Financial Investigation

Financial Investigation refers to the process of evaluating financial transactions and records to find and trace assets concerning criminal activities. It aims to establish links between criminal activities and assets, identify illegal funds, and gather reliable evidence for legal proceedings.

It comprises creating an investigation strategy, subject profiling, charting financial flows using analyses, formulating evidence matrices, and activating international cooperation medium. The process helps in legal proceedings related to asset recovery, embezzlement, bribery, money laundering, and tax evasion. It has led to vital findings like structuring and undisclosed liabilities. 

• Financial investigation refers to the method involved with assessing monetary transactions and records to find and trace assets involved in criminal activities. 
• The investigative process focuses on making interconnections among criminal activities and resources, finding unlawful assets, and providing reliable and substantial lawful proof for criminal lawsuits.
• Its technique involves creating subject profiles, collecting data, gathering evidence, physical surveillance, social media integration, and utilizing open sources like civil litigation and FATF reports.
• It is crucial for locating and seizing assets linked to illegal money, acting as a deterrent for criminal activities, and fostering crime-free economies.

A financial investigation is a procedural inquiry into the financial dealings of organizations, businesses, and individuals. It involves tracing the movement of money to expose any illegal activities, such as embezzlement, fraud, or money laundering.

Investigators follow the trail of monetary transactions by examining invoices, tax returns, bank records, and other financial records. Subsequently, they use various data analysis techniques and forensic accounting to find patterns and anomalies of direct financial crimes. The investigative process often includes interviews with witnesses and subjects to accumulate evidence and additional information. 

Financial investigators identify red flags by mapping financial flows, including large cash deposits, inconsistencies in spending and income, and unusual transactions. Subsequently, they collaborate with law enforcement agencies such as the financial investigation unit and financial investigation agency to detect, prevent, resolve, and stop further financial crimes.

These investigators play a crucial role in reinforcing the financial system by promoting transparency and deterring crime. Private investigators may also utilize financial investigation techniques during suspected cases of embezzlement or fraud within a company. Moreover, effective investigations contribute to combating terrorism funding, organized crime, and other fraudulent activities. Consequently, they enhance the stability of financial systems, reduce financial crimes, and safeguard the integrity of financial institutions.

The financial investigation process typically comprises the following steps:

• Initial steps involve creating a subject profile, including details such as place and date of birth, family information, contact details, and aliases.
• Previous information is then shared with various national and international jurisdiction links, facilitating collaboration with foreign counterparts.
• Diverse data, including employment and academic history, criminal records, and real estate documents, is collected.
• All financial information regarding assets, income, liabilities, and expenses is collected from different sources like law firms, real estate agents, government agencies, banks, and other financial agencies.
• Evidence collection is crucial for initiating legal proceedings. It involves gathering relevant information and financial data related to identified targets to formulate a comprehensive investigation strategy.
• Domestic and foreign accounts are meticulously searched through document production, physical surveillance, and search warrants at businesses and residences.
• Asset identification, case assessment, and subject profiling require the integration of social media and the Internet.
• Various open sources of information, such as civil litigation, patent applications, and publicly reported financial investigations, are used.
• Various intergovernmental bodies and organizations, including Financial Action Task Force (FATF) reports, Beneficial Ownership Guides, country reports, and Asset Recovery Guides, are used in the investigation.
• Additionally, non-governmental organizations such as Global Financial Integrity and Global Witness provide invaluable insights for deeper analysis.

Let us use a few examples to understand the topic.

Example #1

Let us imagine a hideous cryptocurrency scam society within the modern city of Cryptocon City. Investigator Dan Chan has expertise in digital currency forensics and was brought in to investigate the fraud. Using his expertise, Dan discovers illegal internet transactions and money laundering, unearthing a staggering sum of 5 million dollars involved in the fraud. After further research, he exposes the involvement of Binary Solutions, a seemingly reputable company, in running the Ponzi scheme. 

He undertakes a meticulous analysis of blockchain statistics and financial records to uncover the illicit money trail and identify the mastermind behind the scheme. Ultimately, Dan discovers that the CEO of Binary Solutions has embezzled millions of dollars in the Ponzi scheme and stashed away in his accounts with solid proof. He ensures that the CEO is detained and held responsible for perpetrating the scam.

Example #2 

A recent article discusses the financial investigation into mis-selling of cars in 2021. The investigation was conducted by the UK's Financial Conduct Authority (FCA). It raised doubts over the mis-selling of the car finance industry and revealed possible mis-selling of £40 billion. It suggests that prior to 2021, some customers were overcharged on their car finance while discretionary arrangements were prohibited. 

Furthermore, almost 90% of cars in the UK are purchased through finance. Thus, Lloyds Banking Group has set aside an enormous sum of £450 million to cover potential review costs. Analysts estimate that, as a result of the FCA investigation, the bank may face significant compensation payouts:

• £2.5 billion for Lloyds
• £1.1 billion for Santander
• £350 million for Barclays
• £250 million for Close Brothers

Overall, the projected net compensation bills resulting from the financial investigation could range from £6 billion to £16 billion.

Financial investigation plays a crucial role in today's globalized economy for the following reasons:

• It helps locate and seize assets linked to or made with illegal money.
• It acts as a preventive tool to stop any financial crimes from taking place in the future.
• Many criminals and related activities are deterred from using financial routes for illegal money laundering.
• It provides agencies with solid and valuable evidence to prosecute suspected criminals and confiscate their assets.
• It contributes to the understanding of financial crimes and their impact on the economy, thereby enhancing national risk assessment capabilities.
• It has aided in the detection and disruption of grave organized crimes and criminal activities.
• It facilitates international cooperation between various financial investigative agencies and countries to combat money laundering and finances. 
• It enhances and fosters a socially viable and crime-free economy.

This article has been a guide to what is Financial Investigation. Here, we explain the concept along with its techniques, examples, and importance. You may also find some useful articles here -

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