Fraud: an unfair cop

According to figures from BDO Stoy Hayward there has been a 14% reported
increase in corporate fraud in 2008. This is likely to grow as the recession
deepens and fraud and its detection increases.

Upon discovering a fraud, quite often the first thing that a business
considers doing is reporting it to
the police. If a business wishes to recover the money it has lost, however, it
should look instead to its civil remedies, and the very powerful orders which
can be obtained to assist in the location, freezing and recovery of assets.

The primary motivation of the police in fraud cases is in securing
convictions, and not in obtaining compensation for the victim. This is very much
a secondary consideration and only occurs after conviction.

The focus of civil cases is preserving and recovering assets.

In a criminal case it can often take several years before a restraint order
is sought over the defendant’s
assets, and after they have been alerted to the investigation, giving them ample
opportunity to dispose of those assets.

Securing assets, and then seeking and enforcing a judgment against them, is
absolutely crucial and should be a first priority. It is very important to first
carefully consider the strategy to ensure the steps taken are effective.

The orders which can be obtained are freezing orders and disclosure orders.
Freezing orders freeze the defendant’s assets up to the level of the claim, and
a sum in relation to the anticipated costs of the action.

These orders are often obtained without giving notice to the defendant. They
can be obtained on a worldwide basis.

In contrast to the effective nature of these orders which can be urgently and
secretly obtained, recent statistics from the Serious Fraud Office highlight the
difference in approach. In their annual report the SFO reports that it had 65
cases ongoing in 2008, with an aggregate sum at risk of £4.8bn.

However, during the same year only 11 restraint orders were obtained
(totalling £201m) and just eight confiscation orders were made amounting to
£42.3m. This means that the SFO managed to recover less than 1% of the value of
the assets ‘at risk’ in 2008!

These figures starkly illustrate why relying on a criminal prosecution to
quickly recover assets lost to fraud is usually the wrong approach.

William Christopher is a partner at law firm
McGrigors
LLP