Fraud Investigation and Prosecution — The Way Forward
| DOI | https://doi.org/10.1108/eb025912 |
| Published date | 01 February 1999 |
| Date | 01 February 1999 |
| Pages | 370-372 |
| Author | Perry Nove |
| Subject Matter | Accounting & finance |
Journal
of
Financial Crime
—
Vol.
6
No.
4 —
Fraud Investigations
FRAUD INVESTIGATIONS
Fraud Investigation
and
Prosecution
—
The
Way
Forward
Perry Nove
AN INVESTIGATOR'S PERSPECTIVE
The effective investigation
and
prosecution
of
fraud
and other white-collar crimes remains
as
difficult
today
as it was in 1948
when
the
Metropolitan
and
City
of
London Police Company Fraud Department
was
set up to
cope with
the
increase
in
fraud cases that
was apparent after
the
Second World
War.
In
the
intervening
50
years, although much
has
changed, many
of the
problems associated with
fraud investigation have
not.
Although
it is now 13
years
old,
Lord Roskill's Report remains
an
instant
and essential point
of
reference
for the
newcomer.
The City of London Police has
a
bigger investment
and stake
in
tackling major fraud than
any
other
police force
in the UK.
This paper briefly addresses
what
the
author believes needs
to be
done.
To
enhance
the
prevention
and
detection
of
fraud,
including fraud
in the
financial services sector, there
are certain perennial problems which have
to be
addressed.
It
is
depressing
to
consider
the
degree
to
which dis-
honesty pervades business today, particularly within
the financial services industry. Recent individual sur-
veys carried
out by the
leading chartered accountancy
firms of KPMG, Ernst
&
Young
and
Neville Russell
all reinforce this impression.
At the
bottom
of the
pyramid employees
arc
increasingly tempted
to
abuse
the
trust
of
employers
by
using their knowl-
edge
and
position
to
misappropriate funds.
But is
this surprising?
The
uncertainty
of
long-term
employment, thwarted ambition
and the
divisive
'bonus culture'
can all
compound
to
weaken
the
resolve
of an
employee
to
remain honest.
In the
interests
of
economy, middle management
in
most
organisations
has
been reduced
a
point where many
senior managers will admit there
is a
lack
of
under-
standing
and
experience about
how
routine
(but
essential) functions
arc
carried
out
within organisa-
tions.
This
can
create
a
situation where meaningful
supervision
is
almost non-existent.
At
the top, the
need
to
maintain
and
increase
market share
can
lead
to
excessive borrowing
to
fuel expansion
—
often with disastrous consequences
if the money supply begins
to dry up. How
easy
it is
for senior executives
to
step across
the
thin dividing
line that separates acceptable business practice from
fraudulent trading
or
misrepresentation
of
solvency
— particularly
if
subsequent actions
are
motivated
by
the
desire
to
save
the
company from liquidation
and
its
employees from redundancy. Where does
entrepreneurial optimism stop
and
recklessness begin?
There have been enough major events over
the
past decade
to
illustrate these points. Cases such
as
BCCI, Maxwell
and
Barings have brought about
a
realisation among those involved
in the
criminal
justice system
and
government that some radical
changes
are
necessary
if
fraud
is to be
prevented,
as
well
as
effectively investigated
and
prosecuted.
The
international financial services industry,
so
vital
to
the
UK and
other national economics, must operate
within
a
properly regulated environment
if
trade,
industry
and
investor confidence
is to be
maintained.
Yet regulation
has to
avoid paralysing legitimate
trading
and
business.
The
new
Financial Services Authority
(FSA)
here
in
the UK
will have powers
to
monitor, detect
and
prevent financial crime,
to
make
new
rules
and
bring criminal prosecutions
in
respect of money laun-
dering. Work
is
already
in
hand
to
align this activity
with
the
aims
and
objectives
of the
police service,
SFO
and
other
law
enforcement agencies through
memoranda
of
understanding
and
proactive liaison.
Some have described
the
changes that
are
taking
place within
our
financial regulatory system
as 'a
revolution', with government departments coordi-
nating work
to
build
a new
unified system
to
meet
both domestic
and
international needs.
Although
it is too
soon
to
detail,
the
police service
is keen
to
capitalise
on any
benefits that will derive
from
the
work
of the FSA and
will
be
seeking
a
Page
370
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