2020 witnesses record fall in value and volume of alleged fraud cases heard in UK courts

The COVID-19 pandemic saw the value of alleged fraud cases reach just under £724 million (£723.9 million), which is down from £1.1 billion in 2019. One film piracy case, which if successful would have cost the industry an estimated £200 million, nearly doubled the value of fraud committed up to July last year. By excluding this outlier, the data for the whole of 2020 demonstrates a significant decrease in the value of fraud cases compared to the prior year.

Roy Waligora, head of UK investigations at KPMG, explained: “As we reflect on the 2020 fraud data, the brewing backlog of untried cases continuing to build up like water behind a dam cannot be ignored. Businesses, and the general public, must be cognisant of the fact that the drop in both the value and volume of fraud cases is not reflective of a downturn in economic crime, but rather fall-out following the COVID-19 lockdown restrictions imposed on the courts.”

Waligora added: “We know that disruption and uncertainty make for inviting economic components for fraudsters. COVID-19, coupled with Brexit, which tipped the scales towards the end of 2020, means that 2021 will remain at high risk for fraud and economic crime. While a tsunami of fraud is still fully expected to hit the courts this year, it’s evident that progressive measures, such as virtual courts, being put in place to manage the upcoming cases will likely ease the backlog.”

Thematic trends

Procurement, loan and mortgage, counterfeit goods and misappropriation of assets fraud were the busiest areas in 2020. Procurement fraud rose by 200% compared to 2019, up from £16 million to £49 million. The value of loan and mortgage fraud ballooned by 675% from £9.7 million to over £75 million with the number of cases falling by one.

While the number of cases dropped from 19 to five in the 12-month period, the value of fraud secured through counterfeit, pirated or below stated quality goods activities rose over 415%, from £39 million to over £202 million.

Tax fraud, including tax refunds, evasion of duty, evasion and VAT fraud fell by 93% from £721 million to £54 million over the same period.

Romance fraud, where cases often link to the online dating practice of ‘catfishing’, halved in value. However, the number of cases remained constant. In one case, a serial fraudster convinced women he had met through a dating app to give him £440,000 under the pretence that he was a successful currency trader who could invest their money, which he subsequently used to fuel his lavish lifestyle.

Fraud cases with addiction listed as the purported motivator rose from 16 to 21 and grossed over £7.3 million in 2020 compared to £7.5 million the previous year. Perpetrators scammed eBay users, stole from employers, churches, Government benefits and charities. There was even an attempt to blow up a cash machine. All of these episodes were perpetrated to fund either gambling or drug addiction.

Mental toll of lockdowns

“The rise in addiction-related figures suggests that indications of the mental toll of lockdowns are beginning to emerge in our data, as more spare time leads to greater susceptibility to addiction and increased financial pressures,” observed Waligora. “Aside from individual cases arising from lockdown and COVID-19, economic pressure on businesses may well drive an increase in manipulated earnings.”

Given that all elements of the classic fraud triangle in which fraud thrives – ie motivation, opportunity and rationalisation – are heightened throughout the COVID-19 crisis, the prediction for increased cases remains. Motivation for committing fraud is specifically expected to increase as a result of prevailing economic conditions. In particular, companies should be mindful of insider fraud and embezzlement-related incidents as employers don’t know what the ‘new normal’ looks like and internal controls continue to be compromised with staff working from home on an indefinite basis.

Furlough-related fraud will begin to make its mark in 2021, while the extent of the impact of these Government schemes will not be fully evident until detected and investigated by 2023. Last year, early estimations by Government watchdog the National Audit Office indicated that more than £3 billion in furlough money may have been stolen by October 2020.

The Government’s Coronavirus Business Interruption Loan Scheme and Bounce Back Loan Scheme have proven critical in supporting over a million businesses to stay afloat during the pandemic. The British Business Bank, which is responsible for overseeing the state-backed lending programmes, recently identified over £1 billion of fraudulent loan requests with more on the horizon.

In some cases, organised criminal gangs have hijacked claims by taking the identities of taxpayers. In others, employers claimed payments, but continued to keep their employees working. The full scale of this fraud could result in losses of up to £26 billion for the taxpayer.

Fraudsters and investigators alike will be monitoring how heavily HMRC will be clamping down and penalising fraudsters in such cases. In November, an employee pleaded guilty to making eight separate fraudulent claims for £30,000 worth of Bounce Back Loan Scheme loans on behalf of her employer without their knowledge.

Virtual courts

The establishment of virtual courts could be the answer to easing the backlog of 2020 cases. A recent poll conducted by KPMG UK, in partnership with Baker McKenzie, found that 71% of respondents had participated in virtual hearings compared to 44% pre-COVID-19, with the experience being cited as overwhelmingly positive by more than half.

Cost-effectiveness and efficiency were perceived to be the key benefits, although some respondents felt that this format was more advantageous in certain contexts, with a preference for legal or technical issues versus family disputes.

Waligora said: “Although we now have a vaccine in place, the uncertainty around COVID-19 and its layered impact will not wane. We will feel its reverberations in many ways. The full extent of the fall-out from COVID-19 is yet to be seen and fraudsters will continue to adapt.”

As far as Waligora’s concerned, the year ahead will mark how authorities plan to tackle these furlough-related fraud cases, either through enforcement or amnesty. “Given the fact that the cost of trying to recuperate losses and investigate fraud on these small loans would dwarf the value of the actual fraud for both the bank and the Government, it may be that the circumstances favour the criminal. Watch this space.”