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Criminal system failing fraud victims, says expert

UK authorities must do more to prioritise the recovery of assets that have been defrauded from businesses, an expert has said.16 Jan 2017

Civil fraud and asset recovery specialist Alan Sheeley of Pinsent Masons, the law firm behind Out-Law.com, said new figures, which show that the value of reported fraud in the UK has now reached £2 billion, are sobering. However, he said it is likely that much greater levels of fraud goes unreported and that new data he has obtained serves to highlight that much of that money is never recovered.

Sheeley was commenting after accountancy firm BDO said levels of reported fraud in the UK had risen 31.5% in value in 2016 to reach a five-year high of £2bn.

According to the BDO figures, there were 504 cases of fraud worth over £50,000 reported in the UK in 2016, down from 519 cases the previous year. The average value of fraud reported in 2016 was £3.9 million.

BDO said a single £1bn case of VAT 'carousel fraud' helped to account for a 204.7% increase in fraud in the public sector, where the value of fraud reached £1.4bn alone, compared to £450.9m in 2015.

The firm said, though, that the financial services sector had seen a decrease in both the value and number of fraud cases in 2016. There were 58 cases of reported fraud in financial services totalling £214.9m last year, compared to 70 cases in 2015 where the value of fraud recorded was £567.2m, BDO said.

Kaley Crossthwaite, head of fraud at BDO, said, though, that "many high value complex fraud cases continue to be dealt with outside of the judicial system", and that the company's fraud findings were just "the tip of the iceberg" in respect of the true level of fraud in the UK.

Sheeley agreed, and pointed to other studies which indicate fraud levels are on a far greater scale, including University of Portsmouth research (36-page / 4.08MB PDF) which said that annual UK fraud losses could be as much as £193 billion.

Sheeley said that that research helps put in context the findings of a freedom of information (FOI) request he submitted late last year.

According to the data obtained from the Home Office, £1.2bn worth of assets which were defrauded was recovered in the period between April 2010 and March 2016. Sheeley said the number was "impressive" and "headline grabbing", but that it is a mere "drop in the ocean" when considered alongside the numbers from the University of Portsmouth research.

"It is even more worrying when you then drill into the £1.2bn number itself," Sheeley said. "Of that figure which was recovered, only approximately £153m was paid in compensation to victims. Cash forfeitures, at £246m, and tax, at £8.3m, accounted for some of the rest of the recoveries."

"Unless the criminal system becomes more dynamic and focused on repatriation of cash to victims, rather than focusing primarily on incarceration of fraudsters, people, and corporates, will continue to lose faith the criminal system," Sheeley said.

Businesses that wish to maximise their chances of recovering money they have been defrauded of should consider launching civil legal proceedings, he said.

"Through civil proceedings the victim has control and can focus directly on their primary concern and main goal – recovery of their money," Sheeley said. "Civil fraud solicitors can determine a strategy to achieve that goal. It is likely to require the use of the 'nuclear weapons' of the civil system, being search and seizure orders, freezing orders and disclosure orders. Such orders enable the victims to locate the money, freeze the money and then obtain the evidence to ultimately seek repatriation of the stolen money."

"None of these measures require police intervention and they can be deployed in a matter of days if not hours in some situations. However, speed is of the essence once the fraud is detected. Therefore, it is vital that victims contact civil fraud solicitors as soon as they detect the fraud to determine the correct strategy to maximise their chances of recovering their money," he said.