Massive Rise in Fraud as Recession Bites - London Police Overwhelmed

A recent article on Bloomberg.com highlights the huge increase in fraud being investigated by the City of London Police. Detective Chief Superintendent Steve Head, who heads the City's Economic Crime unit, was quoted in the article as saying

"The cases we are investigating involve potential losses of around a billion [UK] pounds (US$1.4 billion)" and "While the rest of the force has seen crime declining, in fraud reporting, we've seen a massive increase."

See http://www.bloomberg.com/apps/news?pid=20601170&refer=special_report&sid=apwv_rCYhOF8 for the full article.

Criminologists have long sought to identify links between crime patterns and poverty / disadvantage. It looks like they will soon have a bounty of data to prove or disprove their theories: a slump in income, a rise in unemployment [especially white collar employees], businesses going bust versus a rise in criminal activity - especially those involving dishonesty & fraud such as financial crime supported with data of arrests and detection by the Police.

One of the fastest growing crimes has been mortgage fraud. Mortgage fraud is a general term used to describe a broad range of intentional criminal actions where the purpose is to materially misrepresent or omit information for a mortgage loan application so as to obtain a loan or to obtain a larger loan than could have been obtained had the lender known the full facts. These actions can include inflating supposed income, reducing liabilities, claiming full time or higher grade employment or appraising the value of the property higher than market rate.

Though these criminal actions are serious, the potential loss to the lender are isolated to the one property. Mortgage fraud schemes such as `shot gunning', `fraud for profit' or `identity fraud' can be far more complex and costly to the lenders. `Shot gunning' involves dishonestly applying for multiple loans simultaneously on the same property and then failing to pay on these additional loans. `identity fraud' occurs whereby a dishonest loan applicant uses the identity of another to obtain the loan and then draw down on the loan without purchasing a property.

`Fraud for profit' is far more complex and can cause losses totaling Millions of Dollars to victimized lenders. This scheme requires the collusion and cooperation of a crooked vendor, real estate agent, appraiser, lawyer / settler and buyer. The group sets out to obtain a loan far in excess of the actual value of the property with no intention of repaying the loan. A successful criminal group can defraud multiple lenders for a number of properties, arrange to pay the first few months installments on the loan before absconding.

Law enforcement agencies are recruiting accountants and investigators with financial fraud experience to help investigate the surge in fraud reports. A greater awareness of these crimes has resulted in an increase in the number of reports being made to the Police.

Intellisec provides forensic investigation services for companies around the world. For more information visit Forensic Accounting.