Fighting back against fraud
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Crime and recession go hand in hand and especially when it comes to fraud.
Fraud prevention service CIFAS has more than 260 member organisations spread across the sectors of banking, credit cards, asset finance, retail credit, mail order, insurance, investment management, telecommunications, factoring and share dealing.
Members share information on identified frauds in the battle to prevent further crime.
CIFAS' analysis of fraud trends during Q1 2009 shows some particularly alarming patterns.
There has been a massive 40% rise in the number of individuals being impersonated compared with the same period in 2008, a continuing increase in facility takeover frauds and a surge in false insurance claims.
A 40% increase in impersonation in-dicates that the flat trend seen in 2008, when identity fraud increased by only 0.06% compared with 2007, was somewhat exceptional.
While last year's figures were a surprise, the sudden and significant increase in Q1 2009 heralds the unwelcome return of identity fraud as the crime of choice, as fraudsters assume creditworthy identities to swindle innocent individuals and companies.
During this period there was also a staggering 75% rise in facility takeover frauds whereby fraudsters gain access to and plunder the accounts of victims. This continued the steep upward trend seen in 2008.
This type of fraud is particularly traumatic for victims as the impact goes far deeper than any financial loss.
The uncertainty victims feel often undermines their sense of security and well-being as fraudsters leech off their accounts.
The CIFAS figures, based on confirmed frauds that satisfy a burden of proof, also show an increase in fraudulent insurance claims being submitted. As the economic climate cools some consumers appear to be turning to fraud, including gross exaggeration or fabrication of insurance claims, to make ends meet.
Comparing present with past research, it is evident that the economic slowdown is going hand in hand with a rise in fraud. The escalation in identity fraud and in facility takeover fraud in Q1 2009 compared with the same period in 2008 confirms this.
CIFAS' communications manager Richard Hurley sheds some light on the situation.
"It is a commonly held view that fraud rises to the surface during times of economic recession and our figures substantiate this," he says.
"With the alarming rise in identity fraud we are faced with the possibility of a chicken and egg situation - are these increases caused or uncovered by the recession, as lenders look more closely at their books?
"Credit has become more difficult to obtain and this may go some way towards explaining the fraudsters' changing methodology," he adds.
Hurley says that with application fraud proving less fruitful, fraudsters are turning to facility takeovers and attempts to assume others' identities to get their hands on finance.
"What has to be remembered is that with less new business coming in much of the fraud being reported now might relate to finance that was granted before the recession and originally escaped the anti-fraud industry's magnifying glass," he says.
Peter Hurst, chief executive of CIFAS, is duly concerned.
"There has been a lot of attention given to the financial impact of the economic turmoil on our society," he says. "Fraud is yet another aspect of this and should not be overlooked.
"As we continue to batten down the hatches economically we must remain alert to the threats surrounding us. From looking after our identities and personal details to ensuring that fraud data-sharing is used appropriately to prevent further crime, we must not allow fraudsters to make the cost of recession any greater."
Cases of mortgage fraud are also on the up. These crimes have been perpetrated on a large scale in recent years as easy credit conditions and streamlined application processes prompted fraudsters to target the mortgage sector.
"We know that mortgage fraud causes substantial social harm and can be bound up with other forms of criminality such as money laundering and people trafficking so it is crucial that firms remain vigilant," says Philip Robinson, financial crime sector leader at the Financial Services Authority.
Last summer the regulator wrote to the Council of Mortgage Lenders, the Intermediary Mortgage Lenders Association, the Association of Mortgage Intermediaries, the British Bankers' Association and the Building Societies Association.
In its letter the FSA set out its approach to toughening the industry's defences against mortgage fraud and making it harder for organised fraudsters to get away with their crimes.
There were six key elements to its approach and looking at recent cases including the banning of Romford-based broker Gabriel Aramide, it would appear to be working.
The FSA visited 200 brokers to assess their systems, streamlined its reporting processes, enhanced the way its intelligence is used, strengthened its engagement with partners, encouraged im- proved information-sharing and revised its approved persons regime with regard to brokers.
"Intermediaries should make sure they provide suitable advice to customers and that their businesses cannot be used to commit fraud," says Robinson.
"Lenders must also have systems and controls that reduce fraud and continue to provide us with the intelligence which is key to our success in this area."
The FSA is currently going a step further and considering banning self-cert mortgages.
With almost half of all new home loans at the height of the property boom being written on a self-cert basis, the FSA last month conceded it may have let the market get out of control.
Speaking at the FSA's recent mortgage conference in London the regulator's managing director of retail markets Jon Pain said a pivotal problem was that lenders stopped verifying income before granting mortgages.
"Many specialist lenders heavily marketed and sold self-cert products and a large percentage of these have led to high levels of arrears and fraud," says Pain.
Given that so many self-cert mortgages have been sold and many are now in arrears, Pain is considering whether there should be more constraints on this type of lending.
He says in 2002 the FSA proposed banning employees from taking out self-cert mortgages.
"The industry disagreed with this and we relented," he adds. "But since that time we have seen a rise in the amount of self-cert lending to employed customers for no perceptible reason. With hindsight, this might have been a mistake."
The FSA will now consider whether the rules should be changed to insist on income verification for all mortgages, with lenders required to check the plausibility and authenticity of documentation provided by customers before offers are made, ultimately meaning the death of self-cert.
Romford broker banned and fined more than £100,000
Last month the Financial Services Authority banned Romford-based mortgage broker Gabriel Aramide and fined him £101,279 for submitting a fraudulent mortgage application and concealing a fraud conviction when applying to the Financial Services Authority for approval as a director of brokerage 1st Point.
Aramide came unstuck when the FSA found out he had obtained approval on a false basis by deliberately concealing his previous involvement in fraud and his criminal record.
He also obtained a £255,000 mortgage for himself through his firm, which was based on false and misleading information and failed to cooperate with the regulator's investigation into circumstances, suggesting his knowing involvement in mortgage fraud involving himself and a number of 1st Point customers.
"Aramide's actions were blatant and he posed a serious risk to lenders," says Margaret Cole, director of enforcement at the FSA. "The concealment of his criminal record showed a lack of honesty and integrity on his part and the FSA will seek to prevent people like him from working in authorised firms.
"As part of our continuing investigation into mortgage fraud facilitated by intermediaries we have banned some 35 brokers in the past two years and levied a number of large fines. Perpetrators of fraud will increasingly find themselves facing bans and significant fines."
Source:
Lending Strategy
