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Biggest scams and fraud in history
Neural Technologies7 min read

5 Cases of Historical Fraud that Transformed the World

It’s estimated that fraud costs the global economy over USD 5 trillion annually, according to Crowe — more than the annual GDP of Japan. This multitrillion dollar threat represents a very real challenge for modern businesses. 

Fraudsters are increasingly sophisticated in their efforts, from wangiri scams through to complex identity frauds. Neural Technologies’ own advanced artificial intelligence and machine learning solutions are designed to respond and adapt to this rapidly changing fraud landscape.

While much of modern fraud is built around exposing vulnerabilities in digital technologies, the reality is that people and processes have been targeted for fraud throughout human history. 

This week we want to explore historical fraud with lasting impacts, through five causes of fraud that transformed the world. 

  • Perkin Warbeck – 15th century

It’s unlikely you’ve heard of Perkin Warbeck. In many ways he’s merely a footnote in British history. He’s also the perpetrator of one of the most audacious cases of identity theft in history. 

Contemporary identity theft is a real challenge for modern enterprises, as sophisticated fraudsters utilize stolen identities to access secure accounts or defraud victims of their finances. Perkin Warbeck was aiming at an even grander target — the British throne.

In the late 15th century, a naive young Warbeck was persuaded by supporters of the deposed Richard III of York to assume a new identity. The Yorkist loyalists transformed Warbeck to become Richard, Duke of York, and true heir apparent to the throne. Beneath this guise, Warbeck began gathering forces to take back the throne from the Tudor King Henry VII. The ruse was ultimately doomed and Warbeck captured, but not before his deceit had raised an army of 6,000 men and gathered the support of many European royals of the era. 

While largely seen to be a stooge of more nefarious minds, Warbeck’s story reveals the powerful history of identity fraud as a means towards acquiring illicit gains. After originally being treated with leniency by the King, Warbeck was later hanged in 1499 after a failed attempt to escape. 

  • François and Joseph Blanc – 1830s

It may surprise you to know that the first telecommunications fraud took place in France in 1837, almost 50 years prior to the patent of Alexander Graham Bell’s remarkable telephone.

Brothers Francois and Joseph Blanc were traders in the Bordeaux stock exchange of the 1830s. They primarily traded in Government bonds, valuations of which were heavily influenced by goings on in the capital Paris, 600km to the north. At the time, travel across this distance could take almost a week. That made for a unique opportunity for the brothers to outmaneuver fellow traders.

The jewel in the crown of France’s modern technology at the time was an ‘optical telegraph’ made up of a series of huge towers with wooden signalling arms which could be adjusted to send messages the length of the country. Messages were delivered across the network through relay, as each tower passed the message onto the next. Francois and Joseph discovered a way to hack this network, bribing a signaller to send secret messages about stock market changes in Paris. 

Despite profiting from what many would argue was fraudulently obtained information, the brothers actually escaped prison due to the absence of a law in France forbidding this type of crime. It just goes to show the importance of modern regulation for disincentivizing fraud. 

Telecommunications fraud remains a major challenge to the industry today. Neural Technologies has over 30 years’ experience working to deliver anti-fraud and fraud prevention solutions that prevent revenue loss for the telecoms industry. The story of the Blanc brothers reveals how fraudsters are constantly seeking new ways to access illicit financial gain. 

  • Charles Ponzi – 1920s

No description of the biggest frauds in history would be complete without mention of the infamous Ponzi scheme. Charles Ponzi was arrested almost a century to the day, finally earning his comeuppance on August 12, 1920. He earned a whole lot more before that through his fraud. 

A Ponzi scheme is a fraudulent investment scheme which involves encouraging growing numbers of investors, where early investors are actually paid by funds contributed by later investors, creating a snowball of self-perpetuating fraud. This type of scheme reflects some of the biggest scams in history. 

The original fraud involved the eponymous Charles Ponzi convincing investors he could deliver returns based on fluctuating currency valuations, through purchase of international postal coupons. The temptation for investors came with promising returns early on in the scheme, as Ponzi delivered on a commitment to return 50% profit within 45 days, and 100% within 90 days. 

Ponzi was of course actually using later investments to pay those commitments to earlier funders, encouraging others through his seemingly miraculous returns. Charles Ponzi was eventually brought down through investigative journalism of the Boston Globe.

  • Wachovia Bank

The United Nations estimates that up to US$800bil – US$2tril is laundered annually, between 2-5% of GDP. That figure puts the estimated US$380bil Wachovia money laundering case into perspective. It was, and remains, the largest money laundering case in history.

Discovery of this eye-watering figure actually traces back to the seizure of a Mexican drug cartel shipment in 2006. Mexican soldiers captured a plane carrying a US$100mil haul of cocaine. But it was the papertrail of the vehicle itself which unravelled this multibillion dollar money laundering chain.

Tracing the ownership of the plane revealed a network of money laundering transactions stretching over years through Wachovia accounts. Analysis by the authorities indicated that US$378.4bil of funds — equivalent to one-third of Mexican GDP — had been transferred through Wachovia accounts without proper anti-money laundering due diligence applied. 

A court case eventually led to Wachovia paying US$100mil in forfeiture to the US Government, and an accompanying US$50mil fine for failing to monitor cash transfers. The bank was later acquired by Wells Fargo during the 2008 Financial Crisis.

This remarkable international money laundering case reveals the challenges of identifying vulnerabilities in complex high-volume operating environments. Neural Technologies’ anti-money laundering solutions are designed to provide automated detection and alerts for suspicious or fraudulent activity, freeing up resources for detailed review of more complex cases. This advanced solution offers a powerful anti-money laundering tool that ensures enhanced regulatory compliance for enterprises across multiple industries. 

  • Barings Bank- 1995

The fifth and final fraud on our list is the infamous case of Barings Bank, and rogue trader Nick Leeson. This case revealed a devastating lack of oversight in financial reporting that resulted in the collapse of the UK’s oldest investment bank.

Nick Leeson, then head of derivatives at Barings Bank Singapore, triggered a catastrophic financial crisis for the bank that led to its ultimate demise. The rogue trader gambled over US$1bil of unhedged positions on markets, falsifying internal accounting records to cover up his actions. When the markets failed to turn in his favour, the losses multiplied. Remarkably, Leeson’s actions weren’t revealed as a result of internal audit or oversight, but through a letter of confession sent to the head of the bank as his losses mounted.

This case revealed a remarkable regulatory failure at the bank, in allowing Leeson to both manage positions, and manage oversight and accounting operations. This allowed Leeson to hide the trail of his own deceit rather too successfully. The collapse of Barings triggered far more stringent regulatory and internal oversight controls at banks to prevent similar disasters in future. Reporting standards for derivatives trading were also substantially tightened. 

Today, AI and machine learning solutions such as Neural Technologies’ Optimus platform provide comprehensive real-time oversight, rapidly identifying cases of fraudulent or suspect activities. This automated solution is able to assess high-volume transactions across industries such as finance, telecoms, utilities, and more, providing comprehensive fraud protection in even the most complex operating environments. 

Powering up with modern fraud protection

Neural Technologies’ anti-fraud and anti-money laundering solutions utilize the power of artificial intelligence and machine learning to quickly identify and eliminate fraud, reducing revenue risk, and boosting regulatory compliance. 

The Optimus platform protects businesses from a wide range of fraud types, providing enterprise risk management to tackle revenue leakage through fraudulent activities. Integrated identity verification can further reduce exposure to bad actors.

The examples above clearly highlight that fraud has long been a risk for businesses and individuals around the world. What’s also true is that we’ve never had better tools to mitigate and eliminate that risk. Neural Technologies is committed to delivering advanced solutions that adapt to a challenging operational environment, ensuring enterprises can keep pace with the rapid evolution of fraud.

Find out more about fraud management and anti-money laundering solutions by contacting Neural Technologies today