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Sniffing Out the Fraudsters Through Their Email -- The Latest Sleuthing Tool for Uncovering Corporate Fraud

Posted  January 11, 2013

By Gordon Schnell 

It is part and parcel of virtually every government investigation these days.  Rummaging through mountains of emails in search of those “smoking gun” exchanges where the wrongdoers openly detail, if not brazenly boast about, the fraud or misconduct in which they are partaking.  These emails are always there.  No matter how sophisticated or savvy the schemer.  And they typically serve as Exhibit One to the government’s ultimate case.  Just read the complaint or press release associated with any of the government’s recent eye-popping settlements.  Front and center, no doubt, was some mind-boggling email admission by one of the key players in the fraud.  Inexplicably, from the guileless to the corrupt, most still drop their guard when communicating through email.  Which is why a new software tool designed to ensnare those emails most likely to implicate fraud may be a game-changer in the ongoing challenge of detecting and deterring corporate mischief.

The new development comes out of a collaborative effort between Ernst & Young and the FBI which has yielded an inventory of roughly 3,000 words or terms most often found in emails associated with rogue activity.  The software targets groupings of this language — which might encompass a mixture of accounting phrases, personal motivations and efforts to conceal — to find those emails that fall within the so-called “fraud triangle.”  This is where the three common preconditions to fraud simultaneously exist; namely, pressure, opportunity and rationalization.  The software, using its collection of catchphrases, is designed to capture any email that falls within this hot zone.

Here is a listing of the top fifteen terms most commonly used by fraudsters which the new software is set up to snag: (1) Cover up; (2) Write off; (3) Illegal; (4) Failed investment; (5) Nobody will find out; (6) Grey area; (7) They owe it to me; (8) Do not volunteer information; (9) Not ethical; (10) Off the books; (11) Backdate; (12) No inspection; (13) Pull earnings forward; (14) Special fees; and (15) Friendly payments.  In addition to monitoring and isolating the emails that contain these linguistic markers, the software can also flag uncharacteristic changes in tone and language in electronic conversations.  It also can be tailored to specific industries and employee types, such as traders in the financial sector.

This new fraud detection tool, which will be able to sift quickly through mountains of email and other electronic data, could be of significant value to the government in greatly facilitating its review of the materials it collects in its fraud investigations.  But where it will be of most value is to companies looking to be more proactive in their in-house policing of employee misconduct.  Until now, these companies have had to rely on voluntary disclosures, complex number crunching, lengthy and expensive internal investigations, and whistleblowers with inside information.  All good sources.  But they often yield results too late in the game for the company to escape a costly and embarrassing clean-up, not to mention serious government and media scrutiny.

With this new software, companies can potentially uncover and remedy misconduct early on, before they become the next poster-child for the government’s ever-expanding charge against corporate misbehavior.  In the last several weeks alone, the government’s crusade has moved into high gear with its extraction of several multi-billion settlements from a host of corporate behemoths that apparently were not so diligent in keeping a clean house — $8.5 billion from Citigroup, JP Morgan Chase, Bank of America, Wells Fargo, etc., for their mortgage machinations;  $1.5 billion from UBS for its role in the massive LIBOR interest rate-rigging scheme (click here for more); and $1.9 billion from HSBC for dealing with money launderers and terrorist states (click here for more), to name just a few examples.

There would appear to be no end in sight to the government’s newly re-energized campaign against corporate malfeasance.  Given the rising stakes — both monetarily and criminally (click here for more on the growing risk of criminal charges) — companies would be wise to beef up their internal compliance programs and give this new fraud detection software a serious look (accounting for privacy concerns of course).  Otherwise, they might find themselves next up on the government’s anti-fraud firing line.