View from City Road: Are we becoming more crooked?

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The Independent Online
It is received wisdom that recessions cause frauds and spur the detection of fraud. Businessmen are more willing to fiddle the books if they are facing collapse, while existing frauds tend to come to light when businesses crash due to an economic downturn.

All the more remarkable then that about 70 per cent of the value of fraud cases brought to court in 1993 relate to alleged crimes that were not caused by, or discovered as a result of, recession.

According to KPMG Peat Marwick's latest four-monthly reading from its 'fraud barometer', we may be seeing a structural change in what might be called the fraud market. Forget the recession. Are we just becoming more crooked?

Many observers thought that all the cases likely to be shaken out by the recession would have come to light by now, but KPMG insists that recession is not the main explanation for the increase in prosecuted fraud.

Even the mighty BCCI case, which counted for over half the value of frauds brought to court in 1993, had little to do with recession. Most of the fiddling in BCCI went on in the boom times of the 1980s, and the decision to investigate did not have much to do with the state of the economy.

Other big cases of the past, such as Guinness and Blue Arrow, were more the result of boom than of recession, although the crash of 1987 was a key factor in Blue Arrow.

Where do we find this apparent step change in the amount of white collar crime suggested by KPMG's findings? One big growth area is procurement crime, where local councillors and directors receive kick-backs for awarding contracts. Investigating this kind of crime represents half of KPMG's fraud work.

Banks and financial institutions were victims in the highest number of cases, reflecting the ease with which frauds can be perpetrated in the newly automated and deregulated international markets.

Investors suffered most, of course, to the tune of pounds 499m, over half of the fraud barometer's total for 1993. Eight years after the Financial Services Act, investor protection has not exactly been a roaring success.