Criminals using 'Hustle' fraud to target companies

Published on Saturday 29 August 2009 19:11

ORGANISED criminals are preying on vulnerable smaller companies which are desperate to win business during the recession, leading to an increase in "long firm fraud", experts are warning.

Companies are being told by accountants to be extra-vigilant when approached by seemingly legitimate businesses which have been set up with the express purpose of defrauding suppliers. Such fraudsters tend to wait until they have won the trust of their targets to pounce.

Long firm frauds, which resemble those carried out by the team of professional con artists featured in the BBC TV drama series Hustle, are putting the future of smaller firms under threat, according to experts. Many episodes of Hustle feature gang members succeeding with "long cons", which are more complex, planned and lucrative than "short cons".

Alex McLaren, director of BTG Forensic, part of Begbies Traynor, said: "There are criminal gangs operating in Glasgow and the south-west of Scotland, for example, as we speak. The conditions are perfect now for long firm fraud. Criminals know that companies are desperate to generate sales. Gangs are being set up to target small and medium-sized companies."

McLaren, who is a certified fraud examiner and a criminologist, said the criminals will have a buyer for their goods before they target businesses. Among the businesses most likely to be hit are those which supply consumer goods such as handbags, mobile phones and computers which can be easily sold on.

He explained that the fraudsters will win the trust of their targets, place a few smaller orders which they pay for upfront and then ask for credit for a larger order. The criminals receive the goods, sell them and vanish without making the full payment. Because they are organised gangs, not amateurs, they are hard to trace.

McLaren said: "It's difficult because long firm fraud is treated as a commercial crime. The police are reluctant to get involved, either because of lack of resources or because they don't see it as their role."

Tom Stocker, director of business crime at McGrigors, said the lack of police action means long firm fraud is more common than many realise. As the fraudsters tend to disappear, they are also difficult to pursue through civil action.

Businesses can take precautions against long firm fraud, such as checking records with Companies House. But Stocker said if criminals set up a small firm it would not have to file accounts.

He said: "Companies could very easily go under as a result of long-term fraud. There is no dedicated fraud investigator in Scotland, which I think is something we need."

McLaren said: "Companies should use their business acumen and avoid jumping into deals too quickly."

The public can check for signs that they are buying goods from a fraudster. Hitesh Patel, partner in forensics for KPMG, said advertisements for the sale of "liquidated stock" is one method used by fraudsters to sell goods.

All types of fraud have increased during the economic downturn. KPMG's most recent Fraud Barometer, published in July, revealed that the value of fraud in Scotland for the first six months of 2009 totalled 19.5 million, compared with 24m for the whole of 2008.