Canada: New Technological Developments to Detect Electronic Crime in the Securities Industry
| Published date | 01 March 1998 |
| DOI | https://doi.org/10.1108/eb025867 |
| Pages | 77-80 |
| Date | 01 March 1998 |
| Author | John Sliter |
| Subject Matter | Accounting & finance |
Journal of Financial Crime — Vol. 6 No. 1 — International
Canada: New Technological Developments to
Detect Electronic Crime in the Securities Industry
John Sliter
Technologically, the Canadian securities industry
has become extremely complex and this has
presented a serious challenge to law enforcement
agencies. The industry continues to make large
investments in systems technology and electronic
equipment in order to participate in an increas-
ingly fast paced and global system. In addition,
Canadian investment firms have been taken over
by large banks which has done a great deal to
further strengthen their global position. The Royal
Canadian Mounted Police (RCMP) has come to
the realisation that an effective enforcement
strategy would have equally to invest in technology
and to be prepared to undertake investigations of
increased international dimension.
It has been the experience of the RCMP that in
order to prevent advances in technology from
becoming overwhelming obstacles to effective
enforcement, it is necessary to search continually
for ways to benefit from these advances. A good
example of this is in the analysis of international
manipulative stock trading schemes. Those who
traditionally sought to conceal their schemes by
conducting their trading through foreign firms had
their efforts to deceive made easier with the new
ability to purchase stocks through the use of com-
puters and touch-tone telephones. A very signi-
ficant part of our securities fraud investigations
involves matching responsibility for a given trade
transaction to a person, a suspect. In fact, the
presentation of
a
market manipulation scheme in a
criminal proceeding dictates that we present a
recreation of the complete market for a given
security. A traditional analysis would, therefore,
involve a very painstaking process of matching
brokerage trading blotter data containing client
account information to public surveillance trading
records, all to identify who was trading with
whom. This is a very time-consuming process,
with the most simple analysis involving some few
thousand trade transactions taking anywhere up to
six months to complete! This task has become
increasingly difficult with the powerful force
behind high-tech globalisation as trade transactions
can be initiated from a laptop computer and
rerouted through several locations across the globe.
Of course, even once the analysis is complete and
a specific brokerage account has been identified, it
can still be a formidable task to determine which
persons were responsible for those trade transac-
tions initiated from within corporate trading
accounts in brokerage firms from across the globe.
Needless to say, all regulatory investigative agen-
cies involved in this type of market analysis con-
tinually search for ways to make use of technology
to ease this monumental task.
The RCMP has also come to recognise that a
market analysis, such as the one described above,
requires that investigators possess a great deal of
specialised knowledge and expertise. However, the
problem of developing and retaining expertise in
specialised police units has long been recognised
and reported on across the globe. On several occa-
sions over the past decade, the RCMP in particular
has seen several of its securities fraud enforcement
units completely ravaged of investigative talent.
There are many reasons for this loss of expertise,
and a primary one is directly related to economic
business cycles. Because the surges in the eco-
nomic recovery in the public sector tend to lag
behind those of the private sector, peaks of
recovery
in the private sector have, unfortunately, some-
times been matched to those peaks of
restraint
in
the public sector. This has resulted in an increased
demand for investigators in the private sector at a
time when the public sector is not only unable to
provide their investigators with incentives to
remain, but is sometimes alternatively involved in
downsizing and layoffs. This poor sense of timing
has caused, and will continue to cause, a dramatic
shift in investigative talent from the public to the
private sectors. The final result has an immediate
detrimental effect on the effectiveness of the
public sector units. This describes the current sit-
uation in Canada, with the RCMP seeing some of
the most experienced and valuable economic crime
investigators being lured away to the private sector.
Page 77
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