Thursday, May 26, 2011

Managing the new fraud risk - Towards a new Tower of Babel!

I was invited to a seminar at the London School of Economics this week. The Mannheim Centre had invited the new Commissioner of the City of London Police to address the issue of '...The role of the private sector in the future of national policing economic crime capability...'

Frankly, the content was unremarkable in many ways, I mean it's not as if it's the first time we have discussed the possibility that private sector assets could be used more effectively in providing fraud investigative services, the results of which could be handed to the national prosecuting agencies for further action.

At a time of dwindling resources and severe cut-backs in publicly-funded resourcing, I am firmly of the view that the investigation of most fraud perpetrated against the commercial sector should be the responsibility of the businesses themselves, and that the police should be used almost exclusively in cases where there is a major public interest at risk or where the investing public is being fleeced.

I say this because in so many cases, a significant amount of fraud in the commercial world takes place because those responsible for the prudential management of their business affairs either refuse to spend the money necessary to implement truly effective anti-fraud measures, such as computer system protection; or they simply fail to undertake normal precautionary measures designed to protect themselves.

One example is the simple precaution of ensuring that proper checks are carried out on the provenance and the solvency of their new customers. All businesses are required by law to demonstrate a high level of what is called 'Know Your Customer' due diligence, before taking on a new client, but very few of them do very much more than the most perfunctory checks before undertaking business transactions. If you don't believe me, look at the number of major financial services businesses which have been required to undertake hugely expensive KYC remedial reviews after a regulatory inspection, because their extant KYC information was insufficient.

The other reason of course is that the financial services industry is itself one of the greatest committers of wholesale fraud against the public. When the banks can calmly announce the setting aside of a sum not far short of £6 billion to recompense the victims of their latest so-called 'mis-selling' scam in PP insurance, an activity that would be called 'institutionalised fraud' in any other walk of life, but for the identity of those committing it, it seems reasonable that they should bear the financial responsibility for funding the means of investigating other frauds committed against them. But this was not my primary worry!

What did provide me with the greatest degree of concern however was the emphasis being placed on the direction in which the future investigation and prosecution of fraud will take. This should not be taken however to mean that there are no plans for component bodies or other agencies whose input will need to be considered, taken into consideration and consulted in the future.

The City of London police has become the ACPO (Association of Chief Police Officers) lead for economic crime with responsibility for setting what is called a national policing strategy in response to what the National Fraud Indicator Report assesses amounts to £38 billion annually. This report is published by another agency, the National Fraud Authority, which is an executive agency of the Home Office. The NFA transferred from the Attorney General's Office to the Home Office on 1 April 2011, and it apparently 'works with the counter-fraud community to make fraud more difficult to commit in and against the UK.'

As well as the National Fraud Indicator Report, we have the annual UK Threat Assessment and the City of London Police responds to that through its Economic Crime Directorate. The ECD comprises over 200 staff split up into dedicated fraud investigation teams, a Cheque and Credit Card unit, a Money Laundering Unit, and Asset Recovery (Confiscation) Unit and an Overseas Anti Corruption Unit. At the same time the ECD provides officers to a multi-agency Dedicated Cheque and Plastic Card Unit (DCPCU) which is funded (ironically) by the banking sector.

The ECD has a remit to enforce, prevent, disrupt and investigate economic crime at all levels nationally. It claims to have close working relationships with all related agencies including the Serious Fraud Office, the Financial Services Authority and the Serious and Organised Crime Agency. How much longer these relationships will last is a matter of conjecture as we hear that the SFO is about to be split up, with its prosecuting arm being merged with the Crown Prosecution Service, although even this is not clear, coming after a stop-start plan by the Home Office to create a new National Crime Agency incorporating the UK's main economic crime agencies, into which the SFO's intelligence function would be merged.

However, other agencies have lobbied hard for exclusion. Last year the FSA's enforcement division was the first agency to escape incorporation into the new body. Earlier this year reports suggested the OFT's criminal enforcement division would not be included either. An increasing body of opinion is growing in support of the SFO remaining independent.

The City Police have also been commissioned and funded by Government as part of what we were informed was a '...Strategic Review of Fraud...' to create a National Fraud Intelligence Bureau, designed to record millions of records on fraud reported to the national call centre called 'Action Fraud', and the City Police are in discussions with Her Majesty's Revenue and Customs as well as the Department of Work and Pensions to record all public sector fraud intelligence.

The Commissioner acknowledged that there will have to be more discussions with Regional Asset Recovery Teams and Regional Intelligence Units to overcome regional jealousies.

Throughout the entire presentation, I never once heard the Commissioner utter the magic words, 'Arrest' 'Charge' or 'Prosecute'.

Oh there was lots of well-meaning and contemporary jargon about 'liaison', and 'consultation' and even 'multi-agency approach'. But, in the end, what came across so clearly was just the enormity of the project that, for whatever reason, this country has finally carved out for the investigation and prosecution of fraud.

Those of us who used to investigate and prosecute major fraud in the old days remember how hard it was just to persuade the old DPP's office to charge a foreign criminal. Talking to the Department of Trade and Industry was just a waste of time, and they were the only people we really had to share information with. Now, this new 'alphabet soup' of agencies, with competing agendas, and all needing to be consulted, means that even less will be achieved than before.

These new agencies will merely become even more hurdles to effective anti-fraud action, they will simply become a huge 'talk-shop', a massive, unwieldy 'Tower of Babel' , all competing with each other for resources, all struggling for primary status, jealous for promotions, keen for foreign travel to even more conferences, work-shops, and seminars, while all the time, the financial sector will continue to fleece its clients with even more mis-selling activity and other kinds of financial wrong-doing.

How do I know? Well I asked the Commissioner whether his new vision of the future involved taking on the biggest fraudsters in the Square Mile, and focusing attention on the major retail banking groups and their £6 billion set-asides to cover their fraudulent activities.

His answer was to shake his head and say that such work would continue to remain with the traditional City Regulators and that his new monolith did not anticipate taking on the banks or the other financial institutions..

Well, that's alright then!

1 comment:

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