Reportedly coined in 1939, the term white-collar crime is now synonymous with the full range of frauds committed by business and government professionals. These crimes are characterized by deceit, concealment, or violation of trust and are not dependent on the application or threat of physical force or violence. The motivation behind these crimes is financial—to obtain or avoid losing money, property, or services or to secure a personal or business advantage.
These are not victimless crimes. A single scam can destroy a company, devastate families by wiping out their life savings, or cost investors billions of dollars (or even all three). Today’s fraud schemes are more sophisticated than ever, and the FBI is dedicated to using its skills to track down the culprits and stop scams before they start.
The FBI’s white-collar crime work integrates the analysis of intelligence with its investigations of criminal activities such as public corruption, money laundering, corporate fraud, securities and commodities fraud, mortgage fraud, financial institution fraud, bank fraud and embezzlement, fraud against the government, election law violations, mass marketing fraud, and health care fraud. The FBI generally focuses on complex investigations—often with a nexus to organized crime activities—that are international, national, or regional in scope and where the FBI can bring to bear unique expertise or capabilities that increase the likelihood of successful investigations.
FBI special agents work closely with partner law enforcement and regulatory agencies such as the Securities and Exchange Commission, the Internal Revenue Service, the U.S. Postal Inspection Service, the Commodity Futures Trading Commission, and the Treasury Department’s Financial Crimes Enforcement Network, among others, targeting sophisticated, multi-layered fraud cases that harm the economy.
Corporate fraud continues to be one of the FBI’s highest criminal priorities—in addition to causing significant financial losses to investors, corporate fraud has the potential to cause immeasurable damage to the U.S. economy and investor confidence. As the lead agency investigating corporate fraud, the Bureau focuses its efforts on cases that involve accounting schemes, self-dealing by corporate executives, and obstruction of justice.
The majority of corporate fraud cases pursued by the FBI involve accounting schemes designed to deceive investors, auditors, and analysts about the true financial condition of a corporation or business entity. Through the manipulation of financial data, the share price, or other valuation measurements of a corporation, financial performance may remain artificially inflated based on fictitious performance indicators provided to the investing public.
The FBI’s corporate fraud investigations primarily focus on the following activities:
Falsification of financial information
- False accounting entries and/or misrepresentations of financial condition;
- Fraudulent trades designed to inflate profits or hide losses; and
- Illicit transactions designed to evade regulatory oversight.
Self-dealing by corporate insiders
- Insider trading (trading based on material, non-public information);
- Misuse of corporate property for personal gain; and
- Individual tax violations related to self-dealing.
Fraud in connection with an otherwise legitimately operated mutual hedge fund
- Late trading;
- Certain market timing schemes; and
- Falsification of net asset values.
Obstruction of justice designed to conceal any of the above-noted types of criminal conduct, particularly when the obstruction impedes the inquiries of the U.S. Securities and Exchange Commission (SEC), Commodity Futures Trading Commission (CFTC), other regulatory agencies, and/or law enforcement agencies.
The FBI has formed partnerships with numerous agencies to capitalize on their experience in specific areas such as securities, taxes, pensions, energy, and commodities. The Bureau has placed greater emphasis on investigating allegations of these frauds by working closely with the SEC, CFTC, Financial Industry Regulatory Authority, Internal Revenue Service, Department of Labor, Federal Energy Regulatory Commission, and the U.S. Postal Inspection Service.
Money laundering is the process by which criminals conceal or disguise their proceeds and make them appear to have come from legitimate sources.
Money laundering allows criminals to hide and accumulate wealth, avoid prosecution, evade taxes, increase profits through reinvestment, and fund further criminal activity.
While many definitions for money laundering exist, it can be defined very simply as turning “dirty” money into “clean” money. And it’s a significant crime—money laundering can undermine the integrity and stability of financial institutions and systems, discourage foreign investment, and distort international capital flows.
The FBI focuses its efforts on money laundering facilitation, targeting professional money launderers, key facilitators, gatekeepers, and complicit financial institutions, among others.
Money laundering is usually associated with crimes that provide a financial gain, and criminals who engage in money laundering derive their proceeds in many ways. Some of their crimes include:
- Complex financial crimes
- Health care fraud
- Human trafficking
- International and domestic public corruption
- Narcotics trafficking
The number and variety of methods used by criminals to launder money makes it difficult to provide a complete listing, but here are a few of the ways through which criminals launder their illicit proceeds:
- Financial institutions
- International trade
- Precious metals
- Real estate
- Third party service providers
- Virtual currency
There are three steps in the money laundering process—placement, layering, and integration. Placement represents the initial entry of the criminal’s proceeds into the financial system. Layering is the most complex and often entails the international movement of funds. Layering separates the criminal’s proceeds from their original source and creates a complex audit trail through a series of financial transactions. And integration occurs when the criminal’s proceeds are returned to the criminal from what appear to be legitimate sources.
Detection and Deterrence
Money laundering is a massive and evolving challenge that requires collaboration on every level. The FBI regularly coordinates with:
- Other federal, state, and local law enforcement agencies to detect and deter the money laundering threat in the U.S.;
- Our international partners to help address the increasingly complex global financial system, the cross-border nature of many financial transactions, and the increased sophistication of many money laundering operations; and
- All aspects of industry touched by the money laundering efforts of criminals.
The continuing integration of global capital markets has created unprecedented opportunities for U.S. businesses to access capital and investors to diversify their portfolios. Whether through individual brokerage accounts, college savings plans, or retirement accounts, more and more Americans are choosing to invest in the U.S. securities and commodities markets. This growth has led to a corresponding rise in the amount of fraud and misconduct seen in these markets. The creation of complex investment vehicles and the tremendous increase in the amount of money being invested have created greater opportunities for individuals and businesses to perpetrate fraudulent investment schemes.
The following are the most prevalent types of securities and commodities fraud schemes:
- Investment fraud: These schemes—sometimes referred to as “high-yield investment fraud”—involve the illegal sale or purported sale of financial instruments. The typical investment fraud schemes are characterized by offers of low- or no-risk investments, guaranteed returns, overly-consistent returns, complex strategies, or unregistered securities. These schemes often seek to victimize affinity groups—such as groups with a common religion or ethnicity—to utilize the common interests to build trust to effectively operate the investment fraud against them. The perpetrators range from professional investment advisers to persons trusted and interacted with daily, such as a neighbor or sports coach. The fraudster’s ability to foster trust makes these schemes so successful. Investors should use scrutiny and gather as much information as possible before entering into any new investment opportunities. Here are some examples of the most common types of investment fraud schemes:
- Ponzi schemes: These schemes involve the payment of purported returns to existing investors from funds contributed by new investors. Ponzi schemes often share common characteristics, such as offering overly consistent returns, unregistered investments, high returns with little or no risk, or secretive or complex strategies.
- Pyramid schemes: In these schemes, as in Ponzi schemes, money collected from new participants is paid to earlier participants. In pyramid schemes, however, participants receive commissions for recruiting new participants into the scheme. Pyramid schemes are frequently disguised as multi-level marketing programs.
- Prime bank investment fraud/trading program fraud: In these schemes, perpetrators claim to have access to a secret trading program endorsed by large financial institutions such as the Federal Reserve Bank, Treasury Department, World Bank, International Monetary Fund, etc. Victims are often drawn into prime bank investment frauds because the criminals use sophisticated terms and legal-looking documents, and also claim that the investments are insured against loss.
- Advance fee fraud: Advance fee schemes require victims to pay upfront fees in the hope of realizing much larger gains. Typically, victims are told that in order to participate in a lucrative investment program or receive the prize from a lottery/sweepstakes, they must first send funds to cover a cost, often disguised as a tax or participation fee. After the first payment, the perpetrator will request additional funds for other “unanticipated” costs.
- Promissory note fraud: These are generally short-term debt instruments issued by little-known or nonexistent companies. The notes typically promise a high rate of return with little or no risk. Fraudsters may use promissory notes in an effort to avoid regulatory scrutiny; however, most promissory notes are securities and need to be registered with the Securities and Exchange Commission and the states in which they are being sold.
- Commodities fraud: Commodities fraud is the illegal sale or purported sale of raw materials or semi-finished goods that are relatively uniform in nature and are sold on an exchange (e.g., gold, pork bellies, orange juice, and coffee). The perpetrators of commodities fraud entice investors through false claims and high-pressure sales tactics. Often in these frauds, the perpetrators create artificial account statements that reflect purported investments when, in reality, no such investments have been made. Instead, the money has been diverted for the perpetrators’ use. Additionally, they may trade excessively merely to generate commissions for themselves (known as “churning”). Two common types of commodities fraud include investments in the foreign currency exchange (Forex) and into precious metals (e.g., gold and silver).
- Broker embezzlement: These schemes involve illicit and unauthorized actions by brokers to steal directly from their clients. Such schemes may be facilitated by the forging of client documents, doctoring of account statements, unauthorized trading/funds transfer activities, or other conduct in breach of the broker’s fiduciary responsibilities to the victim client.
- Market manipulation: These “pump and dump” schemes are based on the manipulation of lower-volume stocks on small over-the-counter markets. The basic goal of market manipulation frauds is to artificially inflate the price of the penny stocks so that the conspirators can sell their shares at a large profit. The “pump” involves recruiting unwitting investors through false or deceptive sales practices, public information, or corporate filings. Many of these schemes use boiler room methods where brokers—who are bribed by the conspirators—use high pressure sale tactics to increase the number of investors and, as a result, raise the price of the stock. Once the target price is achieved, the perpetrators “dump” their shares at a huge profit and leave innocent investors to foot the bill.
The FBI anticipates that the variety of securities and commodities fraud schemes will continue to grow as investors remain susceptible to the uncertainty of the global economy. To investigate and help prevent fraudulent activity in the financial markets, the Bureau continues to work closely with various governmental and private entities. For example:
- FBI field offices operate task forces and working groups with other law enforcement and regulatory agencies, including, the Securities and Exchange Commission, U.S. Attorney’s Offices, Commodity Futures Trading Commission, Financial Industry Regulatory Authority, U.S. Postal Inspection Service, and the Internal Revenue Service;
- And nationally, the FBI participates in several working groups and task forces such as the Financial Fraud Enforcement Task Force, which coordinates the efforts of the Department of Justice at all levels of government to disrupt and dismantle significant large-scale criminal enterprises.