Corporate compliance insights
The retail foreign exchange trading industry has grown leaps and bounds over the past decade, attracting consumers from al over the globe to participate in this exciting new investment activity. As any risk management professional knows, where popularity and money are involved, the criminal element in our society will be quick to pick up the scent and craft clever ways to deceive the unsuspecting consumer. Unfortunately, such has been the case with the world of forex, but much has been accomplished over time to mitigate the various ruses perpetrated by modern day electronic swindlers. Insights gained may be helpful for any transactional business where online access is a way of life.
The Commodity Futures Trading Commission, or CFTC, is the independent agency of the U.S. government responsible for regulating commodity, currency, derivatives, and financial futures and options activities in our country. The CFTC has been instrumental in the fight against fraud in the forex trading course by policing unscrupulous forex brokers, arresting criminal fund managers, and informing consumers of common forex scams. From December 2000 through September 2009, more than 26,000 customers have recovered over $476 million in 114 forex fraud cases conducted by the CFTC.
The key points of compromise have been successfully policed in the industry, but the nature of these defalcations provide a level of risk intelligence awareness that should be incorporated in related audit and compliance programs. Control breakdowns were not complex, but fell within the following three categories:
- Anonymous Business Partners: The Internet has been the great facilitator in the area of online global commerce, but it has duped the unwary when it comes to choosing “invisible” business partners. In the forex world, access can only come through an online broker that you will never meet face-to-face. Without any due diligence in the selection process, an unsuspecting consumer can easily be dealing with an offshore entity where trying to enforce legal rights can suddenly become your worst nightmare. There are now many forex broker review sites to assist in this task and educate consumers on the prudent way to select a forex broker;
- Outrageous Marketing Claims: The CFTC has done much to set standards for brokers in the United States by limiting the amount of leverage (margin) that can be used, setting capital requirements for safety and soundness, and dictating operating rules to be followed. Creative marketing tactics remain a source of fraud, especially when made by offshore entities. Promises of high yields with little or no risk are common claims made by criminals from Russia to Nigeria, but the unsuspecting consumer believes the solicitations are local and regulated. They are not. If it sounds too good to be true, it most likely is.
- Unsolicited Offers: The criminal element is highly sophisticated and well educated in how to use cyberspace to ply its trade. Every type of scam imaginable has been adapted to the Internet, and the use of electronic mailing lists is basic to finding easy “marks”. Any unsolicited offer, whether received by email, regular mail or telephone should receive a high degree of skepticism. The success of a scam is always in the “sell”. When pressured for money, walk the other way.
Risk management officers must be doubly vigilant when assessing the points of compromise in online transactional systems these days. While efforts in data security may block one type of risk, there may be easier windows for crooks to climb through if business procedures are lax or employees are unaware of obvious risks. Be alert, be aware, and be safe.
