The value of alleged fraud hitting courts in London and the South East during the first six months of the year has nearly tripled compared to the same period in 2019 according to new figures reveal.
KPMG’s Fraud Barometer found that more than £428 million of alleged fraud hit Courts across the region, despite the number of cases falling by half. Just 36 cases in the region reached court before the country went into lockdown, compared to 82 in the same period last year.
Commercial businesses were the biggest victims of alleged fraud by value in the first half of the year, totalling over £220 million, up from £73 million in the first half of 2019. Professional criminals were the main perpetrators accounting for over £337 million of the alleged fraud in courts across the region during the first half of the year.
Commenting on the findings, Damian Byrne, Forensic Director for KPMG in the South East said:
“Before the COVID-19 lockdown the value of alleged fraud appearing in our courts was running at a very high level. Looking ahead we can expect the fallout from the pandemic to increase the levels of fraud hitting businesses, the government and individuals. It is absolutely vital that businesses and consumers remain on high alert for fraud as the UK enters what is likely to be a very challenging economic climate, which will encourage fraudsters to take advantage.”
Case studies to reach the region’s courts during this period include:
- A civil servant from Essex who stole more than £1.7 million from the Ministry of Justice to buy a lavish home and cars was jailed for three-and-a-half years. The 37-year-old masterminded a “sophisticated” fraud by setting up payments to a fake company for two years. He was caught when a junior civil servant became suspicious of a transaction and reported him.
- Unknown hackers made off with £2.4 million in a business email compromise scheme involving the interception of a museum’s payment to an art dealer for a painting by the artist Constable. After tracking months of negotiations, the hackers impersonated the dealer through spoofed emails and convinced the museum to send £2.4 million to a Hong Kong bank account in exchange for the painting.
- A banker from Surrey was jailed for four-and-a-half years after stealing £2.9 million from his employers and spending it on sports cars, holidays and designer jewellery. The former head of finance had been at the bank for less than a year when he defrauded the organisation of £2.9 million by substituting his own bank details in place of those for HMRC.
The National Story
KPMG’s Fraud Barometer, released today, reveals that only 76 cases of alleged fraud were heard in Courts across the country in the first half of 2020 down from 217 cases prosecuted during the same period last year. This 65% decrease reflects the significant impact of the COVID-19 crisis on law enforcement.
Almost £460m of alleged fraud hit UK Courts in the first six months of the year, up by 44% compared to the same period in 2019. One film piracy case, which if successful would have cost the industry an estimated £200m, nearly doubled the value of fraud committed to July 2020. By excluding this outlier, the data demonstrates a significant decrease in the value of fraud cases compared to last year; from £319m in 2019 to £260m in 2020.
The Fraud Barometer, which records fraud cases, excluding bribery penalties, coming to UK Courts with a value of £100,000 and above, noted cases of embezzlement, fraudulent trading, tax, loan and mortgage, benefit fraud and account takeover topping the list. Fraudulent evasion of duty, which is expected to boom in the near future, saw a significant drop compared to previous years in case numbers.
In addition to the COVID-19 pandemic, Brexit returns as a high risk for businesses to urgently address their supply chains. They pose an inherent fraud risk as the transition from lockdown to the new reality may cause existing controls to be overridden.
Work from home risks
The Fraud Barometer recorded a number of cases which highlight the elevated risks associated with tech-enabled fraud and remote working. In one case, a Head of Finance, stole almost £3m from his employer by setting up two fake payments to himself by substituting his own bank details in place of those of HMRC.
The data also recorded that the volume of embezzlement cases during this time overshadowed those committing fraudulent trading, mis selling and misrepresentation by 150%. Fraudsters were stealing from company, client and bank customer accounts as well as charitable funds and committing cash theft. In one case, a woman claimed she had no idea that her husband stole almost £1.5m from his employers over a period of approximately six years. The man used bogus invoices from fake companies to transfer thousands of pounds into his wife’s bank accounts.
Roy Waligora, KPMG UK Head of Investigations, said, “The COVID-19 environment has led to increased financial pressures on individuals and organisations leading to more opportunities to commit fraud. This is likely to lead to further risk of financial misreporting and of misconduct and fraud in traditional hot spots such as procurement and supply chain. Given the elevated pressure on the Courts, business leaders should assess fraud risks and remind employees of anti-fraud policies and whistle-blowing channels in order to reduce the risk of loss.”
Spotlight on industry
The industry most impacted according to the data was commercial businesses which saw a drop of 80% in value and 72% drop in volume, from 63 cases valued at £137m last year, to 18 cases valuing approximately £27m in 2020 (excluding the one case on film piracy).
Government saw 65 cases worth almost £55m in 2019 drop to only 19 cases with a value that ballooned 42% to £78m in 2020. Tax and benefit fraud accounted for 13 of the 19 cases in 2020 with criminals stealing from the public purse to the tune of £21m.
Financial institutions, which recorded 19 cases at a value of almost £19m in 2019, this year saw 11 cases valued at over £82m; representing a 331% increase in value. The main increase was due to one supercase currently being tried at the High Court in London involving a loan scheme fraud for £72m which centred on the sale of mortgaged tankers for scrap.
Fewer court appearances indicate a calm before the storm
COVID-19 measures led to the closure of many court operations and diversions of cases therefore impacting the volume of cases heard by the Courts.
No one is under the illusion that actual fraud has decreased, and given the Government’s Coronavirus Job Retention Scheme is due to remain accessible to the public until October, it is likely that more fraud cases will emerge as the scheme unwinds. This is evidenced by the HM Revenue & Customs (HMRC) first arrest in relation to furlough fraud in July 2020. It is understood that in May, the HMRC had received up to 1,900 reports of alleged furlough fraud claims which are due to be examined in the coming months. The pressure on Courts is also likely to increase demand for alternative dispute resolution options such as arbitration.
Waligora added, “While we get to grips with the ‘new normal’, we are likely to see a lot more HMRC activity where government aid schemes have been abused. This will place an additional burden on organisations to ensure that their programmes complied with the rules. We must also keep in mind that fraud data dropped drastically because court appearances were down as authorities struggled to keep pace during the crisis. Although the numbers indicate less activity, fraud has not gone anywhere, and as the UK establishes more special Courts to address backlogs, we are likely to see a tsunami of COVID-19-related fraud cases.”