What is Financial Crime? Types, Examples and Trends

Financial crime, also known as FinCrime, is a major threat to businesses and economies, leading to massive losses. Regulatory penalties add to the burden, with global fines reaching $9.95 billion in 2021 and $22.86 billion in 2020.

Organizations can be held accountable for financial crimes occurring on their platforms, making strong compliance crucial. These crimes, including fraud, money laundering, and embezzlement, aren’t victimless, they fuel corruption, destabilize economies, and harm society.

In 2023 alone, financial crimes amounted to an estimated $3.1 trillion, with fraud at $485.6 billion and hence, understanding these threats is the first step in combating them.

What is Financial Crime?

Financial crime definition is when someone or a group performs an illegal activity with money, assets, or financial tools for personal gain like committing fraud, money laundering, and or cybercrime. People often commit these crimes out of greed, a hunger for power, or to hide other illegal activities like terrorism, human trafficking, and drug trafficking, making them a big issue for both national and global security!

Examples of Financial Crime

Financial crime takes many forms, with fraud and money laundering being among the most damaging. Two notable cases, the Wells Fargo unauthorized accounts scandal and the Troika Laundromat scheme, demonstrate how these crimes can undermine financial institutions, deceive customers, and facilitate illicit activities on a global scale.

1. Fraud: Wells Fargo's Unauthorized Accounts Scandal

Between 2002 and 2016, Wells Fargo employees created millions of unauthorized savings and checking accounts on behalf of clients without their consent. This was driven by aggressive internal sales goals and incentives. Customers began noticing unexpected fees and unfamiliar accounts, leading to investigations. In 2016, regulatory bodies, including the Consumer Financial Protection Bureau (CFPB), fined Wells Fargo a combined $185 million for these illegal activities. The scandal resulted in significant legal, financial, and reputational repercussions for the bank, including the resignation of CEO John Stumpf.

2. Money Laundering: The Troika Laundromat

The "Troika Laundromat" was a complex money laundering scheme orchestrated by Russia's former largest investment bank, Troika Dialog. Between 2003 and 2013, this operation facilitated the movement of approximately $4.8 billion from Russian companies and individuals into Europe and the U.S. The scheme involved creating a network of at least 75 offshore companies in tax havens like the British Virgin Islands.

These shell companies conducted transactions with falsified paperwork, enabling oligarchs and politicians to secretly acquire assets, including real estate and luxury items, and to engage in other illicit activities. The Organized Crime and Corruption Reporting Project (OCCRP) uncovered this scheme in 2019, highlighting significant lapses in international financial oversight.

Types of Financial Crime

As we've mentioned before, financial crimes come in different types, and it is like a nest, each type has types. Think of financial crime as the bigger umbrella under which there are different small umbrellas that also have different "branches." We can say that the main types of financial crime are fraud and money laundering and cybercrime. But also, when discussing financial misconduct, it's important to look at economic crimes examples such as tax evasion and insider trading, all of which can destabilize economies.

1. Fraud

Fraud does not always have to be on a big scale like those organized crimes, it can be of different sizes and forms.

1. Loan Fraud: This can be as simple as getting loans with lies, like inflating income or assets, or using loan cash for things it wasn't meant for. Mortgage fraud, where lies on mortgage forms are common, falls uber the umbrella of loan fraud.

2. Investment Fraud: Financial fraud crimes are on the rise, with phishing and investment fraud becoming more common. Ponzi schemes or pyramid scams promise huge returns, using new investors' money to pay for old ones.

3. Insurance Fraud: Making up or exaggerating claims to get more money from insurance. This can mean fake accidents, fake medical files, or lying about how much things cost.

4. Tax Evasion: Hiding money or lying about it to avoid paying taxes. People might say they made less money than they did, make up fake expenses, or hide money in banks overseas.

5. Bribery and Corruption: Paying or taking bribes, kickbacks, or favors to get things done in business or government. Like getting contracts, licenses, or dodging rules.

6. Accounting Fraud: Messing with financial papers or records to lie about how a company is doing. This tricks investors or people owed money. Also, a financial crime risk example could be an employee manipulating company accounts for personal gain.

7. Embezzlement: Stealing money from someone who trusted you with it, like employees, bosses, or money advisors.

2. Money Laundering

Money laundering means making illegally gotten money look like it's from legal sources by putting it through the legit financial systems. People do money laundering in lots of ways, like using fake companies, secret banking systems, trade tricks, and new tech like cryptocurrencies. There are three main stages for money laundering: placement, then layering, and lastly integration.

Stage 1: Placement: In the placement stage, people put their illegal money into the financial system. This can mean depositing cash, buying real estate, or mixing it with real business money.

Stage 2: Layering: After depositing the money into the financial system, criminals move it around in tricky ways, such as using different accounts and moving it across different jurisdictions.

Stage 3: Integration: Lastly, they integrate or put the cleaned-up money back into the economy as if it's from legal sources. They might invest in it, start a business, or do other legal things to make it seem legit.

Read More: Compliance Vs. Risk Management: Differences & Similarities

3. Cybercrime

At the beginning of this article, we mentioned that cybercriminals rely mainly on computers, the internet, and/or networks. Among the types of financial crime, identity theft and bribery are particularly prevalent. Below are some examples of what type of cybercrimes cybercriminals do:

1. Phishing, where they use fake emails and/or fake websites to get sensitive information like money details or passwords.
   
2. Identity theft, which is most probably then used in synthetic identity theft, where they mix real and fake information together so that later they can open a bank account or apply for a load using this fake identity.
   
3. Hacking and breaking into someone's computer system without their permission with the aim of stealing their information or demanding money with ransomware.
   
4. Online fraud with its different types like eCommerce fraud and/or investment scams.
5. Tax Evasion:
   Tax evasion is a financial crime because it involves intentionally avoiding paying taxes. People or businesses hide income or overstate expenses to reduce what they owe, which takes money away from the government.
6. Embezzlement, Corruption and Bribery:
   These are all financial crimes because they involve stealing or misusing money for personal gain.
   • Embezzlement happens when someone who has control over money steals it for themselves.
   • Corruption involves people using their power to steal money or resources meant for the public.
   • Bribery is when someone offers or accepts money or gifts to influence a decision or action, often in business or government.

Financial Crime Statistics and Emerging Trends

Financial crime is on the rise, with experts warning that only a small percentage of illegal funds are ever detected. The COVID-19 pandemic, economic uncertainty, and digital banking expansion have created more opportunities for fraud and money laundering. Companies and individuals must stay vigilant as financial criminals adapt to new technologies and loopholes.

1. The Global Impact and Sector Vulnerabilities

Reports from organizations like the Financial Action Task Force (FATF) and the Association of Certified Fraud Examiners (ACFE) show that financial crime is growing across multiple sectors, including banking, insurance, and healthcare. In 2022, nearly 46% of organizations faced financial crime, with larger companies suffering the biggest losses, some exceeding $50 million. Smaller businesses also face significant disruptions, with fraud costs sometimes reaching over $1 million.

2. Rising Cybercrime and Digital Banking Risks

The shift to online financial services has made transactions faster and more convenient but also more vulnerable. Neobanks and digital-first platforms are growing rapidly, however, their emphasis on seamless user experiences can come at the cost of security, making them prime targets for fraudsters.

3. Increased Sanctions Compliance Challenges

Geopolitical events, such as the war in Ukraine, have put global sanctions compliance under the spotlight. Companies must ensure they do not engage with restricted individuals, organizations, or countries, especially in decentralized finance (DeFi) and cryptocurrency transactions. Failing to comply with sanctions can lead to severe penalties and reputational damage.

Read more: The 10 Best Sanctions Screening Software & Tools in 2025

4. Regulatory Efforts and Technological Solutions

As financial criminals become more sophisticated, businesses are turning to artificial intelligence (AI) and machine learning for fraud detection. These technologies help identify suspicious transactions, improve security, and streamline compliance efforts. Organizations that invest in AI-driven monitoring and internal security measures will be better equipped to combat evolving financial threats.

Consequences of Financial Crimes and Money Laundering

Financial crime examples often involve complex schemes such as Ponzi schemes and fraudulent accounting. These and other financial crimes can have severe and far-reaching consequences for individuals, businesses, and society as a whole.

Economic Consequences

• Undermines the integrity and stability of financial systems
• Distorts economic and market conditions
• Reduces tax revenues for governments
• Hinders economic growth and development

Social Consequences

• Erodes public trust in financial institutions and government agencies
• Facilitates other criminal activities, such as terrorism and human trafficking
• Contributes to income inequality and poverty

Legal Consequences

• Severe penalties, including fines and imprisonment
• Asset seizure and forfeiture
• Reputational damage for individuals and businesses

Financial Crime Prevention: Best Practices for Businesses

It has become a norm that the prevention of financial crime is very essential in any organization irrespective of its size. Through the use of practical measures and with the help of innovative tools, it is possible to counter threats of fraud and other forms of the criminal activity in the sphere of financial operations, as well as strengthen the overall stability of the financial performance. 

Also, understanding financial crime vs fraud is crucial for implementing effective security measures. The difference between financial crime and fraud can be sometimes in the scope and methods used in implementing the illegal activity.

1. The flowchart for Know Your Customer (KYC) and Anti-Money Laundering (AML) Regulations

The first principle of combating financial crime is, therefore, to always follow the guidelines on KYC and AML. These regulations make it mandatory for business entities to carry out customer lists and check their customers' identities, ensure regular monitoring of their transactions for suspicious activities, and report such cases to the relevant authorities.

2. Implementing Powerful & Strong Compliance Programs

The laws require that companies implement effective compliance management programs that are designed to mitigate risk of, detect and report financial crimes. Such programs ought to be reviewed and revised from time to time basically.

3. Employee Training and Awareness

Informing the employees of the financial crime risks, those warning signs & red flags that should attract their attention, and where to report such problems is fundamental to combating the vice. Another control to adopt is the proper and constant training and awareness sessions that must be carried out in the organization.

4. Employing Information Technology and Data Performance Solutions such as FOCAL

Technology is a system that assists in the detection of and compliance with financial crimes. Superior forms of data analysis tools, for instance, FOCAL platform offers AML compliance solutions & fraud prevention solutions to assist organizations in detecting and mitigating the incidence of financial crimes. They include solutions such as real-time transaction monitoring, customer risk scores, and advanced analytics and reporting functions.

Financial institutions implement FOCAL for end-to-end financial crime prevention, this ranges from the design of the most suitable solutions to implement, the accuracy of the data used to build the model, and the effectiveness of the corporate communication done in the prevention of financial crime. It Includes customer risk scoring & due diligence, regulatory reporting, case management, and employee training & awareness to help businesses have a rounded solution to combating financial crimes.

Thus, FOCAL empowers companies to bring existing and potential compliance problems under control, improve the management of risks, and promote compliance as a corporate value.

Conclusion

Financial crime is a phenomenon, which encompasses a large number of varieties and is a constantly developing problem that threatens the sustainable development of businesses and societies globally. Examples of financial crimes can be seen in cases of mortgage fraud and check forgery. Prevailing types of financial crook activities including financial fraud, money laundering, and cybercrimes are necessary information in the prevention and control of financial crimes.

With the development of advanced technologies and the integration of different sectors related to finances, organizations cannot remain passive in addressing problems with financial crimes. This way, businesses can safeguard themselves from the grim realities and repercussions of financial crimes and help build a safer and healthier financial environment through strong compliance programs that include innovative technologies such as FOCAL AML compliance solution and cultivating a genuine commitment to compliance throughout corporate entities.

Thus, financial crime solutions should include advanced analytics and real-time transaction monitoring to detect suspicious activity. Also, systematic analysis of financial crime threats, their assessments as well as constant enhancement of preventive actions are crucial for companies to keep up with threats created by financial criminals.