The value of alleged fraud reaching UK Courts broke the £1bn barrier in 2016, due to a resurgence in “super cases”, according to latest research by KPMG Forensic.  This is the first time since 2011 that fraud has exceeded £1bn, with 71% of fraudulent losses taking place in the London and South East region.  In total over £812 million worth of alleged fraud reached courts in London and South East, an increase of 113% on 2015’s figures

 KPMG’s Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching the UK courts found that commercial businesses in the region were the hardest hit in 2016.  Alleged fraud against them cost over £352 million, accounting for nearly half (43%) of fraudulent losses in the region and reflecting an increase of over 1800% on 2015. 

There was a 79% increase in the losses due to fraud carried out by professional criminals during 2016 but it was company management that was responsible for the lion’s share of alleged fraud coming to court in the region, accounting for 69% of total alleged fraudulent losses in the region.  98% of losses due to fraud recorded in London and South East for 2016 were committed by men.

Commenting on the results Damian Byrne, Forensic Director with KPMG, said: “It’s not surprising given our position as a major financial and business centre that so much of the UK’s fraud is concentrated in the South East.  Commercial operations in the region have been particularly hard-hit this year as insiders and criminal gangs target businesses without robust internal controls. Companies need to be rigorous about re-enforcing their anti-fraud measures and the importance of employee screening and pre-employment due diligence measures cannot be understated. Having robust prevention and detection mechanisms is important to make sure businesses don’t lose value through the back door that they have worked so hard to preserve through challenging economic times.”

The Fraud Barometer included the case of a Surrey teenager who claimed to be the grandson of TV presenter Gloria Hunniford as part of a scam to steal £120,000.  Aided by a woman, who is yet to be caught, claiming to be the tv personality who told bank staff she had fallen ill and wanted to hand over control of her account to her grandson.  The 18 year old from Oxted pleaded guilty to money laundering and was sentenced to 18 months in prison suspended for two years, plus 160 hours of unpaid work.

In another case, a company director from Byfleet was jailed for three and a half years for his role in a building scam that saw an elderly couple charged £300,000 for work on their roof which was later independently valued as worth just £577.  The 55 year old got a 15% commission for passing the money through his company accounts.

Value of UK fraud breaks £1 billion barrier for the first time in 5 years

The value of alleged fraud reaching UK Courts broke the £1bn barrier in 2016, due to a resurgence in “super cases”, according to latest research by KPMG Forensic.  This is the first time since 2011 that fraud has exceeded £1bn.

 KPMG’s Fraud Barometer found that whilst the volume of alleged fraud for the year has dropped by nearly a third from 310 to 220, the value was up over 55% on last year’s £732m – this year saw £1,137m of alleged fraud hitting UK courts.  Consequently, the average value of fraud has more than doubled to £5.2m from £2.4m. Fraud against businesses was up seven-fold this year with internal fraud committed by employees and management the most common type of fraud to hit businesses.

Super cases – a mirror to the economy?

The figures include over £900m derived from just seven “super cases”, cases where the value of alleged fraud is £50m or more. The surge in super cases, from £250m last year, may be a reflection of fraud becoming a more lucrative and practical proposition for those with the right skills and technology, or those in senior commercial roles.  Increased pressures both to deliver on targets in a highly competitive and uncertain environment and to preserve personal finances have made people more willing to disregard their moral compass and see fraud as a shortcut to success.  Combined with this are new opportunities for fraud that have largely been created by new technology.

The latest findings also show a picture reminiscent of recent economic fortunes – as the economy has slowly recovered from the financial crises, businesses and individuals have shown an increased appetite to spend or invest more and that money is now falling into fraudsters’ sights. At the other end of the spectrum, as austerity continues to pinch many, some employees and consumers are adopting less than legitimate means to maintain lifestyles.  

 Commenting on the results Hitesh N Patel, UK Forensic Partner at KPMG, said: “The figures for 2016 tell us two things. Firstly, that we can expect more of these super frauds as challenging economic circumstances place pressures on businesses and individuals and as technology becomes more sophisticated.  Secondly, that this is going to put even more strain on law enforcement agencies who don’t have the resources to investigate every report of fraud that they receive: getting the large, often cross-border and complex frauds to court is extremely time consuming and resource intensive.  This places much more emphasis on businesses and consumers to protect themselves from fraudsters who will take advantage given the opportunity.” 

Technology savvy wolves in electronic sheep’s clothing

The Fraud Barometer also recorded a rise in cyber-enabled fraud, up 1266% on 2015 figures.  The cases include a £113m cyber fraud, the largest recorded in UK Courts since 2008, as professional criminals cold-called bank customers and stole their money to fund their luxury lifestyle. Sophisticated techniques meant that when victims were contacted by the gang (claiming to be members of the bank’s fraud department and persuading them to reveal security details), they saw false telephone numbers appear under the caller ID, and were unable to make or receive calls whilst their accounts were being drained.  The fraudsters made between £1 million and £2 million a week at the scam’s peak and operated like a nine-to-five business using information from corrupt bank insiders.

Hitesh Patel commented: “Both public and private organisations openly acknowledge that cyber-attacks are one of the most prevalent and high-impact risks they face, and yet many operate on the basis “it won’t happen to me”. Organisations must keep abreast of the cyber threats, both physical and digital, to ensure the protection mechanisms don’t become obsolete given the pace of technology and business change. You can have variety of IT protections in place to defend yourself, but it’s all for nothing if you are tricked into giving away the keys to the electronic vault.”

Cheap deals with a hidden high price

The Fraud Barometer recorded an emerging trend of consumers carrying out tech-enabled theft driven by a hunger to maintain a comfortable lifestyle on a low key budget.  Several cases this year involve consumers searching out goods and services on the internet that may have raised the eyebrows of the more conscientious consumer.  The bootleg bargains show customers unaware of or uncaring about the risk of conspiring with the online fraudsters in order to get their hands on goods for a fraction of the high street price.  

In one case a 51 year old Leicester man was jailed for six years for masterminding a £60m fraud to supply free cable TV using illicit set-top boxes.  Working with five accomplices, he imported boxes from Asia and bypassed the encryption in order to allow people to watch a cable TV service without a legitimate subscription.  He promoted the business on internet forums and via his own website, as well as making bulk sales of the boxes all around the UK.  In another case a father and son were jailed for a £3m scam selling cheap teeth whitening kits that were dangerous and left some users with bleeding gums from chemical burns.  Advertising banners claimed the product was “ideal for any age group” and was “used by leading dentists throughout the UK and Europe” however they contained up to 110 times the allowable level of hydrogen peroxide. 

Hitesh Patel commented: “Through the rapid rise of technology and online platforms, more people than ever are being targeted by fraudsters who have unrestricted access to a larger pool of victims.  However, we are also seeing the internet being used by consumers who are being tempted to obtain goods and services that they have, or perhaps should have, a fair idea are not legitimate. Consumers may often turn a blind eye, or consider this a victimless crime, but these cases show individual victims who ended up paying a high price with their wellbeing.  In addition, this shadow economy activity, which directly promotes money laundering and tax evasion, often help funds other more serious organised criminal enterprises, including human trafficking, drug smuggling and terrorism.”

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