The total value of fraud cases in crown courts for the six months to 30 June 2002 more than doubled, say accountants.
The total value of fraud cases in crown courts for the six months to 30 June 2002 more than doubled, say accountants. The total rose to £256m compared to the previous six months (£111m), according to KPMG Forensic’s Fraud Barometer. Indeed the value of fraud cases for the first six months of 2002 is already greater than the total value of fraud cases reported for the whole of 2001 (£224m). The research considered major fraud cases being heard in the UK (charges over £100,000 in a crown court). The Fraud Barometer recorded a jump in the average value per case, to £7.1m compared to £5.8m at the end of 2001, and £2.6m at the end of June 2001. There were a few high value cases. Seven cases involved sums at risk of more than £10m, including a single case of attempted investor fraud of £100m and three prosecutions brought by HM Customs and Excise in relation to VAT and duty evasion. However, while the number of actual cases that were heard within UK courts grew to 36 in the first six months of this year ‘ an increase on the second half of last year (19 cases) – they actually fell compared to the first half of 2001 when 44 cases were recorded. David Alexander, Fraud Investigation Partner at KPMG Forensic says: ‘This year, our figures have shown a huge rise in the total value of fraud. We anticipate that this will continue over the coming year or two, as cases that we expect to emerge as a result of the current tough economic trading conditions come to court.’
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Financial, public sectors
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There were large increases in the value of the financial (banking) fraud category which increased from £11.3m (six months to December 2001) to £51.8m. This included three banking cases which involved the use of bogus financial instruments. One of these cases, with sums at risk of £21m, was a plot organized from Nigeria to defraud UK banks using false bankers drafts drawn on Nigerian oil companies. Included in the financial (investor) fraud category was a single £100m case in which a gang posing as movie producers attempted to persuade St Paul’s Cathedral to make a short-term investment of £100m in a film project in return for a £50 million donation. The gang failed. The public sector showed the largest percentage increase (330pc) in the value of fraud cases reported. Customs brought five cases to trial which related to the failure to pay an estimated aggregate £74.5 million VAT and duty on large-scale imports of mobile phones and boot-leg cigarettes.
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‘Prosecution vital’
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David Alexander says: ‘Increased government spending makes it vitally important for prosecutions to be brought against those who try to defraud the Customs or Inland Revenue.’ Commercial fraud, which had made a significant impact in the previous six months due to the inclusion of two large fraud cases, reported only twelve cases coming to court, each with an average value of £1.8m.
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Who did it’
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Who perpetrated the fraud’ Management and employees were responsible for only 7.5 per cent (£19m) of the total fraud value ‘ which amounted to ten of the 36 cases during the six-month period. In half of those ten cases, only one individual was involved. The majority of frauds (£206m), were committed by external third parties. David Alexander says: ‘This external threat indicates the need for all businesses to make rigorous checks on the parties they do business with. Often truth is hidden behind the fog of betrayal. In addition, to manage the risks presented by employee fraud, companies should ensure they have an effective fraud risk management policy in place, a procedure for employees to blow the whistle and a realistic fraud response plan, all of which should be regularly updated.’
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About KPMG Forensic
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KPMG Forensic has a European fraud team of more than 300, including ex-police officers, forensic accountants, data mining consultants and fraud risk management specialists. Its casebook ranges from frauds of less than £50,000 to international scams with sums at risk of $1 billion-plus.
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Lawyer comment
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Internet fraud lawyer Steven Philippsohn commented: ‘The report demonstrated that a number of cases of fraud in the financial sector involved the use of counterfeit financial instruments. This only emphasises the importance for the financial services industry of ensuring that they fully comply with money laundering and anti-fraud regulations by properly identifying their customers and ensuring they know their customers business. Victims of financial fraud always have the option of using the civil courts in order to recover the losses caused by fraud. It is possible to obtain freezing and search orders in order to allow the individual to secure the assets of a fraudster or criminal until an investigation and court proceedings can be commenced. Anti-tip-off orders may also be obtained in order to prevent the fraudster from being alerted whilst an investigation is carried out.’
