Whether it’s fiddling expenses or large scale financial crimes, there’s no getting away from it - fraud is a fact of business life. And during a recession, instances of fraudulent activity are always on the up. That’s not to say the corporate world should be complacent about it, but assuming the worst it probably the best approach to adopt.
After years of relative inactivity (or at least a fairly dismal track record in securing convictions) the FSA’s attempts to beef up its anti-fraud capabilities appear at last to be paying off.
A massive sting operation involving a total of 143 FSA employees and officers from Soca (the Serious Organised Crime Agency) and raids at 16 addresses in the UK across London, the South East and Oxfordshire, has resulted in six arrests including two senior city professionals at leading city institutions and one city professional at a hedge fund on suspicion of involvement in a long-running insider dealing scheme.
The operation is the FSA’s largest ever against insider dealing, with those arrested are suspected of being involved in what the FSA calls "a sophisticated and long-running insider dealing ring". It is alleged the city professionals passed inside information to traders, either directly or via middlemen. The traders then allegedly acted on this information and made significant profits as a result.
The arrests mark the culmination of the three year operation, and the first joint FSA/Soca probe. After several false starts on collaboration for financial crime fighting strategy, have investigations into white collar crime and large-scale financial fraud finally come of age?
Certainly, there’s no doubt that the FSA is serious about cracking down on this sort of white collar crime and in particular insider dealing. The FSA made a huge investment in surveillance and enforcement resources three years ago, including a new computer system, Sabre, which analyses trading data and identifies patterns of possible illegal dealing.
That investment now appears to be paying off in terms of investigations and prosecutions - this is the fifth set of arrests carried out by the FSA into insider dealing since 2008.
Time for UK corporate and city firms in particular to take heed. Fraud now costs the UK over £30 billion a year, according to a recent study by the National Fraud Authority (NFA). And it’s those in middle management that are most likely to be the perpetrators of internal frauds – a PwC economic crime study conducted in November last year found that those in the middle rungs of business are responsible for 47% of frauds.
Rather than bury heads in sand, the onus needs to be on formulating a fraud management strategy. A working environment lacking in internal controls, with unclear reporting structures and a ‘blame culture’ will simply pave the way for problems.
