An analysis of fraud control and prevention in banking industry. Essay

An analysis of fraud control and prevention in banking industry.

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            Fraud has been in existence throughout history nd has taken many different dimensions.  Bank fraud on the other hand has grown with advent of the banking industry, and has been facilitated by the technological innovations and the widespread use of the Internet.  The Internet has perpetuated fraud in all corners of the world and has led to the loss of billions of dollars over time, to individuals and institutions (Scotland on Sunday, 2003).  This is a type of fraud which has been neglected for a long time by the society due to the embarrassment that people feel after they realize that they have been conned.  Internet scams such as 419 fraud, have made victims to shy off from discussing the issue, since greed partly led to their vulnerability to the fraud.  However, the increase in magnitude of bank fraud and other types of fraud in the recent times has made the society open up and discuss the issue.

            The research will aim at analyzing the various forms of bank fraud, and the various control and prevention mechanisms which have been put in place by the Standard Bank of Nigeria with regards to the issue.  The role of the Central Bank of Nigeria is key to controlling fraud in this country, and it will also be comprehensively analyzed in the research.  The research will briefly describes other types of fraud closely related to bank fraud and will give a brief summary and conclusion on issues discussed.

Objective of the paper.

            The research will have various objectives, and the first will be to analyze the impact of bank fraud on Nigeria as a country, and to its citizens.  The research will also aim at analyzing the steps which have been taken by the Standard bank of Nigeria with regards to reducing the extent of bank fraud, and whether they have worked.  The role of the Central bank of Nigeria regarding bank fraud will also be analyzed in order to evaluate if it is actively participating in the fight against this crime.  Finally, the research will aim at analyzing whether there are any improvements which would help the fight against bank fraud in Nigeria, and these will be given in the final section of recommendations.

Scope of the paper.

            The research will be limited to the control of fraud in Nigeria and specifically bank fraud in the Standard bank of Nigeria.  However, the paper will briefly discuss other types of fraud closely related to bank fraud, with an aim of obtaining deeper insights on the issue.  Although the research will be limited to the banking industry in Nigeria, it will briefly discuss other countries which are related to the fraud committed by Nigerian nationalities.  This is because nationals of this country have been known to perpetuate fraud in different parts of the world.  The research will also analyze the role of the Central bank of Nigeria regarding the fight against bank fraud.  This is because the fight against banking fraud can never be won without the active participation of the Central bank of Nigeria (State Department, 2006).  The sources of information which will be used to develop the research will similarly be restricted to Nigeria’s banking industry, although a few will discuss the effects of this fraud on other parts of the world.


            Bank fraud is a serious problem which has faced many banks across the world in the recent times (Wearden , 2002).  Globalization and technological advancement has made it possible for fraudsters to use various methods to perpetuate bank fraud.  Bank fraud is a very complicated form of fraud due to the various forms which it takes.  It can take the form of Internet fraud, check fraud, impersonation, forgery, wire fraud among many other forms of fraud.  Bank fraud is a very challenging issue in Nigeria since it is widespread.  Some Nigerians have not only perfected the art of fraud in their country, but they are known internationally to perpetuate fraud.  It is not uncommon to find a letter in ones email asking for the account details of individuals under the guise of transferring money ‘won’ or ‘inherited’, and these types of scams are mostly perpetuated by people of Nigerian descent.

            The ease of access to technology, especially software and hardware required for forgery helps the fraudsters to improve the genuineness of the documents and tactics which they use for fraud.  The widespread use of the Internet has enabled fraudsters to be able to fleece people in any location in the world, through the use of computers and the Internet.  Millions of dollars are lost annually due to these types of fraud, which makes the issue very important to analyze.  It will therefore be important to analyze the various forms of fraud in order to understand the issue more clearly.

Identity fraud or impersonation.

            This is a type of fraud which is perpetuated when a person assumes the identity of another in order to perform fraud or other criminal acts.  The criminals acquire the information or details about a person through various means, such as going over the trash, stealing a wallet and many other ways (Fitzmaurice 2003: 32-36).  They may also approach a person over the Internet, telephone or in person in order to access the information.  It is very difficult to prevent someone from stealing ones personal information due to the wide variety of sources, but it is possible to minimize the chances of this occurrence through taking the following measures.

            The first is to avoid throwing away credit statements, ATM receipts and bank statements in a form which they can be reused.  Another precautionary measure is to avoid giving the credit number to people who one does not trust and to frequently analyze the monthly balance in the account and informing the bank on any discrepancy (London Metropolitan Police Department Website, 2005).  The loss of a credit card or ATM card should be reported to the bank immediately, which will enable it to freeze the account and prevent money from being withdrawn and will monitor the activities in the account and arrest the person who will try to withdraw money from it (Fair 1980: 32-37).

Fake checks.

            Another form of fraud involves fake checks, and this is a type of fraud which takes advantage on the loopholes in many countries which demand that banks present money to people who have presented checks, usually between one and five business days, disregarding the number of days which it takes to clear such checks and transfer the funds from the account (Norris and Wilson 2006: 77-88).  Since the check clearing process takes at least a week, this provides fraudsters with an opportunity to fleece banks or unsuspecting people.  The fraudsters usually forge a check, which appears genuine and can pass all standard tests which is very difficult to detect.  The fraudsters easily print such checks using a pre-printed blank check or Quickbooks software together with a scanner (Green 2004: 43-45).  The checks which are developed appear genuine and can be used to withdraw cash in the event that the funds are available and the information is accurate.

            If the check is presented at the counter, it might take a few days or even months for the fraud to be detected (Salinger 2004: 55-59)  There are rare occasions when the check is indeed real but the fraudster has an accomplice working the bank who claims the check to be fake after it has been cashed.  Once the banks discover the check to be fake, the victim suffers penalties including withdrawal of the sum from  his or her own account to compensate for the amount paid to the fraudster.  At times when more funds have been paid to the fraudster than the amount present in the account of the victim, the victim suffers from additional overdraft charges.

Currency fraud.

Wash wash.

            There is a new type of fraud which is perpetuated by Nigerian fraudsters which involves defacing real currency and claiming that certain chemicals can be used to clean the currency and produce genuine currency.  The scam involves approaching a potential victim with a defaced currency and ‘demonstrating’ how certain solvents can be used to transform it into genuine currency.  This is a real process in the manufacture of currency, but the demonstration by the fraudsters is a scam, since only the money minting companies have access to this technology and chemicals.  Since the victims do not have this knowledge, the fraudsters use commonly available solvents to clean the currency, and when the genuine currency is revealed, they believe that it actually works.  The fraudsters proceed to ask them for a sum of money to facilitate the ‘cleaning’ of more notes and when the victim parts with the money, they either ask for more or disappear altogether.  Many people have fallen victim to such fraudsters.

419 fraud.

            This is one of the most common forms of fraud and involves letters or emails which are posted by Nigerian citizens who claim to have won money, or have acquired money illegally, and are trying to transfer the funds out of their country.  The author of the letter urges the recipient to sent his or her bank account details in order to facilitate the transfer of these funds (Wired News, 2002).  The recipient may be further asked to transfer some money to the author for purposes of bribing government officials, paying taxes or paying legal fees, and is promised to be reimbursed after the completion of the transaction.

            If the victim accepts to send the money and account details, he or she will be asked to provide further money in varying amounts after regular durations.  The trend will continue until such a point where the victim suspects it to be a scam and stops remitting money to the fraudsters.  When it reaches this stage, the fraudsters begin using the bank account details of the victim, which they had earlier obtained, to drain credit card balances and bank accounts while impersonating him or her (Secret Service Website, 2002).  This makes the victim appear to be a fraudster and his or her accounts and assets are frozen, which leaves the victim with crimes to answer to, while the fraudster moves to other potential victims.  The Nigerian government does not show any sympathy to victims who experience this type of fraud since they conspired with the fraudsters to defraud the government, which is the reason why they were defrauded in the first place.  Although some people disregard the extent of these forms of fraud, the reality is that millions of dollars are drained by the fraudsters each year (Wired News, 2002).


Standard Bank Nigeria.

            Standard Bank of Nigeria is part of the Standard group which has headquarters in South Africa and operates in more than thirty five countries (Henry 1970: 33-38).  It offers a wide range of services, some of which include investment, banking, and lending services and products to individual and corporate clients.  The first Standard Bank was established in Britain in 1862 and it had a capital base of £1,000,000 which was divided into ten thousand shares with each share having a value of £100.  The company grew and established many branches throughout South Africa.  In 1988, the bank began an expansion plan which saw it open a branch in Swaziland, and later on expanded into Kenya, Botswana, Zaire, Uganda, Zimbabwe, Zambia and minority holding banks in Nigeria and Ghana (Standard Bank Investment Corporation and the Standard Bank of South Africa Limited 1990: 113-126).

            In Nigeria, the Standard group operates under the name Stanbic Bank and this branch was opened in 2008.  This was done after the successful merger between IBTC Chartered Bank and Standard Bank Group.  Since the opening of the branch, the bank has been successful in the short time that it has been operational, opening more than fifty branches in different parts of Nigeria (Salinger 2004: 43-46).  The success of the bank’s activities can be traced to the goodwill which is associated with the popular brand name in the parent company and the provision of services which satisfy the needs of the clients (Amphlett 1930: 66-69).  However, in recent times, this bank has faced a host of challenges, most of which are attributed to the prevalence of fraud in the Nigerian banking industry.  As was earlier discussed, fraud is a major problem in Nigeria, and is posing serious challenges to the banking industry.  This and other issues will be analyzed in more detail below.

Bank fraud in Nigeria.

            Nigeria is among the countries with the highest levels of bank fraud in the world.  There are three major forms of fraud committed in Nigeria, according to classification based on the perpetrators.  The first is external fraud, and this is committed by people who have external relations with the banking industry.  The second form of fraud is internal fraud, and this is committed by people who either work in the banks or have inside interests in these banks.  The third form of fraud is the syndicated fraud, and this is fraud which is perpetuated by a collaboration between the internal employees and outsiders.  Most of the bank fraud committed in Nigeria is done with the aid of insiders in banking institutions, which complicates the fight against this vice.

            According to Adewale (2007), in 2003, the number of bank insiders who were involved bank fraud was 91, compared to 15 outsiders during the same year.  In 2004, the number of bank insiders who were involved bank fraud was 347, compared to 36 outsiders during the same year.  In 2005, the number of bank insiders who were involved bank fraud was 347, compared to 31 outsiders during the same year, while in 2006, the number of bank insiders who were involved bank fraud was 258, compared to 73 outsiders during the same year.  In 2007, the number of bank insiders who were involved bank fraud was 207, compared to 66 outsiders during the same year.

            These statistics point to a gradual increase of bank fraud activities between 2003 and 2005 and then a steady decline between 2005 and 2007.  The decline in fraud can be attributed to increased controls put in place by banks, including the Standard Bank of Nigeria.  The statistics also reveal that the number of internal employees in banks who have engaged in fraud has constantly been higher than external people involved, but these figures have steadily began falling.


            The research will use secondary sources of data, and these include academic books and journals.  Academic books and journals possess different advantages and disadvantages which will be briefly discussed below;

            One advantage of these sources of information is that they are easy and cheap to access (Creswell 2001: 43-46).  They can be accessed through the Internet, which makes them very convenient in carrying out research.  Another advantage is that these sources of information are widely available on diverse units relating to the subject matter under discussion.  This is because many authors have analyzed various subjects from more that one perspective.  This means that the paper which will be written using this information will be comprehensive, which will make the report more valid.

            However, academic journals and books also possess some weaknesses which limit their credibility as sources of information for writing research papers.  The first weakness is the inability to obtain further insights and explanations on the issues which have been discussed, and this is because the authors who write these research papers cannot be reached (Creswell 2002: 65-68).  This means that any issues which are unclear to the researcher cannot be further explained, and this may affect the credibility of the research paper.

            Another weakness is the fact that any limitations which are in the original research paper or materials which the researcher is using may be replicated in his or her research paper.  For instance, if the original book or journal which the researcher is using for research is biased, the research paper which the researcher writes will probably be biased too (Charmaz 2000: 66-67).  If the original book or journal contains results of an experiment with a small sample size, this limitation will also be replicated in the research paper which the researcher develops (Creswell 2000: 54-57).  However, this limitation can be addressed through the use of multiple sources of information on the subject of the study, and comparing the different views of the authors with an aim of analyzing the presence of bias or errors in the journals or books.

Steps taken by the Standard Bank of Nigeria to reduce bank fraud.

Public awareness.

            There are several steps which have been taken by the Standard Bank of Nigeria in order to reduce the incidence of fraud in the banking industry, and these will be analyzed in the research.  The first step which the bank has made is to publicize the issue of bank fraud.  Standard Bank has addressed this issue at length and has provided users with a forum where questions on this type of fraud can be addressed (DIANE Company 2000: 40-52).  The bank further gives advice to clients on how they can reduce this form of fraud.  It explains to users how they may tell if a transaction is genuine or not.  It makes the general public better informed, a fact which reduces the likelihood of them falling for the fraud if the fraudsters use a similar strategy in future.

Stringent punitive measures.

            Standard Bank of Nigeria, like many other banks which are based in Nigeria, has been faced with cases of fraud which have been masterminded by its employees and other insiders.  The increase in such cases has forced Standard bank to re-evaluate its code of conduct, regulations and policies with a view to stopping these cases (Fight 2004: 64-68).  Regulations which are more strict have been introduced, and employees who are caught engaging in fraud face tough disciplinary measures including being sacked and losing their job benefits.  They are also forced to refund any stolen funds, which are retrieved from their account, before being handed over to the police to answer to criminal charges of fraud.

Internal checks.

            Due to the increased cases of fraud which have been discussed above, Standard bank has increased its internal checks and balances in order to detect any incidence of fraud in its early stages of development.  The bank has increased the frequency of random checks by external auditors on its accounts, with an aim of detecting any irregularities early enough and stopping them before funds have been withdrawn from accounts by fraudsters.  This also increases the chances of arresting the fraudsters through allowing the fraud to continue, and catching them when they are about to withdraw money from any of the accounts targeted.

Counter-fraud measures.

            The realization that a lot of funds are being lost through fraud has made many banks in Nigeria to step up the efforts to fight bank fraud.  Standard bank is one of such banks, and it has engaged the services of experts in bank fraud to detect fraud in its initial stages and stop it before it is successfully accomplished.  These experts have modern technology which matches that of the fraudsters, and they seek to study the future fraud trends and put in place measures which deter the commission of this type of fraud (Comer and the Network Security Management Limited. 2000: 77-79).  This unit has worked very closely with the law enforcement agencies and reports any suspicions or actual fraud to these agencies (Brindle et. al.  2004: 22-27).  It also works hand in hand with law enforcers to gather crucial evidence needed to ensure that courts of law find the fraudsters guilty beyond reasonable doubt.  In addition to this, the bank has acquired state of the art technology to help detect fraud in its early stages.  This technology is used to scan checks, currency and other documents presented by people withdrawing money in order to establish its authenticity.

Role of the Central Bank of Nigeria regarding fighting bank fraud.

            Although the Central Bank of Nigeria has played a major role in fighting bank fraud, it has some potential weaknesses which hinder the country from achieving major gains in the fight against this practice.  Its potential weaknesses make individual banks face challenges in addressing this issue.   One of the major weaknesses is the fact that the bank does not have authority to investigate fraud cases.  The authority to investigate fraud cases rests with the Economic and Financial Crimes Commission.  This is a potential weakness since it lengthens the period of investigation of fraud cases.  The Central Bank of Nigeria acquires first hand knowledge about fraud, but it takes a relatively long time before the cases are forwarded to the Economic and Financial Crimes Commission for investigations.  In any investigation, time is of essence, and fraud cases are no exception.  The sooner the fraud is detected and acted upon, the sooner will the battle against bank fraud be won.  If bank fraud is detected and investigated early enough, there are higher chances of not only catching the fraudster, but also preventing other people from falling victims to the fraud and larger amounts from being stolen (Freep website,  2002).  In this respect, the Central Bank of Nigeria should have the authority to investigate the crimes as soon as they are reported or detected.

Conclusions and recommendations.

            It will be discussed in the conclusion of the research paper that bank fraud has been a major problem which faces most countries of the world.  It is perpetuated by people who are after quick money, and victims who fall for it suffer, since it is very difficult to get compensated.  Bank fraud is very complicated, largely due to the fact that it takes various dimensions and uses sophisticated technology which hinders the arrest of the perpetrators.  Bank fraud is also difficult to detect in time, since it is only detected after it has occurred (Fight 2004: 77-83).  It is therefore important to prevent bank fraud rather than investigate it after it has occurred.  Bank fraud which is perpetuated through the Internet is even more difficult to investigate since one can perpetuate fraud against another person from any part of the world through the Internet.

            Many people underestimate the extent of bank fraud until it happens to them.  Millions of dollars have been lost through fraud, and this would ordinarily be reduced through sensitizing members of the public on fraud and how to prevent it.  Internet fraud or impersonation can be easily prevented if the public is informed about the nature of these crimes.  The Standard Bank of Nigeria has played a major role in the fights against bank fraud by implementing several measures geared toward fighting the same.  This bank has been seen to implement measures such as public awareness campaigns, internal checks, counter-fraud measures and stringent punitive measures, which have been used to fight fraud.  These have achieved commendable results as has been seen in the decline in fraud and especially that committed by insiders, in the recent years.

            The Nigerian Government and the Central Bank of Nigeria is not doing enough to curb this crime.  There are various recommendations which the Nigerian Government and the Central Bank of Nigeria can implement in order to reduce incidences of bank fraud.  One of the most important ways in which it can do so is through publicizing the issue.  The Nigerian Government and the Central Bank of Nigeria should work with other government and non-governmental agencies in informing the public on the reality of bank fraud and the steps which should be taken to prevent this type of fraud.  These include protecting the personal and account identity of individuals from third parties and reporting cases of bank fraud immediately they occur (McNew and Prather 1990: 32-37).  This information should be communicated through channels which are accessible to a majority of the population such as through the mass media.

            In terms of investigations and prosecution, the Central bank of Nigeria should be given authority to investigate all cases of bank fraud through a special anti-fraud unit which should be based at the bank.  This will enable such cases to be investigated in time, which will increase the chances of success of investigations.  It will also reduce the chances of the same fraudsters perpetuating further crimes through the same means.  The anti-fraud unit should consist of experts in IT and fraud detection who should study the current crime trends and predict future trends in fraud.  The unit should work with other international fraud units such as the FBI and Secret Service (Black 2000: 87-95).  This is because the bank fraud problem is global, and Nigerians are known to commit these types of crimes all over the world.  These international units have superior technology and expertise which would be very beneficial to Nigerian investigators.  This will enable the investigators to be ahead of the fraudsters and predict their next moves, which will increase the chance of success in combating this type of crime.

            Lawmakers should pass legislation which is aimed at discouraging the commission of bank fraud.  People who are found guilty of the offenses should be given very stiff sentences which should be in form of jail sentences as opposed to fines (Hinterseer 2002: 88-94).  If they are given fines, they will use the funds which they have stolen to bail themselves out and continue with the crime.  New laws should be introduced to govern the banking industry, since this will enable the banks to be more vigilant with transactions.  In passing the laws, the Central bank of Nigeria should be given authority to investigate all cases of bank fraud for the reasons which have been discussed above.


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