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BDO Fraudtrack Report reveals sharp increase in money laundering in the UK

20 January 2014

New research from BDO LLP, the accountancy and business advisory firm shows that both the total value and number of reported cases of money laundering in the UK has surged in the UK. 

  • Reported Money laundering related to fraud offences surges 309% to £288m
  • Fraud in Financial Services now accounts for 51% by value of all UK reported fraud
  • Increase in legislation and compliance in Financial Services driving increase in reported fraud

New research from BDO LLP, the accountancy and business advisory firm shows that both the total value and number of reported cases of money laundering in the UK has surged in the UK. The latest FraudTrack report, which examines all reported fraud cases over £50,000 in the UK, finds that the total value of reported money laundering related to fraud offences has risen to £288m compared to £70m in 2012 representing a total value increase of over 309% on the prior year. The actual number of reported money laundering cases meanwhile has also risen from 33 in 2012 to 39 in 2013.

The largest cases of reported money laundering include:

  • £170m laundered through a bureau de change in Notting Hill
  • £52m laundered by a courier in the East Midlands
  • £20m laundered as part of a bogus marriage scam ring in London

The report's author, Kaley Crossthwaite, Head of Fraud at BDO LLP, commented: "Money laundering can take many different forms but the common thread is the supposed legitimate investment of illegal funds to conceal their source. The complexity of the investment can often make it very difficult to detect and, even when found, can take years and vast expense, often to the tax-payer, to unwind.

"Reported cases of money laundering have surged in 2013 both in terms of value and number of cases driven largely by criminal greed. This may be partly down to an increase in organised crime activity however the demand for transparency in the financial services sector is also surely playing a part. The laundering of ill-gotten gains is largely carried out through the financial services sector and the increased legislation and compliance imposed on largely unsuspecting businesses operating in this sector seem to be uncovering increasing numbers of illegal transactions that may have historically been swept under the carpet."

Fraud in Financial Services

In terms of sectors, fraud in the Financial Services industry now accounts for 51% of all reported fraud in the UK by value and over 25% by number of reported cases. BDO's FraudTrack finds that while the total amount of fraud has fallen from £1.37bn in 2012 to £1.05bn in 2013, the total value of Financial Services fraud has risen from £473m in 2012 to £532m in 2013, with the number of frauds in the sector rising from 122 in 2012 to 132 in 2013. BDO believes that the increase in value and number of frauds reported in the sector can be attributed to increased regulation and compliance driving greater transparency.

BDO's Kaley Crossthwaite added: "At face value, fraud in the Financial Services sector would appear to be on the march, however we need to give this context. We firmly believe that the ever increasing regulatory and compliance burden imposed on Financial Services firms by the FCA and PRA means that fraud which historically may not have been reported, but rather dealt with privately in-house, is now coming out driven by a growing demand for transparency."

Additional findings from the report

The 2013 FraudTrack report also shows that while the overall number of cases recorded continued to increase from 413 in 2011 to 416 in 2012 and 525 in 2013, the average value of frauds has continued to fall from £5.1m in 2011 to £3.3m in 2012 and £2.0m in 2013.

Sector breakdown:

The top three industries most susceptible to fraudulent activity are:

  • Finance and Insurance (£532m)
  • Public Administration (£150m)
  • Other Services (except Public Administration) (£93m)

Types of fraudulent activity:

  1. Money Laundering - £288m (27.4% of all activity)
     
  2. Third party fraud - £209m (20.0% of all activity)
     
  3. Unauthorised use/ misuse of assets - £76.6m (14.1% of all activity)
     
  4. Tax fraud - £142m (13.5% of all activity)
     
  5. Employee fraud - £77.8m (7.4% of all activity)
     
  6. Corruption - £75.8m (7.2% of all activity)
     
  7. Mortgage fraud - £75.6m (7.2% of all activity)

Kaley Crossthwaite concluded: "It is very surprising that that the total value of fraud is down when the number of reported frauds has risen so steeply. Usually driven by greed, the consensus view is that fraud is increasing, but it is always very difficult to quantify given the general lack of reporting of fraud across different sectors in the UK. Unless it is easy to quantify and explain in court, many frauds do not get brought to trial.

"Contrary to this however, Financial Services would seem to be taking a lead with increasing regulatory demands for greater transparency in the sector leading to more fraud coming to light in this area."

- Ends –

About FraudTrack

FraudTrack is prepared by BDO LLP and is based on all reported fraud cases over £50,000 between 01/12/2012 and 30/11/2013. The sources for the database are publicly available and include the UK's national, regional and local press.

About the author

Kaley Crossthwaite is Partner and Head of Fraud at BDO LLP and is an expert in both fraud and regulatory investigations. She is a chartered accountant with over 14 years' experience working in the forensic accounting profession.

During her time at BDO LLP, Kaley spent 18 months on secondment as an investigator with the Companies Investigations Branch of the Department of Trade and Industry and was appointed as an inspector to investigate insider dealing.

Kaley is head of the Forensic Accounting Unit in London, and currently undertakes a variety of work, including dispute resolution, fraud, and regulatory investigations.

Kaley is a member of the Institute of Chartered Accountants in England and Wales and has led training sessions for auditors on fraud awareness and prevention.

About BDO LLP

Accountancy and business advisory firm, BDO LLP, is the UK member firm of the BDO International network. In April 2013, BDO LLP merged with PKF (UK) LLP to form a new force in the mid-market, employing 3,500 people across the UK.

BDO LLP has a clear ambition to be the firm known in the market for exceptional service delivered by empowered people. The 2013 Mid Market Monitor analysis shows that BDO is the market leader for client satisfaction for the second year running – outperforming all its major competitors and the only organisation to see an improvement over the past four years.

BDO LLP, a UK limited liability partnership registered in England and Wales under number OC305127, is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. A list of members' names is open to inspection at our registered office, 55 Baker Street, London W1U 7EU. 

BDO LLP is authorised and regulated by the Financial Conduct Authority to conduct investment business. BDO is the brand name for the BDO International network and for each of the BDO Member Firms. BDO Northern Ireland, a partnership formed in and under the laws of Northern Ireland, and BDO (Isle of Man) LLC are associate firms and licensed to operate within the international BDO network of independent member firms.

The combined fee income of all the BDO Member Firms, including the members of their exclusive alliances, was $6.45 billion in 2013. The global network provides business advisory services in 144 countries, with more than 56,000 people working out of 1,264 offices worldwide.