Insights & Reports > Kroll Global Fraud Report

The global recession is creating a host of challenges which are new and unfamiliar to most executives and regulators today. Among these is how fraud risks change in a downturn, and how anti fraud strategies must adapt. This edition of Kroll’s Global Fraud Report examines the rapid shifts taking place on fraud’s front line.

Fraud always sees relentless innovation on age-old methods, as opportunities and technology change but human foibles endure. Bernard Madoff’s alleged Ponzi scheme – covered in our December Special Edition – showed that this at least century-old scam retains great vitality. Articles in this edition discuss not only how Ponzis have been thriving, but how other old classics are growing –for example, various financial scams and straight-forward corruption. Meanwhile, efforts by companies and governments to address the current economic malaise will provide fraudsters with new opportunities, from preying on corporations as they move into riskier geographies in search of growth, to cheating to obtain a piece of the huge government stimulus pies on offer.

Meanwhile, though, new opportunities exist for those fighting fraud. Some are discussed inside: improved data on global patterns of digital intellectual property theft, in one case provided online by an organization accused of abetting this piracy; President Obama’s reinvigoration of the Freedom of Information Act; and potential regulatory changes in the wake of the Madoff scandal. Nor is the impact of anti-fraud measures limited to their direct effects: one analysis shows that FCPA penalties can pale in comparison to the drop in a target’s market capitalization brought on by an investigation.

Ultimately fraud involves human beings, both as perpetrators and victims. Greed has again demonstrated that, even before the downturn, it was more than a match for good sense or ethics among many supposedly sophisticated investors – whether in the Madoff affair or the sub-prime follies which started the current economic slide. As this edition shows, understanding the effect of bad economic times on people’s emotions is essential to seeing where fraud is headed, and what might be done about it. Some individuals will be more careful to protect their assets. Others, however, will be more desperate: those with a criminal bent may look to maintain lifestyles through running scams; more honest ones might be more susceptible to get-rich-quick schemes or self-proclaimed Robin Hoods that promise to restore depleted finances. Still others, normally perfectly honest, may even engage in fraud and misrepresentation for what they consider noble motives – to preserve the jobs of thousands of colleagues.

As this edition notes, what role regulation can play in the face of people’s eternal willingness to believe the too-good-to-be-true is unclear. This does not mean we are helpless. Due diligence and compliance best practice, as well as applying the correct tools to fight back once fraudsters have struck, are all part of addressing this threat.

Introduction: Fraud during a market downturn