· £895 million of alleged fraud hits UK courts in first six months 2018
· Volume of fraud cases reaches record six-month high of 252
· International fraud accounts for 80% by value
The value of alleged fraud reaching UK Courts in the first half of 2018 reached £895 million according to latest research by KPMG Forensic. The figures follow 2017’s record breaking year which had registered £3.6 billion of fraud - the largest value in KPMG’s Fraud Barometer’s 31 year history.
KPMG’s Fraud Barometer, which measures cases of alleged fraud with losses of £100,000 or more reaching the UK courts, recorded 252 cases during January – June 2018. This figure is over 25% higher than the volume of cases heard in any six month period and just seven fewer cases than recorded for the whole of 2017.
KPMG’s Fraud Barometer has been tracking fraud trends since the 1980s and analysis of cases has continually identified trends in the types of fraud that have dominated courts.
Commenting on the figures, James Maycock, Forensic Director at KPMG said:
“On the back of a year with the highest level of alleged fraud in three decades, 2018 appears to be continuing the trend and we can expect this year to be another 12 months of large numbers of fraud cases coming to court.”
“There are certain types of fraud that have dominated the fraud landscape over the past three decades, including the rise of the professionally organised gang who run criminal operations very much like a business. The main victims have been governments through attacks on the tax system, banks through loans and mortgages obtained via deception, and investors enticed by the promise of tantalising returns. Interwoven with the story is the increasing use of technology and cross-border activity that has impacted on fraud just as it has on our everyday lives. Businesses, public sector and consumers need to continue to be vigilant and on guard to fraud threats in these ever-changing environments.”
International Fraudulent Trading and Logistics Inc
2018 continued to see a rise in alleged fraud being conducted by professional criminal gangs, with this category of fraudster accounting for 90 cases totalling over £200m in the first half of the year. One £3m case touched on a much larger international criminal enterprise, described by one witness as perhaps the world’s biggest bank robbery. The gang at the centre of the case sold thousands of card skimmers to clients across the globe that were then used to attack ATMs. The true cost of the worldwide fraud was estimated to be in the hundreds of millions of dollars. The leader of the gang was also the director of a company registered in the UK aptly named after the card reader fraud it was committing. In another, unrelated case, a money launderer set up an unauthorised online bank to move funds around the globe, creating fake bank account statements, and conducting illegal trades to help him and fellow criminals clean their ill-gotten gains.
James Maycock commented:
“Professional criminals have become early adopters of technology in order to target their victims – others have taken to providing fraud tools as a service. Entrepreneurial criminals sell hacking and distribution tools, as well as services – including spam generators, malware distributors and bots. With such technology and tools readily available on the darkweb, the barrier to entry is low – it only requires an individual with intent and a small amount of money. And with technology evolving at such a ferocious rate it is likely to be shaped by the intrinsic value of data that these technologies can manipulate - and how it is protected – and everyone’s data is at risk.”
Fraud risks and responses: Foreign and domestic
KPMG’s Fraud Barometer data shows that, by value, 80% of cases coming to court in the first half of the year involved an international element to the alleged fraud. The largest cases in 2018 and in 2017 involved alleged fraud at multi-national organisations operating across international borders. These cases have required international co-operation between all relevant jurisdiction - UK law enforcement agencies such as the SFO working with their counterpart agencies in the US, Canada, Singapore, Hong Kong and Australia to name just a few.
James Maycock observed:
“International frauds paint a complicated picture. Cases spanning several years, and sometimes decades, covering multiple jurisdictions requires close co-operation between multiple agencies. Strong working relationships across borders are required for domestic law enforcement to collate effectively the necessary evidence to prosecute fraudsters. Similarly, commercial businesses need a globally minded and co-ordinated response to fraud to help ensure they are protected from increasingly global threats.”
Brexit: New arrangements, new frauds?
Fraud experts at KPMG are warning of an increased risk of fraud following Brexit as criminals seek to exploit new Customs arrangements, in the event that any current or transition arrangements expire (from April 2019 with no deal or from January 2021 based on current transition proposals). The figures for the first half of 2018 show that evasion of duty and cross border smuggling is one of the largest fraud types coming to Court – the most common goods were tobacco, followed by counterfeit pharmaceuticals and pirated digital media. The value of such frauds exceeded £100m, as HMRC steps ups its fight against evasion of duty. Over the longer term MTIC or “carousel” frauds, which are complex frauds taking advantage of multi-jurisdictional tax laws, have been one of the biggest drivers of fraud coming to Court over the last three decades and have cost the public finance an estimated £25-30bn. With new customs arrangements coming into play post-Brexit, the potential for professional criminals and misguided businesses to exploit or abuse untested technology or tax collection mechanisms is not insignificant.
James Maycock concluded:
“How Brexit will impact fraud levels is yet to be seen, but new systems and new landscapes, such as new tax and customs arrangements, have in the past opened lucrative loop holes ripe for the picking from unscrupulous criminal gangs and businesses looking to improperly cut their costs.”
Notes to editor:
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