Gateley’s James Baird considers the ways in which the
industry can combat fraud in a modern world

The credit crunch taught us there will always be banks and
always be money.  And thus, there will always be fraud. 
Fraud by its very nature is reactive to opportunity. The evaluation
of that opportunity is itself a reaction to a perceived rather than
an actual risk of detection and detrimental outcome. The best
executed frauds create an illusion that a state of affairs exists
when in fact they do not.  The longer the defrauded party
believes in that illusion the less risk on the fraudster of
detection and the more difficult commercial recovery becomes.

Anti fraud strategies need to be designed with
two elements.  Firstly, robust systems of prevention and
recoveries. Second and less often deployed or developed by lenders
is a projection of a zero tolerance to fraud. The two limbs are
equally important in combating fraud but the latter may have more
success in shifting the perception of risk so as to act as a
deterrent in itself.

Creating a projection of zero tolerance can be
culturally difficult for an organisation to achieve.  It takes
time and hard work and often those underwriting policies “price in”
fraud risk. Such policies and the knowledge of such policies, run
contrary to the zero tolerance projection required to create a
deterrent.  It in fact does the opposite and reduces the
perception of risk in the eyes of the potential fraudster. It is
this perception which drives fraudulent activity.

Creating a culture of zero tolerance is a
whole organisational effort. It requires both internal adherence to
and external projection of the strategy. Strong prevention polices
are essential to lock out would be fraudsters at the
application/proposal stage.  Brokers need to adopt this
cultural strategy and broker trading agreements drafted to oblige
brokers to adhere to them. The creation of standalone anti fraud
recovery teams dedicated to pursue fraud is also a prerequisite,
together with a willingness to robustly respond to discovered fraud
and pursue it legally in the courts in this jurisdiction or
others.  The law can provide strong remedies but they need to
be accessed quickly and in appropriate cases aggressively.

The combined effect of deploying and
projecting such a strategy of zero tolerance to fraud, is, over
time, to create a zero tolerance culture which will reduce fraud
losses or it will reduce fraudulent activity as the risk perception
will shift in the eyes of the fraudster. This perception may itself
be in response to a perceived culture rather than an actual
culture. Thus whilst fraud requires an illusion so to  do anti
fraud strategies.

James Baird is asset finance partner at Gately
law firm