Fraud City Lexis Nexis Butterworth's

Published on 2 Jul 2009 under category: article

By Dan Hyde, Consultant at Cubism Law

As published at: Lexis Nexis Butterworth’s – July 2^nd 2009

Lawyers warn that the risk of employee fraud in financial services firms is likely to rise but any resulting prosecution is more likely to be carried out by the company itself or the regulator rather than the police. Neil Hodge reports

Dan Hyde, head of the crime team at Cubism Law, says that incidences of fraud are likely to increase in the UK’s financial sector over the year as employees see their jobs on the line, their salaries frozen or cut, and their bonuses dropped.

“It does not take a genius to work out that morale in some financial services providers is going to be low following the chaos in the banking system,” says Hyde. “Salary freezes and bonus cuts can breed resentment, especially as they can have a massive impact on an employee’s personal circumstances.

“Some of these guys in the City were receiving massive bonuses and that has now been severely cut back in some cases. This can prompt some employees to try to make up the money and perks that they feel they are ‘owed’,” he says.

Hyde says that companies need to review and monitor areas within their business where they feel that incidences of fraud could most likely occur. He also says that employees should be made aware that any incidence of fraud will not be tolerated, such as ´massaging´ expense claims or claiming for non-work related expenses.

“Management has to set the tone and make it clear to all employees throughout the organisation that any inappropriate expense claim will not be tolerated and could result in disciplinary action,” says Hyde.

But Hyde also warns that despite assurances from the police it will be companies themselves that will effectively detect fraud and prosecute the perpetrators of it. “The police have already warned that more incidences of fraud are likely to be uncovered, committed and prosecuted this year following the banking crisis and the credit crunch,” says Hyde. “However, the police do not have sufficient resources, time or skills to attempt to detect or prosecute these cases on their own. Very often, it is actually the company itself that has found and collected all the necessary evidence against the fraudster to enable any prosecution, rather than the police actually uncovering any of it.”

As a result, says Hyde, it is much more likely that employers will seek redress through civil prosecutions rather than through criminal prosecutions, or may pass the case on to the financial regulator, the Financial Services Authority, rather than to the police or the Serious Fraud Office. “Companies are being realistic. The police’s record in prosecuting fraud cases—particularly high-value, complex frauds in financial institutions—is fairly weak. Therefore, if financial services firms can deal with the matter in-house, they are more likely to do so as it will be quicker, cheaper, less public, and more likely to succeed,” says Hyde.