Banking fraud comes into the spotlight

The economic downturn has Russian banks paying more attention to fraudulent practices, with within the banking system and with those looking to borrow.

According to a 2009 survey by PricewaterhouseCoopers into economic crimes in Russia, 43% of Russian companies reported an increase in the cost of fraud from the previous year.

Several months ago Russia's largest bank Sberbank said an organised loan-fraud scheme possibly involving its former employees its Moscow branches cost $1.2 billion dollars, which is about double Sberbank's total profits for last year.

Pyotr Dorozhkin, Head of Fraud Risk Analysis at Home Credit Bank says the risk comes primarily from counterfeit documents and fake contact information supporting loan applications.

“There are some fraud groups that provide a kind of a legend for a person who applies. The check process is quite tough, to pass it the client is offered a service that some people would confirm that he is employed, gets high salary, has a car and a residence in a prestigious area, which will make the bank verification process to go wrong way and bank will approve a fraud loan.”

Oleg Lagutkin, CEO of Equifax Credit Bureau believes there is usually no intention to repay the loan, but in the economic downturn more people have turned to downplaying what they think may limit the chances of a loan being approved.

“People just improve something in the application to get this credit and most of them do not have intentions not to pay, so they just really wants this money and they try to show their applications not so risky as they are really.”

Analysts say the key thing for banks to prevent or at least reduce fraud is to invest in high-tech systems and use professional credit bureau services.

“We see banks like Sberbank taking big steps forward in that, still it's a very big organisation and of course it's difficult for them to control the local banks but they're investing a lot of money in the IT systems to get at least the information at a central level.”

But Russia still has a long way to go. PWC claims that, so far, corporate fraud is more prevalent here than in any other country. The problem is even more complicated with lack of transparency, so that many assume Sberbank's fraud allegations represent only the tip of a very large iceberg.