Hard times create a growth industry for fraud



With the economy in turmoil, fraud and white-collar crime are where the action is, according to a new report.

Global turbulence and recession will lead to an increase in white-collar crime as well as significant changes in how fraudsters operate, according to the Kroll Global Fraud Report, produced by a division of Marsh & McLennan Cos. Inc. in New York.

The study compared current economic conditions with recent downturns.

“Companies are facing significant economic distress, and they are fighting for every opportunity right now,” said Blake Coppotelli, senior managing director in Kroll’s business intelligence and investigations practice.

As companies become more aggressive in their pursuit of profits and revenues, Mr. Coppotelli said, they also increase their exposure to fraud in new markets and in new lines of business.

Difficult economic conditions tend to create more incentives to “deviate from proper business practices and engage in fraudulent activities to protect and maintain revenue,” Mr. Coppotelli said.

He cited the Ponzi scheme allegedly operated by Bernard Madoff as an example of the type and level of fraud that might be coming.

“We saw a marked increase in the number of corporate-fraud cases during the market downturns 1987, 1991 and 2001,” Mr. Coppotelli said.

“Following the savings and loan scandal in 1990, white-collar crime jumped 52%, and following the Internet bust in 2000, fraud arrests jumped 25%.”

A key finding suggested an expectation for increased fraud claims, legal disputes and regulatory actions.

The challenge to battle the fraud, according to the research, will begin at the corporate level where it becomes important to re-examine financial controls, corporate governance, and compliance and transparency policies.

Source: Investment News