Using technology to follow the money

 

By ALLAN NACKANThursday, June 2, 2005 Updated at 10:05 AM EDTSpecial to Globe and Mail UpdateFront Lines is a guest viewpoint section offering perspectives on current issues and events frompeople working on the front lines of Canada's technology industry. Allan Nackan is a partnerspecializing in corporate insolvency and restructuring at A. Farber & Partners Inc.In today's high-tech world, fraud investigation has taken on many new dimensions. Funds can be movedinstantaneously and hidden in offshore accounts in places where they can't be tracked through normalmeans. While it is easier to use technology to play corporate shell games and park funds offshore,those with the job of tracking and recovering the funds are also developing new capabilities to keeppace.The speed with which money can be moved electronically across international borders through advancedand well-integrated global banking networks presents a real challenge to fraud investigators. In arecent case, we painstakingly traced $3-million to a Turks and Caicos bank, only to find that it hadbeen moved to another jurisdiction once the fraudster realized that we were hot on his heels.The Internet has been a major culprit in enhancing a fraudster's ability to dissipate and hideassets offshore. Whereas fraudsters once had to physically attend a branch to provide instructions,the prevalence and ease of use of electronic banking over the Internet allows for funds to be movedbehind the scenes and the use of false identities to conduct transactions through offshore trustsand nominee shareholders.In addition, the Internet has become a popular advertising medium for suspect financial institutionsand trust companies to aid fraudsters in their deception.The need to combat the Internet challenge is especially critical in an age where governments areincreasingly focused on regulating and attempting to control global money laundering - largelybecause of the link to organized crime and terrorism. Statutory and regulatory measures such asFintrac monitoring, Proceeds of Crime and Anti-Money Laundering legislation and the TerrorismFinancing Act, which have been put in place in Canada, are mirrored in many other foreignjurisdictions.Yet, despite these safeguards, the quantum leap in the amount of funds being transferredinternationally makes monitoring a daunting task. When one considers that the success ofinvestigative teams relies heavily on the ability to move swiftly and with the element of surprise,the speed of information flow across the Internet makes this even more challenging.For investigators to get one step ahead, it is necessary to anticipate the fraudster's moves bydeveloping timely intelligence and pinpointing the movement of money before the fraudsters becomeaware that they are under investigation. Legal tools to aid in the purpose can instigate disclosuresof bank records, freezing of accounts and funds tracing, and allow for premises searches. Althoughmany of these legal tools were not designed for this purpose, they have become vital nonetheless asthe methods used by the fraudsters have improved.Successful use of these methods however, requires a combination of good instinct, attention todetail and use of a number of sophisticated high tech tools, including:  * Increasingly sophisticated international on-line databases to uncover corporate fronts andaffiliations, locate assets, bank accounts and other background information which is helpful inprogressing the investigation;  * Computer forensics, which play an ever-increasing role in all investigations. This involvesthe identification, collection, preservation, analysis and Court presentation of computer-relatedevidence. In today's world this is especially key, since large volumes of information relating tobusiness and financial transactions are now kept electronically.Data mining tools that provide a systematic approach to analyze critical data. Techniques include:  * Advanced searching capabilities;  * Re-creating information that was routinely or intentionally deleted from hard drives;  * Analysis and tracing of e-mail messages;  * Location and utilization of hidden passwords and countering the use of encryption.An illustration of these tools at work is the real life case of Mr. D who defrauded investors ofapproximately $100-million. A. Farber & Partners Inc. was appointed as the Interim Receiver, whosejob it was to investigate the fraud and recover as much of the money as possible. On assignments ofthis nature, we work closely with our strategic partners, Intelysis Corp., who specialize inforensic accounting and investigations.Using bank records seized under the powers granted to us as the receiver over Mr. D, the teamconducted a detailed analysis of his financial activities as well as of his telephone and e-mailrecords, and identified two key recipients of funds. On-line research uncovered one foreigncorporation in Costa Rica, where we were able to identify a bank account where $54-million had beensent to the parent company of an Internet-based bookmaker. A second recipient, also identified as anoffshore bookmaker, was traced to Jamaica.Armed with this information, an injunction was obtained from the Ontario Courts, along withdocumentation enabling us to obtain the assistance of the Costa Rican courts. Our team then deployedto San Jose where we were eventually able to accompany the police on raids conducted at the premisesof two sports books.Using sophisticated computer forensic techniques on two hard drives that were discovered during thisprocess we also identified key e-mails and Internet usage records that identified the flow of moneyto accounts in Switzerland. Once again the Interim Receiver was able to freeze the accounts andlegal action for recovery is ongoing.So while the fraud artists are employing ever more sophisticated technology, sometimes it worksagainst them. In many ways, investigators and fraudsters are still playing the same old game of "catand mouse", but technology employed on both sides has certainly sped up the pace of the game.© Copyright 2005 Bell Globemedia Publishing Inc. All Rights Reserved.http://www.globetechnology.com/servlet/story/rtgam.20050512.gtflfarbermay12/bnstory/technology/