The increasing rate of financial fraud is alarming. This phenomenon is attributable to the current rise in the number of financial and economic transactions and the younger age of transaction participants in commodity, money, and other markets. Also more and more often purchases are made online and there are new and varied types of currencies such as quasi- and substitute securities (bitcoin, etc.).
The current level of globalization allows goods, money, and services to move across borders very easily. However, this also provides an opportunity for financial cons to increase the levels of cross-border financial crime. Technological singularity is also a threat factor since the security systems of financial markets face new threats with each new development level of information technology.
Main warning signs of financial fraud
- The remuneration one can receive as a result of a particular transaction if this remuneration significantly exceeds standard business practices.
- Modern frauds employ social engineering and manipulation with the use of NLP techniques that help them to quickly obtain a person’s willingness to perform a transaction. Frauds offer to solve a person’s problem within a short time period.
- Initial payment requirement.
- Anonymous contractors.
- Frauds like to introduce themselves as employees of various financial organizations, including foreign ones. For example, a potential client is told that a well-known hedge fund can provide them with very favorable terms of investing in various assets; however, their account will be opened abroad. Of course, the cover of a renowned foreign company should immediately raise the potential client’s red flags: that means the company does not have the right to offer its financial products and services in the Russian Federation.
- Urging to make important financial decisions immediately.
- Customized offers.
Types of financial fraud
- Financial pyramids. Nowadays, there are a huge number of various financial pyramids. To recognize a financial pyramid, you should heed the following warning signs: dividends are conditional on the investments of others, guaranteed high returns, lack of transparency regarding the source of money, no Central Bank license, vaguely worded agreements, aggressive advertising, and no information on possible risks.
Possible positioning in the market:
- Projects that openly admit that they are a pyramid.
- Companies that position themselves as an alternative to mortgage and consumer loans.
- Pseudo-professional stock market participants. Particularly, those who work in the Forex market and do not invest in securities.
- Closed elite clubs with special membership conditions.
- Cyber fraud. For example, High Yield Investment Programs (HYIP), the capital of which is formed from the contributions of Internet users. Experts say that a HYIP cannot be a real business but only a financial pyramid.
- Trading signals: data on when to open a position in a particular financial instrument. This service is offered by a large number of platforms, websites, and practicing traders. However, today, qualified traders are not engaged in selling those types of signals, it is simply not in their best interest.
- Free bots. You are offered to open an online account at a certain company via a referral link, and then they ask you to fund this account with a certain amount of money. After that, the bot makes a huge number of transactions and the broker makes money on commissions.
- Website clones. Frauds create clones of well-known websites that many unsuspecting victims use to deposit their money.
In conclusion, we would like to emphasize that before investing in anything, you must carefully study the history, reviews, and reputation of the company. This will help you preserve your capital and avoid various fraudulent schemes.