Audit & Risk

Value of fraud cases in UK courts exceeds £1bn

KPMG's Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching UK courts, has found that the value of frauds has risen sharply in the past year – over £900m was lost in just seven "super cases".

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A resurgence of fraud “super cases” caused the value of alleged fraud reaching UK courts in 2016 to exceed £1bn for the first time since 2011, according to research by KPMG Forensic. This total included £113 million in cyber fraud – the highest value since 2008.

KPMG’s Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching the UK courts found that, while the volume of alleged fraud for the year has dropped by nearly a third from 310 to 220 cases, the value of these was over 55 per cent higher than last year’s total of £732m. In 2016, alleged frauds worth £1,137m reached UK courts. The average value of fraud has more than doubled to £5.2m from £2.4m. Fraud against businesses was up seven-fold, with internal fraud committed by employees and management the most common type to hit businesses.

The figures include over £900m from seven “super cases” – cases where the value of alleged fraud is £50m or more. The surge in super cases, up from £250m last year, may reflect the fact that fraud is becoming a more lucrative and practical proposition for those with the right skills and technology, or for those in senior commercial roles. Researchers suggest that increased pressures to deliver against targets in a competitive and uncertain environment and to preserve personal finances have made people more willing to consider fraud. At the same time new technology is creating opportunities for fraud.

They added that, 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 attracting fraudsters. Meanwhile, continued austerity for some employees and consumers is tempting them to find illegal ways to maintain lifestyles. 
“The figures for 2016 tell us two things, said Hitesh N Patel, UK forensic partner at KPMG. 

“First, 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. Second, 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.”

The Fraud Barometer also recorded a rise in cyber-enabled fraud, up 1,266 per cent on 2015 figures. The cases include a £113m cyber fraud, the largest recorded in UK courts since 2008. Professional criminals cold-called bank customers and stole their money to fund luxury lifestyles. Sophisticated techniques meant that when victims were contacted by the gang they saw false telephone numbers on caller ID screens, and were unable to make or receive calls while their accounts were being drained. The fraudsters made between £1m and £2m a week at the scam’s peak and operated like a nine-to-five business using information from corrupt bank insiders.

“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’,” Patel said. Organisations must keep abreast of cyber threats, 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.”  

Another emerging trend was for consumers to carry out tech-enabled thefts in order to maintain comfortable lifestyles on low budgets. Several cases involved consumers searching for cheap goods and services on the internet in a way that showed they were unaware of, or did not care about, conspiring with 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 gums bleeding 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”, but they contained up to 110 times the allowable level of hydrogen peroxide. 

“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,” Patel said. “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. In addition, this shadow economy activity, which directly promotes money laundering and tax evasion, often helps fund more serious organised criminal enterprises, including human trafficking, drug smuggling and terrorism.”

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