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The Module 2 of the Certified Fraud Examiner (CFE) curriculum, "LAW" provides a comprehensive look into the legal aspects relevant to fraud examination. Understanding these legal principles is crucial for CFEs, as their work often intersects with complex legal issues requiring professional legal assistance. This module equips CFEs with foundational knowledge in various legal domains and procedures, essential for conducting effective fraud investigations. We go over every one of the eleven sections of Module 2 in this extensive article.
1. OVERVIEW OF THE LEGAL SYSTEM
Fraud examination is inherently law-intensive, often involving complex legal issues that may require professional legal assistance. CFEs should consult legal advisors when legal questions arise. Despite this, fraud examiners need to understand certain legal aspects, as investigations often depend on proper legal procedures.
Types of Law: There are different types of law that are determinative of the outcome of legal disputes. The main types include:
2. THE LAW RELATED TO FRAUD
Countries enact a wide range of laws and regulations to combat fraud and associated crimes. This chapter discusses some of the most frequent forms of offences, as well as numerous key legislation and efforts aimed at combating fraud and corruption. It is crucial to remember, however, that the legal systems of different nations or jurisdictions might differ significantly. Thus, fraud examiners should always confer with counsel about local laws and regulations.
Principal Types of Fraud: The principal categories of fraud are:
3. BANKRUPTCY (INSOLVENCY) FRAUD
If a party, such as a person or a firm, is unable to repay its debts to creditors, it may file for bankruptcy to begin the process of resolving those debts. While the sorts of parties that can file for bankruptcy vary by country, individuals, corporations, limited liability companies, partnerships, and other entities are frequently eligible to do so. Bankruptcies are overseen by statute, and any improper action with bankruptcies is nearly always a criminal crime.
4. SECURITIES FRAUD
Financial fraud encompasses a wide variety of illicit actions and is defined as misleading techniques in the buying or selling of assets. Securities are exchangeable, negotiable financial instruments that stand in for rights or interests in other things. Securities are not necessarily valued.
Most nations have laws that prohibit false statements and other fraudulent activities in connection with securities transactions, and while such laws differ by country, most jurisdictions commonly describe securities fraud crimes as the following elements:
5. MONEY LAUNDERING
The act of hiding the presence, kind, source, ownership, beneficial ownership, location, and disposition of property obtained via illegal means is known as money laundering. Stated differently, money laundering refers to the methods used by criminals to pass off illegal assets as legitimate ones that they are authorised to possess and utilise. The phrase "assets" here refers to a broader meaning that includes everything tangible, intangible, or expressed as rights or responsibilities, such a trust fund or pension. The Money Laundering Process is generally divided into three stages:
6. TAX FRAUD
Tax fraud is defined as a taxpayer's purposeful activities to cheat the government of unpaid tax revenue. It is a sort of fraud conducted against the government that usually involves misleading statements or hidden facts. Most governments have laws prohibiting tax fraud, but these laws differ in substantive ways from country to country. Examining the tax fraud laws in every country is beyond the scope of this material, so fraud examiners dealing with tax fraud should consult with local legal counsel for guidance.
7. INDIVIDUAL RIGHTS DURING EXAMINATIONS
Because many fraud examinations might lead to legal action, fraud examiners should be familiar with the basic rights and freedoms of those involved in investigations, especially those suspected of fraud. Being knowledgeable about individuals' basic rights and freedoms is particularly important for fraud examiners conducting investigations that could result in criminal action.
8. CRIMINAL PROSECUTIONS
Criminal law deals with offenses of a public nature whereas civil law is the body of law that provides remedies for violations of private rights. A criminal defendant has certain rights, but these rights vary substantially from jurisdiction to jurisdiction. This chapter describes several procedures and issues in criminal cases that fraud examiners should be aware of.
9. CIVIL ACTIONS
This section reviews the legal aspects of actions by private parties-including fraud examiners, auditors, accountants, security personnel, private investigators, and lawyers— to investigate and recover losses due to fraud. Many of these cases will be resolved in civil actions. A civil action arises when individuals or business entities disagree on a legal matter. A civil action usually involves a dispute over something or a claim that one party has violated a legal duty owed to it by the other party.
10. BASIC PRINCIPLES OF EVIDENCE
In general, evidence consists of anything that can be used to prove something. In legal terms, evidence includes testimony, papers, exhibits, and other physical things used to show or refute the existence of a claimed fact during court proceedings. In legal systems, the use of evidence is frequently governed by a complex set of principles developed and refined over hundreds of years to ensure that only relevant and probative evidence is admitted while irrelevant, untrustworthy, and prejudicial evidence is excluded, allowing cases to be decided fairly and expeditiously.
11. TESTIFYING
Testimonial evidence refers to remarks made during a legal action, such as a trial, administrative hearing, or deposition. All testimonial evidence is subject to certain admissibility standards that vary according to the type of witness and the way in which the witness testifies. The judge or administrator applies these requirements to determine who can testify and what they can testify about.
Conclusion
The "LAW" module 2 in the CFE curriculum is critical for fraud examiners, providing essential legal knowledge for conducting investigations. By understanding various types of law, specific fraud offences, legal procedures, and principles of evidence, CFEs are better equipped to navigate the complexities of fraud examination and ensure lawful and effective outcomes.
