Sunday May 2, 2021

Restructuring Advisory Partner Geoff Carton-Kelly considers how firms and individuals can address the rising levels of fraud brought about by COVID-19.

The coronavirus pandemic has fuelled a surge in fraud that will be felt for years to come. In 2019 alone, prior to the virus taking hold across the UK, criminals successfully stole over £1.2 billion through fraudulent schemes and scams.

Over the course of the past 12 months, it’s only likely that this figure will have increased – particularly from a business perspective. While some of the cases beginning to materialise will reflect the desperation of distressed businesses fighting to save their future in whatever way they can, opportunistic fraudsters have also taken advantage of the chaos brought about by the pandemic.

The changing face of fraud

The National Crime Agency has already flagged significant abuse of the various emergency schemes put in place by the government to minimise the impact of the business disruption created by COVID-19.

And the rapid switch to remote working last year forced firms to adapt their operational procedures and IT infrastructure almost overnight, creating potential security vulnerabilities for fraudsters to exploit. For example, home networks typically lack the sophisticated cybersecurity of office-based systems, while people working from home alone can often be more susceptible to impersonation-based frauds.

The pandemic has also pushed more commerce online, putting fintech companies that provide payment services at heightened risk. According to Action Fraud, more than £78 million was lost to fraudsters imitating genuine investment firms during 2020, with an average loss of £45,000 per incident.

In some cases, malicious actors are using tactics like identity fraud, where scammers create false identities, often using stolen information, and Authorized Push Payment (APP) fraud, where the victim is manipulated into making large bank transfers to a fraudster, posing as a trusted source such as a bank.

Another common tactic is spear-phishing – where fraudsters send emails purporting to be from senior executives authorising accounts teams to make money transfers or requesting valuable financial information.

We are already starting to see a surge in pension-related cons and fraudulent investment schemes coming to light and expect to see more this year. Many of these cases will have been targeted at people seeking better returns at a time when interest rates are at historic lows.

Scams that offer healthy profits from investing in hotel rooms and car parking spaces have also flourished, as have ‘clone firms’, where crooks use the details of legitimate companies to trick victims into investing.

Protection measures

With all this in mind (and while managing the not insignificant challenges of COVID-19) firms need to be vigilant and ensure colleagues are aware of the threat posed by fraud, as well as having an effective crisis management plan in place that lays out the immediate and appropriate response.

Similarly, individuals should be more alert than ever before parting with cash.

But, in the event of a business or individual falling victim to fraud, what is the best route to recovering lost assets?

Uncovering assets using insolvency remedies

The role of agencies like the Serious Fraud Office and Financial Conduct Authority in the enforcement and punishment of fraud is generally well understood. But less well known is how insolvency practitioners can provide an additional or alternative route to tracking down and recovering assets.

Whether via a compulsory liquidation or personal bankruptcy, insolvency practitioners can use their status to investigate and trace funds in bank accounts and/or enforce against physical assets like property.

Insolvency practitioners have the ability to source important information, interview stakeholders and encourage banks and other parties to provide evidence that will ultimately help trace and return missing money. Notably, these powers often also apply overseas and, acting independently, can be applied quickly across jurisdictions.

Many insolvency practitioners also work with corporate intelligence agencies to source additional evidence by scouring web records and social media. It’s amazing how often fraudsters – or their friends and family – don’t consider the consequences of showing off a new car or home online, which can provide damning evidence in an asset investigation.

As mentioned previously, the chaos of the last year has ultimately presented opportunities that fraudsters continue to take advantage of. However, by having a preventative plan in place and seeking the right expertise should the worse happen, firms can minimise the disruption and continue to focus on the bigger picture.