Fraud Advisory Services

Phishing is a form of identity theft. It involves the fraudsters sending large numbers of spam emails out to unsuspecting Internet surfers. The email appears to be from a reputable source such as a high street bank. The logos being used and often the email address look genuine and many recipients consider the emails to be from who the say they are.

However, the emails use copies of the banks’ corporate letterhead. The email addresses are cloaked using sophisticated software or are so close to the real addrees that they are often accepted. For example the fradulent email could be something like: hbsc.com – at first glance you would think it came from HSBC! Please note that the example used is actually a legitimate site, simply used to show how easy a transcribed letter can fool the recipient – I am unable to disclose any real examples for obvious security reasons.

Once the unwary recipient clicks on the link on the email he or she is directed to a web site that looks to all intents and purposes like a legitimate bank web site. Invariably a request will be made to log in with security details. If you should do this you will find that your bank account is emptied right up to the overdraft limit very quickly!

I receive phishing emails from crooks that pretend to be banks that I do not even bank with – they are simply emailing as many contacts as they can in the hope that some will no doubt bank with the current bogus named bank and hopefully comply with the requests.

• It is importnat to note that no bank will ever ask by email for you to confirm your security details.

Although a number of years ago now, I was victim of a phishing email. This shows how easy it is if even a fraud investigator can be tricked into believing that an email is genuine! I was selling some bits and pieces on eBay at the time and having quite a lot of fun buying and selling items. One day I received an email telling me that I was now eligible to get “power seller status”. This was very believeable, I knew all about this acolade which gave you more credibility when selling items and I had been quite busy lately. I clicked on the link and was immediately asked to confirm my user name and password. At this stage I was not suspicious as eBay is continually asking for you to do this when you surf around their web site.

However, once I had entered these details I was taken to a web page, that still looked like an official eBay page, that asked me to enter all my personal details that eBay allready had, including my bank or credit card details! At this point I immediately logged out.

I did not think any more about this as I thought I had escaped in the nick of time! However, a few days later I received another email from eBay, telling me that they were investigating a fraud associated with my account. I went to my account and noted that there was a Harley Davidson for sale at around $3,500! Shortly afterwards my account was taken down and I could not access it again. After a further few days I received another email from eBay telling me that they had resolved the fraud, that my account had been hijacked and that I must now sign in and create a new password.

Hats off to eBay, they sorted the problem and returned some listing fees of around $40 that had hit my account for the fake sale of a motor bike. The fraudster had phished my identity to use my 100% good seller reputation to try to sell some $3500 of fresh air to an unsuspecting buyer.

I am pretty hot on phishing emails now!

During a recession you would think that investors would be more careful with their money. Is it the lure of high interest rates when conventional financial services products offer such a low return that encourages otherwise astute people to invest their wealth with fraudsters – or is it possibly greed that blinkers them to the risks involved investing in off beat ventures?

Every week brings reports in the press of new scams, that are either coming to light, are being investigated or the villains are being prosecuted. For every big investment fraud that is reported, there are likely to be around 10 smaller ones that are not. And for every fraud that is discovered, there are 100s that continue unseen. It is a big problem, and as public spending is cut back, cash for fraud resources is dwindling from its already meagre level.

A smaller Ponzi style investment reported in the dying days of 2010 is the case of Mr Christian Orpin. This is a prime example of a somebody operating on a small enough scale to avoid too much attention from the authorities and which allows him to continue to develop and ply his quest for easy money even after being brought to book.

Orpin operated a business called PDS High Wycombe, offering an investment scheme called Premier Projects. This was an investment vehicle offering between £150 and £200 return per month for a £5,000 investment. This is at least an annual yield of about 36% – far more than the percent or two available from the banks and other mainstream institutions. You would think that the: ’…if its too good to be true…’ mantra would kick in. But no, Orpin was able to gather some £10 million from investors.

This is of course an illegal investment scheme and the Financial Services Authority has obtained orders from the High Court blocking this investment business. Of course the FSA were not prepared to carry out any real investigation, and it was left to Companies Investigation Branch of the Department for Business Innovation and Skills to carry out a probe that resulted in Orpin becoming bankrupt and being disqualified as a director until 2016. It is unlikely that Orpin’s bankruptcy trustee will recover more than 60% of the investors funds, probably much less.

Job done? No – now Orpin is trading as Phoenix Debt Solutions according to a Daily Mail report – with the consent of an Office of Fair Trading’s consumer credit licence! He does not need to trade in his own name to get this accreditation and therefore avoids the constraints of his bankrupcy. As his business is unincorporated, his director disqualification is meaningless.

It does appear incredulous that somebody can be investigated and banned by one regulator but approved by another. However, this as been a criticism of the UK fraud regulation industry for a long time. I have undertaken forensic investigations on behalf of Companies Investigation Branch myself, and apart from the main scam I have uncovered systematic tax avoidance by whole work forces.

Do you think that I was able to get HMRC to take an interest in the tax they were missing out on? It is a retoric question…and the business, though closed down by us, continues to trade from the same premises in a different name.

Support Publishing is a recognised term used for businesses that manage the publication of a range of items such as desk diaries, wall planners, pamphlets, magazines and books. The items will be used to promote a particular good cause. For example a diary might be prepared on behalf of a police sports foundation or a booklet might be published in support of child safety on crossings outside schools.

The intention is for the publication to be circulated to schools and community centres in such a way as to raise public awareness of the messages contained within, such as child safety, safety at work or the good work a charity might be doing.

Of course the publishing company needs to be paid for supplying the publication and there are two ways of doing this. The first is for the charity or good cause to approach the publisher and commission the required item. They may order and pay for several thousand desk diaries to circulate around potential donnors. Details of the charity and the work it is doing will be contained within the diary. This is no different from the marketing products that may be commissioned by commercial companies to raise awareness of their brands.

The second method for funding the publication is for the publisher to include commercial advertisements. An advertser may be happy to fund an entry in a good cause booklet knowing that the public will associate their name withe the good cause and in doing so raise the commercial awareness of their brand. In theory it would be a good method of marketing.

There is nothing futrther to mention concerning the first method of funding. However, the second method is wide open to abuse by con merchants who see this as an easy way to solicit money from the millions of gernerally small businesses around the country who find it very difficult to say “no” when asked to support a good cause locally while at the same time gaining valuable marketing exposure.

To illustrate the support publishing practice that has grown up in the UK over recent years consider the case of McPherson Stone Limited and Cavendish Green Limited. These support publishing companies have been well reported in the press following what was apparently the greatest number of complaints to Trading Standards offices around the UK ever received for one business. Because they were the same business, one simply setting up and taking over when the regulatory heat became too much for the other. Both companies have now been closed down by the authorities, there were foreunner companies and there are currently subsequent companies still operating!

The business produced quarterly magazines aimed at off duty police, ambulance and fire service personnel. The publication included a few articles of general interest, recipes and puzzles together with around 200 advertisements for local businesses. Each magazine was produced on a regional basis, with the same content but with paid advertisements from businesses in each region.

200 advertsiements through 50 regions, four times a year at an average cost of £250 per business gives a potential annual revenue of £10,000,000! When you consider that each advertiser received a copy of the magazine and a few hundred were distributed between a dozen or so police stations and ambulance centres – only about 50,000 magazines were printed each year.

Each magazine cost around £2 to print and post out. This leaves most of the £10 million to pay the dozen or so telesales staff around 40% commission and the rest, the lions share, going to the directors running the company.

The business worked because the sales team were self employed on commission, and used various means to hook the clients, whose names were simply extracted from phone directories and local papers. Most people dont like to say no when asked to support good causes, partcicularly if names of charitable causes are used as a hook. The first telephone call would spin the tale of widely distributed publications… “100,000s in your area” and solicit the interest. The second call, often only minutes after the first would be recorded and would exclude any detail of the false promises. It would simply confirm some details. The customer was often left somewhat bemused, thinking that they would make a final decision when they received their advertsiement copy for approval. However, what they would receive was an invoice with the only option for cancelling being the payment of a charge!

A large proportion of people will pay such an invoice not wishing to enter into any dispute. Those that knew their consumer rights a little better were more likley to bin the first payment demand or return it with a letter saying they did not wish to go ahead with the advertisement. But the support publisher has a plan for increasing the proportion of targets who pay from the initial 40% or so to around 60% or even 70% by a sequence of demanding letters and phone calls robust enought to shake the resolve of even the most resolute victim. In the illustration, the business even passed the unpaid bills over to another debt collecting business that it had set up itself to give the illusion of escalating seriousness in the matter. They even resorted to “door-stop” collection techniques and a video of the threatening behaviour of one particularly nasty instance was caught on the victim’s mobile phone and aired on BBC’s Watchdog in 2006!

That this is a fraud there is no doubt. However, it is a problem that is very hard to deal with. The methods used by the support publishers make it harder and harder to close them down, with sanctions being fairly lenient to date (director disqualification etc). It is likley that the Fraud Act 2006 could be a better route if it was possible to get the police economic crime units to take an interest. The trouble is they are very often unwittingly caught supporting these very cons by agreeing to take nominal quantities of the publications which they simply see as being “freebies”.

The telesales opperators in the business pay no tax. When investigating this particular support publisher I had a whistleblower contact me to say that all the staff used aliases and most were drawing supplementary benefit as well as earning £30 £50,000 per year!

So we have tax fraud, benefit fraud, Misrepresentation Act offences, Telecomunications Act offences, Data Protection Act offences and Fraud Act offences (plus the Company Act 1985 offences that I was investigating).

I tried to arrange a meeting with senior tax representitives from HMRC to inform them of the scale of the tax evasion, not only in the few companies that I investigated but concerning the industry as a whole, but the feedback was that theyconsidered the problem one that they could not deal with. The message was that theyw ould have to wait until legislation changed.

We eventually obtained a High Court Order to close the companies down. When the Official Receiver went in to the business the next day he found that the bank accounts had been stripped. Within a few days the business was back up running from the same (rented) premises.

Support publishing is a recognised problem within the Department for Business Innovation and Skills (formerly DTI/BERR) who continue to close these companies down only to have them reopen later under different names. Some open as partnerships or sole traders, having cottoned on to the fact that BIS will not investigate them then. The police are unlikley to have the time and therefore if they can make sure the complaints to Trading Standards are kept to a minimum by not pursuing debts too rigorously they will continue for the forseeable future to keep trading below the radar!

By Mark Jenner, forensic accountant and fraud investigation expert. You can keep up to date with his investigator’s diary blog.