How to Stem the Tide of Financial Crime
3 March 2016
It is approaching a century since Charles Ponzi first began peddling his investment scheme, and fraud continues to be a growing problem, with recent figures released by BDO revealing the value of fraud in the UK alone has rocketed over the last year, with £1.5 billion reported in 2015, a huge rise from the £720 million in 2014. It is clear that this phenomenon is not just a UK issue, with a $7.6 billion Ponzi scheme run in China flagging the vulnerability of online wealth management and investment platforms across the globe.
These crimes will vary in levels of sophistication. Whilst the rise of cyber-crime and hacking attacks may attract column inches, the more low-tech practice of simply attempting to dupe individuals into providing information about their personal finances or confidential information about their employers remains rife. For example, HMRC’s push to a paperless tax return system has prompted criminals to hack online tax accounts. They may use phishing emails, which lull victims in with the promise of a tax refund in exchange for personal bank details and passwords so the payment can be processed.
Businesses should remain vigilant about their exposure to these potential breaches, and investment in staff training is key. Employees must be aware of the need to manage data sensitively, and training will help them identify some of the methods which criminals may use to extract corporate material.
Whereas identity theft may have once only affected individuals, it is increasingly affecting business as well. Fraudsters may look to raise false invoices to a company in the name of legitimate businesses with which it trades. Or they may choose to clone a company fee note and issue false invoices to customers. A robust supplier management system, alongside strong credit control systems, will help safeguard a business against this type of financial crime. Vigorous compliance and reporting cultures are key to minimising the opportunity for employees to engage in fraudulent relationships with clients or suppliers.
Businesses which have fallen prey to these scams will have to decide whether the need to recover these sums is worth the risk of adverse publicity and the ensuing corporate reputational damage. Legal advice should be sought quickly, so businesses can assess how to carry out any appropriate internal investigations as well as how they should co-operate with relevant enforcement agencies. Search orders, worldwide freezing injunctions, and the use of powers invested in insolvency practitioners can help to trace and seize stolen assets. Criminals will move these assets and monies very quickly, but the quicker a business responds, the higher the likelihood that recoveries are made.