Collusion, conspiracy and complicity are three words that are often used interchangeably to characterize dishonest and deceitful behavior perpetrated by individuals in relation to financial crime.
There can be a fine line between understanding the difference between collusion and conspiracy. Collusion is best described as a secret agreement between two or more parties which could lead to a crime, whereas conspiracy is best described as an agreement to actually commit a crime.
Suffice to say that outside the financial system the anti-financial crime (AFC) professional generally deals with, collusion is more synonymous with corporate price-fixing and manipulating supply and demand to increase profits. It is often referred to by AFC professionals in a more colloquial manner to denote two employees who collude for a criminal act.
By contrast, conspiracy is the term used to identify a wider criminal enterprise involving multiple individuals, popularized by the famous phrase “vast right-wing conspiracy” attributed to U.S. President Bill Clinton and First Lady Hillary Clinton in the 1990s.
Wherever you find collusion and/or conspiracy you may often find the third element of the activity―complicity. Complicity can run the gamut from someone failing to report a crime, offering assistance to help facilitate a crime or remaining silent in the face of a crime. It can present a much narrower latitude of culpability. In many cases, innocent people may end up being complicit, having to defend themselves that they were not aware of what was transpiring or that they were manipulated into assisting.
Ultimately, all three scenarios may come together as part of many actual suspicious activity report (SAR) filings. Here is a story of one of those filings.
Part of detecting suspicious activity is not just the numbers and patterns: There is often a “community” component
An application was received in mid-February by a financial institution (FI) for a purchase money mortgage, which is more commonly referred to as a first mortgage application. The applicant was the sister of a recently terminated FI employee (same FI as the applicant), and the loan request was to purchase a property from a director of the same FI. The director had purchased the property a year earlier with a substantial down payment on top of the first mortgage that was taken out through the FI to consummate the purchase. That mortgage was being paid by the terminated employee who was living on the property but now had no verifiable source of income.
On the surface it had all the earmarks of a typical family affair as the applicant was also the ex-wife of the director. The sister/ex-wife would become the owner, and the director would be relieved of his debt with a profit due to market appreciation. What arrangement the brother and sister would enter into would be between them. It should be noted that the terminated employee had initially been hired several years earlier due in large part to the influence of the director.
For unknown reasons, the application moved slowly when the FI’s Bank Secrecy Act (BSA) officer was asked to review it in mid-April. It is generally unusual for BSA compliance to review a purchase money mortgage application in process and no reason was given by management for the request. However, as it is all too well-known, office politics can always be at play. Management may also just be reluctant to speculate, seeking an independent opinion prior to going on the record, better known as the “I knew it moment.”
The applicant stated that her income was a salary of $135,000 annually as an executive vice president of sales for a local check-cashing company. Now, most check-cashing companies are not large-scale operations and hardly deal in corporate titles. This was the first indication that something was out of the ordinary.
Part of detecting suspicious activity is not just the numbers and patterns: There is often a “community” component. Employees often live in the same geographic area as their customers. The smaller the FI the more community relationships there are. FIs are often active in the community doing charitable works. Branch personnel may know more about their customers, who are also their neighbors, than the customer’s own family.
In this case, everyone involved had a close relationship, especially the director and the terminated employee. The first cousin of the director was the owner of the check-cashing company and his daughter, the director’s second cousin, worked as a teller at the FI.
Not lost on the BSA officer was the fact that the check-cashing company was a customer of the FI with multiple accounts and had been routinely examined by BSA compliance as a money services business (MSB). BSA compliance and almost everyone in the FI was familiar with all of these interlocking relationships.
The applicant started the job the day after New Year’s Day. She previously had worked as a department store cashier for several years. So just like that she obtained a $135,000-a-year position as an executive after being a cashier? Another indication that something was out of the ordinary.
Since the applicant had just started her job in January, her tax returns for the previous two years (from the standpoint of salary) were in effect useless as they showed insufficient income to carry the loan request. The FI now had to rely on recent pay stubs for proof of income and debt-to-income ratio. While not unusual, as people often apply for loans with a short job history, it was somewhat interesting that the timing of her employment and application coincided with the beginning of the new year.
For income verification the applicant provided three checks, all dated two weeks apart, a normal pay period. The checks reflected the net pay with a side tab showing the normal deductions of federal and state income taxes, Social Security, etc.
As part of the review, the BSA officer drove to the business location, which was about five miles away and confirmed that this was exactly what the conventional wisdom would say, a small brick and mortar storefront. It turned out to be just that, with a couple of people inside behind a counter similar to an FI teller station. It took all of 30 minutes to lend some credence to the original suspicion that this was a business where only the owner could command a salary alleged by the applicant.
As luck would have it, those three checks were drawn on one of the accounts the check-cashing customer had at the FI. So, the BSA officer pulled the statements for the account and the checks provided never cleared the account. They were not the standard checks that the FI issued either, having all the characteristics of being produced from a home printer.
So why would three checks totaling $11,100 net over a six-week period not clear the account? Either the applicant was so financially well-off that there was no rush to cash them or more likely she did not earn $135,000 per year and probably was not even an employee. This now becomes the quintessential example of mortgage fraud by collusion and conspiracy. The additional accounts of the company were also checked to verify that no other checks were written to her outside of the three provided.
One truism that you often find in politics is the compounding of a problem that only makes it worse for the politician
The BSA officer reported the findings to executive management, prompting one of the executives to become irate. There is always someone in executive management, or a director, who when they hear about possible criminal behavior wants to take matters into their own hands and confront the alleged violator. While it may be human nature to become angry and disappointed with someone you know, everyone has BSA training which teaches that tipping off can undermine the outcome of an investigation. While disclosing a SAR is a violation of federal law, questioning or berating someone about their actions can certainly allow that individual to conclude that a SAR may be on their horizon.
While BSA compliance was preparing the SAR, a call came into the FI from a woman at the check-cashing company requesting a stop payment on the three checks, advising they were lost by the employee. So, let us understand this. Someone who had three checks totaling $11,100 net, lost all three and just noticed it in mid-April? Simultaneously, the loan application was withdrawn.
One truism that you often find in politics is the compounding of a problem that only makes it worse for the politician. Someone may have possibly succumbed to human nature and reached out to the suspects, which triggered the above referenced stop payment request only adding fuel to the fire. Was it tipping off or just plain complicit stupidity achieving the same result? It turns out that the caller requesting the stop payment was the wife of the owner and the company bookkeeper―who is now complicit, whether she is innocent or not.
The result was the filing of a SAR with a very concise―with a capital C―narrative.
Charles Falciglia, former Rockland County, N.Y., legislator and 2022 congressional candidate, charlesfalciglia@yahoo.com
