Fraud Advisory Services

It is important to decide your priorities in any fraud investigation. These may include securing a criminal prosecution of the culprit as an example to others, protecting your reputation in the market place or allowing the fraudster to be safely dismissed. Recovering lost assets is likely to be high on, if not top of, your list. Here are a few recent examples where Fraud Advisory Services has successfully assisted with recovering misappropriated assets.

Insurance investigation

A ‘whistle blower’ in a large motor services company revealed a widespread practice of submitting forged claims. The work included comparing customers’ signatures on thousands of claims documents to identify forgeries. As a result it was possible to quantify the level of false claims made over a period of five years and recover a substantial seven figure sum on behalf of a number of insurance companies.

Acquisition of subsidiary

A mortgage and insurance broker company traded with another financial services company on a  regular basis. Over a period of time it lent money to this company on an informal basis and also allowed its debtor balance to increase substantially. As a result it commenced negotiations to acquire ownership of the other as a means of repayment of money owed. It was possible to trace the monies originally provided and identify reasons for the debtor company’s poor performance. The work showed financial irregularities perpetrated by the subsidiary’s director and quantified significant levels of personal spending – thus assisting with negotiations and recovery of value for the parent company client.

Multiple invoicing by motor trader

A number of credit finance companies required the activities of a motor retailer to be investigated over a ten year trading period. The work showed that the business owners had been regularly executing multiple finance agreements on the same vehicle. The reason that the fraud had not been discovered for so many years was the teaming and lading of funding for one vehicle being used to discharge outstanding amounts on another. Although some £100 million of fraudulent transactions had taken place, which was of interest to the police, the amounts owing to the credit companies had only accumulated to about £2 million by the time of the investigation. The work involved working alongside the police quantifying losses and identifying the assets acquired by the motor trader thus allowing recovery of value for the creditors.

Tax evasion by caravan company owner

A caravan company collapsed in a competitive market place and entered insolvency proceedings. Investigations on behalf of the liquidator revealed that the owner and director of the company had been living a hedonistic lifestyle at the expense of the company. Much expenditure on various girlfriends and high living had been put through the books as caravan manufacturing costs. By a series of interviews with former employees, it was possible to build a picture of activity that allowed a meaningful examination of the books and records. Evidence of around £500,000 false invoices was found and the director agreed to repay this money for the benefit of the disadvantaged creditors when presented with the facts.

(This newsletter is circulated in hard copy format around solicitors and baristers throughout the UK)

Welcome to the second edition of “Fraud Briefing” this year.  Following positive feedback gratefully received from many of you, I am now planning to publish this newsletter every two or three months. Given the vagrancies of the postal system and a recent flurry of new cases I have decided to send this one out in good time and apologise if this festive edition reaches you before the season begins.

New cases picked up recently include old favourites of criminal defence frauds, money laundering indictments and Proceeds of Crime confiscations, but I was glad to get the opportunity to work on another Ponzi based scam. This time my interesting task is to look at the professional involvement of an accountant providing services to the investment fraudsters. I also seem to be receiving a few enquiries with an international flavour, possibly because I have put in more commitment to my Internet marketing through technical article writing?

Insolvency cases – when will the floodgates open?

One recent approach from an individual residing in the Far East has now turned into an investigation into a “pre-pack” administration in the UK. Pre-packs have been the subject of much criticism, being a process with little regulation and making it far too easy to establish a “phoenix” company when businesses fall on hard times. I understand that such has been the public complaint that the Insolvency Service carried out a review of the 572 pre-packs that took place in the first six months of 2009. It is astonishing to learn that 35% of these did not comply with government legislation and that 17 were deemed serious enough to be referred for full investigation.

My source in the Insolvency Service tells me that  the typical problems being seen are when a company diverts its trade and debtors elsewhere in order to demonstrate insolvency. Then the administrator is astonished to find that the company that he sold the business assets to is suddenly being managed by the same directors as before.

It is still asset stripping…the diversion of trade prior to a pre-pack seems to continue the theme that I discussed in my previous newsletter. Is there no end to the methods devised by the fraudsters for obtaining value from a business and then leaving the creditors to pick up the pieces?

The future of criminal defence under threat?

I don’t want to be alarmist or jump the gun, but the intention of the Legal Services Commission to reduce expert fees in criminal defence cases by 20% has given me a number of sleepless nights over the past two months.  I have always prided myself on managing a broad portfolio of fraud related assignments, from investigating fraud, asset recovery and assisting the regulators to providing expert accounting witness services to the defence team in criminal fraud and proceeds of crime cases.

In most areas of my work each new assignment brings different issues and varied circumstances in which fraud has occurred.  However in criminal defence work a pattern really does emerge and “practice” definitely does make perfect.  Having worked as an expert in criminal defence matters for many years now I like to think that my approach has become efficient and most certainly cost effective as far as LSC funding is concerned.  It does seem rather a shame that they are now threatening to make good on their proposals originally aired in a consultation five years ago and currently being discussed again – that defence experts are paid at rates commensurate with  prosecution costs or more aptly…public sector pay scales.  This is a ridiculous hypothesis and a couple of objections (I know there are many more) spring to mind:

• The Government fraud regulators, prosecutors and the LSC have all seen fit to waste astonishing sums of money on pursuing certain headline causes when the political will has been there and then complain that they do not have enough to manage their day to day business – think of the £15 million Rover investigation, £60 million for the London Underground fiasco…; and
• The rates they are proposing are more likely to be in line with public sector remuneration levels, yet we do not have a guaranteed pension, secure job and flexible hours that might make the low rates more bearable.

I am sure we will all muddle through.  It may be that the poorer criminals will not have the access to justice that they have enjoyed in the past.  It may be that sophisticated fraudsters will be able to fund their high quality defence and the less successful criminals take what they are given. 

What will the New Year hold?

We wait to see what will happen with expert funding as we do with all the other areas of public sector funding cuts.  In the meantime it has to be business as usual.  I believe that I am in a position to continue to give personal and efficient attention to criminal defence cases, small and large, with an experienced team of criminal defence forensic accountants behind me.  I will also be looking to that area of expertise that gives me much satisfaction – recovering assets in insolvencies.  This I feel will become  hot topic soon as I do get the feeling that there is a huge volume of businesses teetering on the brink – despite the ever hopeful claims of being out of the depression/recession. 

Corporate asset stripping will continue to keep me occupied it seems, and as the world shrinks and the Internet grows I am alert to the possibility that more and more of my work will involve telephone calls in the middle of the night from different time zones.  Fortunately there is less likelihood of foreign travel now given the ease with which we can communicate – but I am having to brush up on my “KYC” due diligence procedures!

I wish you a Merry Christmas and a Happy New Year.

Mark Jenner