bank in 2018 in which several senior officials were found to be involved. Estimated to be worth over Rs 13,000 crore, the scam has been dubbed as the biggest fraud in India’s banking history. PNB officials filed a complaint with the CBI against three companies and four people that included Nirav Modi and Mehul Choksi, claiming they had defrauded the bank and caused a loss of Rs 280 crore, but revised it later to more than Rs 13,000 crore.
  • Vanishing Companies, 1998: It was an unusual year when over 600 companies vanished from the stock markets after raising money. The scam estimated to be worth Rs 800 crore came to light when Sebi was probing few companies which disappeared after raising money from the stock markets. In May 1998, it named 80 companies that had raised over Rs 330 crore. Later, it was found out that over 600 companies were under scrutiny. A Committee was set up to investigate which officially identified 238 listed companies, out of which 161 could be traced and 77 are still in the list of vanishing companies.


It means when people misusing or misappropriating the funds that are entrusted to them.It normally occurs in business, government agencies or nonprofit organizations. This crime could be minor as well as serious depending upon the circumstances. The punishment for the same can be in jail or imposing fines. For example Punjab National Bank Scam.

Terrorist financing

It is fairly straightforward, Terrorist financing is the illegal smuggling of cash to terrorist organizations. If we talk about ‘’Terrorist Financing in India’’ then there are various sources from across the border of Pakistan or controlled by Pakistan through west asia. This is from charities openly involved in collections like the Jud. It is a distinct activity with money laundering as the laundering of criminal funds aims at giving a legal appearance to dirty money, whereas the laundering of terrorist funds aims at obscuring assets of a legal origin and it is common as it is done across international boundaries. The terrorist financiers deliberately do not spend large amounts of money at once, as they avoid the risk and attention of both the government as well as the financial institutions.

Money laundering

In India, Money Laundering is commonly known as Hawala transaction. It is a complicated concept to understand.“Hawala” is an Arabic word meaning the transfer of money or information between two persons using a third person.

In simple terms, it means the act of disguising profits that were obtained from crime. Some of the most prominent money laundering examples are cartels and mafia groups. It can also extend beyond the organized crime groups and can happen at various different scales. If a company accidentally commits a transaction that is related to money laundering then they can face extensive legal and financial repercussions. The punishment in India regarding the same under Money Laundering Act, 2000 will be of not less than three year along with the fine. The scams related to this is:

  • 2G Spectrum scam: This scam surfaced when it was revealed that the government, in 2008, had undercharged mobile telephone companies for frequency allocation licences on the ground of money laundering. These licences are used to create 2G spectrum subscriptions for cell phones. Then the Supreme Court of India in February 2012, declared the allotment of spectrum as “unconstitutional and arbitrary” and cancelled the 122 licences issued in 2008 under A. Raja, then Minister of Communications and IT.
  • Commonwealth Games scam: The Commonwealth Games scam took India by storm in 2010 involving a pilferage of around Rs 70,000 crore. Since it is established the games which were complicated in a maze of corrupt deals. This included inflated contracts, criminal conspiracy, cheating, and forgery. And in the centre of the corruption was Suresh Kalmadi, the then Pune Lok Sabha MP. Investigation suggested that the organising committee ran as a sort of “badmaash company,” and he was charged under the Prevention of Corruption Act. Kalmadi allegedly awarded a Rs 141-crore contract to Swiss Timing for its timing equipment, a deal inflated by Rs 95 crore. Further, it was reported that Indian athletes were forced to stay in shabby apartments instead of the flats allotted to them by the authorities. The case is currently under investigation.
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Various ways for prevention

There are multiple ways for the prevention of such financial crimes: 


The main method by which officials are currently fighting with financial crime is extensive monitoring through the use of technology. The advent of technology has been very helpful for mankind in many different ways whether it is for connectivity, communication and further. Technology can be found in every sphere of life, Though It made our lives easier but it has also made committing crimes a convention.

Technology helps in the prevention of financial crime all across the world, as Artificial Intelligence (AI), Machine Learning (ML) and Data Analytics are seen as the stages of evolution of technology. These technologies can also be applied to safety infrastructure. Let us now understand with a simple example: the latest smartphones are equipped with functions to identify their owners by gauging the pressure they apply to unlock the phone, by various features like face lock, fingerprint sensor, pattern, Pincode, etc. The technology is at its highest peak. 

If the phone gets stolen, it can be tracked down and it will not be unpinned by any other person other than the owner of the phone as he set security according to their own. If we come back to financial crime the same method can be applied. There are several similar ways in which these technologies can be used to prevent Financial Crimes.

Talking about India, the first thing that comes to everybody’s mind would be wilful defaulters. Considering the case of Nirav Modi scams, it exposed a huge flaw in the banking system. If these things had been done before then, the scam would not have happened and the money could be saved.

  • One could build a blockchain ledger where you would record every entry – liabilities, contingent liabilities and all sorts of defined risks. The state of the ledger could be replicated across multiple nodes across the bank, so it would be impossible to tamper with them without getting caught. However, someone would still need to sign off wherever there is an exception.
  • One could have another manager from a different region take over the duties for intermittent periods, with a view to reporting back any exceptions. This is quite common in the private sector, where one manager fills in for another during vacations. It helps senior management get an alternative and curtain-less view of the health and performance of a unit.

The possibility of external attack will be reduced by:

  • Better reporting of exceptions
  • Making it easier to detect hacks
  • Preventing out-of-system liabilities

Though it is late, Indians have now awakened with the use of more and more technology to curb financial crimes. Linking of Aadhaar with bank accounts, Government services through online form filling and payments have all brought transparency in the financial sector.

Artificial Intelligence

Artificial Intelligence has the ability to identify patterns of transactions and rapidly allow compliance of the professionals to spend their time in a better way. AI(artificial intelligence) also has the ability to analyze the results, investigate the root causes and collaborate the findings with other financial institutions or authorities. Through the use of big data, financial institutions gain a clear understanding of the trail of illegal gains from activities such as drugs, arms, human trafficking, slavery, corruption, fraud, and many other crimes in order to establish the individuals and supply chains. This makes it easier to share the information with other organizations and authorities in order to reduce the flow of criminal money being laundered through the accounts.

In order to prevent money laundering, there is something which is on the priority list and done on regular agendas which can be done with the use of technology along with the collaboration.

When an event is organized for the same, there are many countries that come to attend those events and share their views and ideas regarding the same. The following ideas were generated:

  • A shared database of ‘bad actors’ secured and distributed using the ledger technologies. This would allow a financial institution to query whether a new customer has been rejected by another financial institution because of financial criminal activities or due to concerns regarding the same.
  • Different modes like natural language processing, topic modeling, and text analytics are used to enhance financial crime focused transactions and monitoring solutions within financial institutions.
  • Graph/Network analytics to more readily identify relationships between entities to support due diligence and ongoing monitoring of potentially suspicious entities and activities.

There are also the other following methods was discussed by them:

  • The great sharing of crime patterns between institutions, to aid detection and intervention capabilities.
  • Financial institution queries for the confidential data of another financial institution using the homomorphic encryption and zero-knowledge proof technologies. These technologies can enable financial institutions to verify certain types of information with each other without compromising the confidentiality and security of the given data.
  • The data has been centralized from the multiple institutions into the shared utility which then, being analyzed for fraud, money laundering and sanctions monitoring purposes.

Financial institution

Financial institutions play a very important role as they are the one who collects all the data. They identify and verify the customers and can spot the customers who are colluding in criminalization. An effective process is very important because institutions are the first to collect the data from customers and the regulations are changing every day and enforcing more and more collection. In India there are ways which banks must approach to prevent themselves from financial crime:

  • Conduct a risk assessment based on the bank’s products, services, geographies and clients to better understand the threat environment.
  • Integrate the efforts of various disciplines involved in financial crime prevention across the organization to identify synergies and overlaps in people, processes and technologies; this will help reduce redundancies and streamline processes.
  • Improve the availability and quality of data to support real-time transaction monitoring and advanced analytics.
  • Apply advanced analytics to gain a holistic view of threats and the entities that cause them; this will help uncover complex and subtle threats, as well as emerging ones, early and effectively.
  • Nurture a culture of high ethics and integrity by setting accountability standards, establishing controls and policies, working closely with regulators and increasing employee awareness.
  • Actively participate in the industry-wide initiatives undertaken to mitigate risk and improve compliance.

Institutions know their customers and collect data accordingly. They face many problems and at the same time they have to work for the solutions to those problems as they have to make connections between every single department (financial crime, transaction monitoring, suspicious activity reporting, etc.) As many of them do not have good coordination for the same but they are working to advance it.

Customer Principle

A crucial element in the fulfillment of our obligations is known as customer- principle. It takes a lot of time to establish long term business relationships with their clients, a factor which greatly facilitates the detection and prevention of financial crime in banks. All credit banks also ensure that they identify the beneficial owners behind each of the business terms. These are the real persons who profit remarkably from a business relationship. This approach is implemented in many countries where the banking supervision law does not yet provide this level of prudence.

With regular training and other measures, one can ensure their staff that they can identify the risk all the time of financial crimes as well as understanding and implementing prevailing regulations on customer obligations and prevention against money laundering.


From the whole concept of financial crimes, you may now know how financial crimes are and how with the advent of technologies many countries are dealing with it. As the criminals who are committing such acts always remain ahead of the workers. But with the various manual or technological variations many countries are working on it and made different ways to combat the financial crimes.

As there are several ways that are still undiscovered in which technology can help in decreasing financial crimes. But the key to it lies in the proactiveness of the financial sector as well as the successful implementation of it. If we talk about our country then India is on the right track but needs to speed up the process and implementation.

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