The war on fraud

With phrases such as competitive ‘assaults’ and the ‘battle’ for consumers’ hearts and minds, the business world has adopted a number of military terms into its vocabulary, as well as some technologies, such as digital mobile technology and lie detector software. On major cross-border fraud investigations, security, secrecy and tracking an opponent characterise the modus operandi.

But are there more than superficial similarities between fraud investigators and the military? We believe there are four shared principles – and lessons to learn from the similarities.

Principle one: set clear objectives

“Having lost sight of our objectives, we need to redouble our efforts.” – Anon

The most successful campaigns, whether military or fraud-related, are those that begin with clear, identifiable objectives. This might sound obvious, but is often not in practice.

Fraud investigations, for example, typically start from anonymous tip-offs or vague suspicions. Who is involved? How much money are we talking about? How long has it been going on? To get around this, fraud investigators typically conduct a ‘surgical strike’ investigation to build an initial picture of what has happened. This enables them to present preliminary findings and talk through possible scenarios – only then can an effective strategy be set. Some organisations find this easy and have clear priorities. Others struggle and find guidance from investigators, which is especially helpful in helping them to point out the pros and cons of different approaches and likely outcomes.

Clear guiding principles are needed from the outset, to steer through what can be fluid situations as new facts come to light and new threats emerge. Like their military counterparts, companies and advisers must plan for all eventualities. The scope of the work should cover not just defining the extent of the fraud, but also how to handle various scenarios, potential PR issues and why the fraud arose in the first place.

Principle two: establish a clear chain of command

“I did not suffer from any desire to be relieved of my responsibilities. All I wanted was compliance with my wishes after reasonable discussion.” – Sir Winston Churchill

It is essential to have a strong hierarchy and to establish a clear chain of command. While an army has its generals, colonels, sergeants and privates, fraud investigations are also structured in hierarchical teams, with a partner, senior managers, supervisors and staff.

There is a need for someone at the top to have a complete picture of the investigation and to direct communications so that information is fed up and down the line. While in the armed forces the emphasis is generally on top-down communication, ideally results from the field are also fed into ongoing assessments of how well strategies are working and what needs to be altered.

In fraud investigations, there are regular team briefings along these lines, as well as debriefings to learn from any mistakes.

Principle three: verify your intelligence

“Information is something that you do things with. Data is just something that makes officers feel good. I keep telling them this but nobody listens to me.” – US Army intelligence specialist, Centcom, Qatar, 2003

On fraud investigations, whatever information is gathered must be analysed, corroborated and tested. Scepticism is a much-needed quality in an investigator. No matter how convincing someone’s arguments seem, no matter how cooperative they appear, their statements must always be verified.

Principle four: build a strong team, including allies

“The beatings will continue until morale improves.” – attributed to the commander of the Japanese Submarine Fleet, 1945

On fraud investigations, a team is assembled based on the skills required – this could include forensic and legal experts to trace missing funds and freeze assets; investigators to conduct interviews and analyse the evidence; forensic IT experts to capture electronic evidence from computers; database or document imaging experts for cases involving thousands of documents; experts in offshore financial centres and so on.

This is similar to the range of experts that the armed forces require – from engineers to communications specialists to combat roles such as tanks and artillery. By training and maintaining this wide range of specialities, including a large civilian workforce under its command, the army also ensures it is self-sufficient and has all the experts it needs on hand.

Another parallel exists between fighting wars alongside allies and fighting fraud with an international network of associates and contacts. As large-scale fraud almost always crosses borders, it is essential to have local people ‘on the ground’ who understand the legal, cultural and business issues and who offer the specific expertise your case needs. This may include unravelling offshore trusts or money laundering. When it comes to investigations and prosecutions, discretion is an absolute necessity, as slips of the tongue can jeopardise the case not just in one location, but in all.

What we can learn from the parallels

So, is reflecting on the nature of fraud investigations and their parallels to military campaigns anything more than an intellectual exercise?

We have found that comparisons such as this help to define more clearly the attributes and approaches needed to pursue a case successfully. After all, so much of our fraud work is about pitting one’s intellect against an adversary – thinking the way they do and anticipating their actions.

While we do not expect you to become a military historian, the Sandhurst method of reviewing the past and learning from history seems a good model to follow.

Fraud investigations, like military campaigns, require commitment, stamina, perseverance and sufficient budgets. They are marathons, not sprints, and any company about to undertake an investigation or prosecution should be prepared for the long haul.

Case Studies
Forget the maths, it’s the principle that counts
A bank found itself the victim of fraud.
Although the sums involved were relatively modest, it was keen not be seen as a ‘soft touch’. Despite the costs, it pursued a 100 per cent recovery and criminal prosecutions – setting an important deterrent against future fraud.

The unknown knowns
“As we know, there are known knowns, there are things we know we know, and we also know there are known unknowns. That is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know.” – Donald Rumsfeld, US Department of Defense news briefing (12 February 2002)

And then there are the ones you do not know you know… One long-running fraud investigation involved money judgments in excess of £20m, but the team searched in vain for assets to recover. After 18 months, a crucial piece of evidence emerged from the suspect’s own personnel file. It had not been fed up the chain of command and the connection had been missed.

Guilty until proven innocent
A recent fraud case was on the brink of settlement after seven years, when a routine interview revealed all was not as it appeared. Ongoing background checks opened up a new line of inquiry that uncovered high-value assets, such as a casino in Thailand. As you might imagine, this changed significantly the dynamics of the settlement negotiations.

Loose lips sink ships
Or in this case, make asset recovery much more difficult. When interviewing a suspected fraudster, a company director on the interviewing team gave away more information than he obtained. As a result, the suspect tipped off his accomplices in Switzerland and Germany, who destroyed key documents and emptied their bank accounts. It was only after lengthy proceedings that our client was able to recover the funds.

Andrew Durant is a partner at BDO Stoy Hayward and Andrew Witts is head of the corporate investigations team at Lawrence Graham