Over recent years, reports have consistently suggested that fraud is on the increase in the modern world, though it is difficult to ascertain whether that is due to an actual increase in the quantity of fraud or due to greater detection and reporting of fraud. For example, companies now spend greater sums on both internal and external fraud detection and prevention. There is certainly now greater expectancy that companies will have in place adequate fraud detection and prevention systems – from stakeholders and customers as well as regulators. Whether or not fraud is increasing, there can be no doubt that of its prevalence. The FT estimates that fraud cost the telecoms industry alone US$17 billion in revenue, notwithstanding a reduction from 5% to 1% of revenue lost.
Advances in technology, such as AI, algorithms to identify suspicious transactions or patterns, and blockchain all have the potential to substantially reduce the scope for fraud. However, as is so often the case, the increased reliance on technology is a double-edged sword. While understanding of the importance of cyber-security has undoubtedly improved, new avenues for deception are opened up: by some estimations, up to 50% of reported fraud now relates to or involves cybercrime, with many expecting that figure to rise yet further. A substantial number of cases have appeared before the Courts in recent years which relate to hacking, including even the hacking of solicitors’ email accounts in order to redirect payments (a variation of the often-seen mandate fraud).
This leads to the question as to whether in fact, the rise of technology has changed the nature of fraud, or merely given fraudsters new avenues through which to pursue existing frauds. Certainly it appears that the majority of frauds perpetrated are, even if using technology in novel ways, recognisable as falling within existing categories, such as Ponzi schemes, mandate or identity fraud or carousel fraud.
Notwithstanding the above, it remains the case that the majority of frauds are carried out either by ‘insiders’ (i.e. employees or even management) of companies or by outsiders known to the company (service providers, agents or even existing customers); the latter tends to be an underappreciated threat.
One undoubted conclusion from all of the above is that fraud is increasingly globalised in its inception and execution. Not only does the increase in companies’ cross-border operations make frauds much more likely to be ‘international’ in execution, the process of transferring, and thereby concealing, assets is now much more rapid and much more likely to cross national borders than has ever previously been the case. This causes a number of issues in terms of fraud litigation, in particular: the increased likelihood of jurisdiction challenges and the possibility of the need for multiple proceedings in different jurisdictions; national variations in terms of disclosure and other evidence gathering provisions; and, even if it is possible to identify and bring actions against the relevant fraudsters, increased cost and difficulty in terms of enforcement actions after the conclusion of the proceedings.
Caley Wright
Maitland Chambers