The COVID-19 business loan support schemes were victim to an estimated £4.8bn of fraudulent activity alone, on top of the £2.3bn that Action Fraud said was lost to online scams in 2021, and circa £290bn lost to economic crime in total, according to think tank Spotlight on Corruption.
The problem is growing year on year and the government is under pressure to take action.
Spotlight on Corruption says the government spends 0.042% of GDP, around £852m, per year on fighting economic crime.
Between 2016 and 2021, a portion of the £3.9bn government agencies raised in recoveries could have been reinvested in those same agencies to increase their efficiency, it says.
Another of its key findings is that most departments recover way more than they cost.
The Serious Fraud Office returns £5 for every £1 spent on it to the Treasury; the National Crime Agency’s (NCA’s) International Corruption Unit (ICU) recovered assets worth £407.3m, more than 10 times the £39m cost of the five-year programme.
So what is Spotlight on Corruption’s suggestion? That the government should create a central economic crime fighting fund, reinvesting money generated by economic crime enforcement into law enforcement bodies on top of core budgets, if it’s not used for victim compensation.
The members of parliament involved in the Treasury Select Committee on online fraud at the start of February agreed with this. If anything, the Treasury Select Committee went further: ministers should consider creating a new government department and a new law enforcement agency to get to grips with economic crime, they said.
MP Mel Stride, who chairs the committee, added that fraud had ‘soared’ during the pandemic, and while the government had made some progress, there was a ‘bewildering’ number of agencies responsible for fighting economic crime and fraud. “The government must consider why economic crime seems not to be a priority for law enforcement, and how it can ensure it becomes one,” said the committee’s report.
Law enforcement does not have enough resources, so many crimes are not properly investigated, including economic crime, Frances Coulson, Deputy Chair, Fraud Advisory Panel (FAP), told ICAEW Insights.
Economic crime is a huge problem because a great deal of it is organised and directed offshore, so it requires good interaction between agencies and international cooperation, she said, which can be hampered by budgets as well as delays.
The FAP is the voice of the counter-fraud profession, committed to tackling fraud and financial crime – Sir David Green, former head of the Serious Fraud Office, took over as its Chair at the start of 2022 (read our interview with him here). ICAEW founded the Fraud Advisory Panel in 1998 and is proud to continue supporting its work.
“A lot of the agencies do a good job with limited resources,” said Coulson. “I think spending needs to be focused, but more money can always be directed to fraud prevention. The focus at the moment is very much on budget.”
Focus on disruption
Any new cross-agency department would do well to acknowledge the underlying causes of fraud. Coulson pointed out that management receivers used to be appointed and paid from recoveries, but the aim was to disrupt more fraud and take more money from criminals, whereas now the focus is on budget and prescribing what those receivers can do.
But the key focus should be spending to disrupt fraudulent enterprises rather than score recoveries to manage budgets.
“Fraud disruption is very important, it’s not just about getting money back in the instant case,” said Coulson. “Whatever guise the government department takes, it needs to disrupt fraud – until you stop it, the losses will continue.”
Junior members of a criminal fraudulent enterprise are always poised to move up the ladder and replace those taken out by police investigations, unless the whole enterprise is disrupted and prevented, she added.
“It’s about attacking the head of the beast, and not just recovering an amount of money like a million pounds, but investing enough to prevent enterprises that may defraud many millions more.”
Work done so far
Any prospective reorganisation or rationalisation of government departments still needs the same investment priorities. The government should invest more in forensic accountancy internally within the NCA and HMRC, or in the possible new agency.
“All agencies have a finite resource, but they should engage more with public-private partnership working,” said Coulson. “There should be more focus on the wider benefits of the spend rather than just the recovery. Spending has to be clever and targeted. For cyber, you need to employ the right people, the experts, and if that’s not available internally, it should be with the private sector.”
Pre-emptive action is important, she says.
“I’m a proponent of civil recovery because it’s quick. I think there has been good use of asset freezing orders, which at least holds the money while other action is taken. HMRC Economic Crime Operations Unit and Fraud Investigation Criminal Teams have done really good work on this.
“The Unexplained Wealth Orders (UWOs) that the National Crime Agency has completed are very good. They can be complicated, as you have to dig into the evidence with zero cooperation, and they’re complicated to investigate, possibly with limited resources too.”
The government may want to start spending on the UWOs as a first priority.
Spotlight on Corruption’s research revealed recent cuts to the overseas aid budget have undermined UWOs. The NCA has reduced its target for using the new powers as a result of aid-funded investigations to zero, following a £3.6m cut to law enforcement budgets for tackling corruption.
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