Is Fraud Out Of Control?

February 2022 Martin Woods

Where have all the fraud investigators gone?

Post July 7 2005 there was a significant shift in policing priorities and strategies. Pre 9/11, some parts of the US had an average law enforcement allocation ratio of 70% common crime verse 30% counter terrorism. Post 9/11 many states saw a direct inverse of law enforcement resource allocation. In the UK, as the threats from terrorism grew, so did the allocation of law enforcement resources. All of this meant there would be a reduced allocation somewhere else, that somewhere else included fraud investigations.

In 2008/9 the global financial crises unfolded and this was quickly followed by a protracted period of austerity. In ‘saving’ the banks government spent huge sums, which meant there was less money to spend on public services, including law enforcement and fraud investigations.

In 2010, the Bribery Act became law and serious allegations of corruption fell within the jurisdiction of the Serious Fraud Office (SFO), which also saw some resource adjustments, resulting in reduced capacity investigating frauds.

In 2011, the UK government of the day introduced legislation which brought about the role of local elected police commissioners. Such individuals sought election by focusing upon local crime issues and issues that annoyed residents in local communities. Consequently, graffiti, in particular, poorly spelt graffiti was more important than online fraud.

The criminals have changed as well

All the while criminals were learning of the easy and sometimes rich pickings which could be taken from victims on the worldwide web. The criminal landscape began to change. Drug crime remains a significant problem and continues to generate substantial financial returns for those towards the top of the drug dealing pyramid. The instances of other crimes reduced, and organised crime groups appear to have totally moved away from the business of armed robbery.

Fraud has become more and more attractive to criminals who now trade stolen data online, enabling each other to complete victim profiles which are then exploited within fraudulent schemes. It was recently reported the Crown Prosecution Service (CPS) do not prosecute shoplifting cases where goods valued under £200 are stolen. Thus, we should not expect significant law enforcement activity for any fraud of a similar value. Perhaps they should be referred to as the not so serious frauds.

Criminal risk management

All criminals apply a process of risk management when contemplating and executing acquisitive crime. Of course, desperation influences the risk decisions and consequently drug addicts often take more risks for less rewards. Calculating criminals assess the rewards against the likelihood of being caught and the consequences of being caught. In the 21 Century, many have concluded fraud is the criminal way to go.

2021 has seen online fraud increase by 40%, and it is openly acknowledged, nowadays you are far more likely to be mugged online than walking along the road. Online is a world which is either unpoliced or under policed. As police resources are stretched and reallocated to deal with Covid19 demands, fraud once again drops further down the policing priority list. And the criminals know this.

The fraud opportunities

Within the fraud triangle, opportunity motivates fraudsters and the opportunities are increasing. Government funds provided to sustain businesses through the Covid19 pandemic have been plundered by criminals who saw an opportunity to make a lot of easy money. They used companies to steal loans which were intended for legitimate businesses struggling to remain solvent during the pandemic. In some instances, they bought existing companies from a shelf and in other instances they incorporated new companies and used the same to fraudulently obtain government backed loans.

Some parties are unaware they have been defrauded, in the same way that as many as 30% of people infected with Covid19, display no symptoms and do not know they have been infected. Indeed, the police service in the UK estimate as little as 20% of fraud is reported as a crime and only one in 500 reported instances and cases of fraud is prosecuted.

The opportunities are all the more attractive when the likelihood of being caught is so remote.

Hiding in good company

Moreover, fraudsters seek to avoid being caught and consequently they hide. Ironically bank robbers previously wore masks to hide their faces when entering banks and committing crimes. Hence the wearing of masks and helmet was prohibited in banks. Whereas, nowadays, for very different reasons, people are not permitted to enter banks without wearing a mask. I digress, back to criminals hiding. Fraudsters like to use false names, better still the name of a company to hide behind.

UK incorporated companies and partnerships have in recent years proven themselves to be of great use to fraudsters and money launderers all around the world. It is as though fraudsters and criminals advised upon the design of the controls at Companies House, because whilst they benefit business men and women, they simultaneously benefit criminals.

For as little as £12 anyone can incorporate a company, having a criminal record is not a bar to doing so. Cynthia O’Murchu of the Financial Times recently reported a Russian national using her home address, when he was registered as the owner of a UK incorporated company. Of course, he was not invited to Cynthia’s home, he just virtually let himself in and she encountered some difficulties evicting him.

When opening bank accounts for companies and partnerships incorporated in the UK, some banks and firms place too much reliance upon Companies House, which they perceive to be an official government record. Substantially unpoliced, and unchecked, only one person has ever been prosecuted for providing false data to Companies House. Ironically the culprit, Kevin Brewer was seeking to demonstrate the failings and inadequacies at Companies House. In doing so Mr. Brewer embarrassed a number of people including the former minister Vince Cable, whom Mr. Brewer appointed as a director of a company.

Probing the data and exposing the risks

Notwithstanding this case, nothing has changed at Companies House, but one company, Kompli Global have changed the format of the data and the narrative. The team at Kompli Global are constantly analysing Companies House records, new and old. They take a daily feed of all new companies and partnerships incorporated each day. Presently this is approximately 3400 entities. Many are set up at business accommodation addresses, some are incorporated at address which do not actually exist.

The fact is, corporate entities can steal more money than individuals and as such they present an increased level of risk to banks, firms and individuals. Some of these risks can be identified and mitigated when Kompli Global join the dots to addresses where other fraudulent companies have been incorporated or directors who have been convicted of fraud.

The absence of fraud investigations and prosecutions should serve as a warning. Firms, banks and individuals must take action to protect themselves, their assets and their customers, which includes due diligence. Chasing lost money, costs money and all too often is unsuccessful. Too many victims of fraud learn of risk factors and red flags after they have parted with their money. A little patience and some extra due diligence can save a lot of money and associated suffering.

Kompli Global can help whenever a bank, firm or individual is contemplating a business proposal, a relationship or a transaction with persons representing a UK incorporated company or partnership. Essentially, they can provide risk data which is not available directly from Companies House. Furthermore, Kompli Global cross reference data and importantly identify missing data, such as evidence of a VAT number and registration with the Data Commissioner’s Office.

All of these red flags should put people on notice, because most legitimate companies have the right tax status and, given they will be dealing customers, they will have registered with the Data Commissioner’s Office. If a fraudster advises this was an oversight, tell them to revert to when the oversight has been fixed. They are unlikely to do so.

At the end of the day

Fraud is the second pandemic presently harming the lives of thousands, perhaps millions of people. It is out of control, it is spreading fast, you may not always realize you have been defrauded and there is no vaccine here.

Ultimately, people will make decisions, but keep in mind when contemplating investing, it is far safer to find the opportunity. In reverse, if an opportunity finds you, it is not likely to result in a positive outcome for you. Whatever you are looking for, look beyond the surface, ask questions, do not tolerate inadequate answers and do not give others the benefit of the doubt, it will seldom benefit you.