Wales has seen a significant drop in the value and number of fraud cases taken to the Courts, with only ten cases totalling £4.1 million being taken to court in 2020 compared to 17 cases totalling £17 million in 2019. The average value (between £250k-£1m) of each case was also lower in 2020 than compared to 2019.
The perpetrators of 90% of the frauds in 2020 have been men, most of whom were career criminals. The typical victims were members of the general public and government organisations.
Damian Byrne, Forensic lead for KPMG in Wales, commented:
“Since March 2020, as a result of the COVID-19 pandemic, the legal system has operated more slowly than it did prior to the pandemic. This is despite the efforts of the Courts, including a change to remote hearings. Despite fewer fraud cases being taken to the Welsh Courts in 2020 than in 2019, the true picture will take some time to become clear. Challenging times have increased fraud risk in many ways and consequently businesses, individuals and the Government itself are more vulnerable to fraud. We all need to stay alert for signs of fraudulent activity.
Our Fraud Barometer data indicates a shift in the type of fraud offence being carried out, with Government organisations being victims of tax fraud in particular – something that wasn’t seen in 2019.”
Case studies to reach the region’s courts during the last six months include:
- A conman who masqueraded as a wealthy and successful stockbroker to “swindle investors”, including family members, out of £253k and defrauded the taxpayer out of £750k in a VAT fraud over a five-year period.
- A man who the judge said had made it his life’s work “to dupe and defraud innocent people” has been jailed for stealing £158k from unsuspecting victims. The individual, described as a “pathological liar”, took loans out in other people’s names and defrauded a business partner out of thousands of pounds.
- A man who scammed Gwent housing association out of an estimated £108k abused his position as IT manager by buying computer equipment before selling it from his personal eBay account. The “sophisticated” fraud was identified only after investigation into overspending in the IT department.
The National Story
2020 saw a record fall in the value and volume of alleged fraud cases heard in UK courts, according to the latest data released in KPMG’s annual Fraud Barometer.
The Fraud Barometer, which records fraud cases of more than £100,000 reaching UK Courts, reported a 51% drop in the volume of cases heard in 2020 – a total of 180, compared to 369 in 2019 – as COVID-19 lockdown restrictions negatively impacted the efficiency of courts processing.
The COVID-19 pandemic saw the value of alleged fraud cases reach just under £724m (£723.9m), down from £1.1bn in 2019. One film piracy case, which if successful would have cost the industry an estimated £200m, nearly doubled the value of fraud committed up to July 2020. By excluding this outlier, the data for the whole of 2020 demonstrates a significant decrease in the value of fraud cases compared to last year.
Roy Waligora, Head of UK Investigations at KPMG said:
“As we reflect on the 2020 fraud data, the brewing backlog of untried cases continuing to build up like water behind a dam cannot be ignored. Businesses and the general public must be cognisant of the fact that the drop in both the value and volume of fraud cases is not reflective of a downturn in economic crime, but rather fallout following the COVID-19 lockdown restrictions on the courts.
“We know that disruption and uncertainty make for inviting economic components for fraudsters. COVID-19, coupled with Brexit, which tipped the scales towards the end of 2020, means that 2021 will remain at high risk for fraud and economic crime. While a tsunami of fraud is still expected to hit the courts in 2021, it is evident that progressive measures, such as virtual courts, being put in place to manage the upcoming cases will likely ease the backlog.”
Thematic trends
Procurement, loan and mortgage, counterfeit goods, and misappropriation of assets fraud, were the busiest areas in 2020. Procurement fraud rose by 200% compared to 2019, from £16m to £49m. The value of loan and mortgage fraud ballooned 675% from £9.7m to over £75m with the number of cases falling by one. While the number of cases dropped from 19 to five in the 12-month period, the value of fraud secured through counterfeit, pirated or below stated quality goods activities rose over 415%, from £39m to over £202m.
Tax fraud, including tax refunds, evasion of duty, evasion and VAT fraud fell by 93% from £721m to £54m over the same period.
Romance fraud, where cases often link to the online dating practice of “catfishing”, halved in value; however, the number of cases remained constant. In one case, a serial fraudster convinced women he had met through a dating app to give him £440k under the pretence that he was a successful currency trader who could invest their money which he used to fuel his lavish lifestyle instead.
Fraud cases with addiction listed as the purported motivator rose from 16 to 21 and grossed over £7.3m in 2020, compared to £7.5m the previous year. Perpetrators scammed eBay users, stole from employers, churches, government benefits, charity and there was even an attempt to blow up a cash machine – all to fund gambling or drug addiction.
Roy comments:
“The rise in addiction-related figures suggest that indications of the mental toll of lockdowns are beginning to emerge in our data, as more spare time leads to greater susceptibility to addiction and increased financial pressures.
“Aside from individual cases arising from lockdown and Covid, economic pressure on businesses may drive an increase in manipulated earnings.”
What’s on the horizon?
Given that all elements of the classic fraud triangle in which fraud thrives – motivation, opportunity and rationalisation – are heightened throughout the COVID-19 crisis, the prediction for increased cases remains. Motivation for committing fraud is specifically expected to increase as a result of the economic conditions. Companies should particularly be mindful of insider fraud and embezzlement-related incidents as employers do not know what the new normal looks like and internal controls continue to be compromised with staff working from home indefinitely.
Furlough-related fraud will begin to make its mark in 2021, while the extent of the impact of these government schemes won’t be fully evident until detected and investigated by 2023. Last year, early estimations by government watchdog, the National Audit Office, indicated that more than £3bn in furlough money may have been stolen by October 2020.
The government’s Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) has proven critical in supporting over a million businesses stay afloat during the pandemic. The British Business Bank, which is responsible for overseeing the state-backed lending programmes, recently identified over £1bn of fraudulent loan requests with more on the horizon.
In some cases, organised criminal gangs have hijacked claims by taking the identities of taxpayers, in others, employers claimed payments but continued to keep their employees working. The full scale of this fraud could result in losses of up to £26bn for the taxpayer. Fraudsters and investigators alike will be monitoring how heavily HMRC will be clamping down and penalising fraudsters in such cases. In November, an employee pleaded guilty to making eight separate fraudulent claims for £30k BBLS loans on behalf of her employer without their knowledge.
Lastly, the establishment of virtual courts could be the answer to easing the backlog of 2020 cases. A recent poll conducted by KPMG UK, in partnership with Baker McKenzie, found that 71% of respondents had participated in virtual hearings compared to 44% pre-COVID-19, with the experience being cited as overwhelmingly positive by more than half. Cost effectiveness and efficiency were perceived to be the key benefits, although some respondents felt that this format was more advantageous in certain contexts, with a preference for legal or technical issues versus family disputes.
Roy concludes:
“Don’t expect that now that we have a vaccine in place, the uncertainty around COVID-19 and its layered impact will wane. We will feel its reverberations in many ways. The full extent of the fallout from COVID-19 is yet to be seen and fraudsters will continue to adapt.
“The year ahead will mark how authorities plan to tackle these furlough related fraud cases – through enforcement or amnesty? Given the fact that the cost of trying to recuperate losses and investigate fraud on these small loans would dwarf the value of the actual fraud for both the bank and the government – it may be that the circumstances favour the criminal. Watch this space.”
