What to do if...you suspect your organisation is being defrauded by someone you have a commercial relationship with

Unfortunately, we cannot always rely on others. This is even more so in the current climate, where the temptation to “skim a bit off the top” is greater.

Fraud by someone you have a business relationship with, be it an employee, agent, consultant, supplier or board member, is something all organisations should prepare for by putting an action plan in place to ensure their interests are protected and prospects of recovery are high. 

If you are faced with such a situation, avoid tipping the potential fraudster off. If they get wind that you may be aware of their deceit, they may take steps to delete evidence and move their assets out of reach to mean there are no prospects of recovery against them. Carry on as normal (as much as possible) and do not ask them to explain themselves, until you have had time to complete the following steps:

Notify your insurers and bank as soon as possible

Notifying your insurers will help to ensure cover for any fraud claim you may bring. Additionally, if you had made payments to the fraudster on false pretences, it sometimes can be worth contacting your bank to see if they can freeze or reverse the payment.

Gather and preserve evidence

This will enable you to analyse the situation and decide on next steps. Search for emails, texts, invoices on your own systems which give an indication of the dodgy dealing. Be careful not to alter meta data of evidence in doing so, and if possible, take a backup/copy of your systems. Try to seek information from third parties without tipping the fraudster off – if they have a relationship with the fraudster, avoid contacting them until you know more. Keep the circle of people who know about this at your organisation small, to avoid tipping off. 

Analyse the situation

Is there any evidence of unusual dealings here? There are a number of ways to pursue a party for fraud in circumstances such as theft, if they are conspiring with others to disadvantage you, taking secret commission, or submitting false accounting records or invoices. This is the stage at which you should get lawyers involved, to analyse if there is a case here, and advise on what the next steps might be. 

Research the fraudster

Do they have assets in the UK? A search on Companies House can show you a company’s recent accounts and potentially an individual’s shareholdings. The Land Registry can also show you if the fraudster owns property. If the fraudster has no assets at all, it may not be worth pursuing them unless you can show they have assets overseas, or if they still have your property. It may be worth instructing a private investigator to help. 

Consider the strategy for recovering proceeds

Do you want to go to the police (such as by making a report to Action Fraud), and/or handle matters in the civil system? 

Pursuing the fraudster via the criminal justice system enables you to take advantage of the police’s investigative powers and it is free. However by going to the police, you lose control of what happens. The pace can be slow, and the police do not always have the resources or the appetite to pursue fraudsters, especially if there is an overseas element or the quantum is low. It is also unlikely that you will receive recovery any time soon, if at all, and there is a higher standard of proof than in civil cases. In criminal cases, the fraud has to be proved beyond all reasonable doubt, whereas in civil proceedings, the standard of proof is on the balance of probabilities. 

Ultimately, if you want to get your money back, you should bring civil proceedings. 

It is sometimes possible, and can be useful, to pursue criminal and civil proceedings in tandem, but the criminal system may require the civil proceedings to be put on hold. 

Choose from the vast menu of tools you want to use to go after your fraudster

Some of the main options available in the English courts are:

• Orders against third parties (known as Norwich Pharmacal Orders, Bankers Trust Orders and Chabra Orders) to provide you with information to allow you to gather further evidence and identify other wrongdoers. For example, you could order a bank to give you the fraudsters’ bank account records so you can trace the destination of stolen funds.
• A freezing injunction. These are heard in secret. If you are able to meet certain conditions including that you have a good arguable case, the court has the discretion to make an order to freeze the fraudster’s assets up to the value of the loss (either in the UK or worldwide) until the case is resolved.
• A disclosure order requiring the fraudster to provide details of all of their assets including details of the sums in their bank accounts, and of their properties, shareholdings, and other assets.
• A proprietary injunction, which would freeze any of your property (including cash) that the fraudster has and require the fraudster to tell you what they have done with your property. You can get a proprietary injunction even if the fraudster has turned your property into other assets.
• A search order, which would enable you to search the fraudster’s premises/computers etc for evidence of the wrongdoing.

These tools are extremely powerful in a fraud case. They can bring the fraudster to heel, making it much easier to negotiate a result quickly (as opposed to waiting for a trial). However, you need to do a lot of work to ensure you have enough evidence of the fraud and therefore incur high costs. It is a question in each case whether it is worth it. 

Alternatively, sometimes it might be appropriate to seek to engage with the fraudster at an early stage, for example: 

• if the fraudster already knows of your concerns (meaning they might have dissipated their assets already, so a court would not grant a freezing injunction)
• if the fraudster has other interests to protect, meaning they may be willing to pay you back or return your property

In such cases, it is important to act strategically and efficiently. You should obtain advice from experienced lawyers on what to do and how to do it in such a situation, as soon as possible. 

For more detailed advice tailored to your specific needs, please contact our team at Mills & Reeve.

As tackling fraud becomes a priority in both the private and public sectors, Mills & Reeve has launched a new fraud forum, Deception Diaries. This forum will keep you informed about the evolving landscape and offer expert advice on trending fraud topics.