Fraud Investigation: A case study

There is no such thing as a typical white-collar crime investigation. Each case turns on its own facts and the issues can vary widely from case to case. What stay the same are the basic techniques in crime investigation.

Complex and serious fraud or corruption investigations require sophisticated techniques drawing on a variety of skills.

The Serious Fraud Office came into being following the Roskill Commission’s realisation that a multidisciplinary approach to fraud investigation was required. Fifteen years on, advances in computer technology, the march of e-commerce and the increased sophistication of banking services requires even more disciplines to be brought to bear. Sometimes, those disciplines can be somewhat surprising.

Some time ago, Kroll Associates was asked to assist in the investigation of corrupt practices at a large UK industrial plant. Like many such operations, the plant relied heavily on services supplied by local contractors ranging from canteen food to specialist building work.

Any investigator asked will say that a company which uses outside contractors should ensure that the use of such contractors is carefully monitored. In this case, the problem started when the company’s internal auditor decided to carry out inspection work. It wrote to all employees and contractors seeking assistance and explaining what it was going to do. It asked that employees and contractors should not hesitate to bring any concerns to its attention. Shortly after the letter was sent out, several anonymous letters were received by the auditor.

The letters were strikingly similar in one respect. Each alleged that certain employees and contractors enjoyed corrupt relationships.

Any investigation is driven by the objectives of those hit by a problem such as this. In this case, it was established that the objectives were: to understand the size of the problem; to understand the financial impact on the company of any impropriety; to ensure that the investigations did not affect the running of the plant or the contractors’ businesses.

At that stage, how the company would deal with anyone found to have committed criminal offences was not decided, although the ability to pursue criminal and civil remedies was recognised.

A team of investigators and forensic accountants was put in place, having ensured that all potential documentary evidence was secured. That team was soon supplemented by a team of experienced computer forensic investigators who were able to obtain relevant evidence from the company’s computer system, incriminating emails and the like.

Surveillance was mounted on various suspects, and investigators were detailed to look closely into the backgrounds of suspects for signs that they were living beyond their known incomes.

Eighty interviews of suspect employees and contractors were undertaken and a number of features came to the fore. One suspect was found, by his own admission, to have secreted large sums of cash at his home. At the more ridiculous end, several interviews turned on the chain of ownership of a garden shed.

The issue that perhaps most surprised (and concerned) everyone was the involvement of a contractor who was alleged to have dubiously obtained highly technical engineering work which his company did not have the skill to fulfil.

It turned out that a piece of equipment had not been fitted properly. The interviewer asked where the equipment was. The interviewee pointed to a shed, from which a good deal of noise and steam were emanating. Expert engineering investigators were quickly drafted onto the team.

Ultimately, all the issues were resolved in a satisfactory way, and a number of people no longer work at that factory. Cases involving lawyers, forensic accountants, investigators, computer experts and engineering experts do not arise every day, but when they do, those brought in to deal with the problem need to be able to work together in a constructive way. An investigator, of any discipline and background, who does not understand the needs of lawyers involved in the case, is no help at all.

In any criminal investigation, legal proceedings may not always ensue but one has to assume that they will. Lawyers require evidence which will be both admissible and relevant. Such evidence may ultimately be required in a criminal prosecution, in civil proceedings for recovery and in an industrial tribunal.

While the investigator will be guided by lawyers, it is vital that he or she understands and thinks about the potential consequences of any investigative actions. In the example given, the investigators understood that the matter had to be handled sensitively, ensuring that the legal rights of all suspects and witnesses were properly respected.

Anonymous allegations must be treated with great caution. The subject of an anonymous allegation may well be innocent. Perhaps that hardly needs to be said, but it has to be in the forefront of the interviewer’s mind. An accusatory approach can lend such an allegation an air of credibility, which it does not deserve in the absence of good independent corroborative evidence.

Sensitive and difficult issues arise in any investigation. Investigations which are properly conducted are always the result of the close working relationship between the lawyers and investigators and that is the key.

Andrew Jackson is managing director of Kroll Associates and the firm’s European counsel.