Bank Fraud: Types & Prevention

Bank fraud scams have made headlines of prominent newspapers time and again. Whenever, there is a fraud striking the financial sector, its after effects are witnessed in the form of loss of millions of dollars, thousands losing their life’s savings and fall outs in the capital markets world over.

Before going into the issue of bank fraud protection and bank fraud investigation, let us first recollect instances of the biggest bank fraud cases.

Year of the Scam	Details
1989	Scandal involving the US investment Bank, Drexel Burnham Lambert. Michael Milken headed the bond operation of the bank which later filed for bankruptcy. Milken was sentenced to 10 years of imprisonment
1992	The infamous Harshad Mehta Case that hit the Indian stock markets. Mehta was accused of colluding $1.3 billion from the inter-bank securities market to affect a boon in the Bombay Stock Exchange. He died in jail during the trial.
1995	Collapse of Britain’s oldest investment banks, Barings Plc following Nick Lee son’s derivatives trading loss.
1995	Japan’s Daiwa Bank suffered huge losses due to unauthorised bond trading by Toshihide Iguchi, who was later imprisoned.
1996	Unauthorised copper trades by Yasuo Hamanaka led to the Sumitomo Corp’s scandal.
2002	Fraud hitting Ireland’s largest bank Allied Irish
2006	Natural Gas Futures Scam by Brian Hunter and Amaranth, the latter charged by the Federal Trading Commission in July 2007

Bank Fraud types

Bank fraud is the unlawful appropriation of money or other assets held by a bank or other financial institution. Bank fraud may be committed by individuals from outside the bank or by bank employees themselves. In the latter case, bank fraud protection and investigation becomes difficult, though not impossible.

Let us have a cursory glance at the types of bank frauds.

How to prevent bank fraud?

Bank Fraud protection at the individual level can be done by regularly monitoring your credit card and bank statements, keeping receipts of purchases to check your monthly statement, reporting any suspicious or bogus charges made to your name and educating yourself about the risks of online banking fraud.

Banks should ensure that they use unique and unalterable features such as hidden watermarks, which cannot be altered or counterfeited. They should have an internal check system to regularly monitor the activities of the bank employees. In case of any signals of irregularities, a bank fraud investigation team should be appointed to look into the matter. Professional investigators have the necessary knowledge and expertise to deal with the issue of bank fraud cases.