Fraud Advice

2010 opens with thick snow and ice. I was lucky as my trip to New York in the first week of the New Year went without hitch. Our flights and connections seemed to match the few windows in the weather and no delays were experienced. There was one small worry when blizzards started raging in York on New Year’s day – we were due to head over the Pennines at three o’clock the next morning and had visions of the M62 being impassable. Therefore late afternoon saw us rushing to pack and set off while the snow kept falling. We stayed the night in Manchester and had a comfortable flight!

Back to my desk after the break sees a number of cases to continue with in my fraud investigation portfolio and a couple of new inquiries via the Internet, one being from a police force economic crime unit and the other from a new firm of lawyers.

It seems that this year is heading off for a basket of criminal frauds and fraudulent trading – not much changes there then! It will be interesting to see if there are any pronouncements from the Legal Services Commission about their proposed cut backs in funding experts or will we all just experience a harder job getting our quotes agreed?  Without any cohesion amongst us forensic accountanst I can forsee many simply dropping their rates just to make sure they get the work. I am sure that the LSC will use market forces and the lack of perfect information to ensure that they get away with underfunding criminal cases.

A new investigation is kicking off into yet more bad business management and phoenixing of businesses. I guess that people like to make the money but hate to pay any of it back to the suppliers or tax man!

The term Long Firm Fraud is popular with law enforcement investigators who coined the phrase several years ago when this method of fraudulent trading was at its height.

Typically based in the Midlands organised crime gangs would set up apparently bone fide companies, sometimes hijacking the identity of an existing company to obtain a legitimate trading history and therefore good credit reference – then commence trading with suppliers. 

They would build up trust with the suppliers by initially paying for deliveries but gradually ordering more and more and paying later and later.  Very often a large amount of stock builds up with very little initial trading occurring.

Eventualy the fraudsters would abandon the company.  The stock, well this was sold off cheaply at pound shops, market stalls and the like to quickly liquidate the capital.  The creditors of the abandoned company would of course be left high and dry.

This is a fraud fraught with difficulties for the investigator.  Typically run by Asian gangs based in Birmingham and nearby, the purpetrators opperated with aliases and phoenix companies.  Often tracing the activities that would spring up and dissappear overnight it seemed.

You would think that recently as credit becomes harder to obtain that this type of fraud would not be so popular.  However Long Firm Fraud and fraudulent trading in general is likely to become even more of a problem as we head for the (hopefully) recovery years of this current massive downturn in the economy.

This is because businesses will be eager to build up their trade, offering good terms and even extended credit in an attempt to expand out of the downturn.  If one thing is certain in the field of fraud it is the fact that lessons do not seem to be learned!  Unfortunately people are too trusting, too eager to believe that a deal is going to be beneficial. 

What can be done?  It is the same answer for all frauds.  The regulation of the fraudster by the police, other agencies and private enterprise must receive adequate resources and be seen to be dealing with fraud as it arises.  Too often we read of the likes of the Serious Fraud Office bringing a case to trial after years of investigation.  This is not a criticism of the SFO per se, but the burdensome judicial system within it is forced to work.  The Serious Fraud Office has had to deal with several Long Firm Frauds in the past and has had some excellent results.  However, obtaining credit without the intention of paying, i.e. fraudulent trading, is an offence that will happen time and time again in coming years.