Fraud: a booming business

The Midlands is suffering an upsurge in business fraud. Tim Green on why the region is so attractive to fraudsters and how the problem can be tackled

Fraud in the Midlands is a booming business. According to published research by BDO Stoy Hayward, the Midlands accounted for 60 pence in every pound lost through fraud in 2006. Early figures for 2007 show the trend is worsening. In the first six months of 2007 business fraud rose by 42 per cent. The money lost to VAT fraud in the same period has already surpassed the value of VAT fraud for the whole of 2006.

Frauds are not only costing more, they are also getting bigger. Over the last 12 months the number of frauds worth over £50,000 in the Midlands rose by one third. Other research shows nearly half of all business fraud is committed by employees at board level.

In trying to defeat fraud, the first question being asked by the region’s professionals is, why the Midlands? One answer is that much of the increase has been caused by VAT fraud and this is a type of deception which seems to particularly affect the Midlands. VAT frauds are a fraud upon customs committed by criminals selling goods among themselves and dishonestly claiming back VAT.

The Midlands economy is heavily orientated towards the import and export of consumer goods and the region serves as a distribution hub for the whole country. It may well be that criminals have discovered that is easy to disguise fraudulent trading within the busy Midlands import/export trading environment.

It can also be argued that crime is as much prone to fashion as handbags or shoes and that because of other crime-fighting successes, fraud has become more fashionable. For example, the hold-up of banks by armed gangs does not seem to happen anything like as regularly as it did in the 1970s, and the illegal raves that were so common in the 1980s have all but vanished. Tough police action backed up by the courts has deterred many from robbery and organising illegal raves.

The recent high profile successes of Midlands police forces in dealing with gun and drug crime, and the indeterminate sentences that follow conviction, may have deterred criminals from these activities. On the other hand, only 15 per cent of business fraud leads to a prosecution and sentences rarely reach double figures.

Combine this with the massive profit that can be made from organised deception, and it becomes possible to see that the increase in fraud in the region is simply a result of criminals making a rational choice based on an analysis of the risks and rewards of different types of crime.

Calling the police is not the only answer. In fact, the burden placed on a business by a police investigation may deter some small and medium sized companies from fighting fraud at all.

In the Midlands, steps are being taken by banks, accountants and lawyers to remind themselves that fraud can also be fought by civil action. That way the client remains in control of the process, cases can be settled with the minimum of publicity and assets can be traced discreetly without damaging business confidence.

Whatever the reasons for the Midlands’ propensity to fraud, the local business and professional communities are coming together to fight the epidemic. In offices throughout the region, lawyers are reminding themselves of the possible remedies available to them should they come across fraud.

There are probably a number of reasons why fraud in the Midlands is a booming business and, given that fraudsters are practised liars, the local community may never know exactly why the Midlands is targeted. But for the proactive lawyer, one thing is sure – for those able to advise clients on fraud prevention, investigation and prosecution, the upsurge in fraud is an opportunity to win confidence and lever business. After all, the most successful lawyers don’t just ask questions, they provide their clients with the answers.

Tim Green is a barrister at St Philips Chambers currently on secondment with Shoosmiths