Written by International Compliance Association on Wednesday May 13, 2020
Job loss, financial difficulties, health concerns and change of personal circumstances are some of the by-products of the current pandemic affecting the public. Over a period of weeks, the vast majority of the UK population have felt the effects of a rapidly changing economy, but what are the financial crime implications of the UK’s change in personal circumstances?
The National Crime Agency, amongst other public bodies, have issued a wave of consumer and business communications providing insight on the third-party fraud wave sweeping the nation. An influx of coronavirus related scams, phishing e-mails and cyberattacks by ‘fraudsters’ and ‘criminal groups’ are being regularly reported. With these acts aiming to capitalise on the public’s ‘fear’ and ‘curiosity’ during this period of remote working and confining in our homes.
Noticeably, reporting is focused on 'how not to be victim', with a lack of oversight on 'how not to be criminal'. Arguably, the greater threat to the UK economy, first-party fraud, is being over-looked and under reported.
First-party fraud (or ‘consumer fraud’) is committed by the genuine party (‘the consumer’). They’re not hiding their identity but engaging in acts which are dishonestly acceptable. The joint Cifas and WPI Economics Report found that ‘one in seven’ UK adults has admitted to engaging in ‘first-party’ fraud in their lifetime.
This statistic is from 2019, these consumer acts aren’t a new wave of concern. But why should regulated businesses reassess the impact of first-party fraud now?
Dishonest acts by ‘long-trading’ and ‘good’ consumers are possibly being overlooked. Consumers who, through no fault of their own, have found their financial situation greatly impacted in the current climate; furlough schemes, redundancies and the self-employed being impacted by business closures, are placing more consumers in the ‘financial difficulties’ bracket.
These circumstances, demonstrated by the 2009 recession, drive individuals to feel new pressures that lead them to rationalise illicit acts; claiming an unnecessary chargeback(s), opening and utilising a credit account/method of finance with the intention of not repaying, making dishonest claims for high-value goods in order to gain a benefit and making false-representations on applications for financial services.
A dishonest culture and the view from consumers that these acts are ‘victimless’ needs addressing by businesses before surge in public engagement; as seen in previous financial crises.
In recent weeks, the Financial Conduct Authority (FCA) have exercised strong commitments to financial crime prevention initiatives, but more noticeably (Business Plan 2020/21), have highlighted their expectations of firms to prioritise ‘fraud’ in the fight against financial crime- a revisited focus for the FCA.
Regulator focus is always a motivator for firms to re-evaluate current process. At present, firms should become self-aware of their financial position in the current economy and how first-party fraud losses may be jeopardising their financial security.
Consider a single consumer de-frauding a company of £300, it can be written-off in losses or looked at as ‘bad debt’. How about ten consumers repeating this act over a month, twenty consumers in a week or thirty consumers within a day? The figures can soon become substantial.
These losses may seem ‘minor’ when reviewed on a micro-level. But when amalgamated the impact can be severe.
Coronavirus has placed unforeseen pressures on businesses, with a crippling blow to the UK economic infrastructure. An unprecedented ‘70% of firms’ have furloughed staff, with coronavirus collapsing businesses.
Therefore, firms should be more alert than ever to fraud losses and take steps to mitigate and prevent the detriment- it could be the difference between a firm furloughing thirty employees instead of ten, or more importantly, declaring bankruptcy.
It is already industry best practice to have procedures and processes in place to mitigate third-party fraud; including system driven transaction monitoring and fraud analytics to counter fraud-rings, cyber-criminals and bots to prevent identity fraud and facility takeover.
Social distancing has meant the upheaval and re-deployment of workforces remotely. This operational change comes with a mass of challenges. Combined with this, furlough schemes have meant some workforces have been stripped back, whilst others have led to employees being redeployed into different areas of the business.
Some businesses are experiencing an increase in product/service demand due to closure of competitors in the industry. Although, demand is a positive for overall profits, increase transactions with reduced/re-formulated operations present a risk.
Many firms aren’t distinguishing from first-party and other types of fraud. Prioritising resource on third-party, thus negating awareness of other fraud typologies leaving them undetected and unreported- and causing a loss.
Awareness of first-party fraud activity prevalent in a firm’s sector can enable a response plan to be compiled. Consciousness of ‘red-flags’ can tailor controls and enable knowledge to be cascaded throughout the workforce- aiding staff culture and awareness.
Compliance professionals should ensure a risk assessment of the workforce is undertaken in light of revised operations. Leading to a continual review of processes to ensure they are being adhered to. This will ensure detection, prevention and deterrence strategies are being upheld and losses minimised.
Firms should look to maintain an effective anti-fraud culture, utilising communication channels to engage employees whilst homeworking. Look to re-educate reporting lines, anti-fraud processes awareness of first-party fraud ‘red-flags’- knowledge is the key to success.
Reporting identified fraudsters by sharing data is key to reduce this behaviour in the wider economy. Cifas (the National Fraud Database) and Action Fraud are bodies which firms can share data with (and receive insights from) to reduce instances of fraud and financial crime.
By collaborating, firms can fight the war on first-party fraud together, by increasing anti-fraud awareness and reducing the ‘victimless’ crime culture to fight the recurring pattern of increased economical financial pressure and consumer engagement in crime.
The joint Cifas and WPI Economics report ‘Tackling first party fraud’, 2019
 British Chambers of Commerce, Press Release, April 22 2020
About the author: Casey Pozarowszczyk is a Financial Crime Officer at N Brown Group plc, an online retailer headquartered in Manchester, England. She is also a member of ICA.
This article forms part of the #BigCompConvo - Join us as we explore and debate the latest challenges and issues facing you and regulatory and financial crime compliance professionals all over the world. If you’d like to contribute an article as part of the Big Compliance Conversation get in touch with us at email@example.com
Thank you. Your comment is awaiting moderation and should appear on the site shortly.
Required fields are not completed, please ensure all required fields (*) have been filled in properly.
You can leave the name empty should you wish to remain Anonymous.
Help and support
Alternatively contact us on: +44(0)121 362 7534 / firstname.lastname@example.org (Course information)
or +44(0)121 362 7533 / email@example.com (Enrolled learners)
or +44(0)121 362 7747 / firstname.lastname@example.org (Membership)
or +44 (0) 121 362 7503 / email@example.com (End Point Assessment)