Which signals in my client’s records point to investment fraud?

Which six signals point to investment fraud in the records?

Six signals of investment fraud keep coming back in this type of file, and Paucitas treats them separately because each signal calls for a different kind of enquiry.

• A payment to an unknown counterparty. A transfer to a name that does not appear in the debtor or creditor records, often with a description such as investment or deposit. What you can do yourself: ask for the agreement and for the website of the counterparty, and record the answer.
• A rising series of deposits. A small amount, then a larger one, then a larger one still, within a few months. What you can do yourself: set out the amounts and dates in a row; the build up is often more telling than the total.
• A withdrawal that does not come. Money went in but nothing came back, while returns are being discussed. What you can do yourself: ask for a statement or a screenshot of the withdrawal request.
• Costs charged up front. A payment described as tax, commission or release fee before anything has been paid out. What you can do yourself: record who charged those costs and on what ground.
• An entry with an intermediary account. An amount that runs via a third party or via a private account before it reaches the counterparty. What you can do yourself: trace the entry back to the original instruction.
• A client who avoids the subject. No documents, no name, no answer to a concrete question. What you can do yourself: put the question in writing and keep the answer, including when it fails to come.

The AFM describes that it receives reports every day from people who responded to an investment proposal offered over the internet or by telephone, often through an advertisement on social media (AFM, consumer warnings). The signals above are the administrative trace of exactly that kind of contact, and they are the reason investment fraud often surfaces first in a set of records.

The wider context of investment fraud is set out on the pillar page crypto fraud investigation.

Why reporting investment fraud differs from establishing it

The difference between reporting and establishing is that an established finding can be checked, and Paucitas therefore supplies per finding a reference to the transaction or the document on which it rests. A report is a signal you pass on because the pattern gives reason to do so. An established finding is an observation that someone else can retrace: this amount, on this date, to this address, with this destination.

For your own file that distinction is usable. As long as there are only signals, you record questions and answers. As soon as there is a series of payments with a crypto component, there is something to investigate in the suspected investment fraud and a signal can become a finding.

The European framework within which institutions investigate their clients and assess unusual patterns is described by the EBA (EBA on anti money laundering).

Which signals belong to a trading platform itself is explained briefly in the glossary under suspicious exchange pattern.

What can be investigated in a series of payments

With a series of payments that has a crypto component it can be established per payment where the amount ended up and up to which point the route can be followed, and Paucitas places those payments side by side instead of assessing each one on its own. A series shows whether the same receiving addresses recur, whether the amounts follow a build up and whether the holdings move in the same direction after receipt.

For an accountant or adviser it is above all the outcome per entry that is relevant. The report describes per booking what has factually been established, so that you can include that outcome in your own file without having to take over the underlying analysis.

Paucitas uses no automated analysis software, in any role. The investigation is carried out by hand on the basis of publicly accessible block explorers. Every transaction and every transaction hash is verified one by one before it is included in a report.

How you make crypto holdings clear for a finance department is set out on the question page about crypto holdings for an accountant or finance department.

Case, five entries that had been booked as separate items

Case. At a client an adviser came across five payments over four months, booked under general costs, with descriptions that differed each time. On their own none of the five stood out; they were amounts that were not unusual in the records of this company.

Placed side by side they did show a line: the amounts rose, the intervals grew shorter, and the last two went to the same counterparty as the first. In the investigation it turned out that the payments arrived at a trading platform and that the outgoing route each time ended at the same collection point.

The outcome was not a judgement about the client. It was an overview of five bookings with a destination per booking, plus a statement of the point up to which the route could be followed. That allowed the adviser to hold the conversation on the basis of facts instead of a suspicion of investment fraud.

The limit. Paucitas gives no tax or legal advice; the interpretation of what a finding means for your own obligations stays with you and with your professional body.

For accountants and advisers the working method is described on the page for accountants and advisers.

How quickly a first picture of investment fraud is available

The lead time is rarely a detail for an adviser, because a set of annual accounts or a conversation with the client often cannot wait until there is clarity months later. That is why the first question is each time how many transactions there are and across how many networks they run; that determines the pace more than the size of the amounts.

A first picture is usually there within three working days, and that is mostly the moment at which you can decide whether further investigation is useful. In a file with five bookings that picture is complete; in a file with dozens of transactions across several networks the picture follows in parts.

A Paucitas investigation takes between one working day and two weeks, depending on the size of the file and the urgency. An urgent report can be delivered within one working day and in exceptional cases the same day. A regular investigation is usually ready within three working days. For files with many transactions, several wallets or missing history, the lead time rises to around two weeks. A surcharge applies to urgent assignments.

Data is supplied digitally or at the office. Per case a delivery list is provided which states what data is needed. Where necessary Paucitas guides the collection and delivery of that data.

Why investment fraud can run on for so long at companies is set out in the related blog investment fraud as a business and why it continues. If you are sitting with an entry you cannot place, Paucitas will look with you at what can factually be established: see blockchain research or contact Paucitas.