Ros Wright CB QC

1

Trends in corporate fraud and ways to combat
them

• Ros Wright CB QC
• Chairman
• Fraud Advisory Panel
• 12th February 2008

2
Cost of Fraud to the UK

• Fraud costs the UK over 13.9bn per annum or 330
  per person.1
• Losses of nearly 11m in robberies and other
  raids against the banks in 2006
• Violence against bank staff reported to the
  police increased 30 in 2006.2
• 1 Source The Nature, Extent and Economic
  Impact of Fraud in the UK Report for the
  Association of Chief Police Officers Economic
  Crime Portfolio
• 2 Incidents of assaults reported to the police.

3

• Fraud losses of 428m (now thought to be in
  excess of 440m see below) against plastic
  payment/credit cards in 2006.1
• Collateral losses arising from a single ram
  raid can exceed 750,000.2
• The Association of British Insurers estimates the
  total cost of fraud to the UK is in the region of
  16 billion each year, or 650 per household.
• The harm to society caused by financial crime is
  second only to that caused by Class A drugs, and
  more than that due to people trafficking.3
• The proceeds of financial crime fund other types
  of serious criminality, particularly drug
  trafficking and terrorism.
• 1 Source APACS
• 2 Includes cost of building repairs, equipment
  losses, loss of business, staff counselling etc.
• 3 Source Home Office

4
Typology of frauds on banks

• Cheque Fraud
• Cheque fraud losses fell from 40.3m in 2005 to
  30.6m in 2006.
• Data-compromise fraud
• Phishing and pharming and Vishing over a
  voice over internet protocol phone line.
• In 2006 total losses for online banking fraud
  from scams such as phishing and Trojans reached
  33.5m. There were 14,156 phishing incidents
  last year up from 1,713 in 2005.

5

• Insider dealing/market abuse
• Insurance Fraud
• Insurance Fraud losses in 2005 estimated in the
  region of 550m per annum.

6

• Investment Frauds
• 3 sub-types (a) fraud in which investors do not
  believe that investments are FSA-authorised (e.g.
  advance fee/some high yield investment frauds
  involving secret inside information (b) frauds
  in which investors wrongly believe that the
  investments are FSA/other regulated and (c)
  frauds in which investors correctly believe that
  investments are FSA/other authorised.

7

• Lending Fraud
• 7 seven fraud categories personal loan fraud,
  credit card loan fraud current account fraud
  credit card account fraud mortgage fraud
  uncleared effects fraud and other secured
  lending fraud.
• Early data collected suggests that lending fraud
  losses in 2006 may be in the region of 160m to
  180m.

8
Payment Card Fraud

• Frauds on issuers and merchant acquirers of
  debit, credit and charge cards
• Payment card losses in 2006 down 11.4m on 2005
• Counterfeit card fraud 99.6m
• Card Not Present (CNP) fraud - online, phone and
  mail order fraud 212.6m
• Lost/stolen card fraud 68.4m
• Card ID Theft 31.9m
• Mail non-receipt 15.4m
• Total 428 million
• Source APACS

9
Payment Fraud

• 3 categories
• fraudulent encashments
• conversion fraud and
• forged instruction.
• Payment Fraud losses in 2006 72.2m

10
Other types of fraud

• Identity fraud
• Boiler rooms
• Long-firm fraud
• Cyber-fraud
• Theft by insiders

11
Principles of good governance require that a
business is expected

• To conduct its business with integrity
• Have the highest regard for the interests of its
  customers
• Organise and control its affairs effectively for
  the proper performance of its business activities
  and be able to demonstrate the existence of
  adequate risk management systems
• Be transparent in its business arrangements
• Maintain and be able to demonstrate the existence
  of adequate financial resources and adequate
  insurance
• Deal with regulators in an open and co-operative
  manner.

12
A clear fraud awareness policy

• Means having a general review of robustness of
  existing systems, procedures and controls in
  preventing fraud

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• a means for regular testing of such controls
• the identification of assets (including corporate
  information and plans) most at risk
• an appraisal of the threat of fraud on those
  assets and how it might manifest itself
• the means of damage limitation and recovery of
  funds if fraud occurs
• an unequivocal statement that all fraud offenders
  will be prosecuted
• the steps to be taken in the event a fraud occurs
  and who is responsible for taking action
  including
• assigning responsibility for an instant response
  to the occurrence
• recovering funds
• dealing with the media
• preserving evidence and reporting to the police

14
Contact Details

• Web www.fraudadvisorypanel.org
• Tel [phone]
• Post Fraud Advisory Panel
• PO Box 433
• Chartered Accountants Hall
• Moorgate Place
• London
• EC2P 2BJ