Bank fraud declining, down to $800m annually
The value of all frauds in the banking system is running at $700 million to $800 million per annum, an official of the central bank said on Thursday.
But that level is down relative to previous counts by the Bank of Jamaica, BOJ.
Dr Jide Lewis, deputy governor of the Bank of Jamaica, made the disclosure amid discussions of Jamaica’s exposure to money laundering and plans for the country to, by summer, get itself off a list of flagged nations with weak links in its money-laundering defences.
“When you look at fraudulent activity in the banking system, it is currently at around $700 to $800 million. When I did a quick check, it is certainly running at about $10 million a month per institution,” said Lewis.
“When you look at the value of all frauds as a jurisdiction, we can still bring that down somewhat,” he said while addressing the annual anti-money laundering seminar put on by the Jamaica Institute of Financial Services in partnership with the Jamaica Bankers Association on Thursday.
Relative to other jurisdictions, Jamaica isn’t doing badly, but still requires improvement, Lewis added.
The current fraud estimate by Lewis reflects a decline relative to the $1-billion annual average that BOJ found during a study covering a 46-month period ending in 2021.
The issue of fraud remains topical as the BOJ extends its regulatory reach from overseeing banks to include non-bank financial companies and pension funds. That move arose from the ongoing investigation into the alleged fraud case involving boutique securities firm Stocks & Securities Limited.
Jamaica needs to comply with 40 measures to get off the grey list of the Financial Action Task Force, FAFT, the global watchdog over money laundering and terrorist financing.
Currently, 13 of the 40 measures are outstanding, but major progress was said to have been made on six of them.
The Paris, France-based FATF has commitments from over 200 jurisdictions to strive towards ridding the world of havens for money laundering and funding of terrorism.
The FATF will meet with Jamaica later this month as a precursor to a showdown in the summer to determine whether the island gets off the grey list it’s been on since January 2020, along with a clutch of other Caribbean countries.
“There will be a meeting at the end of this month, where they will look at where we are in terms of our 13 action items. We are largely compliant with six of the 13. We have to demonstrate that we have moved the needle on that much closer; and then there will be another meeting where, for lack of a better word, our fate will be decided as a jurisdiction,” said Lewis.
“We have two to three months,” he told participants at the seminar, which was staged under the theme ‘FATF 40 Recommendations – Why we Must do More’.
Lewis also made reference to the new UK Privy Council ruling handed down on Thursday against the Jamaican Bar Association, which had wanted the option to invoke client privilege in the avoidance of reporting of certain suspicious financial activity under the Proceeds of Crime Act, known as POCA.
“The board concludes that the regime does not breach attorneys’ or their clients’ constitutional rights,” the Privy Council judgement stated. If lawyers in Jamaica fail to report suspicious transactions, they will face sanctions.
Had the ruling gone the other way, it would have had serious implications for Jamaica’s efforts to get off the FATF list.
“It is fairly significant,” Dr Lewis noted about the ruling. “But there are other things that we have to close out,” he added.
“We have to demonstrate that the framework allows for all stakeholders to support the effort, including designated parties, including the DPP (chief state lawyer) and other investigative arms of our judicial system to have the information needed to prosecute.”
The BOJ conducted a study on banking fraud among its eight deposit-taking institutions that sought to chart the evolution of frauds committed between January 2018 to October 2021. It was meant to deepen the central bank’s understanding of money-laundering risks.
It defined fraud as unlawful means to obtain funds or property, and outlined the major frauds as originating from internal staff, internet banking, loans, wire transfers, among others.
The study found that throughout the three-year period, fraud losses averaged $1 billion per annum.
The losses approximated 0.95 per cent of Jamaica’s total output, and represented less than “1.0 per cent of the banking system’s regulatory capital per annum,” according to a summary of the findings published in the BOJ’s Financial Stability Report 2021.
Cumulatively over the 46-month period, fraud totalled $3.9 billion, with reports of over “37,253 incidences of fraud”.
Lewis noted that most of those incidents related to credit and debit card fraud. The report itself noted that card fraud was estimated at $3.3 billion or four-fifths of the total fraud.