Record fall in fraud court cases as lockdown slows legal process

2020 saw a record fall in the value and volume of alleged fraud cases heard in UK courts, according to the latest data released in KPMG’s annual Fraud Barometer. The study, which records fraud cases of more than £100,000 reaching UK courts, reported a 51% drop in the volume of cases heard in 2020 – a total of 180, compared to 369 in 2019 – as COVID-19 lockdown restrictions negatively impacted the efficiency of courts processing.

The COVID-19 pandemic saw the value of alleged fraud cases reach just under £724m, down from £1.1bn in 2019. Roy Waligora, head of UK investigations at KPMG, said: “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 fallout following the COVID-19 lockdown restrictions on the courts.

He adds that disruption and uncertainty make for inviting economic components for fraudsters, adding that 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 expected to hit the courts in 2021, it is evident that progressive measures, such as virtual courts, being put in place to manage the upcoming cases will likely ease the backlog.”

Procurement, loan and mortgage, counterfeit goods, and misappropriation of assets fraud, were the busiest areas in 2020 according to KPMG’s report. Procurement fraud rose by 200% compared to 2019, from £16m to £49m. The value of loan and mortgage fraud ballooned 675% from £9.7m to over £75m 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 £39m to over £202m.

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

KPMG warns that motivation for committing fraud is expected to increase as a result of the economic conditions. Companies should particularly be mindful of insider fraud and embezzlement-related incidents as employers do not know what the ‘new normal’ looks like and internal controls continue to be compromised with staff working from home indefinitely.
It adds that 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 £3bn in furlough money may have been stolen by October 2020.

The government’s Coronavirus Business Interruption Loan Scheme (CBILS) and Bounce Back Loan Scheme (BBLS) has proven critical in supporting over a million businesses stay afloat during the pandemic. The British Business Bank, which is responsible for overseeing the state-backed lending programmes, recently identified over £1bn 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 £26bn 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 £30k BBLS loans on behalf of her employer without their knowledge.

Waligora said: “The year ahead will mark how authorities plan to tackle these furlough-related fraud cases – 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.”

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