Rogue trader terms identified as Switzerland’s oldest bank is forced to close
Ernst & Young has developed new software designed to catch employees engaged in corporate wrongdoing, as Swiss bank Wegelin and Co prepares to cease operations following the firm’s prosecution for helping US citizens evade taxes.
Wegelin, based in St. Gallen, Switzerland, has been at the centre of a legal case in the US over its conspiracy to help American customers evade $1.2 billion in taxes since 2002. The bank pleaded guilty earlier this month to the charges and agreed to pay $57.8 million in compensation to the US. The bank, which has existed since 1741 and was Switzerland’s oldest, will now cease all its operations once the case winds down.
On 27 January 2012, following the original indictment of three of its bankers, Wegelin & Co transferred the majority of its clients and staff to Swiss bank Notenstein, which became a 100% subsidiary of Raiffeisen Switzerland. However, the firm still had US assets not covered by the deal.
The Ernst & Young software, co-developed with FBI investigators, scans emails for the most common words and phrases used by rogue traders and fraudsters. According to the firm’s research, these include “cover up”, “write off”, “failed investment”, “off the books”, “nobody will find out”, and “grey area”. In total, the firm’s specialist anti-fraud technology identified some 3,000 terms.
The software searches for these phrases, as well as ‘out of band’ events such as “call my mobile” or “come to my office”, which suggest the individual does not want to be overheard. The aim is to catch rogue traders and other criminals before they are able to commit major incidents of fraud.
“Emails, sent in their thousands, between employees, officials and external parties form the major part of what is mostly positive daily interaction in companies,” said Rashmi Joshi, director, fraud investigation and disputes services at Ernst & Young. “Despite being the prime means of all conversations, such unstructured data plays almost no role in the compliance efforts of firms.”
Joshi added that the email traffic is often only seized upon by regulators or fraud investigators after the damage has been done. However, that is beginning to change, he said, as firms seek more proactive measures to counter abuse.
“While most organisations only focus on the numbers when investigating discrepancies, what we are seeing are ways of analysing words – emails, SMS or instant messaging – to identify and isolate wrongdoing,” he said.
Recent months have seen a spate of fraud-related legal judgements involving major global banks. In November, former UBS trader Kweku Adoboli was jailed for seven years after carrying out one of the biggest frauds in UK history, which resulted in losses of £1.5 billion. The bank was fined £30 million by the FSA for ‘weaknesses’ in its surveillance systems that allowed the fraud to take place.
In December, HSBC was fined £1.2 billion for failing to adequately prevent its operations being used to finance fraud and illegal operations in Mexico and the US. The same month, Standard Chartered agreed to pay £204 million to the US for illegally breaching that country’s sanctions on Iran.