UK fraud cases reach 22-year high

Serious fraud cases totalling £1.3bn ($2.1bn) reached the courts last year – the highest for 22 years – including mortgage fraud, which doubled, according to figures released on Monday.

The latest KPMG Fraud Barometer, which has been compiled each year since 1987, showed that last year 31 cases of mortgage fraud totalling £77m reached court compared with 25 cases worth £36m in 2008 as falls in the housing market have exposed scams such as buy-to-let properties being acquired by criminal gangs.

KPMG predicts that increasing amounts of mortgage fraud will come to light in the wake of the end of the property boom and as lenders increasingly scrutinise their mortgage books and reclassify their mortgage asset portfolios.

The study also showed that fraud cases have risen significantly in the past decade, where 1,750 cases of serious fraud totalling £7bn reached the courts compared to 700 cases totalling less than £5bn in the 1990s.

There has been a steep change in the number of fraud cases during the past five years where annual fraud figures have been running at around £1bn a year.

KPMG said that there was a jump in the number of cases coming to court last year that involved frauds by company managers – some £335m of cases were heard by the courts compared to £129m in 2008. However, organised criminal gangs continue to be the biggest perpetrators of fraud and are responsible for £719m of scams.

The government and public sector were the biggest losers , with £476m stolen in tax and benefit frauds ,although banks and other financial companies, which lost around £396m, were also major targets for fraudsters.

Hitesh Patel, partner at KPMG Forensic, said: “Britain appears to have a rising fraud problem, as is evident by looking at the steady increase through the last 10 years. The credit crunch will undoubtedly make the situation worse, and we are yet to see the full impact of it. The forecast therefore is: getting worse. The comfort, if there is any, is that more fraud cases are successfully being brought to court.”

He said that companies had become better at detecting fraud and there is a greater emphasis on corporate governance although fraudsters were becoming more sophisticated.

He said that globally there had been an increase in “superfraud cases” such as Bernie Madoff’s Ponzi scheme in the US, although the UK had yet to see a similar case. He added that advances in technology were helping criminal gangs execute larger fraud schemes.

“Over the last 10 years, the boom in technology has acted as a catalyst for a boom in fraud,” he said. “Computerisation and globalisation have made fraud easier, quicker to carry out and easier to conceal. Organised criminals in particular have taken advantage of this. Identity theft is a continual problem, alongside more ‘traditional’ frauds including insider trading and price-fixing cartels. The authorities in turn have sought to professionalise the fight against fraud in response.”

KPMG singled out a number of unusual cases including one fraudster who printed his own banknotes. Here a Scottish IT professional printed around £185,000 in fake notes and involved two of his sons in the scheme. When caught, he reportedly claimed that he was undertaking a business venture to create a banknote that could not be copied. But he was found guilty and jailed for over five years.

It also pointed to another case which could act as a warning ahead of London staging the 2012 Olympics, which centred around an alleged £5m racket involving selling non-existent Beijing Olympics tickets online.

The past year also saw continued fraud within accounting and book-keeping departments – 33 cases worth a collective £44m came to court in 2009. Many of the fraudsters had worked for their victims for years and were trusted by their employers. Several cases involved people with prior convictions, such as an accountant at a Birmingham-based property management company who took more than £350,000 from his employers by transferring money from clients into accounts in his own name. He already had a history of committing theft and deception under a different name.

Mr Patel said: “It is essential for companies to rigorously screen potential employees and carry out proper background checks. Knowing who you employ and the extent of any risk they pose to the organisation is a key line of fraud defence.”

Source:- The Financial Times, www.ft.com, By By Jane Croft, Law Courts Correspondent

Banking on bailouts

Banks and financial institutions are hard to regulate as most operate globally and are attracted to countries with the least regulation. Governments must, therefore, cooperate for effective regulation

JUST as war is too important a matter to be left to the generals, banking sector reforms and regulations are too important to be left to bank executives, bank-executivesturned-policymakers or those who pretend to understand the intricacies of modern-day finance. As Paul Volcker, the former Federal Reserve chairman, once said, the only useful recent banking innovation was the invention of the autmatic telling machine (ATM).


All else is gambling with other people’s money — stating with a bit of exaggeration, of course. Investment bankers and hedge fund managers played the most damaging role in bringing the world economy to the colossal financial meltdown from which the economies of Europe and the US have yet to recover. They should not have a say in how the financial sector should be regulated.


At the hearings of the Financial Crisis Enquiry Commission in the US, last week, the executives of the top American banks appeared clueless, or pretended to be, of what caused the financial meltdown. If pretending dumb is the price they have to pay to save themselves from financial liability, they were all most willing to do so.


One executive compared the financial crisis of last year to a natural disaster that nobody could have predicted. Another said that financial crises happen every five to seven years — so get used to them. Consult these gentlemen about how banks should be regulated and there will certainly be another man-made financial disaster in the next five years.


The primary aim of the banking and financial reform should be to prevent the next financial disaster from happening. Policymakers need to check the weak spots in the system and install checks and balances to strengthen them, and avoid any systemic failure. The regulators should ensure that no bank or financial institution should be allowed to be too big to fail. The ones that are too big already should be subjected to scrutiny so that taxpayers do not have to spend hundreds of billions of dollars to bail them out.


The most often expressed fear among opponents of banking regulation is that too much regulation will stifle growth. The issue is: whose growth? If it means, restraining the growth or even shrinking the size of the financial sector, that’s a desirable outcome. In the past half a century, in most rich countries, the financial sector has become too large for the real economy. According to a report in the Economist , relative to the size of the economy banks in the UK are 10 times bigger now than they were 40 years ago. In general, banking sectors in most rich countries are too big, and should be cut in size.


Sadly, the message that the financial sector appears to have taken from governmental bailouts in Europe and America is that banks do not have to fear about failures; governments will always bail them out no matter what is happening in the rest of the economy. Such an attitude makes the banking and financial industry even more callous and irresponsible, and the next disaster more likely than before.


In addition,to bring economies from recession, governments in rich countries have been pumping cheap money into their economies through the banking sector. In return, whenever they get a chance, banks just pass on the cheap credit they receive as higher bonuses to their employees, in organising retreats and buying private jets.


THE behavior of bank executives seems so excessive that it sometimes appears that while everyone else has suffered from the financial meltdown, bank executives have benefited from it. To avoid the next financial disaster, governments have to install policies that send the financial sector the message that bailouts will not be free in future.


In the US and in Europe governments are trying to figure out how to create automatic checks and balances in the system to ensure that the next financial crisis is avoided. So far attempts have been more serious in Europe than in the US. However, it appears that the democratic debacle in the recent senate elections in Massachusetts and unfavourable ratings of Obama in several recent public opinion polls have sent a message to the US president that he needs to take the business of banking regulations and reforms more seriously. Last week, Obama announced what he called ‘the Volcker rule’ to ban proprietary trading by commercial banks. Indeed, proprietary trading should be banned for all investment banks and financial institutions, who pose the threat of creating a systemic risk.


Last month, a number of legislators also proposed that the Glass-Steagall Act that limited the scope of banks’ operations should be reinstated. The Act was passed in 1932 in response to the banking crisis that triggered the Great Depression, and repealed in 1999 by a Republican Congress and signed by President Clinton.


The Obama administration has also proposed a tax on financial institutions called the ‘financial crisis responsibility fee.’ The tax is expected to raise $117 billion to cover the projected bailout losses. A long-term solution would be for governments to charge an insurance tax on banks — a fee for insurance against future bailouts. Most importantly, banks have to increase their capital so that the chances of failures are minimised.


In last week’s hearings of the Financial Crisis Enquiry Commission, bankers and legislators debated the issue of how big is too big for commercial banks. Bankers, of course, argued that the government should not impose any limit to the size of financial companies so long as there is a regulatory framework that ensures that the taxpayers do not bear the burden of a banking failure. However, even the smallest of the bank failure does not happen in isolation. It creates contagion effects that spread to other banks and then to the rest of the economy and the entire society. Thus to avoid failures, banks that appear too big should be banned from indulging in activities that would result in risks that can lead to systemic failures.


In today’s global economy banks and financial institutions are hard to regulate as most operate in many countries. They are most likely attracted to countries with least regulation. Thus governments have to cooperate for any effective regulation of the banking industry.


Source:- The Economic Times, Neeraj Kaushal

Whistleblower exposes Swiss bank tricks

From his home in the quiet village of Rorbas, outside Zurich, Rudolf Elmer is chipping away at the centuries-old traditions of Swiss banking secrecy.

Elmer, who ran the Caribbean operations of the Swiss bank Julius Baer for eight years until he was dismissed in 2002, moved to Mauritius in the Indian Ocean and began parceling out to global tax authorities what he said were the secrets of his ex-employer.

Now back in his native country, he continues to disclose the inner workings of Julius Baer — one of many Swiss institutions that investigators say help clients evade billions of dollars in taxes by routing money through offshore havens in the Caribbean and Switzerland.

"It is a global problem, and I am only the messenger who provides the bad news, or even better, the truth," Elmer, 54, wrote in a recent email message. "Offshore tax evasion is the biggest theft among societies and neighbor states in this world."

He said that he would fly on Tuesday to Düsseldorf, Germany, where the tax authorities are putting him up in a five-star hotel as he prepares to divulge client secrets.

Elmer joins a group of whistle-blowers that includes Bradley Birkenfeld, the former UBS private banker who disclosed the bank's secrets, pushing it toward a settlement with the US government, and Heinrich Kieber, a former data clerk at the LGT Group, the Liechtenstein royal bank, who stole client data and funneled it to American and European authorities.

Elmer's disclosures are attracting particular interest as the Internal Revenue Service and the justice department embark upon a strategy of "it takes a rogue to catch a thief" to encourage insiders who engaged in wrongdoing to reveal the secrets of their employers.

Lawyers and Congressional investigators who have begun to review Elmer's claims say that his internal bank and client documents provide fresh ammunition for American authorities as they take their crackdown on offshore tax evasion beyond UBS to clients of other banks.

Elmer has given documents to the IRS, a Senate subcommittee investigating tax evasion and investigators for Robert Morgenthau. They cover more than 100 trusts, dozens of companies and hedge funds and more than 1,300 individuals, from 1997 through 2002.

Elmer contends that his documents detail the undisclosed role of American investment management companies in funneling American, European and South American clients who wished to avoid taxes to Julius Baer; the backdating of documents to establish trusts and foundations used to evade taxes; and the funneling of trades for hedge funds and private equity firms from high-tax jurisdictions through Baer entities in the Cayman Islands.

"What he has is the confirmation of something very important: that a number of other banks in the voluntary disclosure process are turning up," Elmer's lawyer Jack Blum said, referring to 14,700 wealthy Americans, many of them UBS clients, who came forward to disclose their secret accounts last year. The IRS declined to comment on Elmer's case but said it was "probing other banks that have enabled Americans to evade taxes." Nothing indicates that Julius Baer, a 120-year-old private bank, is under IRS investigation.

Source:- The NYT News Service, By Lynnley Browning

Banks slip scan card into wallets

MILLIONS of Australians have access to new technology that will make paying for small items quick and easy but may have no idea it is sitting in their pocket.

''Contactless credit cards'' have been given to more than 3 million Commonwealth Bank customers and were sent to National Australia Bank customers from November as well.
The cards work by using radio frequency technology, similar to that used in e-toll passes, to exchange payment instructions between credit or debit cards and card terminals.

The credit card companies Visa - in partnerships with the National Australia Bank, ANZ and Macquarie Bank - and MasterCard - with the Commonwealth Bank - have been introducing the cards but have not undertaken heavy promotion until more retailers have the ability to accept them.

"This has meant that a lot of people are not aware that they have the technology sitting in their wallets today," said Albert Naffah, the vice-president for strategy at MasterCard Australia.
Several thousand merchants accept the cards, including Sumo Salad and 7-Eleven outlets.
The Visa card can be used for purchases under $100 and the MasterCard can be used for purchases under $35.

"They are aimed at replacing cash [which] still accounts for 70 per cent of transactions in Australia,'' a Visa spokeswoman, Judy Shaw, said.

The companies have denied that the cards are more vulnerable to fraud than traditional credit cards, but in the United States there have been fears about their security.
A 2006 study by American scientists found that contactless cards were vulnerable to so-called ''skimming'' attacks.

"An attacker with [a card] reader can harvest information from a card, create an inexpensive clone device, and make charges against the legitimate card," the report found.
But Mr Naffah said MasterCard's ''PayPass'' card must physically tap the scanner in order to be activated.

A spokeswoman for Commonwealth Bank said its technology could only be activated within four centimetres of a reader.

"You would probably notice someone coming that close to you with a reader," she said.
However, a privacy expert, Roger Clarke, said he was concerned about the cards.

The banks and credit card companies had not consulted with appropriate security and privacy experts before providing the cards to customers, Dr Clarke said.

"People who should have been aware that this was going on did not know it was happening," he said.

Source: The Sydney Morning Herald, By Amy Corderoy

Insider trading: Anil Kumar, McKinsey ex-director, pleads guilty

Indian-American Anil Kumar, a former director of consulting firm McKinsey, has pleaded guilty to fraud charges in the largest insider trading case in the Untied States' history, admitting that he got $1 million for giving secret information to its alleged ringleader Raj Rajaratnam.

"From 2003 through 2009, Kumar and Rajaratnam, who met in the 1980s while they were both at the same business school, conspired to engage in insider trading," a statement from US Attorney Preet Bharara's office said.

"Kumar received amounts ranging up to $1 million in certain years," it said.

Kumar, 51, who left McKinsey after being put on indefinite leave, had been accused of providing insider information about McKinsey's clients, including acquisition of ATI Technologies Inc by Advanced Micro Devices Inc.

On Wednesday, prosecutors claimed that Rajaratnam made $19 million in illegal profits from the ATI tip-off but his lawyer John Dowd said that the news of ADM acquiring ATI was already public.

Last week, Kumar waived his right to be indicted raising speculations that he would confess his alleged wrongdoings.

He pleaded guilty to conspiracy and securities fraud at a hearing before District Judge Denny Chin in Manhattan on Thursday, and Bharara said that he was cooperating with the investigation.

"I understood the conduct was unlawful and constituted a breach of my fiduciary duty," Kumar told the judge.

"Anil Kumar recognises the fact that he has committed a serious violation of the federal securities laws," Robert G Morvillo, his lawyer, said in a statement.

On Wednesday, prosecutors also said that they will slap new charges against Rajaratnam, 52, after it was revealed that Sri-Lankan born billionaire earned $36 million from inside information, which is double the amount originally calculated.

"The government now has evidence that Rajaratnam's illicit gains yielded profits that were at least twice as large as those previously alleged," assistant US attorney Joshua Klein wrote in the court complaint.

Earlier, investigators estimated that Rajaratnam had made about $17 million from the illegal actions.

In October, multibillionaire and Galleon Group founder, Rajaratnam, was charged in one of the country's largest insider-trading case. He received 13 charges -- four counts of conspiracy and eight counts of security fraud.

Galleon Group is a hedge fund with up to $7 billion in assets under management.

This is the first case to use authorised wiretaps and the investigators are still on the job. "People will probably ask just how pervasive is insider trading these days? Is this just the tip of the iceberg?" Bharara said, when the scandal broke. "We aim to find out."

Since then the case has grown to involve 21 people out of which seven have pleaded guilty.

Source : Rediff.com, By Betwa Sharma.

Ponzi collapses nearly quadrupled in '09

It was a rough year for Ponzi schemes. In 2009, the recession unraveled nearly four times as many of the investment scams as fell apart in 2008, with "Ponzi" becoming a buzzword again thanks to the collapse of Bernard Madoff's $50 billion plot.

Tens of thousands of investors, some of them losing their life's savings, watched more than $16.5 billion disappear like smoke in 2009, according to an Associated Press analysis of scams in all 50 states.

While the dollar figure was lower than in 2008, that's only because Madoff — who pleaded guilty earlier this year and is serving a 150-year prison sentence — was arrested in December 2008 and didn't count toward this year's total.

In all, more than 150 Ponzi schemes collapsed in 2009, compared to about 40 in 2008, according to the AP's examination of criminal cases at all U.S. attorneys' offices and the FBI, as well as criminal and civil actions taken by state prosecutors and regulators at both the federal and state levels.

The 2009 scams ranged in size from a few hundred thousand dollars to the $7 billion bogus international banking empire authorities say jailed financier Allen Stanford orchestrated, as well as the $1.2 billion scheme they say was operated by disbarred Florida lawyer Scott Rothstein. Both have pleaded not guilty.

While enforcement efforts have ramped up — in large part because of the discovery of Madoff's fraud, estimated at $21 billion to $50 billion — the main reason so many Ponzi schemes have come to light is clear.

"The financial meltdown has resulted in the exposure of numerous fraudulent schemes that otherwise might have gone undetected for a longer period of time," said Lanny Breuer, assistant attorney general for the U.S. Justice Department's criminal division.

A Ponzi scheme depends on a constant infusion of new investors to pay older ones and furnish the cash for the scammers' lavish lifestyles. This year, when the pool of people willing to become new investors shrank and existing investors clamored to withdraw money, scams collapsed across the country.

"Some portion of the investors in the Ponzi scheme always get the short end of the stick and do not get paid," said Elizabeth Nowicki, a former Securities and Exchange Commission attorney who now teaches law at Boston University.

Even those who say they did their homework before investing ended up losing everything.

A retired Air Force sergeant, Tom Annis searched the Internet for red flags like complaints or lawsuits involving Minneapolis-based host Patrick Kiley after hearing about his investment on a weekly Christian radio show called "Follow The Money."

Finding none, the 63-year-old from Jacksonville, Fla., invested his $270,000 nest egg — money that has since evaporated after federal regulators shut down what they've called an elaborate, $190 million Ponzi scheme.

"I tried to do my level of due diligence," Annis said. "How could I be duped like this after years of investing?"

Ponzi schemes, named for infamous swindler Charles Ponzi, are extremely simple: Investors attracted by promises of high profits are paid with money from an ever-increasing pool of new investors, with the scammer skimming off the top. Sometimes the investments are at least partially legitimate but more often are completely fictional. There's no reserve fund for lean times, or for when droves of investors start demanding their money.

Ponzi himself was an Italian immigrant who concocted a scheme in 1919 involving bogus investments in postal currency. He cheated thousands of people out of $10 million, eventually going to jail for wire fraud before being deported back to Italy in 1934.

Eighty years after his scheme, federal statistics paint the picture of a Ponzi nation:

_The FBI opened more than 2,100 securities fraud investigations in 2009, up from 1,750 in 2008. The FBI also had 651 agents working in 2009 on high-yield investment fraud cases, which include Ponzis, compared with 429 last year.

_The SEC this year issued 82 percent more restraining orders against Ponzi schemes and other securities fraud cases this year than in 2008, and it opened about 6 percent more investigations. Ponzi scheme investigations now make up 21 percent of the SEC's enforcement workload, compared with 17 percent in 2008 and 9 percent in 2005.

_The Commodity Futures Trading Commission filed 31 civil actions in Ponzi cases this year, more than twice the 2008 amount.

Many of the 2009 cases have yet to head to trial. In its tally, the AP counted schemes in which prosecutions were initiated or in which regulators filed civil cases in 2008 and 2009.

The Justice Department does not have totals of how many people were convicted in Ponzi schemes for either year, or for previous years.

Experts believe the recession was the main reason for the collapse of so many Ponzi schemes, though the Madoff case brought greater regulatory scrutiny and heightened public awareness. More people are inclined to raise questions when things don't look right.

"We do get a lot more questions from investors now," said Denise Voigt Crawford, Texas Securities Comissioner. "They are really worried about Ponzi schemes. That's a good thing."

Source:- The Associated Press, By Curt Anderson

Visa prevents fraud by making Credit Card Changes

Next Generation Credit Card sports an LCD and Keypad:

Visa plans to release a new version of credit card that will cut down online shopping fraud.

This new credit card will be the same basic size and form, but with one huge difference -

1. It will have a built in LCD and keypad on the back of the card,


2. Powered by a builtin battery that will last upto 3 years, these card will work until they expire and there is no need to worry about charging them.

These credit cards will prevent fraud is by making it necessary for users to input their pin everytime they make an online purchase. The card will display unique security code, which must be entered into the website, which it will forward to Visa server's where the purchase will be approved.

The company hopes that this card will boost shopping over internet and it will be tested in Britain early next year by company MBNA

Source:- Brickhouse Security, By Stan Shyshkin

Centre to tackle card fraudsters

Faced with an exponential boom in credit card use and the related spurt in corporate crimes over the past decade, the Centre is contemplating constituting a monitoring cell to combat credit card frauds.

The cell, to be formed by the Union finance ministry in association with the Reserve Bank of India, will put in place an intelligence network that will maintain surveillance on potential criminal elements perpetrating credit card frauds which also includes identity thefts.Besides, the cell will recommend steps that domestic banks and credit card issuing institutions might like to follow to plug data breaches that potentially expose millions of credit and debit card-holders to the risk of fraud and identity thefts.The risks of credit card frauds is likely to increase as users adopt newer forms of transactions, including those done online.

According to data compiled by the Reserve Bank as many as 16,393 fraud cases in the credit card segment (both public and private banks) involving an amount of Rs 50.28 crore have come to light in the first nine months (Jan to Sept) of 2009.In 2006, as many as 17,258 fraud cases involving Rs 30 crore were noticed across the country. The next year, the number of frauds cases rose to 17,294 involving Rs 38.44 crore. A year later, various agencies of the finance ministry detected 16, 962 cases involving a total amount of Rs 44.97 crore.According to available statistics, the number of credit card holders stood at 2.46 crore at the end of March 31, 2009.

“The proposed cell will keep a watch over across-the-board transactions in the credit card segment. While reviewing the existing mechanism to prevent misuse of credit cards it will suggest up-to-date measures to curb probable frauds,” Finance Ministry sources told Deccan Herald.
The monitoring cell will have representatives from the RBI, select public and private sector banks as well as officials from investigating agencies like the Central Bureau of Investigating (CBI) and the Enforcement Directorate which lead the Central government’s agencies empowered to probe economic offences. The modalities of inter-agency functioning are being worked out by the Finance Ministry’s Department of Financial Services.

At 77.82 lakh, the maximum number of cards have been issued by ICICI Bank, followed by another private sector leader, HDFC Bank, at 43.88 lakh. Among the public sector banks, State Bank of India has issued the highest number of credit cards at 27.23 lakh. Among foreign banks, Citibank has issued 26. 40 credit cards, followed by HSBC at 19.75 lakh and Standard Chartered at 11.45 lakh. As part of its supervisory process, the RBI has been taking measures to check frauds in the credit card segment, sources said, adding that “commercial banks that credit cards have been advised to set up internal control mechanisms to combat frauds and to take pro-active fraud control and enforcement measures.”

The banks have been advised by the RBI to ensure that credit card operations are run on “sound, prudent and profitable” lines as also fulfill “Know Your Customer” requirements, assess the credit risk of customers and maintain customer confidentiality, sources said.

Source: The Ceccan Herald, By Aditya Raj Das.