Businesses that fall victim to the growing risk of fraud during the downturn should resist the obvious temptation of informing the police first, as doing so could significantly hamper their attempts to use the civil courts to recover money lost, warns McGrigors, the London-based commercial law firm.
According to McGrigors, the number of businesses that have to deal with fraud normally increases dramatically during recessionary periods. This is due to rising numbers of actual incidents coupled with increased detection of fraud perpetrated during the boom times, as a result of greater scrutiny of budgets and costs.
Corporate fraud jumped 14pc in 2008 to £1.2billion, according to figures by accountants BDO Stoy Hayward.
McGrigors says that the primary interest of the police in fraud cases is in securing convictions, often at the expense of getting compensation for the victim, whereas the focus of civil cases is preserving and recovering assets.
William Christopher, Partner and head of fraud at McGrigors, says: "Letting the fraudsters know their activities have been discovered by launching a criminal investigation may give them the opportunity to dispose of assets before a Freezing Order can be obtained. If fraudsters dispose of assets, it could take years of expense to recover them and in some cases they could even be completely unrecoverable."
"Securing assets and then seeking and enforcing a judgment against them is absolutely crucial and should be a victim’s priority in fraud cases. Criminal prosecution of the fraudster rarely achieves that objective and usually leaves businesses with significant extra costs."
He adds: "The risk of fraud and its detection is likely to rise dramatically during the downturn. Unfortunately, reporting fraud to the police, which is often the first thing businesses do, can actually hamper the recovery of assets and pile on additional costs for businesses when they least need it."
McGrigors says businesses should immediately take the following steps on discovering fraud:
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Take expert legal advice before any steps are taken
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Secure the defendant’s assets with a Freezing Order. This prevents the disposal of assets and secures assets against which to enforce a judgement
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Obtain a Disclosure Order at the same time. Requires defendants to disclose assets in a matter of hours, so that any assets not discovered in the investigation can then be frozen
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A figure in respect of estimated costs can also be frozen, ensuring any Costs Orders made against the defendants in the proceedings can be recovered.
