Let’s not be complacent that last August’s outburst of shops pillage and street crime that has so shocked our nation by-passed the North East.
The £34m Scotland Yard asked of taxpayers to clear up the havoc compares with perhaps £32bn (yes, billion) lost to the country yearly through largely invisible fraud – plus £8bn trying to staunch it.
So escape from that midsummer madness doesn’t save North East business from the losses suffered daily through fraud and theft. Many slyboots only appear on streets when skimming credit cards.
Mostly they work behind closed doors – may even look “respectable”, being solicitors, accountants, financial directors or surveyors after all. Investigator Frank Nesbitt says: “My police career was spent investigating solicitors.
I know the tricks they can get up to. I put nine away. As they’re professionals, you think they will not do this sort of thing. But it happens.
“A sole practice solicitor may be pressed to pay a VAT bill. They borrow from a client’s account, then maybe conceal that by taking from the estate of someone deceased. That’s one time the media does like to get hold of a fraud story: Solicitor Steals From The Dead...Surveyors can also grab a lump sum.” It doesn’t stop at solicitors. A barrister who built a sound reputation through prosecuting fraud and money laundering cases successfully at crown courts across the North of England was told at Leeds Crown Court only the other week that he himself faces a long jail sentence after admitting theft of £81,500 from his chambers.
David Friesner’s career spanned 14 years and, particularly notably, he acted on the high-profile prosecution of former solicitor Thomas McGoldrick who was jailed for 10 years in 2008 for stealing more than £1m from a disabled client.
Friesner admitted stealing the money over 13 months to 2009 but denied a further count of stealing £13,453.75 from the Crown Prosecution Service. He will learn the sentence he must serve at Leeds Crown Court on February 10. He is not the only fraud barrister who has been hauled before court in recent times, which doesn’t surprise Frank Nesbitt. He is forensic services manager with Tait Walker chartered accountants, and he and David Arthur, the firm’s managing partner, fight fraud in the North East vigorously from Newcastle.
Mortgages are a seedbed for corporate crime and can run into millions, Arthur says. He recalls one individual taking out nine mortgages on the same property in one day.
Nesbitt says an investigation into developers and a 52-property mortgage is currently under way.
The insurers, who are the injured parties, have accepted Tait Walker’s findings that the matter is linked to a current investigation being carried out by the Serious Fraud Office, and the accumulated evidence has been passed on.
Many of the biggest hauls are being made by foreign gangs working globally. Nesbitt, built like a prop forward about to take on the All Blacks, would probably terrify many of the crooks had they to confront him. But they, particularly in cyber crime, work undercover.
Intelligence is a vital defence but expensive. The present Government – like others before – has only vague concepts of corporate crime and little obvious inclination to invest in real battle.
Nesbitt explains: “It has taken horrendously long for government to realise just how much corporate crime costs Britain. For years statistics have only reflected low-level – “blue collar”– crime because this has always been the Home Office way. That management commits crime isn’t seriously considered.
“Only in recent years has government recognised what fraud as an umbrella term may be costing businesses and taxpayers,” he says.
“Appropriate statistics have not been in play long enough.” David Arthur sits on the National Business Crime Forum.
He complains: “The Home Office measurement of all business crime gives nothing to guarantee any quantum to go on – only reported and convicted prosecutions that have gone through.
“So only the iceberg’s tip is reported. Hidden away is a host of corporate crimes – from executives fiddling expenses to massive procurement frauds.
“Regularly, an offended corporation’s first reaction, sadly, is to try burial by PR to minimise the damage. They often deal with it at an HR level – compromise by moving individuals on, where it can all happen again.” The bigger the company, often the greater the hush-up. Fraud fighters have to play catch-up because you never hear of armed fraud, Nesbitt remarks wryly. On the criminal gang level, fraud finances prostitution and drug and people trafficking.
Arthur regrets the political apathy: “Political response comes mainly when many voters are affected,” he says.
“Politicians don’t usually acknowledge that corporate crime is bigger perhaps than almost all other theft put together.” Among corporate crimes hardest to crack are: Carousel frauds: Criminals set up serial companies and fictitiously trade items to get back the VAT. They build debts and, having diverted the money to other uses, put the companies down, cheating HMRC and the nation. Long firm fraud: Criminals dump a firm into liquidation then buy it back or use ill-gotten gains to form another company.
They do this repeatedly, using different owner names – but still working together. No-one may be apprehended because no-one remains in the end to fund the bill, and evidence is too sparse to prosecute. In fraud, getting proof of guilt beyond doubt can be difficult without enormous work and painstaking detail. Long firm fraud can stretch over years before a pattern is traced, becoming too costly to act against. Stopping it is difficult without hurting business owners who are starting up again after genuine misfortune.
Often victims are individuals. Northumbria Police tell of a woman internet-banking in Surrey who suddenly found her screen frozen for 20 seconds – long enough for her account to be emptied.
Russian Mafia in the Philippines had remotely used Mr and Mrs Cannybody’s 24-hour internet system in Cramlington to break into this victim’s computer and make their haul by a simple keystroke.
Boiler room scams – again punishing individuals – rob UK investors of about £200m a year. Too few people realise the Financial Services Authority lists phoney firms operating outside British jurisdiction on its website.
A phone caller may offer cut-price shares ahead of official flotation. This ruse feeds on people seeking unrealistic returns.
“If an offer sounds too good to be true, inevitably it will be,” says Arthur.“Don’t fall for it.” A growing scam now, Nesbitt points out, is in the “green energy” market.
False companies are offering to fit solar panels and other energy-saving installations, giving plausible explanations for outrageous charges.
The Government is facing frauds around carbon emission units. Meanwhile, Tait Walker takes instructions regarding suspected “cash for crash” claims – deliberate car collisions to claim insurance illegally.
Politicians often argue the private sector should fund its own crime fight. But damage strikes the entire economy, costs jobs and stifles wealth creation. And, while governments play it down, it robs the Treasury, and through that the honest taxpayer has to fill the void.Spending cuts now enable faceless criminals to flourish.
Arthur points out: “Across the UK, economic crime units are being disbanded.Economic crime is being slotted into a ‘too hard to resolve’ category.Cost of success is deemed too high.” Northumbria Police said earlier its financial investigators were being reduced from 60 to 20, and the fraud squad was disbanded from October 1, though a sergeant and six detectives will still investigate big financial crimes.
These, however, can require globetrotting, stakeouts and other activities straining resources already stretched.
“Most forces now don’t have an economic crime unit or fraud squad,” Nesbitt says.
“Dealing with a complex fraud effectively may require 10 or 12 skilled fraud officers. Northumbria Police has never had that number, as I recall. Resources may be removed because cracking a couple of burglaries is easier.”
Arthur observes that while crime prevention groups encourage public awareness, they are disparate and under-resourced so their message is muffled. The National Crime Forum hopes companies will at least stop hushing up internal incidents, and thus destroy the myth that blue collar exceeds white collar crime. Media too could review news attitudes. Uncovering fake and counterfeit goods and products such as cigarettes and alcohol, understandably, is widely publicised.
Nesbitt, however, believes too much fraud is underplayed in the media – considered not “sexy” enough.
“The higher up the tree, the more easily a company executive can manipulate figures,” he says.
“Time’s lost because who will demand of an errant financial director, ‘What the hell are you up to?’” More than 75% of UK office workers would actually turn a blind eye to an office malpractice, research from the Federation Against Software Theft suggests.Even when a case has been prepared, an appropriately competent barrister or a judge may be scarce.
“Too few barristers are skilled in handling fraud inquiries,” says Nesbitt.
“Again, it’s economics. A barrister in a fraud case may earn £25,000, whereas taking two or three burglary cases may bring in up to £70,000.
“With judges you can often tell from their sentences. Horrendous fraudsters may get off with nine paltry months to a year. A Friday night bottle fight in the Bigg Market might bring a sentence of three years.”
Arthur argues: “Money should be used more to protect money. Government did try to introduce a national fraud reporting authority. But at the Home Office, corporate crime is still just a theft or a break-in. For business it’s taxation without representation.
Business faces a fallacy that no-one’s going to be hurt, but the number of businesses we see struggling to survive, or even going down, is distressing.” Fraud was only recently defined by the Law Commission, tasked by Jack Straw when Home Secretary.
“If the present Government, which professes to champion law and order, accepted the seriousness of fraud and set a stall out, that could impact on the other crime people talk about,” the two investigators agree.
The North East Fraud Forum website lists 10 tips to minimise crime in business. More than £4m has been confiscated in cash and kind from North East criminals in two years as police use court powers to retrieve ill-gotten gains under the Proceeds of Crime Act. But only part of that involves corporate fraud. A proactive approach by many more businesses would limit the damage further.
Crime fighters square up in the nick of time
Plans to set up a North East Business Crime Centre are coming not a day too soon, judging from the losses corporate crime inflicts upon businesses, taxpayers and the public in general.
An inaugural meeting to set up the centre will be held at the Marriott Hotel Gateshead (beside the Metrocentre) on February 2 (8.30am). The concerted approach comes at a time when fraud and other crime is costing £32bn a year and the North East is let off no lighter than anywhere else.
Theft and other shop crime alone costs £80 every second of the British day. This includes vandalism, burglary, graffiti and criminal damage. Ten of the UK’s most wanted fraudsters are blamed for at least £200m worth of fraud by cheque and credit card abuse. Thieving also involves shoplifters and shop staff, some of whose employers make customers cover the loss by building protective margins into goods which honest and unsuspecting customers may then buy.
Mega-scale business crime is increasingly global, partly through the growing use of the internet as a getaway vehicle. A recent global survey of economic crime by business consultants PricewaterhouseCoopers (PwC) took in 3,877 representatives of organisations in 78 countries. It showed 51% of UK respondents reporting at least one instance of economic crime in the last 12 months, against a global comparison of 34%.
Nearly a quarter of UK respondents said they’d experienced more than 10 incidents of economic crime during the year. PwC says one reason for the UK’s higher levels stated may be that more respondents from there carry out fraud risk assessments, so can more accurately identify it.
Since a 2009 survey, the proportion of UK respondents reporting fraud as costing between $100,000 and $5m has risen by 11%. The proportion reporting the cost to be more than $5m has risen by 3%, suggesting that over all, the actual cost of fraud for most organisations is rising. The true costs could be much higher, PwC agrees, since many frauds go undetected.
Cybercrime is now the third most common economic crime in the UK, while levels of “conventional” offences have fallen - eg, asset misappropriation fell 8% compared with previously, and those reporting accounting fraud dropped by 5% on information provided by the survey.
Corporate crime fighters David Arthur and Frank Nesbitt say it has taken successive governments a “horrendously” long time to recognise just how much Britain is suffering. They are managing partner and forensic services manager respectively at Newcastle accountancy firm Tait Walker, an acknowledged fighter in the field.
It speaks with authority when declaring that for years the official statistics have only reflected low level – “blue collar”- crime. That management, as against an employee, ever commits crime is not seriously considered, they say. Companies can be their own worst enemies in this, burying a criminal executive under PR to minimise harm to reputation.
They then deal with it at a “human resources” level - moving the offender on, thereby threatening a recurrence in someone else’s business.
Tait Walker’s forensic investigation service, openly available, has been called in at some time by all the region’s police forces, to provide the additional resources and expertise available from ex-police and former military personnel who serve as Tait Walker’s 14 investigators, in turn supported by more than 100 accountants in complement.
Frank Nesbitt, an ex-copper himself, says dealing with a complex fraud effectively may require 10 or 12 skilled fraud officers. “Northumbria Police for one has never had that number, as I recall,” he says. And across the UK, economic crime units are being disbanded, the cost of success being deemed too high at a time when police budgets are being slashed. Economic crime is being slotted into a “too hard to resolve” class.
Businesses and associated bodies sufficiently moved to join battle can link in and help administer one or more of many organisations – not least financially, since many of these groups are insufficiently funded.
Alternatively, or additionally, they can volunteer time to adjust individuals who might otherwise drift into a life of trouble. Northumbria Coalition Against Crime, for example, promotes youth projects, giving education and support. Since 1990 it has helped thousands of young people throughout the region. More volunteers are always needed.
Asam Malik, director at PwC in the North East urges senior executives to take the risks of corporate crime more seriously. “Almost four in 10 respondents to our survey say their organisation doesn’t have the capability to prevent and detect cybercrime. Some organisations, we’ve found, may not even be clear about what cybercrime is, who it affects, and what they must do to protect themselves,” he says.
His colleague, Debra Halcrow, forensics director at PwC, also observes: “During a downturn, the ‘corporate core’ of an organisation tends to be hit hardest, with severe resource cutbacks in areas that are the first and second line defences against fraud, like internal audit. Under-staffing and increased workloads might mean internal fraud going undetected, or that those completing our survey aren’t finding out about it.”
Says Malik: “As society becomes less tolerant of unethical conduct, businesses must ensure they place a premium on building public trust."
And business can impact, not just on corporate but on all crime. It was businessmen incensed by the murder of Sunderland PC Keith Blakelock during London riots in 1985 who led to Crimestoppers being formed. Today Crimestoppers, partly by paying for anonymous tip-offs, claims credit for around 21 people being arrested and charged daily, while one person every six days is charged with murder. Over the last three years, it says, there has been a 32% jump in numbers (2,027 more people) charged through information received.
Crimestoppers shows businesses can also crack cases by posting bounties. Currently the Association of Convenience Stores has been offering up to £50,000 for clues to bring in a gang that shot and critically wounded a shopkeeper and a five-year-old girl in a London store. The British Bankers’ Association has offered up to £100,000 for information to arrest armed robbers amok in Greater Manchester and Merseyside.
But it’s not all a matter of money. Time, vigilance and shared knowledge all play their part too.
Where businesses can help
For more information on the proposed North East Business Crime Centre, and its inaugural meeting Tackling Business Crime Together, contact email@example.com. Tel: 07944 616 202.
And for more information on other campaigns that have been taking place in the region to combat corporate crime, go to:
North East Fraud Forum: www.northeastfraudforum.co.uk
North East Crimestoppers: www.durham.police.uk
Northumbria Coalition Against Crime: www.thecoalition.org.uk
Durham Agency Against Crime: www.daac.org.uk
Safe in Tees Valley: www.safeinteesvalley.org.uk
North East Forum Against Crime: www.businesscrimecentre.org.uk
Business Crime Reduction Centre: www.businesscrimecentre.org.uk
Retail Against Crime: www.businesscrime.org.uk
Ex-public schoolboy and self-styled “Lord” Edward Davenport is serving more than seven and a half years’ imprisonment imposed at Southwark Crown Court for fleecing at least 50 companies and siphoning off the last savings of Elizabeth Emanuel, designer of Diana, Princess of Wales’ wedding dress.
Paul Hopes, 59, of Berkshire, in 23 years with Toys R Us rose to purchase ledger manager. But he was jailed for seven years for stealing £3.7m from the firm. Though married, he was paying a prostitute £20,000 a week, Reading Crown Court recently heard.
Kweku Adoboli, a 31-year- old City trader, faces trial for false accounting and fraud over £1.3bn lost in rogue trading at the Swiss bank UBS. This may prove to be Britain’s biggest bank scandal – making Nick Leeson’s £827m lawbreaking loss that destroyed Britain’s 213-year-old Barings Bank in 1995 a numerical trifle.
Nearer home, one of the North East’s biggest crooks in top management, Douglas Brown, snaffled more than £2.4m during the 11 years he ran UK operations for an American firm at Hartlepool. He falsely claimed to be pre-paying suppliers of materials with which Palmer UK makes brake-linings.
A false paper trail laid by the 63-year-old from Houghton le Spring duped auditors, while he and his wife enjoyed gourmet meals, flash cars and holidays at choice resorts and plush hotels abroad and in London.
He was jailed for seven years at Teesside Crown Court in 2009, having admitted 31 instances of financial deception. Only recently could a confiscation order be made against him. His wife Joan, 58, denied money laundering and those charges were put on file.
Lower down the career ladder, a woman was videoed two mornings running by a Tait Walker surveillance team as she led various physical exercises at a boot camp in a Newcastle park. The same woman was simultaneously on long-term sick leave and claiming incapacity illness from a housing association employing her.
Grandmother Kathleen Clark, 60, of Newbiggin, stole £272,539 over 14 months in her job at Thomson Travel call centre in Newcastle. She pretended the money had been paid out to dissatisfied customers. In fact, she was addicted to gambling.
Two colleagues whose similar frauds involved £100,000 also came before Newcastle Crown Court. Nesbitt says such frauds are relatively easy to expose, whereas business advisors KPMG suggest a fraudster in senior management may often be:
• male, aged 36-45, with a senior job in finance
• in a business with weak internal controls
• under pressure to meet targets and motivated by self-awarded takings
Richard Powell, who leads KPMG’s Northern forensic team, says bosses, including those working within the chief executive or managing director’s offices, are committing fraud increasingly. KPMG analysis has found that, globally, board members commit nearly 20% of all fraud now – compared with 11% in 2007.
CIFAS, another fraud prevention service, says analysis of dishonesty within firms during the first half of last year showed staff actions to benefit from fraud or deception up by nearly 25% year on year.