This is an independent publication by Raconteur Media _ 21. March. 2011 FIGHTING FrAUD © Ikon Images / Alamy

whether it is accounts payable data payments over £10,000, so the clerk Beating fraudsters at their own game or voter registrations, Benford’s Law, ensures all the payments to the sus- also known as the first-digit law, pre- pect supplier are below that level. BUSINESS RESILIENCE Fraud takes many forms and the digital economy dicts that real-world data get distrib- That, by itself, is not necessarily uted in a certain non-uniform way. If suspicious. However, forensic anal- has created many new opportunities for fraudsters. But technology is also the suspect data deviate significantly ysis reveals a large number of pay- helping businesses fight back against fraud, which costs the UK economy a from the expected distribution, there ments have 7, 8 or 9 as their first digit, Geoff Nairn could be a fraudster at work. eg, £9,450 or £708. Benford’s law pre- staggering £38 billion a year. reports In the business world, frauds typi- dicts, counter-intuitively, that the cally centre on procurement, payroll higher numbers should each occur as and expenses. So, when a business the first digit around 5 per cent of the ȖȖWhile information technology has importance. “In the past, we were the accounting records and other types suspects fraud, forensic account- time, while the number 1 should be made our lives easier, it also opens poor relation in the accounting pro- of ‘structured’ data to find unusual ants start by analysing the accounts the first digit in 30 per cent of cases. new doors for tech-savvy criminals fession, but forensic data analytics patterns that betray many types of payable data. A quick check then reveals that the to commit fraud. Fortunately, tech- is now a hot area,” says Paul Walker, corporate fraud. Benford’s Law is not the only address given for the suspect sup- nology can also be used to detect head of forensic technology and dis- weapon in their armoury, of course, plier corresponds to a domestic resi- fraud by analysing data and search- covery services at Ernst & Young. DATA but it can be surprisingly effective. dence rather than a business. The ing for patterns of behaviour that His department has grown from The key to detecting fraud is data – For example, a dishonest clerk has alarm bell rings. betray the fraudsters. just six people three years ago to the more, the better – and a 70-year- set up a fictitious supplier on the sup- As well as structured data, recent In recent years, the specialist field more than 70 today. Traditionally, old mathematical principle called plier database. Company procedure of forensic accounting has grown in the work involves trawling through Benford’s Law. Irrespective of requires additional authorisation for Continued on page 03

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FIGHTING FRAUD

Distributed in CONTRIBUTORS

CLAIRE MANUEL SIMON MICHELL GEOFF NAIRN Former editorial director of Newsdesk A journalist and former business analyst A freelance journalist specialising in IT, Publisher Editor Design Media Group, she is a freelance business and managing editor at the Jane’s Infor- telecommunications and, most recently, Heather Sophia Athié Claire Manuel The Surgery writer and editor mation Group cleantech and sustainability issues

For more information about Raconteur Media publications in PETER ARCHER IAN WELSH ROBERT SCHIFREEN The Times and The Sunday Times, please contact Freddie Ossberg Specialist writer on finance and business, A specialist on responsible business and A former computer hacker, Robert is T: 020 7033 2100, E: [email protected], he was formerly with the Press Associa- sustainability issues. He is editor of Ethi- a well-known writer, broadcaster and W: www.raconteurmedia.co.uk tion and NBC cal Corporation magazine trainer specialising in IT security issues

The information contained in this publication has been obtained from sources the proprietors believe to be correct. However, ROBERT FOX MICHAEL DEMPSEY Guy Clapperton no legal liability can be accepted for any errors. No part of this A journalist and broadcaster, he is defence Journalist and media trainer who has Author, broadcaster, speaker and journal- publication may be reproduced withoutthe prior consent of the correspondent for the Evening Standard worked for the BBC, the Financial Times ist. His latest book, This Is Social Media, Publisher. © RACONTEUR MEDIA and numerous publications is about to go into its second edition

“Today, there is a lot more remote ANALYTICS interaction in financial services so The fraud landscape is constantly it is very difficult to know your cus- changing. The recession has seen tomer,” says Brian Kinch, who was the growth of first-party fraud, in head of customer account fraud at which customers with a good credit LloydsTSB before joining FICO. history suddenly decide to stop pay- This problem particularly affects ing off their debts. This behaviour is the insurance sector, with the growth difficult to detect until it’s too late, of online operators and aggrega- but Mr Kinch says it is an area where tor websites that let people ‘plug data analytics can help. and play’ with their personal data “Analytics shows us that there to obtain a better quote. “Insur- are certain characteristics that are ance fraud has always been there of common to these customers,” he course, but it has been getting pro- explains. For example, they will take gressively worse,” says Mr Ash of SAS. all the products on offer when they When the credit crunch started to open the account and will try to accu- bite a couple of years ago, the era of mulate as much credit as possible easy credit came to an end. Instead of before disappearing. trying to create new accounts, fraud- New types of fraud are emerg- sters switched to hijacking existing ing all the time. One of the most ones using cashpoint scams and unusual insider frauds involved a online phishing attacks. Sainsbury’s IT manager who stole USING TECHNOLOGY TO BEAT FRAUD As banks got wise to these attacks, more than 17 million Nectar points, the fraudsters switched to identity worth £80,000, using a series of fake fraud as a way to obtain products and accounts. He was jailed earlier this Continued from page 01 historical transactional data of a channels and so protect against Data analysis is a services that were not subject to as month. The explosion in social cardholder down to a few variables multi-channel attacks. vital weapon in the strict an approval process as credit media is also attracting fraudsters, years have seen a tremendous that are then used to analyse every “Sometimes there are subtler battle against fraud applications. both as a new channel to deliver growth in the amount of unstruc- transaction in a few milliseconds. threats that, when viewed separately, Identity fraud used to be relatively scams and as a rich source of per- tured data stored in organisations, Brian Kinch, FICO senior part- can appear benign. But when you minor in the UK, but it now accounts sonal information. particularly in regulated industries ner, says the software in effect learns bring them together, you can spot for almost half of all frauds and costs The ingenuity of fraudsters knows where e-mails and telephone con- about the cardholder behaviour in fraud earlier,” says Derek Wylde, the UK economy more than £2.7 bil- no bounds and modern technology versations are now preserved as a a bid to reduce the number of false head of group fraud risk at HSBC. lion a year, according to the National has made their task easier. But the matter of course. positives – legitimate transactions He gives the example of a custom- Fraud Authority. good news is that technology can Unstructured data pose particular flagged as possibly fraudulent. er’s credit card, which is used shortly “Identity fraud is the modern-day also be harnessed as an ally in the challenges for forensic data analysts. For example, if a cardholder fre- after their debit card and followed equivalent of Dickensian pickpock- battle against fraud. Mr Walker admits that searching quents casinos and often makes sev- by activity on the internet banking ets,” says Richard Hurley, communi- though archived phone conversations eral withdrawals of cash from casino channel. Viewed in isolation, the cations manager for CIFAS, the UK’s or e-mail records to find evidence of ATMs, FICO’s software learns this activities are not suspicious, but the fraud prevention service. fraud can be like trying to find a nee- behaviour and knows not to chal- three activities happening within a dle in the proverbial haystack. lenge the withdrawals. For card- short timeframe is suspect. Nevertheless, it is often the only holders who don’t visit casinos, such way to uncover the more sophisti- behaviour is highly suspicious. cated types of fraud and other ‘non- One of the biggest problems facing compliant’ behaviour, such as price- financial institutions when it comes The key to detecting Fighting fraud together fixing, blackmail or bribery. to fighting fraud is that of information “Our software is able to look for silos. At most banks, the fraud man- fraud is data – the more, Fraud can happen to any organisa- rigorous verification. Know your cus- certain words in a dialogue that indi- agement systems have developed in tion. No-one is exempt and every or- tomer, know the application and cate non-compliant behaviour,” says isolation, with one system for moni- the better ganisation is vulnerable, both to ex- check the application and the sup- Mr Walker. toring credit cards, one for debit cards, ternal attacks from customers intent porting identity documents. another for online banking and so on. on committing fraud and to internal Share data if a fraud has happened. SOFTWARE Fraudsters know this and so they ADAPTING fraud committed by staff. If your organisation has been victim Advanced data analysis technology typically spread their attack attempts When fraud management proce- To successfully counter fraud, or- of a confirmed fraud, it is important to is also being used to help businesses across different channels in the hope dures tighten for one industry or ganisations must first acknowledge share data on the fraud through a rec- fight against fraud perpetrated by of remaining undetected for longer. fraud type, fraudsters are adept at this unpalatable fact. The next step ognised body such as CIFAS. The big- their customers. “Multi-channel attacks are what switching to a new target. The chang- is to introduce a comprehensive ger the store of confirmed fraud data, For the financial services sector, banks fear most,” says Duncan Ash, ing nature of fraud also mirrors the fraud strategy. CIFAS, the UK’s fraud the more useful it will be to predict fu- FICO, a US software company, sells marketing manager for financial ser- ups and downs in the UK economy. prevention service, offers some ture frauds. The same fraudsters will predictive analytics software that vices at SAS, a leading vendor of busi- In 2007, application fraud was all guidelines based on the experienc- attack more than one organisation in can flag potentially suspect card ness intelligence software. the rage as fraudsters took advantage es of its more than 250 member or- more than one sector. transactions in real time. HSBC, Britain’s biggest bank, uses of the UK’s credit boom to apply for ganisations. Data security is paramount. A com- The software uses neural net- SAS software to monitor all the loans they had no intention of pay- Every organisation, both public and prehensive data security strate- works – modelled on the workings credit card transactions of its cus- ing back. As much of this business is private sector, must have an anti-fraud gy needs to take all aspects into ac- of the brain – to analyse transac- tomers in real time. It is now mov- done online, or through third-party policy and philosophy embedded and count: from staff recruitment to tions against profiles and known ing towards a more comprehensive agents, lenders rarely meet the appli- endorsed by its senior management. applications for services. Fraudsters fraud patterns. It condenses the solution that can monitor additional cants face-to-face. A lot of fraud can be checked through can target them all.

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CYBERCRIME As our use of technology evolves, so does the nature of fraud and cybercrime. Robert Schifreen looks at the dangers that face individuals and organisations, and explains how to stop the spies, hackers and criminals you don’t even know you encounter every day

ȖȖTwenty years ago the techno- mated fraud detection systems that involves hacking computers or per- ing to decide whether a transaction are simply considered too high a risk headlines were about hackers, use artificial intelligence and neu- petrating credit card fraud, the IP should be subjected to closer scru- from which to accept any online viruses and thieves stealing mem- ral networks to decide whether an address of the suspect’s computer tiny. “It’s all about timing,” says Mr orders at all. Some 55 per cent of ory chips from the office PCs. A order can be trusted. is always a good place to start. Many Warwick. “If we can detect fraud respondents to Cybersource’s UK couple of decades later, high-tech Techniques include device finger- police forces subscribe to IP geolo- early, we reduce the value of the card online fraud report for 2011 cite criminals now prefer stealing cop- printing, whereby technical charac- cation databases from companies to the fraudster.” Nigeria in this list, although that per telephone cables, databases of teristics of each new customer’s PC such as Quova, which can help pin- Detecting fraud is vital, but detect- figure is actually down from 62 per credit card numbers, and consum- are recorded in order to check that point the physical location of the IP ing it accurately is even more so, as cent the previous year. But with UK ers’ entire identities. subsequent orders originate from address’s user. anyone who’s wrongly had a pay- businesses estimating that online Sometimes we have only ourselves the same machine. ment declined will confirm. Even payment fraud will cost them to blame. According to a survey by Whatever criteria your chosen sys- TIMING more disgruntled, presumably, are around 1.5 per cent of turnover this security vendor Credant, 17,000 tem uses to detect fraudulent orders, Recent advances in identifying card customers from those countries that year, it’s clear that no-one can afford USB data sticks were left in the time is of the essence. You can’t fraud are making life much harder to simply do nothing. pockets of clothes sent for dry clean- afford to keep the customer hang- for criminals, says Martin Warwick ing in the UK during 2010. ing about online. Carl Clump, chief from FICO, a company that provides VIRUS But, however much the world of executive of Retail Decisions (ReD), analytics and decision-making ser- One of the most precisely targeted cybercrime changes, one thing stays boasts that his company’s ReD Shield vices. Merchant profiling, for exam- e-crimes ever perpetrated occurred the same. You never know precisely service can generate a decision in just ple, looks at historical data regard- Detecting fraud is vital, last summer in the form of Stuxnet, a where the next attack will come 400 milliseconds, which is bordering ing which particular merchants are, computer virus specifically designed from, so you need to be prepared. on ‘blink of an eye’ territory. or are not, being used by fraudsters. but detecting it accurately to cause havoc with SCADA. If you’ve Which, for those who do business When you’re investigating any Fraud screening routines can take ever plugged an electronic piano into online, means implementing auto- internet-based crime, whether it this into account when attempt- is even more so’ the back of a computer you’ll know

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Securing corporate data

Companies of all sizes need to secure to protect themselves from new risks. er they go. Employers should control their sensitive data from cybercriminals. The rise of social networking means the configuration of these devices and These criminals are investing in tech- that a company’s employees are going insist upon strong passwords, using nology, and employing skilled people, in to be connecting with a wide circle of multifactor authentication where pos- order to defraud businesses worldwide. people. With this comes risk. Compa- sible, particularly for remote access. The Global Security Report 2011, nies should establish a clear policy on Overall, the report suggests that ro- published by Trustwave, a provider what information about the company bust, company-wide security aware- of on-demand data security and pay- and its activities can be shared. ness training is essential. Such a pro- ment card industry compliance solu- With the universal use of mobile de- gramme may not deter a malicious tions, suggests a number of strategic vices, employees carry valuable com- employee, but it can mean earlier initiatives that companies can adopt pany information with them wherev- identification of a potential incident. © Dave Jepson / Alamy

of the Musical Instrument Digital vey found that a worryingly large 3 Interface (MIDI). SCADA is the per cent of internet users in the 27 grown-up, industrial equivalent of states surveyed had lost money due to MIDI, allowing computer control of phishing attacks, in which they’d been factory machinery, chemical plants lured into revealing personal infor- and the like. Symantec, which ana- mation and passwords by fake emails. lysed Stuxnet, suggests that it was Official figures for online credit created specifically to disrupt Iran’s card fraud puts the cost to UK busi- attempts to enrich uranium, which ness at around £400 million annu- clearly puts the blame at the feet of ally. For cybercrime in general, one or more nation states rather than accurate figures are difficult to come any typical college hacker. by. Historically they always seem Stuxnet aside, most new malware to be frighteningly large, and tend programs are still designed to exploit to emanate from the law enforce- our growing desire to conduct our ment industry around the time that financial affairs online. One of the budgets are due to be set and legisla- latest examples has been christened tive programmes finalised. Figures OddJob. Amit Klein from Trusteer, released by the UK Government last a provider of secure web access ser- month made mention of £27 billion vices, points out that one of OddJob’s per year. But is it really possible to key skills is its ability to keep online put a figure on such things anyway? banking sessions open after the user If the company technician on £30 an thinks he’s logged off, enabling crimi- hour has to spend 20 minutes every nals to extract money and commit morning deleting spam and viruses fraud unnoticed. from colleagues’ mailboxes, would If all this makes you smile in quiet the company see an increase in profit contentment because your PCs at of £10 per day if the spam and viruses home and at work have security simply stopped coming? software installed, think again. Fig- ures released last month show that around 30 per cent of internet users in the EU caught a PC virus last year, and yet the majority had security software installed. Security software is no SCEPTICISM Security software is no substitute for substitute for common common sense and a healthy dose of scepticism, especially when it sense and a healthy dose comes to opening or reading emails, or clicking on web links. The EU sur- of scepticism

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Counterfeiting pervades many areas, from luxury goods Faking it to clothes, alcohol, tobacco and medicine really hurts

COUNTERFEITING Pirating products is accepted by some as a way to get a good deal. But, as Peter Archer reports, the trade in fakes conceals real dangers © Getty Images

ȖȖThere is nothing fake about the Some counterfeits are actually pro- duction companies. software industry. The Federation that has been created by the Intel- impact of counterfeiting on the duced in the same factories as the Many counterfeits are good quality, Against Copyright Theft (FACT) is lectual Property Office for all inter- global economy. It can destroy original, authentic goods, usually and bona-fide brand owners can have partly funded by the music industry. ested parties, including Trading markets, bankrupt businesses and using inferior materials. difficulty spotting the fakes. So what “These industry bodies have been Standards, brand owners and even rob creativity. The counterfeiters either attempt is the best response to the counter- around for quite some time but I the private investigations sector, to Quantifying the level of an illegal to deceive consumers into believing feiting conundrum? think, in recent years, the biggest share information and co-operate trade is problematic. However, lat- they are buying a genuine item or Avril Martindale, IP partner at development has been the willing- with international agencies. est estimates by the Organisation purchasers are persuaded they could Freshfields law firm, says: “There ness of all those involved to share “But, no matter how many counter- for Economic Co-operation and deceive others with the imitation. are a number of international trade information and come up with a con- feits you seize, there are always going Development (OECD) put the share “Counterfeiting pervades every and IP treaties that seek to ensure certed effort to reduce the amount to be more coming. It’s an unsolvable of counterfeit and pirated goods in area,” says Mr Robinson. “Histor- high standards of IP protection and of counterfeiting,” says Farncombe problem and it’s not going to go away. world trade at around 2 per cent, ically, when you talk about coun- enforcement. These treaties have International’s Graham Robinson. The best that anyone can hope to representing more than £150 billion terfeiting, people think of luxury been designed with good intentions “There is now an intelligence hub achieve is a significant reduction.” ($250 billion). goods – the Gucci handbags, the “The impact of counterfeit goods is Prada scarves. very considerable indeed,” says Gra- “What is perhaps less apparent to By reducing companies’ ham Robinson, managing director of the public is the existence of coun- intellectual property (IP) investigators terfeits in other, worrying areas of revenues, counterfeiting leads Farncombe International. “In extreme life, like medicines, tobacco, alcohol cases, fake products can cause death. – all of these products are also very directly to a decrease in GDP “Unfortunately, counterfeiting is widely counterfeited.” embedded in cultural practice across a wide section of the community, in DANGER but what matters is how they are particular among consumers who Counterfeits produced in an unregu- implemented on the ground. often feel paying the full price for lated factory can carry serious health “We are increasingly seeing branded goods is paying over the odds. risks. Medicines, for example, are improvements in the fight against “There is a section of the popula- faked – with potentially lethal con- counterfeits. For example, in the tion that does not see the harm and sequences. Face creams and sun tan European Union, the implementa- damage caused by fakes. The general lotions are counterfeited and could tion of the European IP Enforce- public has historically seen this very have an equally harmful impact on ment Directive has harmonised and much as a victimless crime.” the individual consumer. strengthened IP enforcement rem- Benjamin Borsodi, a partner with “There have been stories about the edies. We are also seeing increased Swiss business law firm Schellenberg death caused by counterfeit baby activity from customs authorities in Wittmer, says: “Counterfeiting activ- milk in China,” says Mr Robinson. seizing counterfeit products. China, ities take away market shares from “These are the day-to-day realities long-regarded as a safe haven for legitimate businesses and negatively of counterfeit products.” counterfeits, has made great strides impact on creativity and innovation. Not only does counterfeit pro- in protecting IP rights.” The result of these unlawful activi- duction kill immediate sales of the ties is a potential slowdown of eco- authentic product in a marketplace, INTELLIGENCE nomic growth. By reducing compa- it also destroys business incentive In the UK, there have been a series nies’ revenues, counterfeiting leads and deters a company from invest- of initiatives led predominantly by directly to a decrease in GDP. ing in future innovation. the government’s Intellectual Prop- “Also, counterfeiting and piracy Counterfeiters are riding on the erty Office and various interested are frequently connected to corrup- coat-tails of genuine producers, and groupings, such as the Anti-Counter- tion, and such behaviour weakens are benefiting from the investment feiting Group. In addition, sections public institutions at the expense and development put in by the brand of industry have formed their own of society at large.” owner. Pirated CDs and DVDs, for associations to deal with the partic- Most counterfeit goods are made example, rob artists of royalties and ular problems they face. The spirits in China, North Korea and Taiwan. steal return on investment from pro- industry has its own body, as does the

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Rogue’s gallery

charlatans The past century has seen a colourful array of famous frauds, with a range of characters faking their way into fame, money, glory or sympathy. By Simon Michell Tania Head, president of the Survivor’s Center Trade World Network , lies about being a survivor 9/11 2007

Electoral fraud in Costa Costa in fraud Electoral Rica leads to civil war Rogue trader Nick Leeson Leeson Nick trader Rogue Barings down brings 1995 Leonardo da Vinci’s Vinci’s da Leonardo Lisa, Mona masterpiece, stolen from the Louvre 1911 Collapse of Texan billionaire Sir Texan of Collapse billion £4.7 Stanford’s Allen scheme pyramid fraudulent Media mogul Robert Maxwell mysteriously dies 1991 2009 2008 Wall Street legend Bernie Street Wall Madoff jailed for 150 years 1948 The so-called Hitler Diaries Diaries Hitler so-called The are exposed as a fake PetraKujau sells forgeries forgeries of 2010 2004 1983 Korean stem cell scientist disgraced Woo-suk Hwang when his research is found to be fabricated

1911 1948 1983 1991 1995

Leonardo da Vinci’s masterpiece, Mona Lisa, was Allegations of electoral fraud in Costa Rica’s 1948 Believing they had the scoop of the century, German The mysterious death of media mogul Robert Maxwell The hapless Nick Leeson was as much a victim to stolen from the Louvre as part of a plan that was general election resulted in a bloody civil war after the magazine Stern handed over a cool £2.5 million to pur- (dubbed ‘the bouncing Czech’ by Private Eye) was, for incompetence as greed. Mr Leeson gambled more supposed to have seen French forger Yves Chaudron losing National Republican Party managed to have the chase the so-called Hitler Diaries from Konrad Fischer, some, no surprise – although the fact that the drown- than £800 million of the 223-year-old Barings bank’s make six copies, which could all be sold to unwitting result annulled. The winner of the violent and some- a dealer in Nazi memorabilia. Unfortunately, Mr Fischer ing was real did confound many. Having stolen some money on a series of deals that eventually bankrupted dupes. If the original was ever returned to the Louvre, what chaotic election, President Otilio Ulate, of the turned out to be Konrad Kujau, a small-time art forger, £400 million from the pension funds belonging to his employers. He tried to hide his massive losses in the plan was to say that the Museum had faked it to National Union Party, was forced to stand down and and after scientific tests, the diaries were exposed as more than 30,000 investors from the Mirror Group, Mr a fake account, Error Account 88888. Barings was disguise the shame of having lost it in the first place. was later imprisoned by the military. Enraged by this fake. Mr Kujau was jailed for four years. Maxwell was destined to spend many years in jail. His later sold to Dutch banking group ING for £1. Having injustice, José Figueres, an exiled businessman, de- untimely death saw him cheat justice one last time. endured six years in a Singapore jail and beaten bowel clared war on the Government on March 11, 1948. With cancer, Mr Leeson settled in Ireland and is now an a little arm twisting by the US, the Costa Rican Govern- after-dinner speaker. ment was forced to accept defeat six weeks later.

2004 2007 2008 2009 2010

Former South Korean ‘Supreme Scientist’, Hwang Alicia Esteve Head, from a wealthy Spanish family and One of the biggest Ponzi schemes ever uncovered Cricket fans will never forgive the Texan billionaire Sir The art and literary worlds collided in confusion in Woo-suk, was spared jail after a court in Seoul better known as Tania Head, was ejected from the 9/11 witnessed the spectacular fall from grace of one of Allen Stanford for making a mockery of the England 2010. Petra Kujau, who claimed to be the grand-niece suspended a two-year prison sentence for embez- charity she fronted as it became obvious that she was Wall Street’s legends, Bernie Madoff. Dubbed “ex- and Wales Cricket Board. His downfall after the col- of Hitler Diaries forger Konrad Kujau, was convicted zlement. The trial was convened after it emerged not the victim she said she was. Ms Head managed to traordinarily evil” by judge Denny Chin, the crime saw lapse of a $7.2 billion (£4.7.billion) fraudulent pyramid for forging his signature on fakes of well-known paint- that he erroneously claimed to have become the first fool the American public that she was on the 78th floor Mr Madoff rip off investors to the tune of $65 billion scheme heralded the end of his much-vaunted ings. After being released from prison, Mr Kujau had man to clone human embryos in 2004. Revelations of the World Trade Center’s South Tower when it was (£40 billion). Jailed for 150 years, his sentence dwarfs Twenty20 Super Series cricket competition – but not produced a number of ‘forgeries’ – copies of famous that his team had been harvesting eggs from female hit by the second aircraft. She spoke of overcoming previous fraud rulings. Enron’s former chief executive, before England had been beaten by the Stanford masterpieces, which carried his own signature. Ms colleagues was the start of his downfall. Curiously, adversity thanks to the strength she found from her Jeffrey Skilling, was sentenced to 24 years in 2006, Superstars by a humiliating 10 wickets in the final. Kujau obtained more than 300 paintings from Asia, the disgraced scientist still has many fans, as his fiancé ‘Dave’ who she claimed died in the tragedy. and yet presided over one of the biggest corporate Unsurprisingly, his knighthood was also revoked. added Mr Kujau’s signature, then sold them on as release was met by cheers from onlookers who came Moved by her plight she was elected president of the bankruptcies ever recorded. ‘original Kujau forgeries’. to wish him well. World Trade Center Survivor’s Network by its mem- bers but was removed in September 2007.

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WHISTLEBLOWING Wikileaks divides opinion inside the world of media and journalism as much as outside it. For its champions, it upholds the right to know what governments would like to conceal – while for its critics, its publication of millions of pages of confidential documents is a betrayal of public and private trust that can even put lives in danger. Robert Fox reports

ȖȖThe effect of the online service declared the right to know and to dis- matic e-mail traffic, believed to have launched by Julian Assange five close a fundamental principle, which been downloaded by former Private years ago is undoubted – though ranks alongside the fundamental First Class Bradley Manning dur- back in 2006, even he could not freedoms laid down in the US consti- ing his nightshifts as a US intelli- have predicted that it would have tution. “Every constitution, every bit gence clerk at US military headquar- its greatest impact now in 2011. The of legislation is derived from the flow ters between March and May 2010. Wikileaks revelations have played a of information. Similarly every gov- Assange has been reluctant to specify vital role in triggering the protests ernment is elected as a result of peo- his link with Manning, but Manning of the ‘Arab spring’ from Morocco ple understanding things,” he told has been charged by military prosecu- to Yemen, to Bahrain and the Gulf, an interviewer in 2010, the year that tors with a series of offences, includ- one of the seismic political events Wikileaks hit the global headlines. ing espionage tampering with US mil- of the 21st century. In some cases, itary intelligence software, and ‘aiding the revelations in the Wikileaks files HACKING the enemy’ – which until recently would have meant the death penalty, The sheer quantity of the diplo- about the autocracies of the Middle The Wiklileaks concept and informa- and today would bring a life sentence. matic cables and field reports has East may have been only incidental tion service started in 2006. It dealt Before Wikileaks began publishing been the big step change. Some to the waves of resentment, but in largely with material hacked from the Manning hoard, it published a critics suggested that much of the countries like Tunisia, Yemen and government e-mail and cable traffic, Cables from Libya cockpit video of an incident on July material was of little interest, routine Egypt, they have been a crucial cat- largely in South-East Asia. Via a laby- 12, 2007, in which two US Army reporting by analysts and soldiers in alyst to bringing hundreds of thou- rinth of hacking, Wikileaks revealed describe in detail how Apache helicopters repeatedly fired the field in Afghanistan and Iraq – sands onto the streets. contents of Chinese reports from on civilians in a street in a suburb of low-grade intelligence that could be Wikileaks works on a concept of spying on Tibetan minority groups. “Gaddafi Incorporated” has Baghdad, killing 12, including two quite inaccurate. They were nothing freedom of information in almost The big break came with the children and two members of a Reu- like as powerful as the revelations its purest form. Mr Assange has 250,000 documents from US diplo- built a state within a state ters television team. made about the Vietnam War in the

08 RACONTEUR TWITTER.COM/RACONTEURMEDIA FIGHTING FRAUD

Wikileaks works on a concept of freedom of information in almost its purest form

Pentagon Papers leaked by Daniel has built a state within a state, with Ellsberg in 1971, which revealed the the dictator’s family fighting each true level of damage and casualties other over control of the new Coca- that the Pentagon had strenuously Cola franchise, while Muatassim tried to conceal. Gaddafi demands $1.2 billion from Initially, Mr Assange suggested that the Libyan oil corporation to raise the revelations about the campaigns and arm his own militia. In 2008, in Iraq and Afghanistan, particularly the ageing leader was described as about the levels of civilian casual- increasingly hypochondriacal, with ties, might be grounds for bringing a fear of flying over water, and always war crimes charges against indi- accompanied by his voluptuous vidual American and allied soldiers Ukrainian nurse. and their commanders. But the real The Wikileaks phenomenon is far © Getty Images impact has been the sheer volume of from over, and there will be more material involved from around the revelations to come. Perhaps it is world. This raises the central issue having its biggest impact right now, of the Wikileaks revolution – how in the ‘Jasmine revolutions’ across much can and should be disclosed, the world. But there will be nothing and when and where do personal and again like the horde of intelligence public security issues arise? files hacked by Bradley Manning. The US and other leading govern- SECURITY ments have already changed their This in the end became an issue access and encryption regimes to with at least two newspapers, the prevent this happening again. New York Times and the Guardian, who signed up with Wikileaks for BETRAYAL the right to publish the diplomatic It has been argued that the Manning cables in advance of them being put revelations have inflicted permanent on the web. New York Times jour- damage on trust in governments and nalists said that refusing to black out in diplomacy. After all, diplomats, the names of informants and inter- spies and undercover agents need preters mentioned in the cables, anonymity and secrecy to allow them © Getty Images particularly in Afghanistan, would effectively to ply their dark arts. This put their lives at risk. argument is too simplistic, and it A lot of the material from the cables is always used to justify the official still has not surfaced publicly – there cover-up and the distortions of gov- has been suspiciously little about ernment spin. This, I think, accounts Israel to date, for example. Much of for the vehemence with which the the confidential reporting from US Swedish and American authorities diplomats in the Arab world has been are pursuing Julian Assange. of high quality and brutally frank. The betrayal of trust, and so betray- In July 2009, Ambassador Rob- ing the public good, is a charge that ert F Godec reported from Tunis: has been brought through the ages “Tunisia is a police state, with little against the likes of Socrates, Machi- freedom of expression… and seri- avelli, and Diderot and his circle in ous human rights problems… Presi- the run-up to the French Revolution. dent Ben Ali and his regime have lost “After today, officials will be even touch with the Tunisian people.” He more cautious about what they described graphically the greed of the write and say, and what they send first family. and save,” wrote Ben Macintyre in The Godec files were put out on a The Times recently, so Wikileaks number of websites, which the Ben may have helped destroy the keep- Ali family tried to stop. He had not a ing of the kind of source material by chance, as they arrived via Twitter which it has lived. and Facebook just as the first protests Mr Assange, denounced now

© Getty Images © Lonely Planet Images / Alamy were starting over the brutal treat- by David Brooks in the New York ment of the street trader Mohammad Times as “an old fashioned anarchist Bouazzi, which had led to his suicide who believes that all ruling institu- by setting himself alight. tions are corrupt and all public pro- Top left Bottom left Top right Bottom right In Egypt, the equally candid US nouncements lies,” has re-ignited Wikileaks founder Julian American diplomatic Protesters at Julian Libyan leader Colonel file trail on the dictatorship of Hosni the eternal argument over disclo- Assange has declared cables said that Assange’s pre-trial Muammar Gaddafi Mubarak fuelled the street protests. sure, rights, obligation and respon- the right to know and to Muatassim Gaddafi had hearing in January 2011 was alleged to be a “Police use brutal methods, mostly sibility in journalism. disclose a fundamental demanded $1.2 billion hypochondriac with a against common criminals,” said one At least he has thrown much- principle from the Libyan oil fear of flying dry despatch. “NGO contacts esti- needed light into some very dark corporation to raise and mate that there are literally hun- corners of the world, particularly arm his own militia dreds of torture incidents every day the Arab world. The argument will in Cairo police stations alone.” soon be in the next round, and by Cables from Libya describe in then the fuss about Wikileaks may detail how “Gaddafi Incorporated” just be a footnote.

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On the fiddle The fraud triangle

ACFE’s director of UK operations, about. They get the chance to steal STAFF FRAUD Many cases of fraud occur not because someone Tim Harvey, explains that criminolo- some money and then another men- gist Dr Donald Cressey did a lot of re- tal process kicks in. “You might work has hacked into a company’s records but because an employee has search into what makes a fraud hap- in the checkout of a big department ‘gone rogue’ and is embezzling money internally. Guy Clapperton pen. He came up with the notion of store and think, I won’t ring this fiv- a fraud triangle. “This means that if a er up, I’ll take it and pay it back later,” talks to some experts in prevention non-shareable pressure, opportuni- says Harvey. ty and rationalisation come togeth- So in your mind this isn’t fraud, er, there is a good chance there will be you’re going to give it back (you nev- fraud,” says Harvey. er do, though). Or you might think it’s The corners of the triangle will be stealing from a company that’s un- independent of each other. Some- derpaying you while the chief execu- one has a drink problem, drugs prob- tive has just had a whacking bonus. In lem, an issue with feeding their family your mind it’s no longer fraud, regard- – something that embarrasses them, less of the legal position. which they can’t talk to anyone else © Ikon Images / Alamy

ȖȖ“There are two sorts of companies. “What we’re saying at ACFE is that corrupted, and employees targeted Figures suggest Tips TO Prevent Staff Fraud Those that have been victims of fraud businesses need to identify the red by organised criminals.” that a typical and those that haven’t yet but will.” flags and put together a procedure,” The way around these is pre- organisation loses ȯȯ Thoroughly vet prospective employees That is the trenchant view of Tim says Mr Harvey – and this can be dif- employment checks, making sure 5 per cent of its ȯȯ Ensure there is flexibility in job roles across the business to prevent individuals Harvey, a former detective inspec- ficult in a long-established business. of these for agency temps as well as revenue to fraud becoming a little too familiar tor who is now director of UK opera- “You get family businesses where the full timers. Fostering a whistleblow- ȯȯ Be alive to individuals NOT taking holiday or providing little by way of informa- tions for the Association of Certified same person has been in charge for ing culture in which there is zero tion as to systems and controls when on holiday Fraud Examiners (ACFE). People 15 years and hasn’t had the chance to tolerance for fraud will also help. ȯȯ Ensure there are 4 or 6 eyes monitoring all financial transactions don’t realise the scale of the problem, put in a fraud policy. He tells you the “Employees always know who’s liv- ȯȯ Ensure there is frequent, detailed audit outside the normal statutory audit he suggests: ACFE’s figures, however, accountant’s trustworthy – but they ing above their apparent means – ȯȯ Have an effective whistleblowing policy that employees are encouraged to use point to some alarming statistics: may have been skimming money off who’s got a very flash car in the car ȯȯ Monitor thoroughly and lawfully e-mail/internet usage the business the whole time.” park but is only earning £25,000 a ȯȯ The typical organisation loses year, who’s got a gambling habit and 5 per cent of its revenue to fraud – PREVENTION needs to feed that – very often the that would be $2.9 trillion world- Fortunately there are tell-tale signs. bosses and HR won’t know.” wide for 2009. Rosalind Wright chairs the Fraud Both ACFE and the Fraud Advisory ȯȯ The median loss caused by opera- Advisory Panel, which advises on Panel have sample fraud policies on have been detected applying for jobs in money – unintentionally fostering tional fraud in 2009 was $160,000. fraud policy and prevention meth- their site, which are free to anyone. in other member companies. “Also, a fraud culture (ask any MP). Peo- ȯȯ Small organisations are more ods. In a number of cases there sim- Another useful website is CIFAS, a we’ve been told that when someone ple thinking the odd fiddle is OK, or likely to be hit than their larger ply isn’t a policy in place, she says. member system by which compa- joins us and makes it clear job appli- breaking a confidence once and find- counterparts. “The perceived areas of risk are nies can alert fellow members to the cants will be checked, the number of ing themselves vulnerable to black- ȯȯ 85 per cent of ‘internal’ fraudsters particularly the use of agency staff, suspicious behaviour of an employee application goes down – so it could be mail for more information later. It had no previous convictions. insufficient vetting of prospective who has left. Staff fraud advisor Arjun that fraudsters are put off.” all starts with a single fraud – and by ȯȯ The average internal fraud in this employees, call centres and corrupt Medhi believes about 5 per cent of There’s clearly a lot to be done. Busi- putting a rigid, enforceable policy in period took 18 months to become employees moving between compa- the staff about whom there are sub- nesses that tolerate a salesperson’s place, a decent defence against a wave obvious. nies with no recognition they’ve been stantiated, legally checked warnings expense fiddles because they bring of insider theft can begin.

10 RACONTEUR TWITTER.COM/RACONTEURMEDIA FIGHTING FRAUD

Plastic tricksters like Louis Vuitton

With the introduction of chip-and-pin favourite men’s shoe sizes range credit and debit cards, the nature of from 8 to 10; ladies shoes 5 to 6. Their plastic fraud changed in the UK. preferred colour is black. Because lost, stolen or cloned cards “The fraudsters’ chosen drink is could not be used without a pin num- Courvoisier VS Cognac – they go into ber, fraudsters turned to mail order a pub and sell it for 50 per cent of and the internet to perpetrate card- what you would expect to pay in not-present scams. a supermarket. “They know how to make the most “Their favourite flight destinations out of credit card fraud because they are places like Senegal, Morocco, Ni- will buy very popular goods which geria, South Africa, Malaysia, Sier- have easy resale value,” says Carl ra Leone, all of which are known for Clump, chief executive of card fraud some form of serious criminal activity. prevention consultants Retail Deci- Air tickets bought by card-not-pre- sions (ReD). sent are sold on and given to mules “So Ralph Lauren polo shirts are who transport illegal goods from one very popular, along with Louis Vuitton destination to another.” sunglasses and belts. The fraudsters’

What makes Carl Clump, chief executive of ful and undetected. credit and debit card fraud preven- “Motive often develops from finan- tion consultants Retail Decisions cial pressure resulting from a fraud- a fraudster? (ReD), says fraudsters dealing in plas- ster’s excessive lifestyle, or from the tic are often controlled by a “Mr Big”. gap between the financial remunera- “These chaps are very smart,” he tion earned and the responsibility says. “They are very clever, very held by the individual, or pressure to PROFILE Psychological profiling is not widely used in the mobile and also very wealthy. It’s a meet financial targets, or the supe- sophisticated operation and they are riority complexes of the individual, prevention or detection of fraud. But conmen – and women – may sophisticated people. They are like or basic greed. display common personality traits, as Peter Archer discovers other members of the community “Rationalisation is the fraudster’s © The Surgery in many ways. They have mortgages, internal dialogue that provides the probably school fees, they like going self-justification for his actions. on holidays. They probably have busi- The fraudster convinces himself ness meetings to discuss how best that he is owed this remuneration ȖȖHe was helpful, polite and incon- “The overwhelming personality by “babes, booze and bets”. The The primary they are going to perpetrate fraud. by the employer.” spicuous. Colleagues trusted him trait that these people share is that alliterated motives, credited to an motives for fraud “We know that fraudsters col- Bishop International’s Jeff Katz completely. Yet the middle-aged, they tend to be egocentric,” he says. American detective, still ring true. “It are often related laborate over the internet. They says: “Most small-time fraudsters senior manager, who everybody “They have the confidence that they can be about addiction or substance to sex, substance trade fraudulent data with each will act primarily out of some sort believed was a ‘company man’, stole won’t be detected and they are equally abuse, it can be sexual or about gam- abuse or gambling other. It’s quite a sophisticated and of financial strain. They have some many thousands of pounds in a series arrogant that they expect to be able bling,” says Mr White. global operation.” sort of debt – a credit card debt, a of stealthy frauds. to talk their way out of most things. With the relentless rise of an avari- Paul Rodgers, chairman of Vendor- gambling debt, stock market loss, Of course, not every trusted “At the extreme end you might even cious culture of acquisition, fraud is com, the trade body representing something like that – it will be the employee should be viewed as describe them as sociopathic. They no longer about preventing poverty, credit and debit card operators, con- incentive for taking whatever risks a potential fraudster. But, if the will feel superior to others and get a it is about keeping up with the Jone- curs. “There’s been a definite trend they take. average conman is not much dif- sensation of power out of conducting ses, maintaining status and buying over the last 20 years from malevo- “But I don’t think this is really the ferent from the average person, how their fraud because they feel they can “bling”, he says. lent IT whiz-kids to much more of an case with corporate fraud or some- can businesses and vulnerable indi- fool other people.” Added to this is the emergence of organised hierarchical, almost busi- thing on a slightly larger scale. I think viduals protect themselves against Fraudsters tend to be immune fraud to finance terrorism. “There’s ness-focused, approach to fraud,” he at that point you’re talking about being duped? from stress and also tend to be crea- evidence that terrorism has become a says. “You’ll still get freelancers, but maintaining or improving status, “Nobody has yet put together tive. “They have to do some consist- specific motivation for fraud,” says Mr the really big-hitting stuff is where a possibly achieving some sort of an effective personality profile of ent lying and, in some cases, can be White. “So bling and bombs can now gang-mentality prevails.” expensive lifestyle. And also a need a fraudster,” says Jeff Katz, chief very coercive in order to force the be added to babes, booze and bets.” A KPMG survey into corporate for recognition – narcissism.” executive of Bishop International, a complicity of other people. They may fraud addressed the theory known Marsh’s Dean White says fraud can London-based corporate investiga- cultivate a sense of respect in people as the fraud triangle: opportunity, be rationalised because it is consid- tions company. “You get too many they’re working with but they don’t motive and rationalisation. ered by the perpetrator to be a vic- false positives. People, who in theory have much empathy for them.” Bling and bombs can According to the survey: “Opportu- timless crime. “It’s very difficult to could be fraudsters, in fact never are.” According to Dean White, man- nity generally occurs through weak- commit fraud in a person-to-person Nevertheless, investigators like Mr aging director of Marsh insurance now be added to babes, nesses in internal controls and cre- environment, but it’s easier to use the Katz have correlated the psychologi- brokers and risk advisers, fraud- ates an atmosphere where fraudsters internet to commit a faceless, victim- cal traits of notorious fraudsters. sters remain primarily motivated booze and bets believe they are likely to be success- less crime,” he says.

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The Bribery Act a need for clarity

LEGISLATION Former Attorney General Lord Goldsmith oversaw the formative stages of the controversial Bribery Act. But as the Act edges closer to becoming law, he admits that more needs to be done to fine-tune this legislation to take account of the realities of global trade. By Michael Dempsey

ȖȖLord Peter Goldsmith QC held GUIDANCE the title of attorney general for Lord Goldsmith recognises that the six years in Tony Blair’s cabinet. world beyond Westminster is right Today he works for corporate law to be concerned about imprecise firm Debevoise & Plimpton, but his wording in the Act. And he admits experience in government encom- that early attempts to reassure © Jason Alden / Rex Features passed the formative stages of the the business world have not been UK’s Bribery Act. This Act has been particularly impressive. “The first parked up since passing through guidance that was issued about the Parliament in 2010, delayed by a act was really unhelpful, it was just Lord Peter At present, the Act does not allow SFO would need to be adequately The protection that the Ministry of growing sense of alarm at its broad a set of principles.” The legal world Goldsmith QC for facilitation payments, the small resourced to police overseas mat- Justice can and should be extending scope and loose definitions of illegal is still awaiting the further guid- “We can’t condone sums that are required to oil the wheels ters.” Surely a boost in spending on to commercial interests is complete conduct. It will probably be enacted ance that was promised for late corruption.” of bureaucracy in many parts of the SFO prosecutions is unlikely in a clarity about what the Act means and in law by October this year, but the January and then postponed at world. The equivalent US law, the For- climate of austerity? He recalls his how it will be enforced, he says. “There questions about this watershed leg- practically zero notice. eign Corrupt Practices Act (FCPA) of own battles in Whitehall “I always is an absolute need for the Act to be islation keep on coming. Lord Goldsmith thinks the Minis- 1977, does recognise that facilitation had to fight for resources.” more subtle, and more detailed.” Lord Goldsmith is adamant that try of Justice should shrug off legal payments are a fact of commercial If the world of business can be the Bribery Act represents a neces- impatience over this delay. “It’s bet- life in some jurisdictions. This lack CLARITY reassured over corporate hospi- sary prop for the UK’s anti-corrup- ter to take the time and get it right.” of transatlantic parity has stirred up a Pressed on the prospect of the tality and facilitation payments, tion stance. But four years after he With his connections he must have lot of animosity towards the Act. Lord Ministry of Justice relenting over then Lord Goldsmith is convinced left high office he is keen to highlight a good idea of what’s coming down Goldsmith recognises that this gap facilitation payments, Lord Gold- the Act will confer wider benefits. the drawbacks that have emerged the line? “The guidance is going to needs to be bridged. smith seems to vindicate recent A successful challenge to corrup- since he was involved in drafting be more detailed and it will deal Part of the solution lies in the extra- speculation. “I suspect there will tion would have a huge impact on this legislation. “We were absolutely with some of the problem areas like territorial jurisdiction that the Act be movement there. We have a lot economic progress in developing right to update our anti-corruption corporate hospitality.” As with the bestows on the Serious Fraud Office to learn from the US in terms of nations. But it will still demand time laws. We live in a world where it is other weak points in the Act, the (SFO), Lord Goldsmith believes. The dealing with this area. When I was and effort from businesses trying to very important to tackle corruption terms relating to corporate hospi- SFO should be able to pursue any firm attorney general, I looked at how understand and stay within the con- because of the damage it causes. tality are vague. These have alarmed with a business connection to the UK the US dealt with fraud.” fines of the notorious ‘adequate pro- Corrupt regimes inhibit growth, and events organisers, who fear that fly- if it is paying bribes. The theory goes He believes that UK prosecutors cedures’. Lord Goldsmith repeats corruption distorts competition.” ing overseas prospects and clients that this will compensate for law- can learn a lot from the way their US that the US holds the key. “We Then the caveats emerge. The to a UK venue might be construed abiding British businesses refusing counterparts define unacceptable [Debevoise & Plimpton] have cli- Act contains a new offence in law, as attempting to induce them to act to countenance facilities payments behaviour in business, lending more ents who are used to the FCPA. It whereby a corporate entity is respon- improperly in the award of contracts. that could be thinly veiled bribes. weight to the idea that the Act will is only those who are not used to it sible for the behaviour of everyone Quite how the SFO is supposed have to take account of international that are alarmed by it.” acting on its behalf, including associ- to mount a global surveillance and realities before it comes into force. The UK is certainly going to have ates and agents, wherever they may We live in a world where enforcement operation is not clear. Lord Goldsmith appears to be torn to get used to the squeaky-clean be. This corporate offence, of failing Lord Goldsmith launches into a between acknowledging the heavy counter-corruption regime envis- to prevent bribery, can be held at bay it is very important to tackle heartfelt call for an increase in burden that this law may place on UK aged by the Act. Whether or not this by demonstrating that a business has SFO resources at a time when the companies fighting hard to win inter- also hampers legitimate businesses ‘adequate procedures’ in place to corruption because of the agency has sustained serious budget national contracts, and wanting to operating in a cut-throat global envi- counter corruption. But what exactly cuts and is facing a renewed threat endorse a relentless assault on corrup- ronment is the question which no are these adequate procedures? damage it causes of merger with other bodies. “The tion. “We can’t condone corruption.” one seems able to answer.

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Know your customer: due diligence and Tax evasion and professional judgement are vital money laundering © Ikon Images / Alamy

REGULATIONS The new round of US sanctions on the financial assets of Muammar Gaddafi has meant anti-money-laundering rules are under UK anti-money-laundering regulations close scrutiny. But while stories like these attract the headlines, the The regulations apply to a number of ȯȯ monitoring the client’s business issue of money laundering goes far wider. Ian Welsh reports professions and business sectors, in- activity and reporting anything cluding accountants, estate agents, fi- suspicious to the Serious Organ- ȖȖThere is no doubt that money ing apparently legitimate income. LEGISLATION nancial and credit businesses and oth- ised Crime Agency. laundering – whether to legitimise Casino chips can be purchased and Anti-money-laundering rules in the ers. Business covered by the legislation ȯȯ rigorous record keeping, including illegal earnings or to help finance fur- then subsequently cashed out, with UK mean that accountants, other pro- must put in place certain controls to details of financial transactions. ther criminal activity or terrorism – the ‘winnings’ all seemingly above fessional service providers and finan- prevent money laundering including: ȯȯ maintaining management sys- is a major international concern. But board. The list is endless. cial institutions are in many instances tems and employee training to as its exact scale is unclear, profes- Businesses where there are a sig- a first line of defence. In line with leg- ȯȯ checking a client’s identity and the comply with the anti-money- sional and financial service provid- nificant number of cash transactions islation, new clients must satisfy their identity of the business owners. laundering regulations. ers are increasingly required to be have traditionally been favourite prospective service providers with vigilant in their dealings with clients. vehicles for tax evasion and, fre- proof of identity and evidence that Source: HMRC The United Nations Office on Drugs quently, money laundering. On a local their business activities are legiti- and Crime estimates that money level these businesses can include mate. “You need to ‘know your client’ laundering amounts to between 2 trades such as building and plumb- and do your due diligence on them,” per cent and 5 per cent of global GDP ing contractors, taxi firms, pubs and BBA’s Ms Shaw says. “These processes – totalling some $800 billion to $2 clubs, small shops, even hairdress- and maintaining records about clients trillion of illegal activity in 2010. The ing salons. And while an individual provide a very solid foundation for Financial Action Task Force, an inter- front business may be small, criminal fighting money laundering.” denied UK criminals access to has found recent UK government governmental anti-money-launder- gangs will frequently operate a string Mr O’Connell argues that while a assets worth £317.5 million. But moves to freeze the assets of for- ing agency, takes the view that it is of them – as many as are required to checklist of requirements is impor- because there is no threshold eign jurisdictions to be difficult to simply impossible to reliably estimate legitimise illegal income. tant, it is vital that the service pro- amount above which irregularities implement. “Sometimes these are the total sums laundered given the Because they can be used to conceal vider exercises their own judgement must be reported, there is potential drawn so widely that to comply, a scale and complexity of the criminal the proceeds of business from taxa- about the source of a new client’s for SOCA – with, naturally, limited bank would have to conduct new due networks involved all over the world. tion, as well as hiding illegally gener- business. “You need to ask yourself: resources – to be inundated with diligence procedures on its entire And Catriona Shaw, policy director ated revenue, cash-intensive busi- is there something unusual about small cases. Mr O’Connell says: “I customer database on a daily basis. at the British Bankers’ Association nesses are targeted by tax authorities this client, the business and why I think there is perhaps a danger of In the case of a UK high street bank (BBA), agrees: “The scale of the prob- – including Her Majesty’s Revenue am being instructed? Nothing beats information overload, which can be this can run into the tens of millions lem is somewhat of an unknown, and Customs (HMRC) in the UK. professional judgement.” a distraction from getting to grips of accounts,” Ms Shaw argues. despite the raft of anti-money-laun- Tom O’Connell, a Glasgow-based While professional firms do have with the real criminals.” A strong regulatory structure is dering legislation in place. Undoubt- tax partner with the accountancy to exercise their discretion and For banks, there are typically robust also important. But Ms Shaw is con- edly, though, money is laundered firm French Duncan, says: “HMRC judgement, there are further rules procedures for identifying custom- cerned about the disestablishment of through every financial centre.” takes a lot of interest in cash busi- and regulations that must be fol- ers where there is a greater risk of the UK’s Financial Services Author- There is certainly a significant nesses.” Mr O’Connell suggests that lowed by accountants, lawyers and money laundering or other criminal ity, and the subsequent dispersal of array of methods at the disposal of while in the past it may have been financial institutions. activity, perhaps linked to terrorism. responsibility for financial crime to the money launderer. relatively easy for small businesses “We must report to the UK Serious Regulatory expectations are that, a number of agencies. She says: “It’s Cash can simply be smuggled across to quietly keep some transactions Organised Crime Agency (SOCA) in line with ‘know your customer’ not yet clear which new body will be borders and deposited or invested off the books, as most retailers now any instance where we suspect a requirements, banks will undertake responsible for what, and this uncer- in a less rigorous environment and use scanning technology at their client may be money laundering, enhanced due diligence for custom- tainty creates risk.” then transferred elsewhere. Money tills there is a far tighter record of with no minimum amount. And we ers – both personal and corporate The risk being, of course, that in the from illegal activity can be invested income. But this doesn’t prevent must not inform our client that we – that are deemed to be higher risk. absence of established structures, the in property that can subsequently be them being useful money-launder- are doing so,” Mr O’Connell says. Effective legislation is important, criminals may gain an upper hand. sold, with the sale proceeds becom- ing vehicles for crime. SOCA says that in 2009/10 it but it must be workable. The BBA

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ber of the business, who should then take. And, should anything go wrong, decide what action to take. This should being able to prove that a credible, Prevention is be done at the highest possible level.” expert firm has audited them will go Procedures need to be put into place a long way to demonstrate that ‘ade- and strictly enforced, which will require quate procedures’ were in place. With training, but it would also be wise to so many grey areas, it would be easy better than cure enlist professional help to ensure that all to overlook activities that, before now, bases are covered. “The Act is drafted were not considered criminal in nature. When it comes to complying with the Bribery Act, businesses in a way that does make it difficult for Mr Rahman agrees in turn that: “The the non-lawyer to understand,” Mr. Rah- range of activities that could amount need to be prepared. Seeking professional advice to ensure that man confirms. “It cannot be assumed to an offence is not restricted to gifts or your company is fully compliant will ease the process – and help that because the guidelines have been payments.” He asks: “how many firms followed there cannot be prosecution. give work experience to the children to avoid costly, even criminal, mistakes Hindsight will be applied. The question of customers and clients? What if an will be ‘were the procedures in place insurance broker pays for referrals? In adequate in the circumstances in which a redundancy situation, what if the HR When the Bribery Act comes into corruption cases, both in the UK and creating the Act to limit its impact to this company did business?’ This will manager is in a relationship with a per- force this autumn, businesses of all overseas. These cases, many involving bigger firms – it did not do so. There take into account the structure of the son in the redundancy pool? sizes will need to be prepared. As well billions of pounds, span governments is no reason to think that the Act will company, its type of business and the Any disgruntled former employee or as criminalising the act of bribery it- as well as companies of all sizes and only apply to big corporate bodies. level of supervision of, and commit- competitor could trigger an investiga- self, the Act will make it an offence for from many industry sectors. When it Implementation of the Act has been ment to, the procedures.” tion, whether out of malice or because companies to fail to prevent acts of comes to the new legislation, if com- delayed but it is expected that it will they think that there is justified cause.” bribery being committed by an em- panies want to avoid their own costly come into force in the autumn. There EXPERT ADVICE The message is unequivocal: whether ployee or associated persons, which and damaging court cases down the will then be a three-month period be- Professional agencies such as Rah- a large corporate or an SME, the time to will include agents, contractors and line, it is essential that they have a clear fore the Act starts to bite – in that pe- man Ravelli offer ‘health checks’ to act is now. “Any owner or manager of sub-contractors. The Act relates to all picture of what is being asked of them. riod firms are expected to take heed organisations of all sizes. Specialising an SME who thinks that this does not aspects of business, whether with a There will be some guidance pro- of the guidance published under sec- in business crime, fraud, civil recov- apply to them is deceiving themselves,” third party or within the organisation. duced by the government, explains tion 9 of the Act. In fact, because of ery and regulatory matters, Rahman Aziz Rahman concludes. “Any person There has been widespread criti- Mr Rahman. However, this is unlikely the delayed implementation, there is Ravelli is helping to steer a number of who does not prepare for the introduc- cism that the Bribery Act is too vague to answer all questions. “No doubt this already a draft version of that guid- companies through the process and tion of the Act needs to start saving to and not clearly enough defined to be guidance will be in broad terms and no ance available, which was published ensure full compliance. But this needs pay their legal fees.” properly enforced. “This often happens doubt there will be plenty of fact-spe- in September 2010.” to be achieved in plenty of time. when new legislation is implemented cific scenarios where business people Everyone will need to comply with “There is no one-cap-fits-all solution,” which changes the landscape,” says are left wondering what the right thing the new regulations, but the current explains Remi Stumpenhusen of Rah- Aziz Rahman, Senior Partner at inter- to do is under the new Act. But gener- draft guidance is broad in scope. Com- man Ravelli’s International Risk and national law firm, Rahman Ravelli. “The ally speaking, there is no doubt that the panies are told to implement “adequate Defence Coordination Department. Human Rights Act 1998 and the Pro- Act can and will be enforced.” procedures” to ensure compliance – “The key message is: don’t wait. Com- ceeds of Crime Act 2002 are examples but what does this actually mean? panies need to be fully prepared before of legislation which, in parts, led to con- Act now Many are still scratching their heads. the Bribery Act comes into force, not cerns about enforcement. In both cases Small to medium-sized enterpris- “All businesses should read the draft wait until it’s too late.” If companies seek the Acts have survived and flourished.” es (SMEs) in particular, says Mr Rah- guidelines that have been published,” expert advice to ensure they are fully Rahman Ravelli is currently working man, need to take action now. “Par- says Aziz Rahman. “A risk assessment compliant, they have far less chance of For further information, on a number of high-profile bribery and liament had the opportunity when should be carried out by a senior mem- making a costly – and criminal – mis- visit www.rahmanravelli.co.uk

14 RACONTEUR TWITTER.COM/RACONTEURMEDIA FIGHTING FRAUD

Shining a spotlight on Public sector fraud: a breakdown public sector fraud The National Fraud Authority’s Annual Fraud Indicator estimates fraud losses in the public sector will total £21.2 billion this year. Tax fraud is the highest individual public sector fraud loss area with an GOVERNMENT Fraud within the public sector represents a massive hit to the UK estimated £15 billion lost each year. economy. Government bodies are finally getting to grips with this menace by adapting and adopting procedures and technologies that are commonplace in the private sector. But, asks Michael Dempsey, is this too little, too late?

ECONOMY XCISE

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ILLION

HIDDEN £3 B EHICLE V £46 MILLION

ȖȖThe scale of public sector fraud TECHNOLOGY should not come as a great surprise. Piers Harrison is head of public CRIMINAL ATTACKS A huge increase in public spend- sector fraud at the NFA, and he £5 BILLION ing in the decade to 2010 inevitably believes the success of this triggered a boom in scams aimed at pilot paves the way for con- skimming off cash from the taxpayer. certed action on fraud. ILLION PROCUREMENT According to the National Fraud “We have seen how the £2.4 B Authority (NFA) the cost of public use of technology by sector fraud to the UK economy is criminals has led to now £21.2 billion a year, more than the industrialisa- half of the total cost of all UK fraud. tion of fraud. Now TENANCY The breadth of activities the public we need to see hOUSING £900 MILLION sector engages in presents fraud- the industriali- sters with a big target. And in turn sation of coun- OTHER this means that it has been hard to ter-fraud.” GRANT £4.6 billion £515 MILLION manage a consistent fraud-preven- Just how tion regime when so many different has technol- departments and types of spending ogy helped PAYROLL £329 MILLION are involved. But the role of the NFA the NFA is to co-ordinate the actions of public to get gov- OTHER and private sector bodies. Following ernment TAX Public sector £544 MILLION an initial assessment of best practice counter- £15 billion £21.2 BILLION in the private sector, the NFA has fraud work developed an action plan for gov- on track? WELFARE ernment that aims to cut the public Mr Harri- £1.5 billion sector fraud figure by £6 billion over son lists the the next three years. evolution of BENEFIT £1 B Will this laudable aim work out in data analysis ILLION practice? The Cabinet Office cer- tools, through tainly thinks so. Francis Maude, matching TA X CREDITS Minister for the Cabinet Office, has names of tax- £460 million declared a zero tolerance approach payers against to frauds that are stripping reve- benefit claimants, nue from public services. In Octo- to rules and risk- ber 2010 he established a Counter based assessment of Fraud Taskforce charged with taking information hidden in the fight forward. A series of seven vast databases. The lat- pilot projects are already delivering est trend uses software to results and yielding the lesson that trawl through social media the public sector needs to adapt and networks. Information publicly employ technologies common in the available on sites such as Facebook ASION V commercial world. constitutes open-source intelligence E ILLION One of these pilots has already gen- for counter-fraud investigators, and £7 B erated savings of £1 million. A sam- sophisticated software tools can ple of 20,000 tax credit claimants plough through this mass of mate- receiving single person’s allowance rial without the prohibitively expen- was analysed by credit reference sive manpower that would have been agencies. More than 50 per cent of required until recently. the sample sparked an alert, indicat- The NFA does not advocate throw- He defends the public sector Professional services giant Pricewa- Any area where money is spent ing that the claimant was not living ing cash at technology. The point of against accusations that it has been terhouseCoopers (PwC) has analysed and contracts awarded needs to alone. This sample was analysed fur- the pilot projects is to identify eco- slow to pursue fraud with the same public sector fraud across the globe be alert to the potential for inter- ther and letters were sent out prob- nomically effective measures. “You vigour as commercial organisations and concludes that the UK suffers nal fraud. Temporary employees ing the claims, which in turn saw a have to work out which technologies and has lacked a coherent approach from an above-average level of eco- should be screened thoroughly and substantial number of tax credits are both the best and the most appro- to the problem. “In a way, the public nomic crimes in state organisations. local authorities in particular need stopped or amended. priate,” says Mr Harrison. sector is just like the private sector Ian Elliott, a forensic partner at PwC, to step up their vetting procedures, in that it has built defences around recognises that the public sector is Mr Elliott says. Above all, there has each organisation or department, learning the right tricks. “They are to be a sense that the highest level of rather than seeing fraud as a com- starting to use technology such as management views fraud prevention There is a change in mindset mon threat.” Now this is changing data analytics and more is happening as a priority. “The tone must be set rapidly, spurred on by political will to in the way of fraud risk assessments.” from the top.” Just as in the private during tough times, people find it attack waste. A cross-departmental But he warns that investigators need sector, the chief executive must be alert system is arriving at relevant to raise their game as public spending completely on the ball. easier to rationalise fraud parts of Whitehall, flagging up new increases tail off and pay freezes take types of fraud so the entire public effect. “There is a change in mind- sector is forewarned of the changing set during tough times, people find it tactics fraudsters employ. easier to rationalise fraud.”

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