Banksters: Predators becoming Prey?
by Joel D. HeschThanks to the financial crisis, we have a new breed of racketeer: the bankster. Crossing the line beyond aggressive accounting and fraud, banksters use full-blown racketeering practices into thefinancial arena, where they prey on unsuspecting clients. In corporations and financialinstitutions where the only concern is the bottom line, being a bankster is a badge of honor. Themoney made with these predatory financial practices is frequently in the hundreds of millions or even billions of dollars.Financial statement fraud is rampant among banksters. Some of the newer variations includechannel stuffing, where banksters offer customers discounts in the future, in exchange for accepting excess inventory now. Bill and hold allows banksters to cook the books by recordingsales now, but shipping later. Round-tripping involves selling an asset with an agreement to buythe asset (or similar item) back later. Swaps allow two companies to alter their reported revenue by selling each other nearly identical products.Of course, banksters keep using more familiar fraud practices as well. Reporting sales tofictitious customers, colluding with others to buy or sell assets above or below market values,creating multiple affiliate or shell companies or even banks are still as popular as they have beenfor decades. Most of these financial dealings are so complex there is virtually no risk of aneyebrow being raised by the Department of Justice (DOJ), IRS, or SEC.To a financial professional, everything is measured by risk versus reward. The amount of moneymade through financial fraud schemes is so astronomical that it would take a huge risk to exit.Up until now, the risk of being caught by a financial regulator has been minuscule. But theeconomic downturn and the government's two anti-fraud secret weapons has begun to tip therisk-reward calculation.It just became more profitable to prey on their fellow banksters than to seek out new victims for racketeering schemes. The government has adopted two whistleblower programs which turn upthe heat on predators by offering rewards worth up to a billion dollars simply for switching sidesand teaming up with the government.Originally, the Department of Justice (DOJ) reward program only paid whistleblowers if thegovernment was the victim of the fraud. Even if employees or fellow banksters at Worldcom or Enron had reported that those companies were preying on investors, they would not havereceived a reward. So there was little incentive to turn in a fellow bankster. Now, however, the IRS is offering whistleblower rewards. This means that if a company engagesin financial trickery that also results in underpaid taxes, a reward of up to 30% is paid for the onewho reports it. If, for instance, a manager had reported Worldcom or Enron for income taxevasion, they could have received a sizeable reward.