Author: Nicola Sharp
5 April 2023
4 min read
Nicola Sharp, of financial crime specialists Rahman Ravelli, considers the statistics that show that UK fraud is back to pre-coronavirus levels.
In what will not be viewed as the most welcome of statistics, the total value of UK fraud appears to have risen to its pre-pandemic level.
KPMG reported that the total value of fraud cases (with a value of £100,000 or more) reaching the courts last year was £1.12 billion. This was a 151% increase on the total for 2021. But, perhaps more significantly, it matches the £1.1 billion figure for 2019, which was the last year before coronavirus struck.
While such statistics can be discussed at length, chewing over the numbers does not tell us the full story. To do that requires an examination of the reasons for those numbers. The return to pre-pandemic fraud figures is an obvious and newsworthy benchmark. But there are other issues worthy of consideration.
To take an obvious one, we do not – for now, at least – appear to be witnessing the anticipated leap in fraud that was feared as a result of lockdown. The thinking was that the increased digitalisation of procedures that was made necessary by the pandemic would usher in an era of more fraudulent activity, as many looked to take advantage of new opportunities to make illegal gains.
That does not seem to have happened. Or if it has, it has not made its way through the court system yet. For now at least, it seems that fraud has only gathered pace since the return to offices and workplaces gained momentum.
KPMG’s report pointed out that there was a rise in the total value of reported fraud cases heard in 2022. Yet that rise was largely driven by five high-value cases. Those cases amounted to a total value of £648 million: more than half of the headline figure of £1.12 billion for last year.
While it would be wrong to say that the five cases skewed the 2022 statistics, they certainly beefed up last year’s total fraud figure. This may have left us with a slightly misleading snapshot of the full situation in the UK. Conversely, however, this handful of huge cases may accurately reflect law enforcement agencies’ efforts to manage resources by targeting those who are orchestrating the largest, most complex and high-value frauds.
Such an approach may partly explain KPMG’s statistic that the volume of cases actually fell by 27% last year. Only a supreme optimist would argue that this should be taken as evidence that incidents of fraud are becoming less common. A more realistic assessment would be that this reflects the lack of criminal fraud charges being brought. This may be due to a lack of resources for law enforcement agencies, which leads to a decline in the number of fraud investigations being opened which, in turn, means less prosecutions and less cases coming to court.
As the UK is generally acknowledged to have been in the grip of a fraud epidemic there is, in theory, more work that could find its way into the SFO in-tray. Whether this is classed as wrongdoing that is part of this apparent return to pre-pandemic fraud levels, the delayed effect of the much-anticipated, lockdown-related fraud or even part of any possible rise in ESG (environmental, social and governance) fraud, the SFO looks set to be facing more challenges. These challenges come as the Economic Crime and Corporate Transparency Bill looks set to introduce an offence of failure to prevent fraud and boost the SFO’s intelligence gathering powers under Section 2A of the Criminal Justice Act 1987. This year will also see the agency facing the task of appointing a new Director. It has, therefore, a lot to deal with.
Any agency struggling for manpower and / or equipment may well be reluctant – or actually unable – to take on fraud investigations; especially given the complex, lengthy nature of many of them. This has been an issue the National Audit Office has raised. It has also been echoed by the criticism levelled at Action Fraud, the UK's national reporting centre for fraud and cybercrime, which has been accused of not being fit for purpose after struggling to cope with the volume of reports it receives. The idea that less cases in court is a cause for celebration is, to put it mildly, misguided.
It should also be remembered that KPMG’s statistics relate only to high-value fraud cases that have reached court. They do not include those alleged offences involving less than £100,000 that have reached court or those allegations of all sizes that have either been settled, remain under investigation or are awaiting their “day in court’’.
The general public remains the most targeted group by volume. While reported frauds against the public decreased overall by 22%, the issue of how much of all fraud is being reported is a matter for debate. It is also unlikely that this apparent trend (however accurate it is) will continue through 2023.
The cost of living crisis has already seen the public targeted through frauds such as the recent energy rebate scam. There are likely to be more. There may also be an increase in low-value frauds, as many people turn to fraud as they face increased financial difficulties. It is noteworthy that KPMG identifies a geographical shift of sources and motives for fraud away from the traditional base of London to regions more likely to be affected by the declining economic landscape.
For the corporate world, it is worth highlighting that embezzlement remained the most common fraud type in 2022. This may come as no surprise. But it is particularly relevant bearing in mind that directors are now facing the prospect of having to produce a statement on the company’s fraud measures in its annual report. And it serves to re-emphasise the need for companies to guard against fraud by employees, agents or others they deal with, and respond swiftly and appropriately whenever fraud is suspected or reported.
Otherwise they will face the unwanted prospect of being added to the next round of statistics.
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.