# منتديات القانون الخاص > القانون التجاري >  computer and ict aided crime in the nigerian banking sector

## لميا

*COMPUTER AND ICT AIDED CRIME IN THE NIGERIAN BANKING SECTOR.*














BY 









Folami, Olakunle Michael
Department of Sociology
Adekunle Ajasin University
Akungba Akoko
Ondo State
Nigeria.
Tel: 2348059229168




*Abstract*
*The rate at which Information and Communication Technology (ICT) is being applied to perpetrate crime in Nigeria is becoming worrisome. The amounts of money lose to the activities of fraudsters adopting sophisticated methods of defrauding banks and people surpass that of traditional ways of fraudulent activities. With the introduction of ATM, banks have set another pace for unprecedented fraudulent activities. This study is anchored on Edwin Sutherland’ learning theory; that those who engage in fraudulent act learn the technique and methods from those they associate and interact with. The study employed the use of secondary data and in-depth interview methods. The secondary data were obtained from Nigerian posit Insurance Corporation annual reports for the period of five years and in-depth interview with ten (10 ) bank chief inspectors. It was found out that the amount lose to fraudsters through the ICT is far above the amount associated with traditional method of committing fraud in the banking industry. Different methods of defrauding banks were revealed in this study. Also, Computer and ICT have made bank crime easy. Good networking of computer system, employment of professionals who specialized in fraud detection, and regular rotation of staff and duties were recommended in this study.*


*Introduction*
Technology is invented by man to manipulate his social and physical environments. The sociology of science and technology made us to understand that, technology came with both manifest and latent intents. The manipulation of computer and other information and communication technology (ICT) to defraud banks gives more insight into the latent function of technological revolution.

When computer was invented, the intention of its inventors is to hasten data processing with effortless ease. That it has been doing efficiently by giving timely and accurate information. But like other mechanical and/ or electrical electronics devices, it has equally lent itself to heinous acts. What is meant to assist in daily data operations has turned out to be an undoing. While basking in the euphoria of its efficiency, banks are also grapping with its fraudulent manipulations. It is like a mixed blessing combining the bright and dark sides. Over the times, it has turned to a servile tool of fraud when banks and other organizations began to be computerized over a decade ago; little did they know that they were setting the pace in computer age fraud. The inability of computer to control manipulations, frauds, and forgeries continue to give the banking system nightmares. Since computer fraud is carried out over a period of time, a minor one at the initial stage snowballs into a sizeable one over a period of time (Sunday Vanguard, 1994). 

However, the study of this nature is necessary because of the emergence of ‘Yahoo boys’ in the nation’s anal of business crimes. ‘Yahoo boys’ surf and hack the Internet to perpetrate scam. They work hand-in-hand with bank staff to get access to illegal proceeds. Computer and ICT enhance the ability of the scammers with effortless ease to defraud banks.  In the last ten years, cases of computer frauds in banks have been on the increase with each year recording staggering figures, even through most of the reported cases are essentially different types of fraud, a recurring decimal among them is that they are computer related. On its own, computer fraud is of different types. An example is defrauding a bank using a genuine account of an employee who is the defrauder. Another one is through the use of fictitious account; also, fraud is carried out with the aid of an employee’s friend. Similarly this unholy act is sometimes done using an account of a third party that depends on an employee-insider to perpetrate the crime. Computer crime can and almost certainly will render obsolete the traditional type of physical large-scale robbery involving banks, bank managers and security vans. (see Parker, 1997).

Aluko-Olokun (1990) said that majority of frauds committed in the banking sector are usually committed through the use of cheque, while few others are by cash theft and electronics transfer, and lately through computer manipulation. Negotiable securities will be stored magnetically and electronically as data inside computer and transmitted over communication circuits from one computer to another. Perpetrators of security theft will use the skills, knowledge, and access associated with computer and data communication technology……………

However, the introduction of Automate Teller Machine (ATM) came with the emergence of mega banks in 2005 in Nigeria brings to the fore the challenges posed by computer and ICT to the modern banking operation. Edwin Sutherland’s learning theory opens up a thoughtful and provoking argument on the manipulation of computer and ICT to perpetrate crime in the banks. Sutherland was suggesting that the distinction between law breakers and the law abiding lies not in their personal make-up but in the content of what they have learned. Computer crime, just as other white-collar criminality is learned; computer manipulation to defraud bank is learned through direct or indirect association with those who already practice the behaviour, and that those who learn this criminal behaviour are in frequent and close contact with hackers. ‘If you are not verse in computer usage, you can not use it to defraud bank and manipulate money (Folami, 2000).

Therefore, this study demonstrates that, there is a significant difference between the amount involved with the traditional method of defrauding banks and the use of computer and ICT. Also, that computer application in banks enhances fraudulent practices. According to Jalingo (1994) most computer frauds are usually done with the aid of insiders. A particular instance was a case in which the account of a customer in a commercial bank was credited with a large amount that fell short of his actual balance. The fraudulent account credited was done by a computer operator in the bank. Onoh (1990) said that computer crime in the banking system is very much with us and it now comes in its most sophisticate forms than ever before. Thus, the computer has the two sides of the coin and can prove to be a double edge sword.

Succinctly, the study was designed to understand the negative influence of bank workers on computer and ICT. Also, to examine the inability of computer and ICT to reduce incidence of fraud in banks in all its ramifications. This study expected to contribute significantly to the existing knowledge in the field of Sociology of Science and Technology as well as Criminology in general.

*Methods by which Computer and ICT can be employed to defraud Banks*
Any type of act distinctly associated with computer or data manipulation in which victim involuntarily suffer or could have suffer losses, injuries or damage or in which perpetrator receive or could have received gain is refer to as a  computer crime.

Computer-aided fraud and embezzlement
This is automated version of the good fashion manual fraud or embezzlement that has been going on for centuries by unscrupulous employees. Skilled data processing professionals usually perpetrate this type of computer fraud. However, if a user knows the system, a non- computer employee can pull off the fraud.

Salami Technique
This is consist of reducing either by a slight change in certain programme or by inserting extra instruction into programme interest bearing account by a couple of pennies or even fractions when calculating interest/dividends. Electronics data processing auditors are the ones who have sufficient skill and access to financial application to put off computer crime.

Trojan horse
This type of computer aided crime which consists of covertly inserting unauthorized instruction into a production programme might be done to achieve material gain. System programmers/ analysts, computer operators and end users are possible perpetrators.

Time (or Logic) Bomb or Trap Door
Convert instruments are written and inserted into a production programs or files, or cause application software, such as payroll to or account receivable, or the whole system to crash. A time bomb is almost impossible to detect or prevent and it is almost impossible to catch the person who devise it because a clever programmer can write the instruments so that when the bomb erase the target program application or system, it destroy itself as well.

Virus or Worm
A computer virus or worm program has the capacity of instantaneously claming a copy of itself burying that copy inside other program just before it erases programs or an application, and just before it destroys itself. Perpetrators are outsiders, hackers as well as inside people such as data processing professional.

Scavenging
This is a method of obtaining data or information by searching trash cans of banks, data processing departments, this is called physical scavenging. There are also electronics scavenging that involves searching for residual data left in a computer. Potential perpetrators are janitor, ground keepers, outsiders and DP professional or user.

Data Manipulation
This is simply adding prior to or during the process of entering data into the computer system. The modus operandi of data manipulation is adding fictitious claims or account, and sending the claims clerks or clerks for the account payable amounts to the fictitious account. Potential perpetrators are anybody from programmer/analysts, computer operators, data entry operators, to end users.

Software Piracy
It involves copying or theft of proprietary computer software and/or raw data or information. Moreover, if the criminal just copied the valuable software or sensitive data, it is almost impossible to detect the crime because the original software or data remains on the disk or tape, or in the computer. Experience programmers or EDP analysts, programmer/analysts, system programmers or EDP auditors are potential perpetrators.


*Method*
The study was carried out in Lagos State, Nigeria. It was culled from the Master’s thesis submitted by the author for the award of M.Sc Sociology and Anthropology. The data analyzed in this study were collected before the Obasanjo’s reform agenda of the banking sector.

Before the advent of mega banks in Nigeria, there were two thousand, three hundred and seventy four (2,374) insured commercial and merchant banks with one hundred and fifteen (115) head offices nationwide. Lagos, accounts for five hundred and thirty seven (537) commercial and merchant banks branches, and ninety seven (97) head offices, the highest in the country. (NDIC, 1999). With the reform of the nation’s banking sector in 2005, Nigeria now has twenty five mega banks (see www.cenbank.org).

Technique of Data Collection

Qualitative and secondary data used in this study were collected from the cases of fraud reported to the Nigeria Deposit Insurance Corporation (NDIC) by all the insured commercial and merchant banks in Nigeria between 1993 and 1998. The qualitative method was predominantly in-depth interviews. The interviews were carried out among ten (10) Bank Chief Inspectors, and six (06) Assistant Director/Director Central Bank of Nigeria (CBN). The commercial and merchant bank chosen were the ones with the highest number of reported cases of fraud.

Analysis of Data
Descriptive analysis was employed to analyze data collected through the secondary source. The qualitative data were transcribed. Comprehensive inferences and conclusion were drawn from the analysis.

*Result and Discussion*

*Returns on Fraud and Forgery by Amount Involved between 1993 and 1998.*

Exorbitant amount of money, about #15billion lost to fraudsters within this period. There was a variation in the amount recorded in 1993, 1994, 1995, 1996, 1997 and 1998. The amount involved were #1419.07million, #3399.39million, #1011.36million and #1600.68million respectively (see www.ndic.org). In 1994, the highest amount of money #33999.39million was lost to fraudsters by both commercial and merchant banks. There was a slight difference in 1998 with #3193.5million. The total amount of money lost to fraudster by commercial banks during these periods was about #14billion (92.34 percent) of the total loss of both commercial and merchant banks. The sunk of this amount was processed through computer and ICT.

In 1998, the highest total amount about #3billion was lost to fraudsters in commercial banks. The situation was a little bit different in merchant banks with #1103.39million. About #75million (21.88 percent) lost to fraudsters in 1994 was the highest amount returns on fraud in merchant banks in these periods. For the other years the returns were #42million in 1993, #5million in 1995, #58million in 1996, #67million in 1997. The slight reduction in the amount of returns on fraud by both the commercial and merchant banks in 1998 might be due to the fact that most of the affected banks preferred not to report the incidences to the Nigeria Deposit Insurance Corporation (NDIC). Vanguard, (1994) reported that the incidence of #72 million computer fraud which was perpetrated in the United  Bank of Africa (UBA) in 1998 was not reported by the authority of the bank to the NDIC 

Senaike when commenting on the incidence of fraud in the banks said that:
_‘The introduction of electronics device like computer to process activities in the banks,  According to him, computer as we know is ‘Gargage in Garbage out’. Many bank staff have used computer to manipulate accounts. Of recent, computer related frauds have been on the increase. Though, it has its ownadvantages but it has contributed in no small measure to hogh rate of bank fraud.  An example was a fraud detected recently in one of our branches was there was a fraud of about #80 million. The  fraud was perpetrated through the means of computer which involved a group of staff.(Senaike, First Bank PLC)._

*Banks’ Returns on Fraud by Members of Staff involved.*
The secondary data has shown the distribution of banks’ members of staff that involved in fraudulent practices between 1993 and 1998. The data shows that 3307 and above bank staff of different cadres involved in fraud. These categories of staff included supervisors/manager 1022 (30.90percent), clerks/cashiers 935(28.27percent), officers/accountants 66(20.07percent), these are the staff that have access to computer and involved in electronics money transfer. Other categories are messengers, cleaners/security guards 441(13.33 percent) were involved in fraud in various banks between 1993 and 1998. It is important to note that out of 3307, the total number of bank staff involved in fraud between 1993 and 2003.

The core operation staff such as supervisors, officers, accountants, managers, executives, assistants, clerks and cashiers accounted for about 79.24 percent fraud perpetrated through the application of computer and ICT.
_‘The introduction of electronics devices like computer to process activities_
_                          in the banks has some negative effects. The idea of information_
_                          technology is a very challenging one. What is designed to serve human_
_                          beings has become the enemy of human beings’ (Emokpae, an Assistant_ 
_                          Director (Examination) CBN)._
However, electronics machine such as computer has helped tremendously quickened banks operations and made crime detection in banks very easy.
_                          ‘Electronics machine in banks has assisted operations in banks a lot. No_
_                            matter its shortcomings, computer functions in the bank are_
_                            indepensable. It has helped a lot in speedy international money_
_                            transfer’ (Olaniyan, Chief Inspector, Midas Merchant Bank)._ 



*Detection and Prevention of Computer and ICT Related Crimes*
The influence of sophisticated machines like electronics fund transfer, computer etcetera on bank fraud is very significant. Aluko-Olokun (1990) said that majority of fraud committed in the banking sector are usually committed through electronics transfer and computer manipulation.

Computer technology is an imported sophisticated and complex way of defrauding banks in Nigeria today. Computer crime takes the form of computer aided fraud and embezzlement, Salami technique, Trojan horse, Time bomb, Virus and Worm, Scavenging, Data manipulation and Software privacy.

To prevent computer and ICT fraud, better networking and routine check of money transfer and transactions would frustrate the fraudsters. A bank chief Inspector explained that:
_            ‘The best weapon to fight ICT fraud is better information collection, exchange_
_              and use of intyelligence. Prevention can range from in-house remedies such as_
_              greater supervision; the inscription of the information traveling between_
_               computer to prevent computer fraud; to tighten control on financial markets;_
_               and of course, the exchange of information about new developments. (Awofade,_
_               Inspector, Owena Bank PLC)._

Human supervision of ICT high waves can bring incidence of ICT manipulation to the barest minimum.
_                  ‘Effective control is the most potent antidote against fraud. He stressed that,_ 
_                  ‘you must to have effective control measure in place; you must have effective_
_                   inspectorate team in your bank, so that whenever there are things going  _ 
_                   wrong, the Chief Inspector will be able to detect the flaws and ensures the_
_                    control measures are effective’ (Nnamdi, Director (Examination) CBN)._

_                   ‘ICT should be subjected to a high level of security consciousness to guard_
_                    against improper use, that is posting and diversion. He said the more_ 
_                    computerization the banking system, the easier it will be for inspection. It_
_                    will be possible to stay in Lagos and monitor accounts throughout the_
_                    country, if all branches are hooked up on high waves.’_ 

Adekanye (1991) buttressed the idea that human elements in the incidence of fraud can be minimized, provided there are effective control measures in place. He continued that however, ‘you can not say because you have computer, you are immune to fraud or attempt to defraud your bank.’ As earlier mentioned, when you pit garbage into computer, you get garbage as a result.

*Conclusion and Recommendation*
Computer and other information and communication technology to defraud banks in Nigeria. Fraud is a fast growing menace in the nation’s banking system. Fraud in the banking industry has been deteriorating as hardly a day passed without the public being informed about some form of fraud in one bank or the other which involved staff, non-staff and the collusion of both staff and non-staff to defraud banks.

Computer crime in the banks is an imported sophisticated and complex way of defrauding banks. It takes the form of computer aided fraud and embezzlement, salami technique, Trojan horse, time bomb, virus, and software piracy. The study revealed that the use of ICT to defraud banks has now found its way into banking operations. The secondary data revealed that the influence of electronics on bank has a significant relationship with high incidence of fraud. The interview conducted with Senaike corroborated this finding. He said that in one of their bank branches it was discovered recently that there was a fraud of about #80 million through the means of computer.

There is a strong correlation between high incidence of fraud in the banking sector and the phenomenon of information and communication technology. It was discovered that fraud which involved a large amount of money has affected the financial position of many banks thus led to total collapse.

Public confidence in the banking sector has also been significantly eroded. In-depth interview conducted with Emokpae revealed that ICT fraud has dented the image of the nation on the international scene. People around the globe treat Nigerians with disdain. They have problem of credibility with this country as a result of discovery from time to time one form of electronics fraud or the other.

The incidence of electronics fraud in the banking sector is taking unprecedented tolls on the bank stakeholders, customers and the nation’s economy.  This paper suggested that a legislation that will allow for the training of a special squad in the Federal Investigation and Intelligent Bureau (FIIB) of the Nigerian Police which could have access to the computer network of the banks to enable them to detect and prosecute any form of computer related crimes with great dispatch in order to deal decisively with crime in the bank.

Bank should ensure regular rotation of duties and staff to prevent an individual from staying too long on a computer system or in a department. There should be inter -branch and intra-bank regular rotation of bank staff.

In conclusion, the menace of computer related fraud has to be addressed by those who are connected with the well being of the nation’s financial institution with sincerity and diligence. This decadence in the banking sector has resulted into financial incapacity, economic failure, vicious circle of poverty and international disrepute. 
*References*

Aluko- Olokun. A (1990) ‘Nigeria Banks and Computer’: National Concord, Oct.19
        1990.

Folami, O.M (2000) ‘Crime in the Banking Sector’. M.Sc Thesis submitted to the 
       Department of Sociology, Obafemi Awolowo University, Ile-Ife, Feb 2000.

Ojigbede, S.I (1986) ‘Fraud in Banks’ a Paper Presented at the Effective Bank 
       Inspection. FITC, Lagos 6-17 Oct, 1996.

Pecar, J.A (1975) ‘White Collar Crime and Social Control’ International Journal of Criminology and Penology pp. 183-199.

Ugbamadu, U (1994) ‘Collapse of Banks’ Bussiness Times, Jan. 31, 1994, pp.7

www.cenbankng.org
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1994
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1995
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1996
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1997
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1998
www.ndic.org Nigeria Deposit Insurance Corporation Annual Report 1999

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