In recent developments, financial institutions have been grappling with a surge in financial fraud and cyber-attacks, posing significant threats to the security of the global financial system. These incidents have raised concerns about the vulnerability of financial institutions to sophisticated digital threats.
Financial fraud schemes, including identity theft, phishing scams, and fraudulent transactions, have become increasingly prevalent in the digital age. Cybercriminals are exploiting weaknesses in online security systems to gain unauthorized access to sensitive financial information, leading to substantial monetary losses for both institutions and customers as well as for the countries.
Moreover, the landscape of cybercrimes has evolved significantly in recent years, with an alarming trend emerging state-sponsored cyber activities. This shift has normalized what appears to be burgeoning cyber warfare among nations.
Governments worldwide are increasingly utilizing cyber tactics to achieve strategic objectives, ranging from spying and data theft to sabotage and disinformation campaigns. These activities not only pose a significant threat to national security but also have the potential to disrupt critical infrastructure and spread chaos in the digital realm.
The cyber-attacks targeting financial institutions have grown in frequency and complexity. Hackers are employing advanced techniques to disrupt operations, steal valuable data, and extort money from vulnerable organizations and states.
The repercussions of these incidents extend beyond financial losses, impacting customer trust, regulatory compliance, and overall market stability. As a result, there is a pressing need for enhanced cyber security measures, robust risk management protocols, and increased collaboration between industry stakeholders to mitigate these evolving threats effectively.
In response to these challenges, regulatory bodies are intensifying their oversight of cyber security practices within the financial sector. Institutions are being urged to invest in cutting-edge technologies, conduct regular security audits, and provide comprehensive training to employees to fortify their defences against potential cyber threats.
Overall, the financial fraud and cyber security issues require high-level attention, and global leaders and concerned parties should convene to discuss the matter. Also, robust financial security service is important to tackle the issues. The problem demonstrates the rise in finance-related crimes, as hackers and criminals typically view banks as prime targets of theft and fraud. This trend is worse in countries with insufficient technology and human resources to combat these crimes.
According to sources, in the current Ethiopian fiscal year, a large number of financial-related crimes have been reported and are under investigation, with billions of birr seized and under scrutiny. From 2014 to 2015 E.C., banks in Ethiopia have lost one billion birr due to fake documents and other fraudulent activities. Furthermore, the country has foiled over 4,550 cyber-attacks in the first six months of the current Ethiopian fiscal year, marking a 115% increase compared to the previous year. Had these attacks succeeded, the country could have lost 186 million USD.
In addition to fraudulent acts, the digitalization of the financial sector also results in system failures, which sometimes disrupt the macro economy. A recent system glitch in Ethiopia’s largest bank, the Commercial Bank of Ethiopia (CBE), led to the loss of billions of Ethiopian birr, though the bank was able to retrieve the stolen funds using different means.
In an exclusive interview with The Ethiopian Herald Michel Habte, the Chief Operating Officer at the Ethiopian Securities Exchange acknowledged that glitches may happen in the most advanced countries and banks, and the key is to have an operational risk framework in place to cope with these challenges. “We cannot 100% prevent every glitch, but having protocols and procedures in place is crucial,” he stated.
Regarding the country’s financial security, Michel stated that, Ethiopia is advancing in financial security and has a very strong national security agency, INSA. However, the vulnerability of the financial sector is increasing due to the use of fake documents and other fraud systems.
Endale Assefa, the Financial Intelligence Service Public Relations and Communications Executive Officer, warned that if the financial system is not stable, it will put pressure on the country’s economy and create political instability. There are financial crimes involving the use of forged documents and business licenses to make illicit profits, and the extent of the damage these crimes cause is very hard to prevent as criminals try to launder the money and give it legal status.
Endale further explained that, financial fraud damages the reputation of financial institutions, erodes the credibility they have with their customers, and disrupts their relationship with other international financial institutions, leading to punishment for the institutions. The Financial Intelligence Service works together with the financial institutions recognized by the National Bank of Ethiopia and other relevant stakeholders to prevent and control these complex crimes, which are often committed with the help of experts.
Ass. Prof. Habtamu Legese, an economics lecturer at Haramaya University, told to The Ethiopian Herald that political instability, corruption, smuggling, and other factors are hindering the growth of the country’s economy. In addition, the recently spreading problem of money laundering is causing significant damage to the country’s economy. It makes it difficult for the government to control inflation and to know how much money is circulating in the economy, as the supply of money fluctuates due to criminal activity. This not only challenges the government’s ability to control money supply and circulation but also prevents it from collecting the taxes that should be collected.
Individuals and institutions that participate in these illegal activities have a significant role in the country’s political and economic stability. The individuals use the money they earn through these means to import unnecessary items into the country and engage in activities that may harm the citizens, such as the purchase of illegal weapons.
According to Habtamu, one of the things that threaten the world at the highest level is terrorism, and illegally obtained money and property are not only used for terrorist crimes but also a tool for many other crimes.
Michel on his part emphasized the importance of collaboration between the government, relevant agencies, banks, financial sector players, and the providers of these services to educate the population on how to use financial services safely, as users’ limited knowledge of online financial services becomes advantageous for criminals.
As the landscape of financial crime continues to evolve in the digital realm, proactive measures must be taken by all stakeholders involved to safeguard the integrity of the global financial system and protect against malicious actors seeking to exploit vulnerabilities for personal gain.
BY EYUEL KIFLU
THE ETHIOPIAN HERALD TUESDAY 25 JUNE 2024
