2008 record year for UK bank fraud

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LONDON – KPMG research says UK banking fraud cases have risen by a record 50% in the first six months of 2008, partnered by a rise in the number of mortgage-related frauds. This suggests that, as the credit crunch takes hold, the financial crime picture could continue to deteriorate.

The research says UK fraud has reached £630 million since January, with banks suffering a record £350 million share and rising levels of insider employee and accounting fraud. The previous high for financial services was £200 million, in 2008. KPMG highlights two cases – the alleged £220 million attempt to hack into Sumitomo Matsui bank’s systems, and an attempted £70 million fraud within HSBC’s securities division (January’s $7 billion rogue trading fraud at French bank Société Générale is not included).

Hitesh Patel, a partner at KPMG Forensic, says: “These are worrying indicators. Fraud remains extremely prevalent in the UK, with professional gangs accounting for over two-thirds by value, ranging from investment stings to trading scams, card fraud and money laundering. Banks are working extremely hard to protect themselves and their customers from fraudulent activity, but the signs are that organised criminals and syndicates have been relentless in their efforts. Mortgage fraud cases have started to come through in the courts too – and it seems likely that there will be many more to come.”

For the mortgage industry, nine cases have been brought to court in the first six months of 2008, worth over £20 million. By comparison, there were 10 cases for the whole of 2007, worth £3.7 million. The rising number of FSA enforcements in recent months of mortgage brokers and managers has also raised the profile of UK mortgage fraud, in an industry that is now struggling with a fall in prices and tighter lending since the onset of the credit crunch.

“The cases in this period’s Fraud Barometer largely predate the credit crunch in terms of when the frauds were committed,” says Patel. “The fear is that we will not see the real and full fraud impact of the crunch for another six or 12 months, or even more, as businesses start to take a closer look at their operations in this difficult economic climate. The signs are that we could end up seeing some substantial losses being suffered.”