The volume of fraud cases going through British Courts has climbed in the past 12 months, according to KPMG’s latest Fraud Barometer with con artists increasingly hiding behind cloaks of respectability to perpetrate their crimes. Although the value of their crime is falling in real terms, it appears victims are now being targeted because of vulnerability rather than wealth with the latest cases revolving around cowboy trading and fake investment opportunities.
Coming in at a total value of £717 million, the figures represent a fall of 14 percent on last year’s total. However, this good news is tempered by a 25 percent increase in the number of cases being heard by British Courts – suggesting that the number of victims has risen in the twelve months to December 2014.
Aura of authority exploited by fraudsters
Some of the most notable cases revolve around conmen abusing positions of authority, making it clear that organisations need to pay attention to staff in positions of influence. The number of cases involving staff with authority over finances, for example, rose from 3 to 29 during the course of the year – with the value of their frauds jumping from £0.6 million to £11.7 million. Of particular note were individuals responsible for processing staff salaries, as the amount of money lost through payroll fraud climbed from £1.2 million in 2013 to £6.3 million during 2014.
One notable case involved an individual who invented fake companies and imaginary staff so that he could transfer £3 million worth of false payments and wages into 20 bank accounts, to fund a gambling addiction and to send money to his fiancée in Thailand. His actions were discovered by a colleague, but rather than report the crimes, this individual demanded a cut of the stolen funds - totalling £1.1 million - to keep quiet.
Hitesh Patel, UK Forensic Partner at KPMG, says: “The popular perception is that anyone discovering fraud would do the right thing and report it, but there is a risk that temptation might lead some people to adopt the mentality of ‘if you can’t beat ‘em, join ‘em’. Collusion makes the problem of spotting and stopping fraud that much harder. Having a strong ethical culture inside an organisation is a critical defence to combating white collar crime”.
Evidence suggests that people are too willing to operate on blind trust with their peers, when healthy scepticism might otherwise be financially prudent. One case, which cost victims a total of £5.3 million, centred on the trust between a Church Trustee and members of his parish. Widely respected because of his community work and senior role within a financial institution, the conman abused his community’s faith by taking money meant for investment and using it for spread betting and casino gambling.
Vulnerability leads to victimisation
Fraudsters’ determination to prey on vulnerable people is evident in the latest Fraud Barometer through some cases involving cowboy traders. 14 incidents, worth a total of £5.7 million, involved professional criminals duping consumers into buying stolen, counterfeit or non-existent goods, investing in non-existent assets and charging for unnecessary household repairs.
In one case, twin brothers defrauded more than 70 people out of £1.6 million. Their victims lost up to £110,000 each, after they were persuaded to invest in properties in Bulgaria and Cape Verde, when the money was in fact used to repay the fraudsters’ business and personal bank overdrafts as well as on shopping sprees.
Although the economy has improved during the past 12 months, fraudsters have also continued to prey on fears about long-term financial stability. A number of schemes highlighted in the analysis of the data show that victims are tempted by the prospect of building their income streams, with ‘investment fraud’ cases worth a total of £216 million, making investors the largest victims of fraud in 2014. A year ago, with take home pay still suffering, the same fraud cases only accounted for £168 million.
One case centred on two fraudsters who used their reputations as trustworthy pillars of the local community to create what became known as the ‘GT’ scheme because of lavish drinking parties held to celebrate allegedly successful investments. Individuals were persuaded to hand over £3,000, invited to parties where some were presented with cash returns totalling more than £20,000, and tempted to invest more – creating a £21 million black hole. Another con focused on 14 pensioners who were targeted with emails claiming they had won millions of pounds in a non-existent lottery. They were instructed to pay fees to release their ‘winnings’, with losses totalling £900,000.
Patel adds: “Preying on peoples’ fears, or worse, creating fear where it doesn’t exist, is a tactic that conmen adopt when times are tough. They recognise that immediate physical and long-term financial safety are highly emotive concerns that can illicit ill-thought out reactions from victims. Pensioners in particular are seen by fraudsters as easier targets than others. Increased freedoms around pension investments mean they suddenly have their life’s savings available to them, but often are unclear where best to keep it safe. The key to beating fraudsters at their own game is to use support networks to check whether something is really as good an opportunity as it seems or as necessary to undertake as people are led to believe. The old adage that two heads are better than one is never truer than when trying to determine a trickster from someone genuinely able to help.”
Businesses back on the radar
Data compiled for the Fraud Barometer in recent years has shown financial institutions and Government bodies to be the biggest victims of fraud. However, the data for 2014 reveals that commercial businesses are gaining prominence once again. Analysis shows that the number of cases where companies fell victim to a scam rose from 64 to 107, with the value of frauds totalling £98 million compared to £76 million in 2013.
Patel concludes: “Fraudsters are making hay from the corporate and investor communities who are dropping their guard as we see an upturn in economic fortunes. But business and investors don’t have to play ‘the victim’. Instead, by improving governance and by remaining vigilant it is much easier to fight fraudsters, as prevention is better than Court.”