Record fraud volumes in first half of 2018

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The number of alleged fraud cases reaching courts in the North West have more than doubled as professional criminals target the region, according to research from KPMG.

Its Fraud Barometer, which measures alleged fraud cases with losses of £100,000 or more in the UK courts, found that there were 26 cases in the North West during the first six months of 2018, with a combined value of £66.6m.

The figures reveal that the number of cases has more than doubled and the value of alleged fraud has more than tripled compared with the corresponding period in the first half of 2017 when 12 cases with a combined value of £19.5m were recorded.

The rate of alleged fraud has already surpassed the total value of fraud cases in the whole of 2017, which were worth £38.5m across 29 cases.

Professional criminals are alleged to have been responsible for the majority of cases (58%) and the vast proportion of their value (94%).

Meanwhile, government organisations have been the primary victims of fraud and accounted for nearly half (46%) of cases and the lion’s share of their value (89%).

Annette Barker, partner and head of consulting in the North, said: “Professional criminals are the main driving force behind the staggering rise in alleged fraudulent activity we see coming through the courts in the North West.

“Similar to the national picture, these gangs are often turning to smuggling to evade duties and taxes. While these figures point to a worrying level of criminality, it is encouraging that the authorities are having success in bringing these cases to court.”

She added: “While there is a focus on professional criminals, the sheer scale of these cases can mask the underlying flow of more typical fraud cases we see committed against businesses, investors and financial institutions.

“The message for businesses and individuals across the North West is to remain vigilant, particularly as technology is increasingly used by fraudsters.”

Cases to reach the region’s courts during the period included a gang of puppy traffickers in Greater Manchester who skipped court after they were due to be sentenced for making £300,000 by illegally selling ‘designer dogs’.

A Bolton man was also jailed by Manchester Crown Court after being caught by HMRC during a surveillance operation that targeted a criminal network smuggling illegal tobacco into the UK.

A petrol station owner was jailed at Preston Crown Court for selling thousands of litres of illegal diesel fuel.

And two fraudsters were jailed in Liverpool after stealing more than £130,000 through making false VAT repayment claims for a company they no longer owned.

Nationally, the value of alleged fraud reaching UK Courts in the first half of 2018 reached £895m.

The figures follow 2017’s record-breaking year which had registered £3.6bn of fraud – the largest value in KPMG’s Fraud Barometer’s 31-year history.

There were 252 cases during January-June, which is more than 25% higher than the volume of cases heard in any six month period, and just seven fewer cases than recorded for the whole of 2017.

James Maycock, forensic director at KPMG, said: “On the back of a year with the highest level of alleged fraud in three decades, 2018 appears to be continuing the trend and we can expect this year to be another 12 months of large numbers of fraud cases coming to court.”

He said there are certain types of fraud that have dominated the fraud landscape over the past three decades, including the rise of the professionally organised gang who run criminal operations very much like a business.

“The main victims have been governments through attacks on the tax system, banks through loans and mortgages obtained via deception, and investors enticed by the promise of tantalising returns.

“Interwoven with the story is the increasing use of technology and cross-border activity that has impacted on fraud just as it has on our everyday lives.

“Businesses, public sector and consumers need to continue to be vigilant and on guard to fraud threats in these ever-changing environments.”

Fraud experts at KPMG are also warning of an increased risk of fraud following Brexit as criminals seek to exploit new Customs arrangements, in the event that any current or transition arrangements expire – from April 2019 with no deal or from January 2021 based on current transition proposals.

The figures for the first half of 2018 show that evasion of duty and cross border smuggling is one of the largest fraud types coming to court – the most common goods were tobacco, followed by counterfeit pharmaceuticals and pirated digital media.

The value of such frauds exceeded £100m, as HMRC steps ups its fight against evasion of duty.

Over the longer term MTIC or “carousel” frauds, which are complex frauds taking advantage of multi-jurisdictional tax laws, have been one of the biggest drivers of fraud coming to court over the last three decades and have cost the public finances an estimated £25-30bn.

With new customs arrangements coming into play post-Brexit, the potential for professional criminals and misguided businesses to exploit or abuse untested technology or tax collection mechanisms is not insignificant.

James Maycock said: “How Brexit will impact fraud levels is yet to be seen, but new systems and new landscapes, such as new tax and customs arrangements, have, in the past, opened lucrative loopholes ripe for the picking from unscrupulous criminal gangs and businesses looking to improperly cut their costs.”