Tag Archives: Fraud Barometer

Face of fraud changes as conmen rely on innocence of youth

KPMG’s latest Fraud Barometer states that fraud cases totalling £317 million were recorded in the first half of 2014. The figure represents a 39% drop compared to the same period last year, but the number of frauds has remained constant.

The latest cases also suggest organisations have failed to spot a ‘changing of the guard’ as the profile of fraudsters shifts from rogue senior executives to younger individuals funding extravagant lifestyles.

Analysis of the cases going through British Crown Courts since the start of 2014 shows that frauds committed by those aged 26-35 were valued at just over £62 million – an increase of 285% on the first half of 2013. At the same time, frauds committed by those aged 46 and over fell by 72% to £88 million.

The data shows that one scam, masterminded by two 26 year-olds, revolved around the hijacking of mobile phone accounts. The two individuals began by creating a fake company that purchased lists containing customer details on the pretence of marketing directly to them. They then assigned victims’ phone numbers to SIM cards in their possession by calling the network provider and posing as the account holder.

Having transferred numbers to new SIMs, the fraudsters repeatedly dialled premium rate lines only for the real customer to be billed for any calls made. Bills totalling £2.8 million were amassed, and the crimes only discovered when customers complained that handsets could not make or receive calls.

Another case involved a 30 year-old man who convinced his victims to invest in vintage wine, which they believed would increase in value. More than 400 people were conned into handing over sums ranging from £20,000 to £2 million, yet their funds were used to purchase a Lamborghini and a five-bedroom house with a swimming pool.

Hitesh Patel: UK forensic partner at KPMG

Hitesh Patel: UK forensic partner at KPMG

Hitesh Patel, UK forensic partner at KPMG, commented: “Where once it was the jaded executive who relied on unquestioned seniority and authority to get away with dipping their hands in the till, now it seems we are witnessing a changing of the guard. Today’s fraudster is younger and every bit as much at ease with using technology and data as they are selling promises. They rely on the assumption of the innocence of youth, whereas the reality is that many of these fraudsters are nothing more than a wolf in lamb’s clothing. It’s important for UK organisations to recognise that youth doesn’t always equal innocence, as a confident and tech ‘savvy’ generation comes through, adept at circumnavigating conventional controls and remaining under the radar.”

Values increasing with confidence

The latest figures also show that, for the first six months of 2014, the average case value was £2 million – a fall of 43% compared to that recorded between January and July 2013 (£3.5 million).

On the face of it, this sounds like good news, but history shows that fraudsters tend to start with smaller schemes to test the system, with fraud value then increasing as their confidence grows if they’re not caught.

The latest data shows, for example, that the increase in volume in the £1 million-£10 million bracket was driven by a significant increase in insider fraud, with the number of employee-perpetrated frauds in this value range increasing more than ten-fold.

One Case Study showing the trend for insider activity – and the youthful nature of conmen – revolved around a 24 year-old bank clerk who attached a device to a computer within the branch at which he worked. The device allowed fictional deposits worth £1.1 million to be made into 15 customer accounts, which were then withdrawn by the customers and a colleague – all of whom had been colluding with the ring-leader.

“Super cases are conspicuous by their absence,” continued Patel. “Instead, we are witnessing the rise of comparatively small value crimes as fraudsters try to get away with theft by hoping smaller scale activities can accumulate as they go unnoticed over time. The truth is that these crimes still leave victims in their wake. A business will ignore such occurrences at its peril. Complacency and the ‘It won’t happen to me’ syndrome should not be allowed to creep in to peoples’ mindset as the battle to combat white collar crime goes on.”

If it’s too good to be true, it probably is…

The latest KPMG Fraud Barometer suggests that private investors are the biggest victims of fraud, with 48% of fraud losses resulting from the false promise of a return on investment.

The latest data also highlights a growth in the number of individual investor victims, with losses of £153 million (up from £74 million for the same period last year).

Fraud cases totalling £317 million were recorded in the first half of 2014, according to KPMG’s latest Fraud Barometer

Fraud cases totalling £317 million were recorded in the first half of 2014, according to KPMG’s latest Fraud Barometer

One case involved a crooked financial adviser dubbed the ‘Wolf of Old Hall Street’ who bought a fleet of supercars, invested in a racehorse and sponsored two Premier League football clubs with the proceeds of his con artistry. His scam involved the creation of a bogus investment fund for which he persuaded investors to hand over large cash sums which he simply spent. One victim was so convinced that he parted with £3.7 million, none of which has been recovered.

Patel concluded: “The economy may be improving but the pressure to see a return on investment remains acute. Investors searching for extraordinary returns are likely to remain vulnerable to conmen promising much and delivering little. It’s a sad fact, but the truth remains that if something sounds too good to be true then it probably is.”

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Traditional ‘low tech’ fraudsters make hay as organisations focus on ‘high tech’ attacks

KPMG’s bi-annual Fraud Barometer has shown a high volume of fraud cases prosecuted in the past year, but at much lower value levels than recorded in previous years (the average case value this year being £2.9 million compared with £6.1 million over the last five years).

The report also shows that, while fraudsters are at the cutting edge of technology – attacking banks in the virtual world, for example – some have reverted to ‘paper and pen’ as organisations focus their security efforts on technology-driven defences.

Hitesh Patel, UK Forensic Partner at KPMG, commented: “It’s certainly the case that we have seen fraudsters using very clever high tech frauds to attack banks, businesses and local authorities, but we’ve also seen some of the biggest frauds in more low tech scams. As old forms of transactions, such as cheques, are phased out, so organisations are focusing on developing sophisticated lines of defence. Yet, rather than putting criminals off, many fraudsters are ignoring the challenge of triumphing over technology in favour of using simpler methods of deception.”

‘Old-fashioned’ habits die hard

The data shows that con artists still rely on ‘old technology’ to perpetrate fraud, with a number of schemes in 2013 based on counterfeit cheques.

In one strikingly simple case a local Government employee processed cheques for legitimate payees using disappearing ink. She secured the signatures of senior management for cheques reaching a total value of £162,000 and waited for the ‘payee’ details to disappear before substituting them with her own name.

In a case worth £20 million a businessman paid a series of worthless company cheques into an account based in the UK. He – and the gang involved – succeeded in transferring three-quarters of the funds into a foreign account before suspicions were raised and the account was frozen.

Another case involved a conman who attempted to buy £1 million of cars by visiting dealerships on six occasions, paying by cheque for an Aston Martin, Maserati, Ferraris and a Bentley. The man was caught when the cheques bounced and one of the dealerships visited his home to reclaim the vehicles.

Hitesh Patel of KPMG

Hitesh Patel of KPMG

Fraudsters’ determination to focus on the so-called ‘old-fashioned’ scams and avoid elaborate methods of deception is also evident through a resurgence of cases involving tax rebates, loans and mis-selling.

Combined, these three forms of fraud totalled more than £343 million – up from £41 million in the previous 12 months. This trend shows that, although the motivation to deceive comes in a variety of forms, many criminals are still prepared to rely on the traditional conman artistry of making financial gain through misplaced trust, attacking people’s vulnerabilities and sensibilities.

Virtual world becoming a home to fraudsters

Meanwhile, there were cases where banks and businesses were attacked online, with fraudsters using computers, turning to robotics and malware in an attempt to avoid detection.

One example involved eight people arrested in connection with a £1.3 million theft by a gang who took control of a bank’s branch computer system. They had placed a ‘keyboard video mouse’ and 3G router on one of the computers inside the branch when one of the fraudsters posed as an engineer, saying he was there to fix computers.

The ‘fix’ enabled the gang to control computers remotely using code and surveillance to find holes in organisational cyber defences and transfer money into different bank accounts.

In another case, fraudsters posted fake adverts for work at Harrods on a website as part of a £1 million scam to trick desperate job hunters out of their savings.

The con involved writing ‘Trojan’ malware which was hidden in job application pack downloads posted on the free website Gumtree. Once embedded on computers, the software copied bank log on and security details of those seeking work before forwarding them on to the criminals who netted in excess of £1 million.

Bribery and corruption on the radar

Despite organisations seeing a decline in internal cases of fraud, the latest KPMG Fraud Barometer highlights the first prosecutions under the UK’s Anti Bribery and Corruption legislation.

In a case adding £23 million to the total figure in this year’s Fraud Barometer and relating to the purchase of 6,000 hectares of land in Cambodia bought through senior military officials based in the country, three senior executives have been charged with making and accepting a financial advantage in breach of the Bribery Act.

As well as focusing on how they were able to purchase the land, the case examined whether the company missold bio-fuel investment products after the authorities were alerted to the possibility they were providing false information to clients.

“The pressure to compete lies at the heart of attempts to bribe and corrupt,” said Hitesh Patel, “and the old adage of every person having their price is now much more likely to trigger criminal repercussions.”

Continuing this theme, Patel concluded: “The UK has seen its first corporate prosecution under the new anti-bribery legislation. With it being widely known that other cases are in development, fraudsters may begin to fear the ramifications of being caught. If guilty verdicts are returned and heavy punitive measures imposed, perhaps we will start to see people thinking twice before attempting to corrupt others in the pursuit of unfair advantage.”

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