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Financial Crimes 101: Everything You Need To Know As a Business

Posted June 22, 2020 by EasyFinance.com to Finance 1 0

Financial crimes are hardly a new phenomenon. They are white-collar crimes where criminals take advantage of legal systems' ambiguities or use their astuteness to commit financial misconduct. In most cases, finance professionals and finance companies commit these crimes because they have expertise and resources to avoid getting caught. As a business, it's crucial to know different types of financial crimes to avoid aiding them directly or indirectly.

Money Laundering

Money laundering is a financial crime that cleans "dirty" money by plugging it into a legal financial system. Usually, money launderers have a business that acts as a front, where the criminals can layer the money through cooking books. Once the money is in the system, the criminals can withdraw it from a legal source without getting caught.

However, creating a business to acts as a front, also known as creating a shell company, is only one of the tactics money launderers use. Some criminals also smurf the money- breaking it into small deposits over time, or use currency exchanges and wire transfers. Once the money is transferred to legal assets, the criminals can keep their investment and use it to fund other activities.

It's easy to find your businesses entangled in a money-laundering scheme. Why? Many launderers like to use small businesses with large clientele to justify their income. Be vigilant with your customers, especially if they're making unusually large purchases. It's always safe to document all large transactions and look up your clients, especially if the deals are too profitable. Additionally, look out for prepaid credit cards. Money launderers may use then to gift you or make purchases from your shop.

Terrorism Financing

Organized criminals such as terrorist units often use financial crimes to fund their daily activities and projects. In most cases, the funding comes from offshore reserves; hence, there is a need for illegal channels of financing. The funds may come from varied sources, including contributions from members, manipulation of non-profit organizations, use of natural resources, or illegal activities such as drug and human trafficking.  

As a small business, it's crucial to investigate your clients, especially if you run a money transfer service. The money may be transmitted through remittances and bank accountants. Terrorist organizations also store their funds in cryptocurrencies, warehouses, and high-value commodities like oil and antiquities. The transfers could also happen through money laundering in your business. It's, therefore, essential to scrutinize all client funding sources.

Tax Evasion

Tax evasion is the crime of not paying the taxes you owe. You can inadvertently evade taxes through a mistake. There's also willful tax evasion where you knowingly withhold your taxes. The IRS estimates that it loses around $485 billion annually due to tax evasion by households and businesses. As you can imagine, evading the IRS comes with massive consequences.

Tax evasion can take several forms, including underreporting income, to reduce taxable income. Usually, some businesses make cash deposits below $10,000 while others cook the books to lower income. Some enterprises claim too many deductions on income tax, while others hide and alter their payroll to avoid paying payroll taxes.


Financial fraud is a white-collar crime where the criminal gains assets through trickery and illegal activities. Fraud in economic environments can take several forms. In identity theft, the criminal steals your identity or your business's identity and uses it to withdraw your money, use your resources, open credit with different financial institutions, and perform wire transfers or tax fraud.

As a small business owner, you can protect yourself from identity theft by using digital files for all your office operations. Digital formats are safer and easier to track. With secure firewalls, VPNs, passwords, and cybersecurity protocols, you can also protect your businesses from online fraud.

Fraud also included investment operations such as Ponzis and pyramid schemes. The investors in these illegal structures mislead their investors into buying false promises. It's also fraud to sell a business or real estate property with false information.

While you may fail to conduct the fraud yourself, it's crucial to know that your trusted employees, family, and friends may use your business to commit fraud. Your payroll department may create ghost workers to fuel funds out of your business. Some employees steal cash that isn't logged into the system while others use false invoicing. Sometimes, employees may partner with vendors to create false invoices. Others may launder money directly under your nose.


Bribery is a form of corruption where one party gits another or promises to gift another in exchange for a favor. The favor can vary, but for most businesses, bribery happens for employment and bidding reasons. In this way, a small business can win a contract they may be unqualified for. Whether receiving or giving a bribe, you stand to face charges if caught.

Bottom Line 

Understanding the financial crimes in the business world can help you avoid committing crimes or enabling one. It's also essential to understand the legal consequences of your financial crimes. Finding a lawyer is a great way to understand the criminal charges and penalties associated with each financial crime and learn how to protect your small business.

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