Financial Fraud: Theoretical Conceptualization and Economic Basis

Abstract

Introduction. Intensive development of the world economic processes, contagion of globalization trends, growth of banking and other financial and credit services have led to increase in role of finance in modern life. In addition, an active use of the latest information technologies, cashless form of settlements has led to growth of various types of fraud in the financial sector. Therefore, study of theoretical and conceptual foundations of financial fraud and identification of its most important features is extremely relevant under today’s conditions of development of Ukrainian economy. Purpose of the research is to study the theoretical and conceptual foundations of financial fraud, primarily in terms of modern financial science and distinction between moral and psychological, economic and legal aspects of this phenomenon. Results. In spite of the fact that the concept of “financial fraud” gradually becomes more used both in Ukrainian scientific environment (even under the condition of absence of its clear legal regulation) in media and the Internet, as well as for objective and systemic research of problems related to financial fraud it is necessary to clarify the essence and content of this concept. On the basis of the works of domestic and foreign scientists, the author’s definition of financial fraud as a set of economic relations, implemented by legal entities or individuals (usually without violent actions), is in the process of formation, distribution and use of financial resources (income) by fraud or abuse of trust or service position for the purpose of obtaining economic and / or other benefits (personal, corporate or in favour of the third parties). Financial fraud as a phenomenon reflects the cash flows between the subjects of financial relations (the fraudster and the victim), which results in receipt of economic benefits by fraudster and losses – a victim of fraudulent activities. At present, financial fraud is a complex, multifaceted economic phenomenon that is based primarily on a psychological basis (it is thirst for easy money and unawareness that are the universal human weaknesses that “feed” financial fraud). In addition, the imperfect legal system contributes to the fact that various fraudulent schemes continue to be actively pursued in the state. Therefore, only a thorough and systematic study of financial fraud as an economic, antisocial, unlawful (and often supranational) act will contribute to the formation of necessary conditions and the development of effective measures to minimize it under modern conditions. Psychological, economic and legal nature of financial fraud is characterized. On the basis of official statistics, the dynamics of number and structure of crimes, related to financial fraud in Ukraine in 2015–2018, has been analyzed and highlighted at high level of their latency. The emphasis is made not on the important role of a state in overcoming this negative phenomenon. Conclusions. At present, financial fraud is a complex, multifaceted economic phenomenon that is based primarily on psychological basis (namely, thirst for easy money and unawareness are the universal human weaknesses that “feed” financial fraud). In addition, imperfect legal system contributes to the fact that various fraudulent schemes continue to be actively pursued in the state. Therefore, only a thorough and systematic study of financial fraud as an economic, antisocial, unlawful (and often supranational) act will contribute to the formation of necessary conditions and development of effective measures to minimize it under the modern conditions.