Is COVID-19 causing an increase in fraudulent activity? | Crime expert Jim Gee
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|Hello and thank you for joining us for the first episode of Navigate, I’m your host, Rodger Cook, the regional security director for World Travel Protection. Today I’m joined by Jim Gee from Crowe UK. We’re going to talk about a potential increase of fraud related activity due to the Covid-19 Pandemic. As we start to see an easing of travel restrictions and the talk of travel bubbles in Europe and the Pacific, what challenges will businesses face as they try to return to business as usual? Jim, it’s great to have you here and thank you for your time.|
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|It’s good to be here and I’m looking forward to this.|
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|Can you just tell us a bit about your background and the work that you’re doing with Crowe UK?|
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|Well, I’ve been working in this area dealing with fraud, cyber-crime, bribery, corruption, now for more than 30 years. I was chief executive of the NHS counter fraud service, protecting the second largest organisation in the world against those issues. Adviser to the UK Attorney General, and there I joined private practise and have since advised governments, companies, big charities all over the world in 43 countries to date.|
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|What can we expect to see in relation to fraud stemming from the global economic downturn caused by Covid-19?|
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Well Crowe UK manages the largest database in the world concerning the cost of fraud, based on global research over more than two decades across 40 sectors and looking at more than 19 trillion sterling (£) of expenditure in different countries. We know that in normal times over 7% of the expenditure is lost to fraud and error. But we now have a big increase in fraud as criminals try to exploit the current Covid-19 health and economic emergency. So there’s kind of three aspects to this.
First of all, there’s the Covid-19 specific fraud which affects us all as individuals. Then there’s an increase in general fraud affecting companies and other non-public sector organisations. And the third element is fraud in respect of different governments Covid-19 support measures – extra loans, extra grants, more generous arrangements in terms of employment that several countries have put in place.
So to give you some examples, Covid-19 specific fraud includes examples where fraudsters have pretended to be undertaking research for the World Health Organisation; they claim to provide the victim with a list of active infections in their area. But to access this, of course, the victim needs to either click on a link, which redirects them to a credential stealing webpage.
There’s been emails asking for donations to buy medical preparations and supplies. Other scams purporting to be official messages from governments include texts telling people they’ve been fined for leaving their home during the lock down and asking them to pay that. There’s been fraudsters sending investment scheme and trading advice, encouraging people to take advantage of the downturn and even e-mails purporting to come from different tax authorities offering tax refunds. So lots of Covid specific stuff, there’s been people offering PPE, which of course, never arrives. So that’s the kind of Covid fraud.
But a second element is the kind of economic crisis driven fraud, so we’ve seen employees who’ve either been made redundant already or think that they will be.
Stealing clients’ data to ingratiate themselves with prospective future employers.
We’re seeing fraudulent invoices submitted by under pressure providers of services that were never bought in the first place or have never been delivered. Senior managers, unbeknown to their employers under financial pressure. One example I can think of where a very senior guy had a bad gambling habit, which nobody knew about. But people have been using their authority to manipulate accounts and misdirect money. We also see lots of attempted and sadly, some successful, changes in bank account details to misdirect money.
And then the third element is fraud in respect of government Covid-19 support measures. So in some countries, the government is paying part of the wages for staff and, of course, companies claim for non-existent staff, pretend to furlough them when they’re not, companies purporting to be solvent to get government backed loans and grants and then transferring the money out to other companies and letting the original company go bankrupt.
We have seen organised criminals and individuals, fraudulently claiming some of those grants as well and indeed alongside that the organised criminals because their kind of manufacturing and distribution arrangements for drugs have been disrupted by this. They’ve been pouring more resources into cyber-crime as well.
So, three areas. The risks to organisations, to both internal and external possible economic pressures, lead people to radically re-evaluate loyalties and sometimes to rationalise behaviour which normally they wouldn’t consider appropriate. Previous recessions have seen a new generation of fraudsters created where the normal, dishonest minority and there always is one, is enlarged by those determined to protect their income and assets no matter what, so I hope that gives you a bit of a flavour of what we have seen and what we are likely to see more of. But as travel does open up, I expect it’s going to be the business travellers that will be the forefront as they try to get back into their work environments. Either expats or rotational staff.
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|What risk are these travellers going to be exposed to in relation to fraud, but also you know, government related corruption?|
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Yeah, well risks always develop during periods of economic uncertainty because there’s more unemployment, more instability, more crime, particularly if you’re travelling to countries where the level of risk is higher than it would be perhaps in the developed world. I do quite a deal of work in Mali, which is unstable at the best of times. But in the midst of the Covid crisis, and not just the health crisis but the economic crisis, of course that’s going to get worse.
I think business travellers need to consider a number of things; they need to be serious about considering their physical security. And I don’t think they always are. And that doesn’t just mean having physical security around you, if that’s appropriate. But it means actually understanding more about where exactly you’re going, what part of what country and actually having a proper, some proper due diligence threat intelligence beforehand so you understand that.
I think there’s a question of digital security, which is very important and people don’t always think about that, especially in a time where we’re seeing a massive spike in cyber-crime. So, for example, we provide specially configured laptops, hardware and software to minimise the possibility of cyber-crime. We can remotely configure laptops; we give people training about that. We provide the most secure, encrypted mobile phones for people and the training to make sure that any eavesdropping and governments will ramp up in some of these countries. They will ramp up that kind of eavesdropping to ensure it isn’t a problem.
Anti-Surveyance security making sure that people sweep the space around them. Or maybe the room in which a crucial business meeting is going to take place. And again, where you have countries with intrusive governments, that’s useful. And even things like cell based mobile phone tracking, so you can identify the mobile phone cell surrounding a particular business location and then track the mobile phone numbers moving towards or away from that location to identify unwanted intrusion.
So there’s a series of things that technology wouldn’t have allowed, wouldn’t have been possible with technology a few years ago. But this is this is really what people need to minimise the risks in this day and age and those risks will get worse as the crisis develops.
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|I think as we move forward in travelling to these environments, we may have to download technology that the host country requires for us. Do you, Do you see a risk with that?|
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|Yes, very much so, I mean in some countries where governments are more intrusive, that’s particularly the case. There are all sorts of measures which you can put in place. Conditional access is one of them on and you can set that via Microsoft office 365 on your computer. So, for example, if you’re trying to do something, logging in from, let’s say, Indonesia, then your computer would automatically not allow you to do some things, which it would be perfectly possible to do if you were logging in in Australia. There’s some quite detailed things you can do to tune the level of protection to the place that you’re going to.|
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|You talked about, you know, equipping travellers with specialist laptops, or specially configured laptops and then phones. What else can we do to protect our travellers and arm them and make them more resilient when they travel to these environments?|
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Well, I think awareness is key and that’s about training people, you know, sometimes people can be in an unfamiliar environment they don’t really understand. You know, we provide detailed threat intelligence reports on what’s actually going on inside a country and provide people with training and awareness sessions as well, if they need it. There is no substitute for really understanding where you’re going, what the issue’s there, what the risks are and those risks will vary as well in different parts of the country.
So there are parts of the UK that I wouldn’t go into too late at night and the UK is a developed country where overall the risk is low. But it’s about understanding exactly where you’re going and what the risks are and then behaving, protecting yourself proportionately.
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|Did you find, Jim, that when there has been a fraud event and travellers are reluctant to report it or businesses are reluctant to give it the focus that it needs?|
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Yes, indeed. You know the statistics on this are quite interesting. Going back more than 20 years, and as I said, we managed the biggest database in the world around the extent of fraud. When you compare that to what is detected as little as 1/30 is actually detected, the low volume, high value frauds are noticed and detected. And then there’s the question of the extent to which people think it’s gonna be useful to them to report it to the authorities. In some countries, the authorities actually have very different priorities from looking at fraud.
For example, in the UK and again a developed country only 0.6% of all fraud in my country is actually prosecuted. And that’s partly because people don’t report it to the police. The reason they don’t report with the police is because the police don’t actually put much effort into doing anything about it. So you know, when it’s 1/30 is detected, most of that, 29/30 is high volume, low value, fraud. It’s the kind of thing that okay a certain amount of money’s been taken, but then in people’s minds, they think is it really worth, you know, getting involved with the authorities in another country. What if I was misunderstood? What if I was thought somehow to blame? So people are reluctant to report it, unless it’s something which is relatively high value and they have a degree of confidence in the authorities in the country concerned.
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And that’s the key piece isn’t it, as a traveller, you don’t really understand what the
authorities might do with that information, you don’t know their level of complicity in the actual fraud. So there’s a hesitance. I guess it goes back to that being informed.
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|That’s right. I mean, in some countries, you know, the corruption within the police is almost institutionalised with a tariff for people to actually purchase different positions and getting together money from their families to be able to purchase a position in the police. And then, of course, they have to take bribes to pay of the money that they borrowed. So it’s almost institutionalised and you know, people need to be aware of that and that’s another risk they face.|
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|Absolutely. Is there a reluctance to follow up on fraud and seek these convictions because the money’s been seen to be taken from it might be a Multinational or a large company and is divisible with it and you know, they can wear the cost. It doesn’t really matter because they could be a foreign entity or they’re just a large company. Is there some thinking there behind that?|
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Yeah, this is the myth of the victimless crime isn’t it? It isn’t victimless; people see let’s say a high volume, low value fraud and they think, well, a company can afford to absorb this. They are not quite aware of is the rest of that high volume. You know, collectively, all of that loss is substantial where fraud is being measured in an accurate and statistically valid away. And we run the biggest database in the world on this, then is currently running at 7.15% of expenditure and that cut by up to 40% within 12 months.
So you think the level of profitability of different companies 40% of 7% is about just under 3%, you can increase 3% of your profitability by cutting a cost that doesn’t actually cause any hardship whatsoever. In fact, the only people that lose out is the fraudsters, is something that can make your company more profitable. So, yeah, that’s what I think.
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Being more profitable at this current time’s gonna be critical, 3% can mean the difference between yah know, surviving or not, it sort of leads me to the next question. What are the risks of not travelling?
Now I know, some of the organisations that I worked with recently, you know, they’re quite happy to trust that their supply chain was able to deliver, but from the comfort of Australia in this instance. And what happens if we don’t travel. What happens to our ability to manage fraud in that instance?
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Well, there’s all sorts of things that people can’t do, unless you do travel. You touched on one of them. Supply chain integrity. We’re finding that a big problem in Europe in one sector, which really at the moment with Covid-19, that really is an example of that. And that’s the food sector. People actually not doing the due diligence, not making the visits to where some of that food is grown or produced and its supposedly coming from one place where conditions perhaps are acceptable, to produce it or grow it and in fact, coming from somewhere completely different. We call “food fraud” as the crime in your basket.
But it’s just one example of a lack of supply chain integrity. When you start looking at supply chains and we do that for various companies because they want to know ultimately where whatever is made or produced comes from, you can find those supply chains are actually very odd. But there’s other problems too, so if you don’t travel to meet people, sometimes you won’t win or be able to do the work. Sometimes you won’t be able to scrutinise perspective business partners as well as you would otherwise be able to do. There is no substitute for actually meeting people and a video call just isn’t quite the same. You won’t be able to see where something is grown or made or mined. You won’t be able to understand the context of where the work is taking place, well to understand the culture of a country as well, which can be really important to doing business effectively. And finally you won’t be able to network as well. You know, good close links between people are very important to good business, being able to trust people. It’s very important to be able to do good business.
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|And I think that that lag between and by not travelling and not acquiring new business will have a long-term impact on a lot of organisations.|
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|Yeah, I mean, the first people to get out there and start doing business again will thrive in a very difficult context. I’ve worked in 43 countries to date and I don’t just sit in London while I send my team out there. I actually go out there because I want to meet the people. I want to see for myself what needs to be done. I want to make sure the work is done really well. And I think that’s been important to the success I’ve had in in building my practise.|
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|Yeah, no, absolutely. It’s important to understand the culture that you’re working in. You talked about the food fraud and then, really, that substitution of one known product with another is something that we were going, that we could see a lot. We could see that in consumables. We could see that vehicle parts. And in being involved with yourself, managing a fraud around those sorts of pieces of equipment. Is there anything else that you can think there might be susceptible to that sort of fraud?|
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Well, certainly vehicle parts, food, pretty much anything that people seek to acquire through their supply chain. You know, you want to know that if it let’s say its um, you want to know it’s being made properly, you want to know who has made it, that its being made by people actually being treated properly and fairly. We have an act in the UK called the Modern Slavery Act which outlaws people effectively being kept prisoner to undertake work. So our companies actually look at long supply chains to check that you know, ultimately, where something is originally produced that that isn’t the case. And when you start looking at that, you can just see it covers an awful lot of different areas.
Even one area that we looked at is wine, and actually checking whether some of the wine that supposedly comes from very expensive domains in France and whether that is actually the case. Even in that area, that’s not always the case. So there is a wide variety of supply chains that go wrong if they’re not actually scrutinised and people are not actually going out and having a look at them.
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|Actually, hand in hand with that, I think we are going to see, there is already a lot of talk around about people changing their supply chains, probably moving things either supply or manufacturing out of China into other areas. If I was an organisation and I was thinking about moving a well-established supply chain or manufacturing facility in China to a different part of the world, what sort of thing I should consider there?|
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|There is no substitute for getting really good quality business intelligence about the people you’re gonna be meeting, the people you’re gonna be working with and the country you’re gonna be working in.|
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|Jim, again, Thank you very much for your time. Is there anything else that you’d like to talk about with regards to fraud and the business traveller? Or the new environment that we find ourselves in with regards to Covid-19?|
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|Well, all I will say is it’s absolutely crucially important, we’ve got our crisis, I don’t want our crisis to be the fraudsters and cyber-criminals’ opportunity.|
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|Excellent, Jim. Thanks very much for your time. I’ll talk to you soon. Take care.|
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|Thanks for interviewing me. Thanks.|
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