The Implications of Fraud on UK Banks - Research Paper Example

The implications of fraud on UK banks Table of Contents 1.0 Introduction 3 1.1 Objectives 4 1.2 Research Questions 5 2.0 Economic Theory of Bank Fraud 6 3.0 Monetary and non-monetary cost of fraud 8 4.0 Actors behind fraud 16 References 21 FIGURES Figure 1 - Consumer Trust by Industry 12 Figure 2 - Consumer Trust in Banks 13 Figure 3 - UK Consumer Confidence 13 Table Table 1 - Value of annual online banking fraud losses in United Kingdom (UK) from 2010 to 2017 (in million GBP) 17 1.0 Introduction The significance of fraud on UK banks as an investigation represents its scale that is estimated to cost the economy in the range of £190 billion to £193 billion annually (Mothershaw, 2017) of which £110 billion is attributed to bank fraud (Global Banking & Finance Review, 2018). As a means to set the context for this exploration of the implications of fraud on UK banks, an understanding of the term (fraud) needs to be investigated. In researching bank fraud, a number of sources (Legal Dictionary, 2018, p. 1; Justia, 2018, p. 1; NY Criminal Defense, 2017, p.1; Fishman, 2009; Iyer and Samociuk, 2016; Doig, 2013) state bank fraud represents “… a criminal act that occurs when a person uses illegal means to receive money or assets from a bank or other financial institution”. Reurink (2018) expands on the explanation of bank fraud stating that it represents external criminal acts, financial and mortgage fraud, along with fiduciary fraud (Gullkvist and Jokipii, 2013; Phua et al, 2010; Albrecht et al, 2011). External criminal acts consist of check fraud, forgery, varied types of investment and business scams such as Ponzi schemes, sham businesses, credit cards, identity theft, etc. (Reurink, 2018; Taipour et al, 2013). Financial and mortgage fraud can consist of deceptive applications represented by falsified asset or income documents (that includes overstating mortgage values or assets), bank employee embezzlements, document fraud of varied types (that can represent false income and liability statements for example) (Ngai et al, 2011; Sabau, 2012; Chaudhary and Yadav, 2012). There is also fiduciary fraud which occurs when an advisor or financial institution purposely acts to deceive a client or customer (Lin and Paravisine, 2011). A bank is obligated to act in a fiduciary manner where it is bound to conduct its operations and actions on the part of customers in good faith and the best interests of the other party (Msrisni et al, 2010). The range of fiduciary duty extends to a bank carrying out operations in lending and application approvals as well as internal operations that minimise breaches of trust and misconduct (Msrisni et al, 2010). As such, a fiduciary duty applies to areas under financial and mortgage fraud as well as the diligence used in conducting reviews if the document for loan and investments to bank clients and customers. The above definition of bank fraud is an important aspect of the approach to this dissertation as it represents specifically addressing ‘the implications of fraud on UK banks’ that explores it's economic, institutional, business and personal ramifications. A key aspect of bank fraud implications represents the effect on UK banks such as the increase in capital reserve requirements under Basel IV’s higher CETI (Common Equity Tier 1) ratio which is an outgrowth of the 2007 financial crisis (Millar, 2015). This is attributed to providing a higher capital safeguard against unforeseen losses that includes the provision for varied potential types of bank fraud (Radhakrishnan, 2018). The above is important as it represents bank modernisation that leads to varied theories such as the fraud management lifecycle theory (Wilhelm, 2004; Ohando, 2015), the fraud triangle (Kasem and Higson, 2012) and fraud diamond theories (Mansor and Abdullahi, 2015), along with finance theory (Iqbal and Mirakhor, 2011). These theories will form the basis of the theoretical approach to the literature review, objectives and research questions that will underpin the development of the aim that represents the subject of this dissertation (the implications of fraud on UK banks). 1.1 Objectives In order to develop the aim, the following objectives will seek to draw out salient aspects of banking fraud and allied activities: A. To evaluate the contributing factors and actors impacting UK banks in terms of fraud instances and future potentials for intrusions. B. To determine the contributing factors driving fraud increases in UK banks and the policy approaches being taken by regulatory authorities and banks. C. To explore the economic theory of the impact of fraud in terms of costs to consumers, businesses and that can undermine bank lending activities and creditworthiness that negatively impacts the economy. These objectives will provide different approaches to the aim in order to explore aspects of the manner bank fraud affects varied economic areas (business and consumer). 1.2 Research questions As a further means to develop the aim and open additional lines of inquiry, the following research questions have been formulated: A. Are the situations caused by the negative impact of actors and contributing factors resulting in increased fraudulent activities on UK banks? B. Can UK legislative approaches provide a basis to aid in addressing and slowing the rise in bank fraud through preventative measures? C. Do varied instances and types of bank fraud have negative lending and credit repercussions for consumers, businesses and the UK economy? The rationale behind the research questions represents looking at areas to aid in a deeper analysis of the aim. 2.0 Economic Theory of Bank Fraud A critical component of economics represents understanding the importance of banks as a foundation for the movement of goods, manufacturing, and the conduct of services (Cooter, 2016). The banking system represents the basis for loans, payment processing, monetary transactions, as a repository for consumer and business deposits, and a host of other areas (Hubbard et al, 2014). In addition, the process of financial intermediation represents the manner varied assets are valued (meaning as liabilities or as assets), and thus aid in the redistribution of financial resources to consumers and businesses to fuel the economic process (Greenbaum et al, 2015). The above explanation leads to a discussion of economic theory that refers to the commercial activities in an economy as represented by the production and consumption of goods (Nikaido, 2016; Furubotn and Richter, 2005). It (economics) represents the interactions and behavior of economic agents (decision makers in varied segments such as buyers and sellers) (Anderson, 2013). Economic theory is thus a broad conceptual area that provides an understanding and explanation of the relationship and movement of goods, resources, and finance in a market (Robbins, 2007). Whilst there is no direct phrase representing the economic theory of fraud, it can be explained as the cost of fraud being passed onto society (Zingales, 2015). The implications are that fraud causes increased costs to consumers, businesses and the economy as the losses from bank fraud and other instances are reflected in goods, services, and loan rates that result in higher prices (Karstedt and Farral, 2006; Doig, 2013). The risks associated with uncovering document, lending, credit card, and similar instances represent bank operational risk where fraud assaults systems and methods designed to uncover or prevent such occurrences (Barakat and Hussainey, 2013). Operational risk falls under what banks term as risk management systems that seek to minimise potential monetary losses which can occur due to failed or inadequate internal processes, people, systems, or external events (Barakat and Hussainey, 2013). Operational risks take into consideration areas such as fraud by bank staff, as well as potential flaws in a bank’s products (such as loan structuring, derivatives that were a critical component of the 2007 financial crisis and other areas) (Clap and Helleiner, 2012). The fraud management lifecycle theory, as it applies to banking, is a component under bank risk management where it (fraud management lifecycle theory) is a model that encompasses “… deterrence, prevention, detection, mitigation, analysis, policy, investigation, and prosecution” (Wilheim, 2004, p. 1). Although the above seeks to indicate there might be a sequential methodology under the fraud management lifecycle theory, the model actually lists the areas in terms of their potential occurrence (Khan, 2017; Ohando, 2015). Its connection to economic theory is it represents a series of category preventative or action measures. As mentioned in the introduction section, bank fraud was a consideration in the amended Basel IV Accords that established a higher CETI (Common Equity Tier 1) ratio due to varied instances of fraudulent derivatives that were packaged and re-packaged so the underlying risks were obscured to the point they were basically unrecognisable (Millar, 2015; Price, 2016). The key aspect represents risk-weighted assets that apply to varied financial documents and instruments where their value is based on an analysis conducted by varied actors (real estate appraisals, collectability of letters of credit, underlying asset components of derivatives and other examples (Le Lesle and Avramova, 2012; Das and Sy, 2012). The far-reaching implications of hidden risks under risk-weighted assets lead to an empirical discussion of monetary (profitability) and non-monetary costs (that refers to a lack of trust in the system by consumers). A report conducted by PKF Littlejohn LLP (Gee and Button, 2015, p. 1) stated: “Fraud is the last great unreduced business cost …”. The report mentions “… fraud has been described as difficult to cost and until relatively recently, it has not been possible to quantify these effects” (Gee and Button, 2015, p. 1). A special report by Crowe (2018) stated the estimated losses from fraud globally amounted to £3.24 trillion that included banking and all business forms along with consumer losses. In terms of the banking sector, global fraud losses represented $181 billion for all types (McKenna, 2017), with fraud losses for UK banks rising to £768.8m, or £20m daily (Leyden, 2017). 3.0 Monetary and non-monetary costs of fraud An important aspect of looking at fraud represents the impact of the monetary and non-monetary costs and repercussions it causes. As this section will delve into two aspects (monetary and non-monetary) the first area to be looked at represents monetary impacts. In equating the monetary impacts of fraud, the first area to be brought forth is someone (meaning the bank, merchants accepted the transaction, or injured party, individual or business) has to pay for the loss (Hoffmann and Birnbrich, 2012). This last aspect, meaning the ultimate responsibility to pay for the loss, is a complex area for banks that in some instances have to assume liability, and in other instances, the liability passes to another party (Wheeler, 2012). As this is a complex area, the following will illustrate varied instances of fraud that entails banks and the ultimate responsibility in terms of payment for fraud loss for the major instances: A. Cheque fraud Banks cash cheques based on funds available and proper identification (Cheque & Credit Clearing Company, 2018). The most common instance of fraud entails forgery where a bank clears a cheque with a fraudulent signature (Cheque & Credit Clearing Company, 2018). In this instance, the bank assumes the liability as the final clearance authority (LSA Lawfields, 2016). This is unless the account holder is not guilty of negligence in terms of having cheques pre-signed or a system where forgery could have been prevented (LSA Lawfields, 2016). There are many specific laws regarding the assignment of liability in terms of reimbursement. The guiding principle represents the bank’s procedures for clearing cheques and if these were carried out diligently (LSA Lawfields, 2016). Banks calculate the potential for losses for this type of activity and include it as part of cheque account fees it charges where it pools funds to pay for these types of losses (Sivarajah, 2017). The net of the instance is it is consumers and businesses that actually pay for fraudulent losses of this type overall (Sivarajah, 2017). This is due to losses including provisions for legal defense fees as well as the potential for losses are including in cheque account fees. Determining the percentage of cheque fraud banks actually pay is difficult due to the varied legal classifications for the assignment of liability. Based on research conducted by Shaw (2019), the losses for all types of cheque fraud (counterfeit, forged, and altered) that banks were liable for in 2018 was £21m. This represented a 109 percent increase over 2017 (Shaw, 2019). B. Credit cards This aspect includes identity theft and unauthorised use (stolen or copied cards) that represented £671m in 2018 which was a 19 percent increase over 2017 (Shaw, 2019). The liability for these transactions is the responsibility of the merchant as chargebacks to their account, as well as the credit card company as banks are only facilitators for the transactions and thus do not bear liability (Levitin-Brook, 2010). C. Document fraud This is a complex area as it entails documents gathered for and used in the granting of personal and business loans, mortgages or other lending areas (Gorai et al, 2016). It usually consists of overvalued asset appraisals (real estate, equipment, etc.) falsified purchase order contracts or business agreements, and other documents that inflate revenues and assets whilst minimising liability. It is the responsibility of the bank’s due diligence process to uncover fraudulent statements and documents (Gorai et al, 2016). In the event of default, and uncovering of fraudulent documents, the borrower faces possible criminal charges and penalties as well as potential forfeiture of assets to pay off the obligation (David et al, 2018). However, in the event these measures do not recoup costs, the bank assumes the unrecoverable loss amounts (David et al, 2018). Document fraud also includes varied types of derivatives where the underlying assets are overstated (Gorai et al, 2016). Whilst statistical figures on the amount of document fraud could not be found for UK banks, the empirical evidence for this area can be found from derivative losses during the 2007 financial crisis which caused the collapse of Lehman Brothers in New York due to a $35 trillion derivative exposure (Vronsky, 2016). Some of the instances in terms of derivatives lie in risk-weighted assets that can be a result of hiding the underlying risks through packaging, or a change in market conditions (such as real estate valuations) (Lander and Auger, 2008). As a result, it is difficult to compile figures on the extent of document fraud for UK banks until it has occurred. As a result of the above inability to gain a grasp of potential impending document fraud for UK banks as an empirical exercise, the proof of the depth of the issue is found in new banking regulations. The new Basel IV Accord has increased capital requirements (risk-based capital ratios and leverage ratios) by 12.9 percent (Imeson, 2018). The key aspect represents risk-weighted assets that apply to varied financial documents and instruments where their value is based on an analysis of varied actors (real estate appraisals, collectability of letters of credit, underlying asset components of derivatives and other examples) (Le Lesle and Avramova, 2012; Das and Sy, 2012). Basel IV establishes a higher CETI (Common Equity Tier 1) ratio to cover the varied instances of fraudulent derivatives can be packaged and re-packaged so underlying risks are obscured to the point they are basically unrecognisable (Millar, 2015; Price, 2016). The risks associated with uncovering document, lending, credit card, and similar instances represent bank operational risk where fraud assaults systems and methods designed to uncover or prevent such occurrences (Barakat and Hussainey, 2013). Operational risk falls under what banks term as risk management systems that seek to minimise potential monetary losses which can occur due to failed or inadequate internal processes, people, systems, or external events (Barakat and Hussainey, 2013). Operational risks take into consideration areas such as fraud by bank staff, as well as potential flaws in a bank’s products (loan structuring, derivatives that were a critical component of the 2007 financial crisis and other areas) (Clap and Helleiner, 2012). The fraud management lifecycle theory, as it applies to banking, is a component under bank risk management where it (fraud management lifecycle theory) is a model that encompasses “… deterrence, prevention, detection, mitigation, analysis, policy, investigation, and prosecution” (Wilheim, 2004, p. 1). D. Embezzlement This type of fraud in banks represents removing funds from accounts of customers without their knowledge or consent (Steffensmeier et al, 2015). It can entail large amounts that are usually detected fairly quickly, or small withdrawals across a large number of accounts that is more difficult to detect and customers might not check or miss these amounts until they conduct an audit (Steffensmeier et al, 2015). Banks are liable for these types of losses as they occur under operational risk from employees. In a study conducted by Barclays Global Investors, it reported: “substantial reputational losses occur following announcements of ‘pure’ operational losses” (Squires, 2011). The report added “Fraud is found to be the event type that generates the most reputational damage …” and instances of fraudulent activities negatively impact the reputation of a bank (Squires, 2011). In terms of monetary costs, this represents the financial losses associated with paying for the losses caused by fraudulent activities (Crowe, 2019). This represents a complex problem that has different techniques or procedures based on the type of fraud and where liability can be placed or traced (Crowe, 2019). The far-reaching implications under risk-weighted assets lead to an empirical discussion of monetary (profitability) and non-monetary costs (that refers to a lack of trust in the system by consumers). A report conducted by PKF Littlejohn LLP (Gee and Button, 2015, p. 1) stated: “Fraud is the last great unreduced business cost …”. The report mentions “… fraud has been described as difficult to cost and until relatively recently, it has not been possible to quantify these effects” (Gee and Button, 2015, p. 1). The non-monetary cost aspects are difficult to measure, however most sources, in terms of equating the impact of fraud on this area (consumer confidence), stated non-monetary costs have and are having dire effects. The Conference Board (2018) describes it as an economic indicator measuring the degree of optimism consumers perceive regarding the overall condition or state of an economy, which in this instances refers to the UK banking sector. The UK is affected by the added impact of the uncertainties of the Brexit vote outcome delay as well as the 2007 financial crisis that still has lasting impacts (Ward, 2015; Wearden, 2017). In researching consumer confidence for UK banks, the most recent report dealt with 2013 that showed UK consumers distrusted the banking sector more than any other industry: Figure 1 - Consumer Trust by Industry (Pilcher, 2013, p. 1) The survey also revealed the following: Figure 2 - Consumer Trust in Banks (Pilcher, 2013, p. 1) Whilst the above data is dated, a recent update from Trading Economics (2019) shows consumer confidence is presently around minus 7: Figure 3 - UK Consumer Confidence (Trading Economics, 2019, p. 1) The above figure alludes UK consumers are still mistrustful of the UK banking system as an aftermath of the recent recession. The foundation for this resides in the following statement (financial advice.co.uk, 2017, p. 1): “The Bank of England today confirmed that demand for £50 notes in the UK has risen significantly since the recession began, with the number in circulation rising from a value of £7 billion up to £9 billion. It is believed that the troubles within the UK banking sector have prompted more and more consumers to "hoard" cash rather than hold it in savings accounts within the UK banking system.” Substantiation for hoarding cash in the UK is provided by two sources that indicate this is a current trend. Conway (2016) reported the figure had risen to £5.9bn in the UK in 2016, with Edwards (2018) also finding this was the case. The implications are this is money the banking system does not have for lending or investment activities that are contributors to economic activity. The above look at the economic impacts of fraud on banks represents a part of a broader aspect regarding its hidden costs. An area that illustrates the economic losses attributed to bank fraud is the loan loss provisions banks make for all types of transactions (Cardone-Riportelia and Samaniego-Medina, 2010). In looking at potential losses from lending activity, banks have to account for the percentage of loans that will default that includes borrower income losses due to business or job reversals as well as underlying fraudulent activity in the documents that aided in securing the loan (Memmel et al, 2012). These aspects, along with unforeseen downturns in economic activities in a country, and other factors can negatively impact bank loan loss provisions that are found in interest rate setting by the central bank and other causes that result in net charge-offs (Memmel et al, 2012). Bank loan loss provisions are constantly being updated to reflect changing economic forecasts for the economy (Altunbas and Gambacorta, 2010). This considers and utilises a number of indicators that are used to predict the future growth rate of a country’s gross domestic product (GDP) (Altunbas and Gambacorta, 2010). Some of the main key indicators or variables represent the effects of inflation, production in the industrial sector, consumer confidence that includes their willingness and ability to undertake mortgages, auto loans and other forms of spending (Yamarone, 2012). Other indicators represent retail sales, the direction of unemployment rates, and balance of trade (Yamarone, 2012). The reason for engaging in these areas is that these factors, along with a bank’s calculation of potential loan defaults that include losses from fraudulent practices, identity theft and other causes net to be set aside as loss provisions (Bushman and Williams, 2012). Whilst banks are free to set interest rates on deposits, loans, mortgages, and other products, they are constrained by what their competitors are doing (Bushman and Williams, 2012). The above is where potential losses from defaults, fraud, and other activities are hidden in what banks charge as a means to cover the potential for losses. These are funds lost to banks in terms of lending activities as well as hidden costs in loan rates that all bank customers (business and consumer) pay. In an extensive search to uncover a breakdown on the percentage of bank loan rates that is attributed to loan loss provisions such as varied kinds of default and fraud, no information could be found. This is a particularly troubling aspect as these are costs consumers and business pay as hidden charges that are mentioned by Karstedt and Farral (2006), along with Doig (2013) as potential reasons why banks might not be as diligent as they could be since the ultimate costs are passed on to other parties. 4.0 Actors behind fraud There are many different types of bank fraud which consist of varied perpetrators (actors) who carry out their schemes using a broad array of techniques (Free and Murphy, 2015). Described as a criminal act, bank fraud represents a person utilising illegal means as a way to receive assets or money from a bank or financial institution (Alavi-Baltic, 2016). Another description of bank fraud entails an individual or group of individuals obtaining money from the customers of a bank by deceiving them into believing they are in fact the bank (Alavi-Baltic, 2016). The actors in these situations can be bank employees, individuals belonging to criminal organisations, one or more people acting on their own, accountants, merchants, real estate agents or other trusted parties the customer either might be doing business with or is seeking to do business with (Sabau, 2012). As the perpetrators represent a broad array of possibilities, the method that has been selected is to use the most prevalent types of bank fraud as the setting to identify who may be or is involved. The basis for this look into the most common types of bank fraud is based on an article prepared by McKenna (2017), where he identifies the top ten types of bank fraud that are profiled below: In terms of categories, in some instances the bank is a key target, whilst in others the bank represents a participant in the fraud since transactions eventually winds up at a financial institution. A. Wire Fraud The actors in this type of fraud can consist of one or more parties or a criminal organisation (Sloan, 2011). In some instances, the actors can be the employee of the firm as a means to embezzle funds, a financial advisor, accountant or even an employee at a financial institution (Sloan, 2011). Wire fraud is conducted through the use of electronic communications as the transfer conduit (Murphy and Tibbs, 2010). The equipment can represent a phone of any type, text, email or social media messaging. The key elements in wire fraud represent the criminal party devised a method or scheme to defraud someone and had the intent to defraud as the motivation for their action (Murphy and Tibbs, 2010). In the UK, the bank wire fraud loses increased by 270 percent in 2017 compared to 2016 (West of England, 2016). In addition to the monetary losses, banks face the repercussions of the following (Banker’s Toolbox, 2013): 1. A loss of customer loyalty, 2. The expensive process remediation as well as costs of investigation, 3. Additional losses represented by legal liabilities and damages, 4. Damage to the bank’s reputation. As transfers are usually completed in a matter of hours, the funds are usually unrecoverable. B. Online Fraud Also known as Internet banking fraud, this category has risen quickly over the past five years due to the increased acceptance and use of Internet banking by consumers, businesses and as a transaction mode (Spam Laws, 2017). The table below reveals that losses in the UK from this type of fraud reached 121.4 Pounds Sterling in 2017: Table 1 - Value of annual online banking fraud losses in United Kingdom (UK) from 2010 to 2017 (in million GBP) (Statista, 2017, p. 1) One of the reasons for the increase in this type of fraud is the relative ease in attacking customer accounts that can be accessed due to identity theft caused by accessing emails, credit card access at ATM terminals, bank account bills discarded and other means (Cross, 2015). UK banks are blaming customers for the increase in online banking fraud citing customer reactions to fraudulent emails that help to provide information as well as customers not questioning the authenticity of emails disguised as if they were sent by the bank (McEwan, 2017). C. Card Fraud In many instances, card fraud and online banking fraud go hand in hand as the techniques to gain information on bank cards that are the common denominator (Hoffmann and Bimbrich, 2012). This typically involves the use of card skimmers placed on ATM machines as well as waiters or waitresses and merchant clerks that use skimming devices to copy the electronic information from a card they duplicate later (Hoffmann and Bimbrich, 2012). Card fraud can represent the illegal parties using the card at ATM machines to make cash withdrawals, use of the information to conduct wire fraud, or to charge purchases to the card that typically use the Internet since personal identification is not required (Hoffmann and Bimbrich, 2012). D. Mortgage fraud This falls under the category of document fraud where either the borrower or someone acting on their behalf falsifies the appraisal of the property to secure a larger mortgage (Nqai et al, 2011). The instance of the real estate agent having the appraisal falsified usually represents them owning the real estate or working in conjunction with the owner to secure a higher price (Nqai et al, 2011). In some instances, the house never changes hands as the borrower has a false identity and they do not repay the funds when the loan is approved. E. Document fraud This can represent a broad number of instances such as business loans for expansion, equipment, investments or other purposes (Gori et al, 2016). The actors can represent the business owners who knowingly participate, or it can consist of senior officers, accountants, business advisors or other individuals that stand to profit from obtaining a large loan (Subramanian, 2014). Document fraud can also have an official at the bank as a participant in terms of approving segments or all of the documents for the loan (Shakia and Panday, 2012). There are cases of document fraud that go undetected because the browower fulfills the conditions of paying off the loan (Shakia and Panday, 2012). This means there are potentially a large number of such loans that have gone or are going undetected. F. Identity theft This is a form of bank fraud that is linked in many instances to card fraud and online banking fraud (Harrell and Langton, 2013). The difference is that it can be used to secure loans from a bank as a preferred method. The actors in this case generally have knowledge of the movements of the person whose identity has been stolen (Harrell, 2019). In this manner, they can make changes to contact information, apply for a loan and clear the funds without that person’s knowledge. G. Cheque fraud This type of bank fraud usually applies to businesses (Wells, 2008). This is because unless a consumer is well healed, they use their bank or credit card or bank transfer as the means to make transactions. Cheque fraud is harder to detect if the signature is done properly and if the fund amounts are in keeping with normal business activities so a to not flag the account (Wells, 2008). The actors in this instance usually are employees of the firm with many cases taking years to develop as small amounts slip under the auditor’s or accountant’s radar (Wells, 2008). H. Auto loan fraud This type of bank fraud usually entails a number of participants working in unison since the loan is for a vehicle that either does not exist or is shipped out of the country after the transaction. (Sudhakar and Reddy, 2016). This type of bank fraud generally is used by members of organised crime that set up the vehicle thefts, false vehicle ID plates and other areas (Sudhakar and Reddy, 2016). The above types of banking fraud represent the instances that are most common. As shown, the varied types of participants run the gamut from the actual person, to criminal rings, bank employees, business employees, accountants, business advisors, and others. The common thread is that they take the time to engage in fraudulent activities. 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