Rampant fraud in Scotland shows no sign of slowing, as experts warn businesses to protect themselves

31/08/2022

Scottish fraud cases rocket in first half of 2022, with values 443% higher than the first half of 2021

THE number of alleged fraud cases exceeding £100k reported in the media being heard in Scottish courts has risen dramatically in the first half of 2022, according to KPMG UK’s latest Fraud Barometer.

A total of 14 cases with a total value of £14m reached Scottish courts in the first six months of the year – an increase of 443% compared to the same period last year when £2.6m was defrauded.  Totals so far this year have also surpassed the full year value for 2021 which was £5.9m across 16 separate cases.

The general public were the most common victim, by both volume and value, during the first half of the year, suffering fraud losses of £8.7m across six cases. The second highest victim type by volume were commercial businesses and government, being the victim of three cases each. By value, financial institutions were the second highest victim type, suffering fraud losses of almost £3.3m across two cases.

The most common fraud type by both volume and value was cash and equivalent instruments fraud, such as counterfeit money and debit and credit card theft, with three cases having a combined value of £9.3m. Most cases had a value of between £100k – £250k, however one case involved a Scottish man scamming £7m from a US Bitcoin broker.

Annette Barker, Head of KPMG Forensic in the UK, said:

The dramatic increase of fraud cases coming to light in Scotland is worrying, particularly with many cases involving rogue employees abusing their positions of trust to steal money from their employers, clients and other partners.

“Businesses must do all they can to maintain adequate controls to prevent serious fraud from being committed. Without the right safeguards in place, businesses across Scotland will unfortunately continue to be victims of crime and incur the reputational and financial damage which comes with it.

“Government is stepping up its attention on fraud and so business leaders in Scotland need to follow suit. The new Public Sector Fraud Authority in England, and National Fraud Initiative in Scotland will target criminal gangs who rip off the taxpayer, while the Department for Business, Energy and Industrial Strategy response on corporate governance and audit reform outlined new responsibilities for Directors in terms of making public their efforts to prevent and detect fraud in their organisations. This is a significant sea-change that will see businesses, and individuals, taking on more responsibility for tackling fraud.”

Case studies to reach Scottish courts during H1 2022 include:

  • A Dundee businessman who set fire to his own family business in a bid to carry out a £1.75m insurance scam was jailed for 13 months.
  • The managing director of an Alloa based engineering company who siphoned £100k from the firm to feed a gambling habit was jailed for 18 months.
  • A businessman from East Dunbartonshire scammed £736k worth of goods from a large retailer by exploiting a gift card loophole. He was jailed for 33 months.

The National Story

  • Total value of alleged fraud, exceeding £100k, reaching UK Crown Courts in H1 2022 was £532.6m, an increase of 288% compared to £137.4m in H1 2021
  • The General Public was the group scammed most by volume, with 47 cases seen in UK Crown Courts in the first half of the year
  • Fraud cases against Financial Institutions across the UK was the highest by value at £305.2m in H1 2022, a jump of 4,333% compared with the same period in 2021

During the first half of 2022, the value of alleged fraud cases exceeding £100k heard in UK Crown Courts soared by almost 300% compared to the first six months in 2021, rising from £137.4m to a staggering £532.6m. This is above the total value of alleged fraud seen in Crown Courts during the whole of 2021, which reached almost £445m, demonstrating that the eruption of fraud sweeping the UK is showing no sign of slowing.

Despite this leap, figures from KPMG UK’s Fraud Barometer released today revealed that the volume of fraud cases reaching UK Crown Courts in H1 2022 was slightly lower than the same period in 2021, having decreased from 149 cases to 129 cases – a fall of 13%. This demonstrates that the Courts remain under severe pressure to resolve fraud cases, which became backed up during the peak of the pandemic and will continue to accumulate as the country deals with new crises that fraudsters will inevitably exploit.

The data also revealed a spike in high-value fraud cases reaching the UK Courts in H1 2022 compared to the first six months in 2021. There were seven cases seen valued between £10m-£50m and one case over the £50m mark to the value of £266m. There were no cases valued over £50m seen during the same period last year.

Professional criminals were once again the main perpetrators, responsible for 57 cases of fraud worth a total of £378m. This was down in terms of volume compared to the same period last year (67 cases), but the value went up dramatically by 319%, from £90.2m to £378m.

Reflecting on the data, Roy Waligora, Partner and Head of UK Investigations at KPMG, said:

“Fraud cases continue to stack up and UK Crown Courts are struggling to make headway in prosecuting these criminals. A positive announcement of a new Public Sector Fraud Authority was announced in the Spring Statement, with a funding injection of £24.7m to crack down on criminal gangs who rip off the taxpayer. But if it takes years for fraudsters to be prosecuted because of the case backlog, it will be some time before the impact of this initiative is felt.”

The General Public continue to bear the brunt of fraud

The situation for the General Public in terms of fraud is dire and the outlook is even worse. In June this year, UK Finance1 said that the UK is experiencing an “epidemic of fraud” and the latest Fraud Barometer figures support this assessment. In the first half of 2022, the General Public were the group scammed most by volume with 47 cases reaching the UK Crown Courts. Furthermore, the value of fraud allegedly carried out on the General Public went up by 74% – from £43.1m in H1 2021 to £75m during H1 2022.

Roy Waligora, commented:

“That criminals are still taking advantage of susceptible members of the public is distressing to see, particularly when considering the Fraud Barometer only captures cases where charges are over £100k. With the cost-of-living and energy crises beginning to bite, these both create fresh opportunities for fraudsters to commit even more crimes against the public, and people need to be made aware of new emerging scams. But it isn’t solely individuals’ responsibility to educate themselves. Banks, Government, and technology companies all need to play a part to make any progress in tackling the issue.”

Financial Institutions pick up the fraud bill 

For the first six months of 2022, Financial Institutions had the most fraud cases reach UK Crown Courts by value, at a total worth of £305.2m for nine cases, a vast jump of 4,333%, up from £6.9m for 13 cases during the first half of 2021. In the context of a changing global banking landscape, where branch networks are shrinking, volumes of digital payments are increasing and payments are being processed in seconds, the data illustrates that fraudsters are creatively finding new ways to steal more from financial institutions and their customers.

Providing his perspective on the findings, Roy Waligora, said:

“Customers see the role of financial institutions as keeping their money safe and do more to prevent fraud, but the latest Fraud Barometer data suggests that this is a real challenge. In tandem, customers expect a certain level and speed of service, which could be hindered by additional fraud prevention measures, such as Strong Customer Authentication (SCA), introduced in March this year.” 

Money laundering is a growing UK issue

Money laundering cases were by far the most significant type of fraud in terms of value at £297.6m for seven cases in H1 2022, rising 16,781% from £1.8m for five cases in the first six months of 2021. This was largely due to a single high value case of £266m, where money was laundered through a company bank account and the proceeds used to purchase gold over a period of two years.

Triggered by Russia’s invasion of Ukraine, the newly passed Economic Crime Act and a second Economic Crime Bill that is expected in the coming months, contain measures designed to increase transparency and give law enforcement enhanced powers to combat money laundering. They also provide law enforcement with enhanced anti-money laundering powers to encourage businesses to share information on suspected economic crime. As a result of this legislation, in the short term there is likely to be an uptick in this kind of fraud reaching UK Crown Courts as more of this type of crime is identified.

Other key findings:

  • Embezzlement was the most common type of fraud reaching UK Crown Courts, with 18 cases in the first half of 2022. But this was down from a total of 26 during the same period in 2021 (although the total value is similar).
  • Advance fee fraud, when fraudsters target victims to make advance or upfront payments for goods, services and/or financial gains that do not materialise, has jumped from two cases in H1 2021 worth £1.2m to nine cases in H1 2022 worth £11.6m.
  • It’s good news for businesses as fraud carried out by employees went down by nearly two thirds in terms of volume, from 38 to 14, and nearly halved in value from £20.1m to £10.7m.
  • However, fraud carried out by management rose from £23.3m for 31 cases in the first half of 2021, to £110m for 34 cases in the first half of this year, an increase of 372%.
  • Fraud allegedly perpetrated by a private individual jumped from £1.9m for seven cases in H1 2021 to 14 cases seen in the first half of 2022 to the value of £26.2m. For example, a woman was jailed after blackmailing a wealthy businessman for £10m after she threatened to reveal private personal details about him to his children.

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