Boom in fraud … and there's worse to come as credit crunch bites

Published on Monday 28 July 2008 22:13

FRAUD cases totalling more than £22 million have come before Scottish courts in the last six months – and homeowners and bank customers are being warned the credit crunch will send white-collar crime soaring further.

Investors, banks, businesses and account holders have all been hit by a surge in fraud, which has seen judges deal with 12 major cases, averaging more than 500,000 each, in the first half of the year.

Last night, experts claimed the figures from the KPMG Fraud Barometer were merely the tip of the iceberg, and said crime was draining funds not just from businesses, but from cash-strapped householders.

Individuals will see their premiums hiked as a result of insurance fraud and could have to deal with the inconvenience and distress of having their bank accounts emptied in so-called "skimming" scams.

The barometer looks at major court cases across all regions of the UK on a six-monthly basis.

The latest figures compare to 2.7 million over seven cases in the same period last year.

KPMG has warned the figures are likely to get worse as the full impact of the credit crunch unfolds, and the Financial Services Authority has recently called on lenders to step up their defences against mortgage fraud.

Professor Mike Levi, an authority on fraud based at Cardiff University, told The Scotsman: "I think it's probably true we can expect a lot more fraud over the next couple of years because a lot of companies who were trading honestly turn to fraud when things get tight, if only to keep going. They may not think of themselves as fraudsters but are in fact trading when they don't have a chance of repaying their creditors.

"Businesses employ people, so if they lose money to fraud, then other people lose their employment. Some of them could be committing fraud to keep going and can rationalise it as helping the people they employ as well as themselves."

He said that card skimming mainly caused "inconvenience" for victims but it could also be distressing. "People do feel a sense of personal invasion," he said. "Other frauds – for example insurance frauds – raise premiums and we pay for indirectly."

According to the research – which looks at fraud cases where amounts exceed 100,000 – organised gangs are the main offenders and are increasingly targeting investors and banks as opposed to the public sector.

It found fraud across the UK is up 50 per cent to 630 million in the first half of 2008 and the researchers say mortgage fraud is starting to impact upon the figures.

The financial sector has been the main target of the spike – being hit with more than half the value of all the crimes. Fraud against banks across the UK has totalled more in six months than in any previous year in the 20-year history of the barometer.

There were nine cases of mortgage fraud worth more than 20 million in the first half of this year, compared to just ten cases at 3.7 million for the whole of 2007.

Ken Milliken, head of forensic for KPMG in Scotland, said the data was "worrying". He said mortgage fraud cases starting to come through the courts could be a sign of things to come.

"The cases in this period's Fraud Barometer largely predate the credit crunch in terms of when the frauds were committed – the fear is that we will not see the real and full fraud impact of the crunch for another six or 12 months or even more, as businesses start to take a closer look at their operations in this difficult economic climate," he said.

"The signs are that we could end up seeing some substantial losses being suffered."