Fraud against financial institutions rises in the Midlands

Julie Bruce, Forensic Director at KPMG in the Midlands.

The value of alleged fraud cases seen in Midlands courts reached £37 million in the first half of 2018, more than ten-fold compared to the same period in 2017, according to latest research by KPMG Forensic.

The number of cases passing through courts in the region almost tripled, with a significant jump to 38 in 2018, up from 13 in the first half of 2017, and average case value has risen from £214,000 to £996,000.

The Midlands has also seen a clear shift in the types of alleged fraud committed in 2018, as fraud against investors and commercial businesses declined, whilst alleged fraud against financial institutions rose. Interestingly, in the first half of 2018, professional criminals and people in management positions were responsible for the majority of cases, and the region also saw a rise in the number of cases committed by people over 55.

Julie Bruce, Forensic Director at KPMG in the Midlands, said: “Our region is well known for its financial services sector, and it’s a concern to see the value of cases against our banks, building societies and investment community increase so dramatically. The significant rise in value in the first half of 2018 is largely due to two individual cases of mortgage fraud committed by criminal gangs – in both cases, made up of family members.

“By keeping the operation within the family network, perpetrators may feel a better sense of control and trust, and whilst banks and lenders usually have good protocols in place to detect unusual activity, it’s clear that fraudsters are also finding ways to dupe them out of greater amounts of cash.

“In recent months, there has also been a significant increase in financial institutions falling prey to cyber-attacks, and this will no doubt see individuals and businesses in the Midlands seeking reassurance that their systems and online bank accounts are safe. What’s interesting, is that our research also highlighted that, by age group, the highest value of fraud cases in the region were committed by individuals over 55, at £17 million. When you normally think of fraud and middle aged individuals, more often than not, the assumption is that they are the victims.

“However, with rising inflation pressures squeezing the purse strings, those who are usually considered as the household providers could be resorting to desperate, criminal methods to raise funds. All of this combined continues to highlight the importance of fraud prevention and should prompt management teams to remain vigilant and keep alert to the risk of fraud.

“So, having robust prevention and detection mechanisms is a must, and this is particularly important at a time when public trust and challenging economic times are at the forefront of people’s minds.”

Commenting on the figures, James Maycock, Forensic Director at KPMG said: “On the back of a year with the highest level of alleged fraud in three decades, 2018 appears to be continuing the trend and we can expect this year to be another 12 months of large numbers of fraud cases coming to court.”

“There are certain types of fraud that have dominated the fraud landscape over the past three decades, including the rise of the professionally organised gang who run criminal operations very much like a business. The main victims have been governments through attacks on the tax system, banks through loans and mortgages obtained via deception, and investors enticed by the promise of tantalising returns.

“Interwoven with the story is the increasing use of technology and cross-border activity that has impacted on fraud just as it has on our everyday lives. Businesses, public sector and consumers need to continue to be vigilant and on guard to fraud threats in these ever-changing environments.”

2018 continued to see a rise in alleged fraud being conducted by professional criminal gangs, with this category of fraudster accounting for 90 cases totalling over £200m in the first half of the year. One £3m case touched on a much larger international criminal enterprise, described by one witness as perhaps the world’s biggest bank robbery.

The gang at the centre of the case sold thousands of card skimmers to clients across the globe that were then used to attack ATMs. The true cost of the worldwide fraud was estimated to be in the hundreds of millions of dollars. The leader of the gang was also the director of a company registered in the UK aptly named after the card reader fraud it was committing.

In another, unrelated case, a money launderer set up an unauthorised online bank to move funds around the globe, creating fake bank account statements, and conducting illegal trades to help him and fellow criminals clean their ill-gotten gains.

James Maycock said: “Professional criminals have become early adopters of technology in order to target their victims – others have taken to providing fraud tools as a service. Entrepreneurial criminals sell hacking and distribution tools, as well as services – including spam generators, malware distributors and bots.

“With such technology and tools readily available on the darkweb, the barrier to entry is low – it only requires an individual with intent and a small amount of money.  And with technology evolving at such a ferocious rate it is likely to be shaped by the intrinsic value of data that these technologies can manipulate – and how it is protected – and everyone’s data is at risk.”

KPMG’s Fraud Barometer data shows that, by value, 80% of cases coming to court in the first half of the year involved an international element to the alleged fraud.  The largest cases in 2018 and in 2017 involved alleged fraud at multi-national organisations operating across international borders.  These cases have required international co-operation between all relevant jurisdiction – UK law enforcement agencies such as the SFO working with their counterpart agencies in the US, Canada, Singapore, Hong Kong and Australia to name just a few.

James Maycock observed: “International frauds paint a complicated picture. Cases spanning several years, and sometimes decades, covering multiple jurisdictions requires close co-operation between multiple agencies. Strong working relationships across borders are required for domestic law enforcement to collate effectively the necessary evidence to prosecute fraudsters.  Similarly, commercial businesses need a globally minded and co-ordinated response to fraud to help ensure they are protected from increasingly global threats.”

Fraud experts at KPMG are warning of an increased risk of fraud following Brexit as criminals seek to exploit new Customs arrangements, in the event that any current or transition arrangements expire (from April 2019 with no deal or from January 2021 based on current transition proposals).

James Maycock concluded: “How Brexit will impact fraud levels is yet to be seen, but new systems and new landscapes, such as new tax and customs arrangements, have in the past opened lucrative loop holes ripe for the picking from unscrupulous criminal gangs and businesses looking to improperly cut their costs.”