KPMG’s Fraud Barometer, which measures fraud cases with losses of £100,000 or more reaching UK courts, shows that investors and financial institutions in the South West were the principal victims of fraud in 2016, accounting for 75% of fraud by value.
Fraud against investors totalled £5.0m which accounted for 53% of all fraud carried out in 2016, compared with 45% in 2015. Financial institutions have taken a significant hit due to cyber-attacks, with the value of fraud against these companies up seven-fold to £2.0m.
Overall the value and number of fraud cases in the region actually fell to £9.5m in 2016 (13 cases), down from £11.3m (24 cases) in 2015.
The region has also seen a significant increase in the value of frauds committed by men and women working in collusion, from £3.7m in 2015 to £7.0m in 2016, representing 74% of total fraud losses, although the number of cases has stayed the same.
Dawn Baker, KPMG’s Forensic Senior Manager in the South West, said: “The South West has seen fewer, but higher value cases of fraud in 2016, with calculating criminals finding ways to dupe individuals and financial institutions out of greater amounts of cash.
“Throughout 2016, the stand-out victims in the region have been financially vulnerable investors. They are being duped into false schemes by professional fraudsters, with the assumption that they will either see a return on investment, or a service. People living in the South West should be particularly vigilant when being asked for money for seemingly safe schemes.
“There has been a significant increase in financial institutions falling prey to cyber-attacks, which will no doubt see these companies in the region seeking reassurance that their systems and online bank accounts are safe.”
Cases from the South West region include:
Exeter: The internet bank accounts of an Exeter-based company were hacked and looted of nearly £800,000. A student and a shop worker were just two of a network of people who worked together to defraud the company and were jailed for laundering almost £200,000 of the money stolen.
Bovey Tracey, Devon: An estate agent stole more than £150,000 from friends and clients, who were duped into making the loans, when the property crash in 2008 threatened to destroy his business. He made undertakings to repay the loans which he failed to honour. Previously a successful businessman, he “buried his head in the sand” and continued borrowing in an attempt to repay the loans.
Bristol: A 34-year old businessman has been accused of trading dishonestly and using high-pressure sales tactics to defraud vulnerable and elderly victims, who paid a total of £230,000 for a burglar alarms that proved useless.
The National Story
Value of UK fraud breaks £1 billion barrier for the first time in 5 years
Nationally, 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 added: “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.”
