This article outlines Fraud as one of the White collar crime types, defines fraud and discusses its impact, extent, motives and the measures needed to prevent it.

 

Due to the development of technology, globalisation and the use of communications and information, the level of fraud has been increased dramatically. Governments and businesses suffer great losses because of fraud. The bill is very high; billions of dollars have been stolen, especially when this type of crime often goes unreported to the police or to other law enforcement agencies. Understanding the nature and the extent of fraud will help governments and business to implement measures and policies in order to minimise their loss.

Money is not the only loss of fraud. Human lives are another great loss of fraud. Two of the 9/11 hijackers obtained false identities to board American Airlines flight 11; each of the 19 hijackers may have used in one way or another fake identification cards, social security numbers and other identification documents in order to commit their crime and cause the loss of innocent lives.

In his report P J Barrett, the Australian Auditor-General, refers to surveys indicating that most government agencies do not fully comply with the Commonwealth fraud control guidelines, especially in areas of defining and measuring fraud, performing risk assessments, fraud control planning, and fraud controlling and reporting.Not complying with the fraud control guidelines would leave a ring missing in the chain of fighting the crime.

We need to assess the scope of the problem in order to enable us discussing motivations behind fraud and solutions that have been implemented to fight this type of crime and to help legislate and develop protective measures to respond to this type of threat.

Defining fraud

What is fraud? Many organisations, law agencies, criminal law specialists and others who study or research fraud have put a definition for fraud. The Australian Commonwealth Fraud Control Guidelines defines fraud as “dishonestly obtaining a benefit by deception or other means”, Work Cover NSW Australia defines fraud as “Obtaining money or a financial advantage through dishonesty or deception”, while Michael Pollick from Wise Geek defines fraud as “a misrepresentation which causes damages mostly financial losses”, Grace Duffield and Peter Grabosky from the Australian Institute of Criminology say that “Fraud means obtaining something of value or avoiding an obligation by means of deception.” All of those definitions tell us that fraud is an act that is deliberately practised by the fraudster. Australian legislation has included fraud under the Criminal Code (Theft, Fraud, Bribery and Related offences) A2004-15. However, those entire definitions limit the motive behind fraud to gain financial benefit. The question that could be asked would be, is money the only reason or motive behind Fraud?

Before answering this question I believe outlining types of fraud will enable us to address motives behind the fraud, and then discuss its impact on businesses, governments and individuals. Defining fraud in the right way would enable us to plant the right strategies and solutions to control and prevent fraud.

Fraud Types

Fraud is commenced and executed in many forms and types, albeit identity fraud is the most common practice by fraudsters, having or claiming false identity is the key to committing and execute other types of fraud. In Appendix A of their paper Identity Fraud, WILLCOX and REGAN identify some 27 crimes committed utilising identity fraud such as; telecommunication fraud, bankruptcy fraud, telemarketing fraud, online share market fraud, electronic fund transfer, credit card fraud, money laundering, government benefits, taxation pay fraud, etc. Another type of fraud is “Scientific Fraud” which is the use of someone else’s text or data without acknowledgement or “Academic Dishonesty” as the Wikipedia defines it, citing that it can include Plagiarism, Fabrication, Deception, Cheating and Sabotage.

Detecting Fraud

Is it possible to have a strategy that could give us an early warning that some procedures are helping or assisting fraudsters to commit fraud? And is it possible to detect fraud in the process or unreported fraud?

Fraud analysts’ advice for organisations in detecting fraud is to watch for early warning signs

Behavioural (people suddenly changing their lifestyles).
Statistical (expenses, sudden changes in credit card bills, tax deductions and insurance claims).
Organizational (lack of transparency, the absence of financial control systems, poor leadership, inflated financial targets).
Ernest & Yong sees that victimised organisations contribute to the increasing level of fraud due to factors such as the complexity, increasing speed, ignorance, inadequate audit and internal control. Victims provide answers to acquisitions of a credit card, mortgage, and personal, account details in respond to telemarketing calls or phishing e-mails are due to lack of fraud knowledge, contributing to the increasing levels of fraud. While such acquisitions should be considered as an early warning sign of fraud, despite the fact that many fraudsters use legitimate company names in order to acquire information that can be used to gain a financial benefit or to commit identity theft. Law enforcement agencies warn individuals of such scams.

Russell G Smith from the Australian Institute of Criminology argues that gathering data on fraud can be helpful in a variety of ways that could be utilised to detect fraud and suggests:

Better understanding for crime and criminal behaviour.
Providing intelligence that may be used to detect and prevent similar patterns of crimes in the future.
Providing data may be used for research and planning in criminal justice administration.
Motives behind fraud

Money, financial benefits and advantages are the main reasons behind all types of fraud, but not the only reasons. Terrorism was the motive behind obtaining false identities by the 9/11 hijackers; money wasn’t the motive; terrorism is the motive behind terrorists obtaining forged visas and passports to enter countries where they can commit a terrorist act.

Another motive is the search for a better life in rich or democratic countries. People living in countries under hard economic situations can be motivated by getting a better chance of getting jobs; health care, better education or those who live under dictatorship regimes seek to obtain a forged identity, passport and other countries’ ID cards. In Tijuana Mexico robbers steal 6,000 identity cards with estimated value of US $1million on the black market. These cards would allow entry to the United States. Political conflicts, civil wars and occupation, force hundreds of thousands of people to obtain false identity documents to flee their countries in order to sneak into or seek protection in other countries.

Financial strain, greed, gambling, illicit drugs, smuggling, marital breakdown can also be motives along with sexual relationships, substance abuse and risk-taking in what is known by the “hypothesis of the three Bs (Babes, Booze and Bets).” Ego and power whether over people or over the situation can be other factors behind motives. Frustration due unfair treatment by the procedures of business or government systems lead those who believe that they have lost their rewards, benefits or rights can be another motive behind fraud which leads to, for example, direct cash theft, making false expenses claims and payroll fraud. Another factor in motivating fraudsters is consumer desire for wealth health and power supported with consumer’s lack of knowledge representing a weak link that fraudsters can follow to collect consumer’s data in order to commit fraud.

Extent and impact

Is there a limit to fraud impact on individuals, businesses and governments? How significant is fraud in our life? The Eleventh United Nation Congress on Crime Prevention and Criminal Justice suggested that the extent and impact of economic and financial crimes are increasing based on surveys indicating that around one-third of respondents of the global companies had suffered an increase from some forms of economic crime, and just under half had suffered significant fraud cases. The Congress, based on WCC Issue Paper “Securities Fraud” of the National White Collar Crime Centre in June 2003 indicated that a total of approximately $40 billion a year is the loss from securities and commodities fraud in the United State alone.

The Fraud Women’s Network, says that about £14 billion fraud costs the UK economy every year, “more than half, 57% of UK companies have been victims of economic crime,” says Rosalind Wright CB, Chairman, Fraud advisory panel. Another report by the Association of Chief Police Officers in the UK indicates that “the cost of fraud and dealing with fraud was at least £13.9 billion in the UK in 2005”. Garry Barker in his report, Identity theft a $100-billion industry, in the Sydney Morning Herald says that estimates of fraud are near $6 billion a year in Australia and as high as $100 billion worldwide.In his paper measuring the extent of the fraud in Australia, Russel Smith from the Australian Institute of Criminology indicates that “Fraud costs the nation considerably more than any other crime”, “Victimisation surveys have found that business continues to lose millions of dollars each year through fraud and various kinds”.

Examples of fraud cases

I highlighted in this paper many types of identity and other fraud, there are hundreds if not thousands of fraud cases of each type. I will outline few examples on fraud cases;

1- An e-mail you receive “from your bank” asking you to confirm your online account details by following a link, the opened page looking exactly as your bank web page. But it is not; once you enter your account number and password, fraudsters are actually collecting these data to access your real account.

2- A fraudster could steal your identification then he/she will buy and sell your assets, online shares, and even your house and run with the money.

3- “Manipulating the share price of a company by publicising invalid news items or claims on bulletin boards”. The London stock exchange reports fraud by the creation of “fictitious letters everywhere” has been practised since the Battle of Waterloo in order to control London stock exchange market. The fall of Enron, the world’s largest energy firm collapsed following the biggest fraud scam, $68 billion in market value, including $800 million of employee’s pension investment, the loss being due to fraud committed by Enron’s CEOs.

4- The biggest superannuation fund fraud in Australian history early in 2008 was an attempt to steal $150 million dollars, by transferring money from the Commonwealth superannuation scheme to different accounts across the world in what looked like a genuine routine investment transaction.

5- Spies using forged identity to spy on business and governments. A Russian spy, who spied on Canada for ten years working for the KGB involves in a high-level espionage, had obtained three Canadian passports by fraudulent means.

Measures to fight fraud

Like any major crime studies, researches and surveys are conducted to collect information and then implement deterrent and preventive strategies to reduce fraud or even prevent fraudsters from proceeding or committing fraud. Graycar and Smith assert that education, training businesses and cooperation between them, especially those who provide and conduct commercial transactions will reduce fraud.

The use of punishment by confiscation of offenders’ houses, cars and other assets is a vital measure in the deterrence strategy.

Reporting fraud plays an essential role in preventing fraud. Surveys show that individuals and business hesitate to report fraud, ascribing that to lack of knowledge, or business reputation. Victims believe that there is no adequate proof, the matter is not serious in increasing financial loss; another reason is that they might never know that they have been victimised.

The elimination of motives behind fraud as mentioned above in this article by structuring businesses in a way that reduces fraud opportunities, implementing fraud control policies is another solution.

Prevention, detection, investigation and prosecution, reporting of cases and training and education are considered as general steps for effective fraud control. Graycar as well cites three general strategies to consider when looking at identity fraud: increasing the effort, increasing the risk and reducing the rewards.

Conclusion

Fraud is a dishonest deliberate criminal act motivated by many physiological, financial, procedural, political and/or terrorism factors to gain benefits that can satisfy the fraudsters’ needs or targets and cause, as a result, mostly financial damage and sometimes loss of human lives. Studies and researches have been conducted to collect data, information. Measures have been taken, policies and strategies have implemented to fight and control fraud. However, fraud still causes billions of dollars loss every year for business, Governments and individuals in many countries around the world including Australia.

The main problem in fighting fraud is reporting. Many businesses and government bodies still avoid reporting fraud, believing that this might expose them even more to public risk and security and loss of benefits. Guidelines to educate business, governments’ bodies and individuals have been presented. Legislation and fraud control policies to have been implemented by governments in order to prevent fraud and deter fraudsters. Solutions have been suggested to minimise and eliminate motivations behind the fraud.

Although Australia has presented the 100 points identification verification policy to minimise fraud, many businesses still do not apply the policy, and the system is still not effective enough. A new Identification Card with a special microelectronic chip that contains the holder’s photo and data to be used as an Australian national identification is required, as many Australian security professionals think. The ID card will help to prevent criminals, terrorists and others trying every day to pass checkpoints at airports, sea ports and other borders’ checkpoints using forge passports, forged visas and other forged identifications documents. In another word minimise fraud’s impact on Australian National Security.

Businesses and government bodies should regularly conduct an internal audit, as well external audit by a third party body is required. Although some argue that reporting fraud is sometimes cost more than the loss it causes, immediate reporting to the authorities is a must once the fraud is spotted.

Author Dhafir Al Shammery

Dhafir is one of the highest qualified managers in security with a Master degree in policing, intelligence & Counter Terrorism. His Higher education obtained in the security studies enables him to implement and execute the right security measures, policies, strategies and methodologies required. Dhafir has been working in the Security Industry since 1998 and been the security consultant for a number of companies within Australia and overseas. Dhafir participations in conferences, discussions and strategic studies in the security field nationally and internationally have added to his knowledge and have a significant impact on his performance and role to be one of the highest qualified managers in the security industry field.