Types of financial crime: definitions, red flags and protection
- azakaw
- May 1
- 12 min read
Updated: 5 days ago
There are several types of financial crime, from money laundering to fraud, including embezzlement and bribery.
They cost the world 2% to 5% of the total global GDP each year; a sum estimated to be between $1.6 trillion and $4 trillion (United Nations Office on Drugs and Crime (UNODC)).
It's not simply background interference. It forms a deep, ongoing drain on economies, businesses and individuals that regulators and compliance teams are continually striving to contain day by day.
For anyone working in compliance, risk or financial regulation, particularly in the Gulf region, understanding the full scope of financial crime is essential. You can't spot what you don't recognise.
This guide covers the main types of financial crime and financial fraud you'll encounter in practice, how Gulf regulators are responding, what warning signs to look for, and how organisations build defences that actually work.
Types of financial crimes - Key Takeaways |
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What is financial crime?
Financial crime refers to illegal activities carried out mainly with the intention of achieving financial gain, either by individuals, groups or corporate entities.
There are several types of financial crimes, such as fraud, money laundering, bribery, insider trading, embezzlement and all other illicit activities.
What distinguishes financial crime from other kinds of criminal behaviour isn't solely the purpose behind it. It's the approach.
Financial crimes typically use existing, legitimate infrastructure (banks, corporate structures and financial tools) as the means to carry out the crime. This is what makes them extremely hard to identify and prosecute.
The difference matters to compliance teams. A physical robbery is a crime. Routing illicitly obtained funds through several shell companies to obscure their true origins is financial crime, specifically money laundering.
Although less apparent at first glance, this type of crime causes very serious harm; one that is often far bigger in magnitude.
The economic impact of financial crimes
The results of financial crime spread far beyond the immediate victim. They flow through individuals, businesses and indeed complete economies, compounding over extended periods of time.
On an individual basis, victims of fraud or identity theft will suffer immediate financial losses, have their credit damaged, and endure a considerable amount of time spent recovering; all of which may take many months or even years to accomplish.
Families reliant on the income of a person hit by embezzlement charges or a fraudster targeting their savings can be left utterly devastated financially. A situation which will not be restored by a fine or court order for compensation.
Businesses too will be affected in both their finances and reputation. A firm identified as having poor AML controls, although not directly involved in any crime, will face regulatory penalties, a loss of customers and restrictions placed upon access to correspondent banking relationships; all of which could bring its international operations to a grinding halt.
In fact, the FCA's 2022 fine of £107.7 million to Santander UK was specifically because of inadequate source-of-funds controls over five years. Financial crimes at a societal level significantly reduce tax revenue that is available for public services, thus impairing the functioning of a modern economy.
It also creates an illusion in asset prices due to market manipulation and will ultimately lead to the erosion of public trust in our financial systems.
In developing markets, these effects will be particularly sharp, as illicit flows take away capital from the economies that need it most.
What are the types of financial crimes?
The most significant types of financial crimes that compliance teams encounter are:
money laundering
bank and payment fraud
identity theft and account takeover
insider trading
embezzlement
Ponzi and pyramid schemes
bribery and corruption
cyber-enabled fraud
tax evasion
terrorist financing
sanctions evasion.
Each type of financial crime has its own method, target and regulatory response and financial fraud, the deliberate deception of someone for financial gain, is only one category within this wider group, not a synonym for it.
The table below gives a quick reference. The sections that follow explain what each type involves, with real examples from Gulf markets where available.
Type | What it involves |
Money laundering | Disguising the origin of illegally obtained funds through placement, layering and integration |
Bank/payment fraud | Forged cheques, stolen card details, fake invoices and payment diversion |
Identity theft / account takeover | Using stolen personal details or credentials to open or hijack accounts |
Insider trading | Trading securities using undisclosed, material information |
Embezzlement | Misappropriating funds entrusted to someone in a position of trust |
Ponzi / pyramid schemes | Paying earlier investors with new investors' money instead of real returns |
Bribery & corruption | Offering or accepting value to influence a decision or contract |
Cyber-enabled fraud | Phishing and Business Email Compromise used to steal funds or credentials |
Tax evasion | Illegally underreporting income or hiding assets to avoid tax owed |
Terrorist financing & sanctions evasion | Moving funds to designated groups or circumventing sanctions and asset freezes |
Money laundering
Money laundering is the process of making funds obtained illegally appear legal. It generally goes through three stages of money laundering:
placement: putting illicit cash into the financial system
layering: concealing the trail through complex transactions
integration: putting the funds back into the system as if they were legitimate assets.
A well-documented Gulf case is the Financial Intelligence Unit in the UAE, which processes thousands of Suspicious Transaction Reports each year concerning layering through property and trade-related transactions.
The UAE has made significant improvements to its AML framework since FATF's 2020 mutual evaluation, and was taken off FATF's grey list in 2024 after implementing the reforms.
Read also: What is synthetic transaction monitoring
Bank/payment fraud
Bank and payment fraud cover a wide variety of deceitful acts aimed at both financial institutions and their clients.
Some examples include forged cheques, credit card fraud, utilising someone else's stolen card details to carry out unauthorised purchases, and payment diversion schemes whereby a fraudster intercepts a genuine payment and directs it to their own account.
Authorised Push Payment (APP) fraud, whereby victims are tricked into intentionally sending money to fraudsters, resulted in £459.7 million worth of losses in the UK in 2023, according to UK Finance.
Methods are often digital, such as false invoices, fake emails, and urgency pressure, all designed to bypass normal checks and balances.
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Identity theft/account takeover
There are several types of Identity theft. But, in short, all of them involve using somebody else's personal details (their national ID number, passport, residence), all done secretly to carry out scams or gain access to their financial accounts.
Account takeover (ATO) specifically means gaining control of an existing account by using someone else's login details.
Within the Gulf region, identity fraud is increasingly focusing on digital onboarding procedures. Thieves are using stolen ID documents, and now and again artificial intelligence (AI) generated deepfakes to outsmart biometric checks whilst setting up new customers.
Read also: Identity theft statistics worldwide
Insider trading
Insider trading is when you buy or sell securities (stocks, bonds or derivatives) using valuable, confidential information that hasn't yet been disclosed to anyone else.
When a bank analyst trades using secret plans for a client's acquisition, or an employee sells shares just before the public release of bad news in their company's results, this would be considered insider trading. It undermines the whole point of our markets by allowing some individuals to get hold of sensitive information before others do.
Embezzlement
Embezzlement is the theft or misappropriation of funds placed under the care of someone.
Different from external theft, embezzlement originates from within an accountant diverting client funds to their own account or a senior executive directing corporate payments towards entities they secretly manage.
The Wells Fargo fake accounts scandal (2002-2016), where tens of thousands of employees created about 3.5 million accounts without the customer's consent, is considered one of the most thoroughly documented examples of deep-seated internal wrongdoing.
Wells Fargo paid $3 billion to settle the matter with the US Department of Justice.
Ponzi/pyramid schemes
A Ponzi scheme pays back existing investors using money from new investors instead of actual investment returns. This makes it essentially unsustainable: its collapse is inevitable as soon as the flow of new capital starts to slow down.
Bernie Madoff's scheme, exposed in 2008, scammed investors out of approximately $65 billion. Investors from the Gulf region were amongst those affected through international feeder funds.
Pyramid schemes function based on a similar idea but recruit participants into a clear chain structure as part of their recruitment process.
Bribery and corruption
Bribery involves offering or taking something valuable to affect a decision: a government contract, a regulatory approval or a court judgment.
Corruption represents the more general abuse of entrusted authority for personal benefit.
Both seriously compromise the integrity of an institution and create a financial crime threat to companies under supervision: if a firm pays bribes so that it wins contracts, then these monies could be moved through financial systems in ways that would indeed trigger anti-money laundering (AML) requirements.
Cyber-enabled fraud (phishing, BEC)
Cyber-enabled financial crime relies heavily on technology as its main point of entry. Phishing involves sending out misleading emails or messages so as to steal login details or deceive the victim into making a money transfer.
Business Email Compromise (BEC), a dangerous type of fraud, specifically targets organisations by pretending to be senior managers or suppliers, instructing finance teams to pay out funds to accounts controlled by scammers.
The US FBI's Internet Crime Complaint Centre (IC3) reported that there had been BEC losses of $2.9 billion in 2023 alone.
Related content: Fake ID Fraud in AML and KYC
Tax evasion
Tax evasion is the illegal act of not paying taxes that are legally owed, typically by underreporting income, inflating deductions, hiding assets in undisclosed accounts, or falsifying financial records.
Unlike tax avoidance, which uses legal means to reduce a tax bill, tax evasion is a criminal offence in virtually every jurisdiction.
For Gulf compliance teams, tax evasion is a growing rather than a legacy concern. The introduction of federal corporate tax in the UAE has brought a wider range of businesses under formal tax reporting obligations for the first time, which means tax-related red flags: inconsistent invoicing, unexplained offshore structures, or income that doesn't match declared business activity.
Now sit alongside AML checks rather than apart from them.
Terrorist financing & sanctions evasion
Terrorist financing is the provision or collection of funds, from either legitimate or illegitimate sources, intended to be used, in whole or in part, to support terrorist acts or organisations.
Sanctions evasion is the deliberate circumvention of asset freezes, trade restrictions or other measures imposed on designated individuals, entities or countries.
The two are grouped here because they share a common control point: both are caught by the same sanctions and watchlist screening that banks and financial institutions run during onboarding and transaction monitoring.
This is also what the "CFT" in "AML/CFT", Anti-Money Laundering and Combating the Financing of Terrorism, refers to, and why Gulf regulators treat it as a distinct supervisory priority rather than simply a subset of money laundering.
Financial crime regulation in the Gulf
Gulf markets have made quite significant moves to speed up their AML and financial crime regulatory frameworks over the last five years. Here's what compliance teams need to know about the regional scene.
UAE Central Bank and AML/CFT framework
The UAE's AML framework is founded upon Federal Decree-Law no. 20 of 2018 on AML and its implementing rules.
The UAE Central Bank (CBUAE) supervises banks, exchange houses and all other financial institutions and requires them to carry out risk-based AML programmes, perform Customer Due Diligence (CDD), submit Suspicious Transaction Reports (STRs) to the UAE FIU and screen clients against sanctions and PEP lists.
In 2024, the UAE was taken off the FATF grey list, a major achievement showing quite considerable enhancements in beneficial ownership transparency, DNFBP supervision, and STR quality.
SAMA (Saudi Arabia)
The Saudi Arabian Monetary Authority (SAMA) oversees AML and CFT compliance for all banks, insurance companies, and financial institutions operating in the Kingdom.
SAMA's AML rules align with FATF Recommendations and oblige controlled entities to adopt a risk-based approach, preserve KYC data, conduct Enhanced Due Diligence (EDD) for clients that are categorised as high-risk or who fall under Politically Exposed Persons (PEPs), and lodge STRs with the Saudi Financial Intelligence Unit.
Related content: What is enhanced due diligence?
AML
FATF standards and regional compliance
Both the UAE and Saudi Arabia are FATF members and committed to full implementation of FATF's 40 Recommendations. These cover client due diligence, beneficial ownership, correspondent banking, wire transfer regulations (including the Travel Rule for crypto transactions) and suspicious transaction reporting.
FATF mutual assessments evaluate how effectively countries implement these standards, and the results will determine domestic regulatory reform priorities in both markets.
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What are the warning signs and red flags of financial crimes?
Identifying financial crime requires knowing what you're looking out for. These red flags apply across individuals and businesses functioning within regulated settings.
For individuals and clients
Reluctance to provide identity documents or source-of-funds information
Transactions not matching reported income or business activity
Holding numerous accounts at the same establishment with very similar details
Unexpectedly large cash deposits with little or no reason given
Transfers to or from high-risk regions without a clear business explanation
Urgency and pressure to carry out a transfer speedily, bypassing regular procedures
For businesses and counterparties
A corporate structure concealing the true owner - many tiers of holding companies without any apparent business motive
Invoices for goods or services which don't reflect their actual business activities
A company set up at a private dwelling or having a post office box as its sole address
Carrying out repeated transactions marginally under-reporting levels - indicating an attempt at structuring
Making late changes to a payment's destination
If you notice several of these signs together, report them to your compliance team or your national Financial Intelligence Unit rather than confronting the individual directly. Premature confrontation can allow evidence to disappear and, in some jurisdictions, amounts to unlawful "tipping off".
How organisations protect themselves from financial crimes
Preventing financial crime isn't a one-time task. It demands several interlocking controls, adapting to emerging threats and proportional to the actual risk the organisation faces.
Build a risk-based AML program
AML compliance programs form the core of this effort.
Every controlled entity (banks, fintechs, property firms, law offices) has to have: a
documented risk-based AML program
KYC
CDD
transaction monitoring
STR filing
The risk-based method entails subjecting higher-risk clients and transactions to more intense examination, rather than setting up uniform controls over all parties regardless of their risk level.
Verify customers before onboarding
KYC and identity verification will catch fraud right at the entrance point.
Strong KYC, a verified identity, source-of-funds documentation, and biometric liveness detection for digital onboarding prevent those who want to cause harm from even setting up an account.
As deepfake technology improves, biometric controls have to keep pace with it.
Monitor transactions for suspicious activity
Transaction monitoring systems scan account activity in real time, flagging patterns that match money laundering, fraud or other financial crime types.
AI-driven monitoring significantly reduces false positive rates over static, rule-based systems, making alert review more efficient and more accurate.
Strengthen internal controls and auditing
Internal controls and audit functions are going to catch what external controls cannot see, especially insider fraud, embezzlement and internal compliance failures.
An independent audit with real access and authority to act on findings makes the difference between a truly robust program and one that may look perfect on paper.
Make the controls work together
These controls work best as a connected system rather than as isolated checklist items. Risk assessment determines the level of scrutiny required, KYC controls who enters the organisation, transaction monitoring looks for suspicious behaviour, and internal controls help identify weaknesses from within.
For a deeper look at the specific controls organisations can use, see our guide to financial crime prevention.
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You may be interested in: What does KYC mean?
FAQs
What are the main types of financial crime?
There are several major categories: money laundering, fraud (including bank fraud, identity theft and BEC), embezzlement, insider trading, bribery and corruption, Ponzi schemes and cyber-enabled financial crime.
Each needs quite different detection controls and regulatory responses. Most AML compliance programs address several categories at once, since financial crime types so frequently overlap in reality.
Is money laundering considered a financial crime?
Yes, money laundering is one of the most significant and highly regulated financial crimes worldwide. It's a predicate offence under virtually all national AML laws and really the primary focus of the FATF's 40 Recommendations.
How is financial fraud different from financial crime?
Financial fraud is a subcategory under the broader category of financial crime. All fraud is a type of financial crime, but not every financial crime is fraud.
What are the penalties for financial crime in the UAE/Saudi Arabia?
In the UAE, money laundering can carry imprisonment for up to 10 years and fines of up to AED 5 million under Federal Decree-Law No. 20 of 2018. Companies will face administrative penalties, have their licenses suspended and be subject to reputational sanctions. In Saudi Arabia, SAMA could fine you, suspend your license and report very serious cases to the police for criminal prosecution under the AML law.
Conclusion
As we've seen, there are several types of financial crimes, each having its own techniques and targets.
In the Gulf region and across the world, the expectations from regulators are rising constantly.
New trends are continuously redefining the threat landscape. Deepfake-assisted identity fraud outwits biometric controls. AI-created documents mislead automated verification systems.
Crypto-based layering schemes continue to advance their sophistication. Keeping ahead demands ongoing investment in detection technology, employee training and risk evaluation procedures that truly mirror the present-day threat environment, not one from three years back.
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azakaw helps financial institutions, fintechs, and highly regulated companies across the UAE, Saudi Arabia, and further afield in building the KYC, AML, and fraud detection infrastructure essential for the latest financial crime prevention techniques.
Types of financial crimes summary
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