Record Fraud Cases in Court: Epidemic or Better Enforcement?

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Below Lawyer Monthly hears from Nicola Sharp, of award-winning business crime solicitors Rahman Ravelli, who explains why recent fraud statistics cannot be ignored by anyone in business who wants to prevent it happening to them.

It appears that we may be in the midst of an epidemic of fraud cases coming to court. Research carried out by KPMG shows that a record number of fraud cases reached UK courts in the first half of 2018. The research revealed that 252 cases headed for the courts in that time. That is 25% higher than the previous highest six-monthly figure – and only seven below what the total number was for the whole of last year.

Should we be alarmed? Arguably, yes – if the increase in cases going to court can be shown to be a straightforward reflection of an increase in this type of crime. Yet, in the authorities’ defence, it may be the case that fraud is not on the increase – but the detection and prosecution of it is. The degree to which either argument is true will depend largely on the authorities’ ability to keep pace with those looking to commit fraud.

Fraud, by its very nature, evolves with changing circumstances and the opportunities these present.

For example, there will always be those who see the potential for fraud posed by cross-border activity. Large-scale tax evasion and evading customs duties on imported goods have been practices that have gone on for years. And carousel fraud – the systematic abusing of tax laws through complex trading arrangements – has been an issue for the authorities since the late 20th century.

Such fraud is almost traditional compared with more modern methods of carrying out the offence. The fraud that is committed on banks through loan and mortgage applications is less “old school’’. As are the boiler room tactics of those who dangle the promise of huge returns in front of individuals to persuade them to invest in worthless or non-existent shares.

But recent years have seen new developments. Technology has advanced. And so has the use of it by those who are keen to commit fraud. Online fraud, malware and hacking have opened up new possibilities for those wanting to make fraudulent gains. And much of this modern fraud crosses borders, which has prompted greater cooperation between law enforcement agencies in various countries.

Such cooperation by the authorities has to be seen as an attempt to play catch-up with those perpetrating fraud. This need to keep up with those looking for fraudulent gains has also seen many tax loopholes closed, led to financial institutions tightening up their lending procedures and resulted in some major multinational boiler room operations being dismantled.

The question now is whether enough is being done to tackle the latest forms of fraud. The answer to that may help explain whether the increase in fraud cases going to court is an indicator of inroads being made into tackling this type of crime, merely a statistical blip or a sign that the problem of fraud is becoming much bigger.

The honest answer may well be that we never find out. Which is why those in business have to take all appropriate steps to reduce the risk of fraud being committed against them. Hoping to avoid fraud is not an option.

Research earlier this year by another accountancy firm, PWC, found that half of all UK companies may have been affected by fraud or other economic crime in the past two years. Yet only 50% of the firms that responded to the questioning had carried out a fraud risk assessment in that time. That is a dangerous state of affairs.

Fraud harms a company’s finances. But it also causes disruption, lowers staff morale and damages a company’s reputation and its relationships with customers and trading partners. Which is why every firm needs to examine the potential for fraud being committed by its staff, customers, trading partners and anyone else with a detailed knowledge of its workings.

Senior staff need to devise, introduce and maintain procedures that enable fraud to be identified and prevented. The conduct of personnel, record keeping, payment procedures and management and monitoring structures could all be exploited by those looking to commit fraud. If those holding senior positions are unable or unwilling to take the necessary steps to prevent this, they should seek advice from business crime lawyers.

Such lawyers can examine a company’s workings, identify the areas vulnerable to fraud and then introduce measures to design out that risk. For example, an appropriate whistle blowing procedure that encourages staff to report their suspicions of wrongdoing will promote an anti-fraud workplace culture that will boost the chances of a company both detecting and deterring fraud.

Whether the statistics indicating a rise in fraud court cases are good or bad news remains to be seen. We may never know. But at the very least, such figures must serve as a reminder of the scope of fraud and the need to do whatever is possible to prevent it.

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