Protecting the public from financial fraud.

Posted on May 18, 2020 by henry tapper

fraud

Protecting the victims of financial crime

I am returning to the difficult question of financial fraud and its impact. We should not underestimate the emotional impact of fraud. This simple testimony makes this point better than I can.

Whatever the vehicle which is used to relieve people of their money, the impact is the same.

The symptoms in those defrauded include a diminishment of self-confidence that leaves the defrauded unable to stand their corner. They are often made vulnerable and the duty of those fighting crime is threefold

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

And if these actions sound familiar it is because the spread of financial fraud has aspects in common with a virus. Thankfully , we do not treat the victims of CV-19 as we do the victims of  financial fraud.

Where regulation is failing

The capacity of financial regulators to deal with scandals such as the creation , promotion and sale of LCF min-bonds has been called into question, not least by the testimony of Maria.

There were all the usual warning signs – opaque structures – the use of overseas investment platforms – the involvement of intermediaries – the payment of commissions and promises which were plausible.

In many frauds, including LCF, the fundamental deception was masked by the involvement of legitimate organisations who may have been wholly or partially operating within the law.

Which is why regulation must start with the question “was the customer treated fairly” and – assuming they weren’t , assume implied guilt on all parties involved. It is not good enough to assume that those who have been ripped off are guilty of not properly protecting themselves.

Regulation is still focussing on issues of procedure and the scope of the regulatory perimetre which allow those with criminal intent to carry without prosecution. There is ample evidence of repeat offending and the patterns of criminality are well known.

There is an opportunity for the UK regulators to get tough, as happens in other countries (especially the US but also Spain). We need action on the three points I’ve highlighted.

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

Justice cannot be furloughed

Sadly, the trial of suspected financial fraudsters in Spain – associated with Continental Wealth Management has been put on hold and will be resumed when social distancing resumes.

In London, over the last two weeks, the complexities of GMP equalisation have been discussed in the High Court and a judgement is expected shortly.

Financial crime continues and – as financial vulnerability increases, we are likely to see more criminality.

If fraudsters could get away with it in normal times, what can stop them in lockdown.

The UK authorities , collectively known as “Action Fraud”, have to be seen to be active and this must go beyond issuing warnings  for the public to be alert.  We need to see evidence of my three requirements. The authorities need

  1. To identify frauds at an early stage and limit their contagion
  2. To apprehend and limit the perpetrators of crimes, ensuring they do not re-offend
  3. To protect the financial interests of the defrauded by seeking to recover the proceeds of financial crime

And this needs to be visible and reported. We cannot have justice furloughed.

Protecting whistleblowers

Sadly whistle-blowing on financial fraud is likely to lead to claims of “no smoke without fire” where the whistleblower finds him or herself implicated in the fraud by the fraudsters.

I know of instances where those campaigning on behalf of victims of fraud have been suppressed by lawyers, the media and sometimes the regulators themselves. The rules surrounding tipping-off can be used by scammers to turn regulators against informers. I have a file of solicitors letters demanding blogs be taken down. The laws of defamation are also used to provide fraudsters with a smokescreen.

So long as the authorities regard whistle-blowers as disruptive, they are likely to be distrusted. We need to encourage whistle-blowing, not distrust whistle-blowers.

This is about more than staying alert.

I am very keen to promote alertness to the red-flags that surround fraudsters. But it is not enough for the UK authorities to simply publicise the need to be vigilant.

We need to see positive action from the participants of Action Fraud to prevent those known to be scamming to continue operating in financial services.

Those who are authorised who deal with known scammers need to be investigated and where necessarily censured.

The payment of unreasonable commissions to introducers needs to be investigated and stopped.

The regulators in the channel islands, the Isle of Man, Malta ,Gibraltar, Switzerland, Germany, Eastern Europe and Spain need to work together.

Public warnings need to be published, victims encouraged to come forward and whistle-blowers protected.

The scourge of scamming is a financial pandemic which can best be contained by the sharing of data on its activity.

There is no vaccination , no mass immunisation, the only measure that we can employ to protect the public is suppression.

With financial fraud – suppression is possible

I started this blog with a tweet from Maria, I do not know Maria – know nothing of our circumstances, I only know of this tweet. If you listen to her for 90 seconds you will understand the damage that scammers do- to self-esteem.

Social media – used properly – can raise awareness , and Maria is doing just that. But social media can also broadcast scams. Where scamming is detected it needs to be explained and publicly pilloried, as Martin and Paul Lewis do.

But it also needs to be reported to Action Fraud and Action Fraud need to acknowledge and report back to those who make reports. Where the general public, journalists and those paid to combat financial fraud, work together, there is a chance to suppress fraud.

I hope that the severity of the threat facing us from COVID-19 will embolden those at the FCA and elsewhere to take action against those who they have information on and make life uncomfortable in whatever way they can. That particularly means working with others.

Suppression of financial fraud is possible , but it means authorities working better with the public for the common good.

 

Good for Scottish Widows for continuing to promote this tweet

About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
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