Defeating the fraudsters

Thanks to the Serious Fraud Office, corrupt shipping tycoon Abbas Gokal will spend until at least 2001 in prison for his part in defrauding Bank of Credit and Commerce International customers of their life savings. But those of us charged with the job of trying to catch fraudsters need to learn our lessons a lot faster.

The 14-year sentence Gokal received for his part in the $13bn BCCI scandal is the longest ever imposed in an SFO prosecution. As chairman of the Gulf shipping group, he was the key figure in a deep-rooted and well-camouflaged conspiracy with BCCI to steal money from the bank’s depositors and to con its auditor, Price Waterhouse.

Gokal relied on a raft of his senior managers to lend credence to his deceptions and was prepared to mislead a number of more junior employees about the purposes for which their signatures on documents were required. BCCI had its own “factory” dedicated solely to the production of false documents. Some staff physically collapsed under the strain of having to create so much paper and juggle millions of dollars in fictitious transactions.

Together Gokal and BCCI moved money in circles around the world, all the time trying to persuade outsiders that both BCCI and Gulf were profitable and solid. To crack the fraud, we had to map out the money trail.

This required gathering documentation from many different banks in a number of international jurisdictions. Many of Gokal’s private bank accounts were held in Switzerland, a country well-known for its tough laws on banking secrecy. But, perhaps surprisingly, the Swiss banks were actually able to provide the SFO with more information than a UK high street bank.

In Switzerland there is a legal obligation for banks to keep detailed records on individual transactions for 10 years. But in the UK we found that many of the supporting details of transactions had been destroyed.

Nowadays money laundering regulations require that UK banks keep supporting records for five years.

But the guidance notes which explain these regulations are not mandatory for authorised banks and their retention policies on original documents are still largely determined by cost considerations.

These policies can be a formidable obstacle to an investigation. Tougher UK laws on document retention would significantly assist in the fight against fraud.

By the time SFO investigators arrived on the scene, Price Waterhouse had spent years trying to penetrate the wall of silence at the bank. It felt increasingly uncomfortable about the quality of information it was receiving from its client, and by the end of its time the firm was investigating the honesty of those who had hired its services.

All the textbooks tell us that there are few methods of detecting fraud when there is determined collusion between parties on both sides of a transaction. While Price Waterhouse had suspicions, it is a brave bank auditor, mindful of the damage which can be done to thousands of innocent depositors, who challenges the bona fides of its senior management without first compiling a considerable dossier of evidence.

Budgets for specialist accounting services at the SFO have been greatly reduced since the height of the Maxwell and BCCI inquiries. Accountancy budgets for fraud squads, other than those of the Metropolitan and City police forces, are almost negligible. As a result, many police fraud inquiries are commenced but fewer and fewer are successfully concluded.

Despite annual fraud losses totalling several billion pounds a year, police resources to deal with the perpetrators remain minuscule compared to those for other serious crimes. Many in the business community are weary of prosecutable cases being dropped by dispirited fraud squads. But although the Gokal case shows that the SFO can win the large cases, the business community may have to accept that in future it should foot at least some of the bill.

Perhaps it is time for companies to pay premiums into a mutual fraud insurance scheme, designed specifically to meet the cost of investigating any fraud in excess of, for example, £500,000. Persistent victims of fraud would find their premiums increased as with any other insurance.

The funds raised by the scheme could be used to appoint forensic accountants and other experts to help the SFO and the police to carry out their enquiries. The deterrence of fraud would also be much greater than it is today. New ideas and approaches to this situation should be examined.

But new rules on document retention and bigger investigation budgets will only get us so far. The Gokal case also underlines the fact that today, large-scale financial fraud ignores international boundaries. With money moving around the world’s financial centres with great ease and speed, the need for co-operation and co-ordinated action by the world’s authorities has never been greater.

Unfortunately, many countries (principally members and former members of the British Commonwealth) refuse to assist any criminal investigation at the investigative stage. This allows fraudsters to evade prosecution and to continue to profit from their criminal actions.

We managed to open doors which had been slammed shut, but a strong legal entitlement to the information can be useless if people will not answer your phone calls. When you are chasing money, time is vital. It is easy to get bogged down in bank accounts, court injunctions and the minutiae of a fraud and to forget that a successful investigation often depends on your ability to deal with people.

The need for co-operation between international authorities has led to the creation of SFO powers to assist overseas investigators and to the establishment of a Mutual Legal Assistance Division at the SFO. The aim is to show other countries that the UK will assist them in their efforts to seek information and documents from entities based in this country. There will, however, always be nations and territories where the establishment of such an office would be bad for business.

Ultimately, however, all the hard work comes to nothing if you cannot explain the evidence to the jury. While the debate over whether a jury is suitable in complex fraud trials rumbles on, the Gokal case shows that it is possible to explain a complex fraud to the man or woman in the street if you tell your story in a way they can understand.

We used hi-tech computer graphics to guide the jury through a complex trail of money that stretched around the world. We deliberately simplified complex documentary evidence and schedules to produce a series of colourful pictures and moving images that helped the jury to retain the idea of circular money movements throughout the trial. We were able to remove the inherent complexity of fraud trials and present the jury with images that were striking and easily understood. It was not easy, but they did get the message

Accountants and lawyers must continue to simplify in order to clarify, unlike fraudsters who complicate in order to fabricate.