Forensic Accounting For Different Types Of Fraud

What is the value added by a Forensic Accountant?

A forensic accountant is often appointed to quantify losses in a financial dispute, or to quantify the value of an estate or the amount of funds that have been stolen. He or she might also be asked to trace the funds in question to see where they have gone, or how they have been spent, and assist the victim with their recovery. Sometimes a matter can be complex, and a case presented by one side struggles to explain its position – a forensic accountant may be asked to unpick the details of the case and re-present it in a simple and understandable way.

However, there is another area in which I am frequently asked to assist, often alongside the more usual instructions described above. This is to explain a concept to the court, in a subject area that is often not well understood generally. Some examples of where I have been asked to provide an expert explanation to the court include the following:

Identity Fraud

Identity fraud is where a criminal uses another person’s identity to either steal their funds or to provide cover for the facilitation of another crime. An example of this is where the defendant’s identity along with others were hijacked by a gang of “Nigerian” fraudsters. Funds from another victim were transferred into the defendant’s bank account before being sent to some other account controlled by the fraudsters. The defendant was therefore unwittingly providing a money-laundering layer to the crooks.  It also made it seem as if he was stealing the money.

The Defendant took no part in the crime, being amazed to see £25,000 appear in his bank account only to disappear again after a couple of days. He was indicted for theft whereas the actual crooks were never caught.

The evidence clearly showed how the crooks applied for a passport in the Defendant’s name, and had the opportunity to hijack mail being sent to a former address. Once the concept of identity fraud had been explained to the prosecution, the matter was dropped.

Hawala Banking

Hawala is an overused term that is often applied to money transfer businesses operating outside the mainstream-banking framework. It is entirely legal so long as it observes the regulations within its country of residence. However, being of Eastern or Asian origin and frequently used by migrants to the West, it is viewed with suspicion by the authorities. Also, with the greater acceptance of many foreign cultures of the use of cash for even the largest of transactions, it has become the target for many organized money laundering gangs.

Unwitting recipients in the UK are frequently indicted with serious money laundering offences when caught receiving legitimate funds being sent to them from abroad. For example, when selling a house in India, the funds are sent by the defendant’s representative using a local Hawala business. Many of these businesses are hijacked or exploited by the money launderers so that criminal funds can be disposed of in the UK.

I am often asked to explain the concept of Hawala and its association with money laundering to the court, or to explain to clients the risks involved and how to avoid them.

Missing Trader Intra Community Fraud (MTIC)

MTIC fraud had its heyday ten years ago in the heady days of the “carousel frauds” involving VAT losses in relation to computer chip and mobile phone trading. However, the fraud still thrives, with VAT fraudsters currently trading anything from alcohol to carbon credits.

VAT is lost when a “missing trader” in a chain of deals involving the same goods becomes insolvent owing money to HMRC. The chains can become very complex, with every different variation of cross trading and covering tactics being used. As a forensic accountant, I can be asked to trace transactions within these chains and also to provide a clear explanation of how the fraud is working, plus how, and to where the value of the fraud is being moved.

Fraudulent Ponzi Schemes

The name “Ponzi” comes from Charles Ponzi who is credited with the first of these frauds back in the 1920s, although his scheme was likely influenced by earlier similar frauds of this nature. Essentially fraud victims are encouraged to invest in some scheme, with the veneer of authenticity being promoted by paying dividends or returns out of the victim’s own capital. In this way, the initially satisfied investors are encouraged to promote the scheme among their family, friends and business acquaintances.

Sometimes I think that the concept of a Ponzi fraud underpins the global economy, with national borrowing and international credit trading reflecting many of the hallmarks of the crime – only on a massive and seemingly acceptable scale!

Investment fraud can be complex, with victims often refusing to accept that the scheme to which they have signed up was doomed to failure. Providing an understanding of the concept has been an important part of my involvement in cases involving Ponzi schemes, both explaining to the victims and the court in cases where such losses have occurred.

Other examples of fraudulent concepts that are frequently included when providing a forensic accountant’s report include money laundering, pyramid selling, long firm fraud, corruption and forgery.

About Mark Jenner

Mark Jenner is an experienced forensic accountant specialising in fraud and white collar criminal matters. He provides independent financial investigation and expert accounting witness services to police forces, fraud regulators and criminal defence lawyers, also providing assistance and solutions to organisations embroiled in financial disputes.

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