News
FraudNet takes on corporate crime
Fraud is an increasingly complex problem in the modern world. Perpetrators are now assisted by the latest communications technology, and the crimes themselves invariably cross national borders. However, the services available to fight fraud are also better than ever. Peter Lowe, executive secretary of FraudNet, a specialist global network of lawyers, spoke to ICC National Committees about the war on fraud.
As the global economy opens up, businesses are increasingly vulnerable to fraud, and can suddenly find themselves at risk unless they exercise due diligence at all times. Frauds are also now more complex and involve larger sums of money than before, with many new scams taking advantage of the potential anonymity and increased global scale that sophisticated electronic transactions provide. This makes the problems of seeking redress and recovery much more complex, as victims are unsure how to respond or who to turn to.
London-based ICC Commercial Crime Services (CCS) is the anti-crime arm of the International Chamber of Commerce, and is a non-profit crime detection and prevention membership organisation for the business community. The organisation has worked to shield companies from crimes affecting business for more than 25 years, working within a wide range of countries and jurisdictions. CCS's FraudNet is a unique global network of law firms that specialise in tackling business crime.
FraudNet
FraudNet, , was set up in 2004 to provide an innovative way to tackle fraud and track down and take action against the offenders, using the combined strengths of a global network. Through FraudNet, victims of fraud are provided with a first local-point-of-contact service staffed by legal specialists, which is accessible via the website or by phone (details provided below). This point-of-contact approach simplifies the case management process and ensures rapid and effective action.
FraudNet executive secretary Peter Lowe explains the corporate-crime-fighting venture:
"Cases of fraud come to FraudNet members from a number of sources," he said; "from enquiries off the website and to individual members directly. The members in turn may also refer parts of a multi-jurisdictional case to other members of the network.
"It was a concept we had been working on for a number of years," he continued. "We felt there was a need for a network of specialist fraud lawyers who were involved in tracing and asset recovery, who could offer a service to victims throughout the world. These would be legal specialists who practice in this area, who would provide the necessary resources and expertise to assist victims."
Specialist expertise
Mr Lowe explained: "FraudNet specialises in tackling all types of fraud, including asset-recovery, money laundering, Ponzi schemes, identity frauds, and commercial trading frauds. The FraudNet members are particularly involved in recovery work, tracing assets, and recovering those assets for the victims. They are experts in their own jurisdictions, and can draw upon the wider expertise of the network in tackling legal issues in other parts of the world where money could have flown to."
The FraudNet expertise has also been distilled into a 1000 page book – The FraudNet World Compendium on Asset Tracing and Recovery which has been something of a best seller with a new two volume edition coming out in May. The book has a country by country description of fraud and asset recovery laws in different jurisdictions and has proved invaluable to both victims and lawyers.
International scope
"The problem with fraud of course, is that it's very often transnational," added Mr Lowe; "so there's not necessarily one jurisdiction. It's vital to have a network of specialists. ICC Commercial Crime Services has intervened in quite a few instances of fraud relating to trade, shipping and finance, where the problem of transnational fraud is very much in evidence.
"We approached a number of specialist firms who had expressed an interest in the concept. The basic idea was we would have one firm in each jurisdiction. This has changed slightly, because we now have a number of law firms in different parts of the US – because of its federal structure. These being in New York, Miami, Kansas City, Dallas and California.
"In Switzerland we've got two; in Brazil we've got two. We've currently got 56 members throughout the world, in 49 Jurisdictions. The network currently has a huge geographical spread – quite a few firms in South America, most countries within Europe, and a number in South-East Asia. We're still looking for FraudNet members in countries such as China and Russia."
Mr Lowe mentioned FraudNet's rapid growth, revealing that the venture has had approximately ten new members each year since its inception. In regard to FraudNet's selection process, Mr Lowe said: "We have a committee that deals with selection. Members can apply but they have to be vetted to ensure they have the necessary expertise. A number of firms have applied and have been rejected."
Mr Lowe explained that FraudNet now has now become arguably the world's premier specialist network of fraud legal experts, currently at 56 and set to grow to around 70 in the next few years. The network's members meet face-to-face twice a year in different parts of the world, having held meetings in London, Madrid, Miami, Rio de Janeiro, Buenos Aires, Singapore, Prague, Munich, Mauritius and Calgary. The next meeting is due to take place in Hong Kong on March 11th to 12th 2011.
Mr Lowe said: "The network is very active – one of its requirements is that the members meet with each other face-to-face on a regular basis. When members meet, we have a one or two day conference, with an educational element involving presentations on fraud-related issues. We also meet to discuss issues relating to the network: how we can do things better, and how we can advance the network and ensure that it grows and provides the relevant services to victims.
"Another reason for getting together is so that our lawyers are able to meet each other and often refer work amongst each other. There is a lot of work referral within the network because a member in, let's say the British Virgin Islands, may be instructed on a fraud case, but there are legal issues in other jurisdictions – maybe the money has gone to Switzerland for example – and another network firm member needs to be instructed to work on that part of the case.
"So there are a lot of referrals within the network, but there's also work coming in from outside. Victims will see the website, may want to use some of the law firm members to assist them, and they will instruct them either directly or through us. We have a newsletter we send out to members called "Commercial Crime International". We also keep databases on fraud and fraudsters, and members can gain access to these.
"The other aspect of FraudNet from the members' point of view is that being a member of FraudNet is a seal of approval. Since all of the members been vetted, they are confirmed experts in that area, and firms are rightly proud of this accolade."
Ponzi schemes
"Transnational fraud is growing dramatically and I think we can expect a lot more in this recession/depression we're in," continued Mr Lowe. "We've already seen the cases of Bernard Madoff and his Ponzi fund in the US, as well as the Allan Stanford fraud. We've also had the case of Jerome Kerviel in France, and there will doubtless be other frauds still to be uncovered which will become apparent over the next few years. Fraud is a growth industry and there is a great need for legal expertise in different parts of the world to tackle it."
The Ponzi scheme that Mr Lowe referred to, perpetrated by Bernard Madoff – former chairman of NASDAQ and founder of a brokerage firm named after him – was one of the more pertinent examples of large-scale fraud in recent years, and as good an indication of the growing fraud problem as any. A Ponzi scheme is a fraudulent investment operation that pays returns to investors from their own money or money paid by subsequent investors rather than from any profit. Madoff's firm offered a steady yearly return of 10-12%, no matter how the markets performed. His strategy was supposedly to combine simultaneous positions in stock and options markets, acting like an insurance mechanism where losses from one market are outweighed by gains in the other, leaving a return for investors. Instead his firm recycled capital of new investors to repay others – essentially "robbing Peter to pay Paul", as the idiom goes. The liabilities were huge at $50 billion, and went undetected for two decades until Madoff was arrested and charged in December 2009.
The future of FraudNet
"The network is going from strength to strength," said Mr Lowe. "It does appear to be delivering excellent results for victims – and I think we can expect to see it working on quite a number of large-scale transnational frauds in the future."
FraudNet members are specialists in fraud, asset-tracing and recovery, money-laundering, and cyber-crime.
For all matters relating to fraud and FraudNet please contact Kees van de Meent or Cathalijne van der Plas.