Author: Nicola Sharp
5 June 2023
2 min read
History has shown us that corporate fraud increases during an economic downturn, and there is even a theory that there is an inverse relationship between interest rates and dishonesty.
Recently, we have seen signs of the truth of that theory, as several high-profile imbroglios point to potentially fraudulent misdeeds.
In the last week, the UK-based software firm WANdisco suspended its shares after it discovered “potentially fraudulent irregularities with regard to received purchase orders and related revenue and bookings, as represented by one senior sales employee.”
This comes on the back of the news of the collapse of the UK arm of Silicon Valley Bank (‘SVB’). It now transpires that SVB Financial Group and two top executives are being sued in the US by shareholders, who accuse them of concealing how rising interest rates would leave Silicon Valley Bank particularly susceptible to a bank run.
The WANdisco scenario is a prime example of the way in which businesses can be susceptible to accounting fraud. Accounting fraud is the intentional manipulation of financial statements to create a false appearance of corporate financial health.
The other major area of rising corporate fraud relates to 'greenwashing' claims and environmental social and governmental (‘ESG’) compliance. Misreporting the company’s actions to protect the environment is a breach of the company’s duty to disclose ESG compliance in a fair and transparent manner.
As a consequence of the failure of SVB in the UK, businesses should be on their guard against scams such as payment frauds and fake invoices. Be particularly wary of requests to change bank accounts from portfolio companies and investors.
In the environment of rising corporate fraud, what are the steps you can take to protect your business?
Putting these measures in place now will not only shore up your defences against corporate fraud, it will also stand you in good stead for the upcoming introduction of corporate criminal offences for failing to prevent fraud.
It is possible that these ‘failure to prevent’ offences will become part of UK law later this year, if amendments to the Economic Crime and Corporate Transparency Bill (the ‘Bill’) are ratified. Further debate on the Bill is scheduled for 27 March 2023.
It is likely that a defence to the failure to prevent fraud offence will be that the company had “adequate” or “reasonable” procedures in place. What constitutes “adequate” or “reasonable” procedures remains to be seen. But taking steps to protect yourself from corporate fraud now will help your preparations for the upcoming changes.
Nicola is known for her fraud, civil recovery, arbitration and business crime expertise, her experience of leading the largest financial disputes and multinational investigations and her skills in devising preventative measures and conducting internal investigations for corporates.