Fighting Fraud:  Why should preventing crime be voluntary?

By Iain Armstrong, Global Regulatory Affairs Practice Lead, ComplyAdvantage

The House of Lords’ recent report about the scope and impact of fraud in the UK stated that fraud accounts for 41% of all crimes against individuals in England and Wales. In fact, the report went so far as to say that, if this statistic applied to people being mugged in the street with millions of pounds stolen from them, every organization involved would be expected to deal with it swiftly and the perpetrators taken to court.

The report pressed its case that fraud is a criminal epidemic sweeping the country and needs the full weight of government intervention to address. Its recommendations target the vast array of players with a stake in fighting fraud, from players in the payments infrastructure to the dizzying web of government agencies. It highlights sectors that are “involved in the fraud chain (but) have failed to prevent rampant fraud for too long.” Included in this are the technology companies that have turned a blind eye to the content hosted on their platforms.

Implementing the Online Safety Bill is the cornerstone of the report’s recommendations for technology companies, making it explicit that all platforms must take measures to prevent fraudulent content or advertising from appearing on their sites as part of a duty of care. At face value, it’s an option worth pursuing: if we look at the average fraud in terms of the ‘victim journey’, it almost never begins inside the financial services industry. It’s much more likely to begin with a spoof text or phone call, a questionable website, an enticement on social media, etc. The companies who provide infrastructure and hosting for these entry points can definitely do more to protect their users, but there are a few sensible steps which could be taken before a new criminal offence like the one suggested becomes feasible.

While steps have been taken by telecom companies to prevent such tactics, fraudsters continually evade these efforts and exploit new avenues to reach victims. The report recommended telecom companies need to be take much swifter and firmer action to reduce the volume of fraudulent communications slipping through the net.

So, the recent news that ministers plan to water down a requirement for technology firms to combat online fraud in favour of implementing a voluntary pledge while simultaneously backing away from a requirement for tech firms to reimburse victims of fraud was extremely disheartening. But to justify these changes based on concerns about their economic impact is still more extraordinary when consumers and the government lose billions of pounds yearly to fraud.  When banks and other financial institutions are – rightly – legally responsible for fighting financial crime, why should telecoms and technology companies be treated differently? Most crucially, the legislation requires technology firms to fight child sexual exploitation by removing illegal content so, why is fraud not included, as well?

Voluntary measures rely on the notion that every company is going to be a good corporate citizen doing what is best for the community rather than what is best for shareholders. It is a deliberate act of optimism that ignores all evidence to the contrary. While optimism is laudable, in this situation, it doesn’t meet the moment that the threat of fraud poses to our financial system, specifically, and the economy writ large.

From my time working with organisations such as City of London Police, the SFO, and others – I’d say that tech-savviness is not usually the key thing which law enforcement agencies lack: what they lack is budget. Budget for tools and systems which can be upgraded at the same pace which criminals themselves use and abuse new technologies. Budget to expand headcount and, perhaps more significantly: budget to retain that headcount.

Banks and financial institutions already operate within a framework where they can be fined for failure to put adequate controls in place. Those fines are subsequently used to fund further enforcement activities. Placing the tech companies into a comparable framework could open the door to similar sources of funding for law enforcement, where it is sorely needed.

The integrity of the financial system requires diligence on the part of all participants.  Criminals will always look for the weakest link in the chain, so every company involved should have a clear imperative to provide the strongest possible defence against bad actors. And by creating a stronger financial ecosystem, we work together to reinforce economic growth by preventing billions in unrecoverable financial losses.