Identity theft is a subject that is raised and discussed at many fraud forums and similarly reported in an increasing number of news articles. It is not just the cloning of identities followed by fraudulently obtaining goods or services on credit cards that results from identity thefts. Some very complex frauds are built on false identities and credibility stolen from others.

A report in this week’s Financial Mail in the Mail on Sunday illustrates how such fraud might be working. It involves a potential boiler room fraud which involves the selling of bogus or worthless shares in business ventures by high pressure salesmen. Credibility to their product is provided by details of another real and likely more successful venture whose details can be checked in the public domain.

In this case it appears that an oil company is touting for investment in its two “proven” oilfields. Its web site gives details of a director that are the same as those of another company Petroneft Resources who also has oil fields in Lineyoye and Tungolskye, names that are curiously similar to those quoted for the other bogus oil company. The bogus oil company cannot be contacted and its address details given are false. Petroneft, which is based in Ireland and is clearly a bone fide company, was astounded to find that there is another company that appears to be advertising the same assets as it owns.

Petroneft has reported this instance of credibility hijacking to the Irish Financial Regulator, Financial Services Authority and City of London Police. The FSA say that incidents of identity theft and associated unauthorised sale of investments in typical “boiler room frauds” has increased dramatically over recent months. In the last three months alone it has received 29 such reports.

It does seem that even with the current economic climate that there is plenty of money that investors are seeking to find homes for. This may be a case of moving funds around in an increasingly competitive market or there being more money available for investment. Whatever the case, people with money and those responsible for others’ are still investing in bogus schemes at an alarming rates. Ponzi frauds and other advance fee scams are still being reported and the current flavour it seems is the boiler room threat.

Financially astute persons (i.e. those with money or investing it for others) should not be easily caught by these scams. There is a level of fraud prevention due diliegence that can be carried out that does not involve much effort but will uncover, or at least throw up some red flags, most of the bogus investment opportunities. It is no good relying on company searches in a climate where identities are so easily hijacked. Drilling down into an individual’s or organisation’s identity is essential, to uncover all of the public information available and checking or cross referencing this wherever possible. When investing several £100,000 or millions, surely it is worth checking to see if a director is who he says he is and lives at his stated registered address? For a few pounds this, and many other details, can be so easily verified.

Mark Jenner is a forensic accountant specialising in fraud investigation and fraud prevention.

In October 2008 the Attorney General’s Office in the UK established the National Fraud Strategic Authority (NFSA) as a result of its Fraud Review in 2006. Being true to form for government agencies it has already had its first change of name to the National Fraud Authority (NFA)!

The NFA web site does not appear to work and very little information appears to be forthcoming from a Google search. It appears that the National Fraud Reporting Council (NFRC), whose NFRC web site also appears to be inoperative, is still embryonic in its development.

In 2008 the UK government allocated £29 million to put into place the various recommendations resulting in the decision to establish the NFA and NFRC. The City of London Police is to take the lead role in investigating serious and complex fraud and are tasked with helping other police forces with their investigations. They are working with the government to establish the NFRC.

Nothing much seems to be happening at present. News broke in 2009 about the appointment of Bernard Herdan as the full time chief executive of the NFSA (or NFA) to spearhead the coordination of inter organisation efforts against the growing problem of fraud. Herdan’s provenance is as an interim chief executive at the Securities Industry Authority since 2006, prior to that having spent some seven years as an executive director at the Identity and Passport Service. The distinct lack of a broad serious fraud experience does rather smack of this being a political appointment of a crony by Baroness Scotland (the Attorney General).

Although nothing much seemsto be occuring, there are one or two reports attributed to the NFA – National Fraud Authority.

For example in its first Annual Fraud Indicator report the NFA estimates that fraud costs the UK £30 billion per year – almost twice the previous estimates of some £17 billion. They say that the highest sectors of fraud loss are:

• Tax fraud at £15.2 billion
• Consumer scams at £3.5 billion
• Insurance fraud at £2 billion
• Mortgage fraud £1 billion

These figures should be viewed with some suspicion. There have been a number of estimates of the level of fraud in the UK over the past few years, many endorsed by the government. These are usually between around £40 billion and £100 billion. In addition, every fraud survey usually caveats their results saying that they are likely to be on the low side because of the hidden nature of fraud and the fact that much is not reported. The estimates do not include money laundering or hiding the proceeds of other crimes such as drugs, trafficing and extortion.

If the truth be known, the level of fraud as a proportion of the economy is huge but will never be accurately estimated.

Take the mortgage fraud figure of £1 billion for example. I was involved in a mortgage fraud case worth around £100 million. During the course of my investigations I began to understand how great the problem was. There were 100s of other property developers and others undertaking the very same tyoe of business that I was looking at. In fact it seemed to be the case that the way the UK plc was being run was fraudulent! Much of the toxic debt in the UK today results from overvalued properties and freely given loans without due diligence. In the past one to five years the annual level of mortgage fraud was well in excess of £1 billion.

Tax fraud is another example which must be viewed carefully. The level of tax evasion is not widely understood, especially by HMRC. I recall other cases over the past six or so years ago where I investigated a number of different support publishers. These companies pretend to represent good causes and charities and sell expensive advertising space in diaries, wall planners and directories. Many of the companies were closed down by the authorities as a result of the investigations, but likely sprang up immediately afterwards under a different name (phoenix companies).

The common factor between these companies was that they all employed teams of tele sales operatives to sell their advertising space. Every person was employed on a self employed basis and responsible for their own tax. Most never declared any of their commission earnings and many were also on supplementary benefit. I attempted to present my revelations to HMRC. Many of their junior managers were interested and tried to arrange a meeting for me with a senior policy maker – but none were interested. I was told that the UK would have to wait for new legislation. This meant that anybody interested in preventing such whole scale tax loss (as this practice ran much further than just the small sector I was investigating) would need to start lobbying members of parliament! It seemed that HMRC was only interested in applying its duties by the book – not looking to plug an obvious gap.

Much of the tax fraud in the quoted figures comes from Value Added Tax evasion – though if we think that HMRC have solved the carousel fraud problem (missing trader inter community fraud – MTIC fraud) by introducing reverse VAT charges on mobile phones, computer chips and now carbon credits, we are sadly mistaken. A recent investigation that I was involved in revealed that the spiders web of businesses involved in VAT fraud across the UK is huge, and the commodities exploited range through everything that can be traded – I have seen clothing, textiles, furniture, household goods, electronics, books, dvds, food supplements, spectacles, drugs……………..

I do hope that the figures presented by the NFA have not used too much of my tax money! There is a feeling that £29 million of funding would be better spent developing individual economic crime units and fraud squads around the uk. Fraud prevention and fraud detection at the coal face is money better spent than the development of even larger public sector agencies and quangos!  A couple of new well trained financial investigators in each regional police force together with all the supplementary resources and technology required including access to proper experienced forensic accountants – would be money better spent.