Fraud, fraud don't get on board...

Before the April downpour, when drought conditions were declared across large parts of England, my curious mind wondered what would be exposed if the water level continued to drop on our local lake. 

No doubt, all kinds of human detritus exist in its depths including evidence of criminal activity such as the stolen bicycle, or the supermarket trolley taken for a joy ride. Then there's the possibility of a more sinister find that would warrant an examination of ‘missing persons’ files. 

What is certain is that the lake is not the resting place of the missing millions (or is it billions?) from banks' balance sheets as a result of financial fraud. Nonetheless, there is a similarity between my local watery scene and what happened in 2008, once the flow of cash from the money markets dropped to a trickle.

Unfortunately the cash lake at the heart of the credit crisis already had a tear at the bottom. This meant it was leaking away happily under a sparkling surface as fraudsters siphoned off their ill-gotten gains. Once the markets froze over, it rapidly began to empty faster than it could be filled up. 

You will notice that figures for financial fraud have increased in recent years. This is mainly because the lakeside beauty spot of the pre-crisis world had its muddy shores exposed and institutions were forced to examine their alluvial, unconsolidated balance sheets. 

In the light of a new dawn, they began putting numbers on losses through fraud but unfortunately many of the fraudsters were long-gone before their activities were detected, as witnessed by the £50 million mortgage fraud that involved the Cheshire Building Society. 

So far, there have been only two convictions in this case, with Saghir Ahmed Afzal banged up for 13 years and surveyor, Ian McGarry, serving seven years. 

Very little of the £50 million has been recovered and the sentence handed down to Mr Afzal reflected the fact that over £26 million of ill-gotten gains was transferred to Pakistan where, according to the Serious Fraud Office, they remain under the control of Mr Afzal, or his brother.


Given this troubled destination, we can only hope that Saghir Afzal and Nisar Afzal were motivated by the prospect of an exotic lifestyle rather than furthering some high-minded ideals through terrorist means.

A shocking story... and one from which I am about to make some salient points. 

Number one: you need to make protection against fraud a priority. If you are not up to speed in this area, dust off the FSA's guidance and study all the updates. Then move on to OFT guidance on fraud and familiarise yourself with the Government's Financial Sanctions Register. Apply all that you learn. 

Bear in mind that brokers are gatekeepers of the financial system and an unannounced visit from the FSA or SFO will shatter your reputation no matter how cleverly you have been deceived. Not to mention the stress of living under the threat of criminal proceedings. 

Your second line of defence is to be savvy because the successful financial services fraudster is an expert in deception, so you need to be able to trust your gut instincts. Beware of the persistent client and if the figures look too good to be true, they probably are.  

If something doesn't fit, whether it's the client's car, general attitude or evidence of diversion tactics, start sniffing around. But make sure you report your suspicions. FSA rules are explicit on this and you can't drop a client whom you may suspect of attempting fraud without sharing your misgivings with the regulator and thereafter following instructions.  

Most importantly, see the assets – ‘kick the bricks’ as they say - and when you have done that photograph them for the file, if at all possible. 

In your gatekeeper role understand that financial services fraud is far from a victimless crime. For example, when there is a whiff of fraud, shareholders tend to flee leaving a lender in crisis and brokers with a poorer market place. 

Get on board with lenders to help prevent fraud. One lender recently had to send out reminders for brokers to copy counterpart driving licences in addition to the plastic card, which are easily forgeable, whereas the counterpart comes with the benefit of a water mark.   

Personally, I am appalled that a lender felt the need to do this when as brokers we should already be living and breathing anti-money laundering regulations.  

Arriving at point number eight, I urge you to avoid cutting corners and to make sure any rose-tinted spectacles are locked safely away.  

Things might be tight, or even desperate in today's economy, but allowing your skills and experience to be hijacked by a fraudster will have very unfortunate professional and personal consequences... I will leave that to your imagination.   

If you are in need of further encouragement to detect and report potential fraud, you can also imagine that the next bar you see isn't of the cocktail variety but rather one of a set you are locked behind!