Question

On may 13,1988 a Friday incidentally, will be remembered by a major Chicago bank. Embezzlers nearly escaped with $69 million! Arnand Moore, who was released after serving four years of his 11 year sentencd for a $180,000 fraud decided it was time to put his fingers in something a little bigger and better. He instigated a $68.7 million fraud plan. Naming himself as "Chairman," he assembled Herschel Bailey, Otis Wilson,Neal Jackson,Leonard Strickland, and Ronald Carson to complete the formation of his "Board". Most importantly, the "Board" was able to convince an employee of the Chicago bank to provide their "in". The caper required one month of planning in a smaill hotel in Chicagoand took all 64 minutes to complete.

The employee had worked for the Chicago bank for eight years and he was employed in the bank's wire transger section,which dispatches multimillin-dollar sums around the world via computers and phone lines. Some of the bank's largest customers send funds from their accounts directly to creditors and suppliers. For electronic transfers,most banks require that a bank employee call back another executive at the customer's offices to reconfirm the order, using various code numbers. All such calls are automatically taped. The crokked employee participated in these deposits and confirmations, and he had access to all the code numbers and names of appropriate executives with whom to communicate.

The "Board's" targets were Merrill Lynch, United Airlines, and Brown_Forman Distellers. A few members of the gang set up phony bank accoutns in Vienna under the false names of "Lord Investments," "Walter Newman," and "GTL Industries." at 8:30 a.m. a gang member posing as a Merrill Lynch executive called the bank to arrange a transfer of $24 million to the account of "Lord Of Investments,", and was assisted by one of the crooked employees unsuspecting co-workers. In accordance with the bank's practice of confirming the transfers with a second executive of the company, the employee stepped in and called anothe supposed "Merrill Lynch" executive who was actually Bailey, his partner in crime. bailey's unfaltering, convincing voice was recorded automatically on the tape machine, and the crooked employee wired the funds to Vienna via the New York City bank. The same procedure followed at 9:02 amd 9:34 a.m. with phony calls on behalf of United Airlines and Brown-Forman. The funds were initally sent to Citibank and Chase Manhattan Bank, respectively.

On Monday, May 16, the plot was uncovered. the "Chairman and his "Board" were discovered by neither effort on the part of the Chicago bank nor any investigative authority. Although bank leaders do not like to admit just how close the culprits came to "getting away with it," investigators were amazed at how far the scheme proceeded before being exposed. Had the men been a little less greedy, say possibly $40 million, or if they had chosen accounts that were a little less active, they may have been touring the world to this day! The plot was discovered because the transfers overdrew the balances in two of the accounts, and when the companies were contacted to explain the NSF transactions, they knew nothing about the transfers.

1. How could this fraud have been prevented? Why is this a difficult fraud to prevent?

Answer 1

1) The fraud happened because a employee has the knowledge of all the codes and names of employees and client and the procedure of the transactions. As mentioned in the caption "The crokked employee participated in these deposits and confirmations, and he had access to all the code numbers and names of appropriate executives with whom to communicate."

The employee who is having the complete knowledge is the master mind in the fraud so committed. He is aware of all the losepoles of the money transfer procedure.

Thus, such fraud can be prevented only if the different codes are made available to different employees and a transaction can be completed only when the confirmation is available from all the authorised / verifying employees. None of the employee is aware of each other codes and further communication clients. Daily verification of the operation recording machine should be done. The transfer orders from the clients should be re-verified from the banks end.

2) Dispite of taken all possible necessary actions, all such frauds are difficult to prevent because

a) all information are available to a human being, the employee, who can be tempted to do fraud now and then.

b) one employee can be collaborated with each other to do any fraud.

c) the codes are set and changed by an employee, so disclosure of the same can not be stopped.

d) now and than, the lethargies of human provide opportunities to corrupted mind to do fraud.

Thus, because all the procedure involving in the transactions includes employees, so such frauds are difficult to prevent.

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