The Evolving Landscape of Financial Crime

The Evolving Landscape of Financial Crime

Financial crime is changing rapidly as bad actors continually improve their methods and tools to profit at the expense of others.  While many Americans are aware of this, few fully understand the scale and scope of the issue. That understanding is key to preventing catastrophe.  Clearwater Capital is in a unique position to help our clients, and their families, identify and prevent financial crime thanks to the depth of our relationships with them.

While financial crime is an extremely broad subject, let’s look at two specific areas in more detail.

Financial Exploitation

Financial exploitation is the unauthorized taking, withholding, or use of resources by a third party.  To help you understand the scale of this issue, it is estimated that victims of financial exploitation lost $28.3 Billion in 2023 in the United States.  Sadly, this is not solely a financial issue.  Victims of financial exploitation also report declines in mental health, higher risk of cardiovascular disease, and shorter life expectancies.

Surprisingly, 75% of financial exploitation cases involved a perpetrator that is known and trusted by the victim.  In fact, sadly, 58% of cases involve a family member stealing from a loved one (Source: Journal of General Internal Medicine).  This means that, most often, it is the people vulnerable Americans are relying on that are most likely to be the problem.

As we look to the future, it is expected that this issue is likely to grow at a concerning pace.  As the chart to the right shows, average financial losses due to fraud jump dramatically once the victims reach age 60.  At the same time, the number of Americans that are now in that most vulnerable cohort, or will be entering it over the next 10 years, is expected to skyrocket.  These same Americans also happen to be the wealthiest in history.  These factors, combined with criminals that are getting dramatically better at their trade will likely drive the increase we are expecting.

We at Clearwater, given our close relationships with our clients, are in a unique position to recognize the changes that may indicate some form of financial exploitation is occurring.  We have developed robust policies and procedures to give our team the tools they need to identify and escalate cases where red flags are observed so that we can bring additional resources to bear in an effort to have the best possible outcome for our clients and their families.

Trusted Contacts

One of the strongest tools at our disposal is the Trusted Contact election, which tells us whom you’d like us to speak with if we feel something is happening in your life that could indicate an issue.  These are trusted people in your life that can give us additional information needed to make the best decisions possible for you.  They are not, however, empowered to give us any directions about your money, nor do we share sensitive personal information, like account numbers or social security numbers, with them. It is critical, however, that you make your trusted contacts aware that you have named them so they are prepared in case they are needed.

Our team will be proactively reaching out to our client base to make sure we have trusted contacts set up, or to verify the ones on file are still accurate.  We will also be proactively reviewing these elections with you during our regular review meetings.  That being said, please reach out to our team if you ever have any questions or need to make any changes.

Cyber Crime

As we continue to migrate more and more of our lives into the digital realm, cyber crime has become an increasingly common issue.  To put the scale of this crime into perspective, it is estimated that cyber crime cost the world’s economy $8 Trillion in 2023 alone (Source :Cyber Security Ventures).  If cyber crime were an economy, it would be the third largest in the world.

As with financial exploitation, we see a very clear trend that average losses due to cyber crime ramp up dramatically for victims aged 60+, the same vulnerable cohort as highlighted above.  Today, cyber criminals have evolved into robust operations featuring offices, staff with benefits, and significant resources.  They operate as businesses with a focus on stealing from victims.

Tools used to circumvent cyber security systems have improved drastically, making it extremely difficult to recognize legitimate requests from fraudulent ones. These criminals are also targeting our cell phones with text message campaigns aimed at triggering any sort of reply.  They know that human nature works against us, and prey on that. 

Further, they are using the enormous amount of personal information we share online to learn about us so they can present schemes to us that are more likely to get us to engage.  Humans are the weak link in cyber security, and the bad actors know it.

Perhaps the most troubling new tool for these criminals is Artificial Intelligence (AI).  AI is already doing a large portion of the leg work making them faster, more efficient, and extremely difficult to detect.  In fact, AI can now clone your voice, with only 30 seconds worth of audio of the victim speaking, through publicly available websites.  Once cloned, the bad actor can use these platforms to make realistic recordings of the victim saying anything they wish.  This same technology is also capable of creating fake video of victims doing and saying things they have never actually done or said.

What Can You Do?

Following basic cyber security rules can be a strong start.  You should:

·        Enable Multi-factor Authentication (where you need a password and a rotating code to log in) wherever it is supported.

·        Avoid Public Wi-Fi

·        Never share usernames and passwords

·        Keep your operating systems and anti-virus software up to date

·        Never click on links or open attachments you weren’t expecting to get, including via text message

·        Be cautious about what you share online, and make your social media profiles private

How is Clearwater Working for You?

Protecting the assets and information of our clients has been our priority since the inception of our firm.  We dedicate a large amount of time, resources, and attention to cyber security in service to that goal.  This includes continuous training for our team members to ensure they are up to speed on how to use our systems and how to identify potential issues before they escalate, both internally and for our clients.

An example of our proactive approach to cyber security is our 2024 Pass Phrase initiative.  We have always required verbal verifications of certain move money or account feature requests, however this has been complicated by the fact that AI voice cloning can easily be used fake these confirmations.  Therefore, a new solution is needed.

Going forward, our staff will be proactively reaching out to each of our clients to establish a unique pass phrase which we will use to verify the client during verbal confirmation calls.  These pass phrases can be any number, word or phrase but it must be something that you can easily remember.  It also should not be in use anywhere else, nor should you share it with anyone other than Clearwater. Please start thinking about what pass phrase you’d like to use.

In conclusion, the world is a rapidly changing place.  These threats continue to evolve and grow in prevalence.  Your team at Clearwater Capital is dedicated to the safety and security of your assets and information.  We will continue to evolve and grow our service offerings to meet these challenges to keep you and your loved ones as prepared and protected as possible.  Please don’t hesitate to reach out to the Clearwater team with any questions you may have.