Report points to alarming surge in UK money laundering

New research from BDO LLP, the accountancy and business advisory firm, shows that both the total value and number of reported cases of money laundering has surged in the UK.

BDO_logo_300dpiThe latest FraudTrack report, which examines all reported fraud cases over GBP 50,000 in the UK, finds that the total value of reported money laundering related to fraud offences has risen to GBP 288 million compared to GBP 70 million in 2012 representing a total value increase of over 309 percent on the prior year. The actual number of reported money laundering cases meanwhile has also risen from 33 in 2012 to 39 in 2013.

The largest cases of reported money laundering include:

GBP 170 million laundered through a bureau de change in Notting Hill

GBP 52 million laundered by a courier in the East Midlands

GBP 20 million laundered as part of a bogus marriage scam ring in London

The report’s author, Kaley Crossthwaite, Head of Fraud at BDO LLP, commented: “Money laundering can take many different forms but the common thread is the supposed legitimate investment of illegal funds to conceal their source. The complexity of the investment can often make it very difficult to detect and, even when found, can take years and vast expense, often to the tax-payer, to unwind.

“Reported cases of money laundering have surged in 2013 both in terms of value and number of cases driven largely by criminal greed. This may be partly down to an increase in organised crime activity however the demand for transparency in the financial services sector is also surely playing a part. The laundering of ill-gotten gains is largely carried out through the financial services sector and the increased legislation and compliance imposed on largely unsuspecting businesses operating in this sector seem to be uncovering increasing numbers of illegal transactions that may have historically been swept under the carpet.”

Fraud in Financial Services

In terms of sectors, fraud in the Financial Services industry now accounts for 51 percent of all reported fraud in the UK by value and over 25percent by number of reported cases. BDO’s FraudTrack finds that while the total amount of fraud has fallen from GBP 1.37 billion in 2012 to GBP 1.05 billion in 2013, the total value of Financial Services fraud has risen from GBP 473 million in 2012 to GBP 532 million in 2013, with the number of frauds in the sector rising from 122 in 2012 to 132 in 2013. BDO believes that the increase in value and number of frauds reported in the sector can be attributed to increased regulation and compliance driving greater transparency.

BDO’s Kaley Crossthwaite added: “At face value, fraud in the Financial Services sector would appear to be on the march, however we need to give this context. We firmly believe that the ever increasing regulatory and compliance burden imposed on Financial Services firms by the FCA and PRA means that fraud which historically may not have been reported, but rather dealt with privately in-house, is now coming out driven by a growing demand for transparency.”

Additional findings from the report

 

The 2013 FraudTrack report also shows that while the overall number of cases recorded continued to increase from 413 in 2011 to 416 in 2012 and 525 in 2013, the average value of frauds has continued to fall from GBP 5.1 million in 2011 to GBP 3.3 million in 2012 and GBP 2.0 million in 2013.

Sector breakdown:

The top three industries most susceptible to fraudulent activity are:

Finance and Insurance (GBP 532m)

Public Administration (GBP 150m)

Other Services (except Public Administration) (GBP 93m)

Types of fraudulent activity:

1) Money Laundering – GBP 288m (27.4percent of all activity)

2) Third party fraud – GBP 209m (20.0percent of all activity)

3) Unauthorised use/ misuse of assets – GBP 76.6m (14.1percent of all activity)

4) Tax fraud – GBP 142m (13.5percent of all activity)

5) Employee fraud – GBP 77.8m (7.4percent of all activity)

6) Corruption – GBP 75.8m (7.2percent of all activity)

7) Mortgage fraud – GBP 75.6m (7.2percent of all activity)

Kaley Crossthwaite concluded: “It is very surprising that that the total value of fraud is down when the number of reported frauds has risen so steeply. Usually driven by greed, the consensus view is that fraud is increasing, but it is always very difficult to quantify given the general lack of reporting of fraud across different sectors in the UK. Unless it is easy to quantify and explain in court, many frauds do not get brought to trial.

“Contrary to this however, Financial Services would seem to be taking a lead with increasing regulatory demands for greater transparency in the sector leading to more fraud coming to light in this area.”

FraudTrack is prepared by BDO LLP and is based on all reported fraud cases over GBP 50,000 between 01/12/2012 and 30/11/2013. The sources for the database are publicly available and include the UK’s national, regional and local press.

AutoRek comment

Jim Muir from financial data management firm AutoRek said of the BDO report, “The value of money laundering cases may have quadrupled, but this rise is not necessarily linked to an increase in crime. Instead, the emergence of a global network of collaborating regulators and an increasing confidence in rewarding whistle-blowers is likely to have contributed to improvements in money laundering detection.

“Regulators have long been stepping up their initiatives against money laundering with the introduction of heavy penalties for financial institutions whose existing systems are lax. However, improved data gathering, sharing tools and matching engines will all continue to improve detection rates and confiscations in the year ahead. As a result, retail banking organisations need to develop strong data management processes, which effectively establish the identity of ‘beneficial owners’ of corporate bodies or partnerships, monitor customers’ business activities and automatically escalate anything suspicious whilst storing all documents relating to financial transactions, procedures and processes. In addition, organisations also need to complete money laundering risk assessments for prospective clients at the start of a relationship and also regularly review the assessment on an ongoing basis for any existing customers. Only by developing effective financial controls and taking proactive measures to prevent money laundering will the industry be able to reverse the rising volume of cases emerging.”

Author: EDITOR

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