Corporate Fraud in the Covid-19 Crisis – Guidance Note

Nick Johnson QC and Sophie O’Sullivan look at corporate fraud in the Covid-19 crisis, the changing risks and how to protect your business.

The UK Government’s coronavirus (Covid-19) response has had profound effects on every business sector. The UK is on “lockdown”. Corporations and businesses, whose activities are underpinned by technologies such as verified transactions, encrypted communications and secure server networks, are having to find ways to conduct their core functions remotely, separated from colleagues and support departments, in circumstances where each person is, generally, unmonitored.

There are very few – if any – corporate entities that had the practical and technological infrastructures in place prior to this crisis taking hold, which would have enabled them to adapt seamlessly to this dramatic transformation in working practice. A global pandemic and its economic impact will not have been the subject of frequent risk management meetings. Instead, most companies now find their business network under unchartered strain and vulnerable to financial exploitation.

In response to various enquiries over the last few days, Nick Johnson QC and Sophie O’Sullivan have compiled a guidance note looking at how the risks have changed and what changes need to be made by a business in response.

Conventional protections to guard against fraud and financial abuse

In the corporate environment, effective anti-fraud policies are founded upon systemic, entrenched procedures which work to insulate the company against unreasonable risk and exposure to avoidable financial loss. Strong verification processes underpin commercial confidence in the deals and transactions undertaken both within that specific business and across the industry sector.

It is a sad reality that at times of unprecedented financial volatility, market decline and looming global recession, financial and insurance institutions will be looking to reduce their exposure as far as possible. As part of this, they will likely scrutinise with care any of their clients who may be breaching their contractual terms through unapproved, quick-fix anti-fraud procedures that have been rushed in out of necessity to keep their business going in these extraordinary times.

Section 2 of the Guidance Note looks at current systems and if they are fit for purpose in the current climate.

New and evolving corporate vulnerabilities to fraud

The economic repercussions of Covid-19 have meant that businesses feel under great pressure to maintain financial liquidity. This often means that offers of new trade or other business opportunity are hard to resist. With the Government signing off a bailout unprecedented in the history of modern business, it is hard to think of times that are as fiscally fraught as now and, as a result, we are reacting quickly to opportunities around us. But with this haste to survive comes serious risk of fraud.

Those intent on committing financial offences are adapting their methods to exploit the strain and rapid transformation in business practices: Action Fraud (the UK’s National Fraud and Cyber Crime Reporting Centre), the Financial Conduct Authority and Ofcom, to name only a few, have already published articles warning against the rise of coronavirus-linked frauds which are resulting in massive financial losses.

Section 3 of the Guidance Note looks at coronavirus-linked frauds affecting businesses now.

What you can do to protect your business from fraud in these extraordinary circumstances

Robust risk assessment, clear communication and new processes, amongst other things, need to considered.

Section 4 of the Guidance Note looks at what you can do to protect your business from fraud in these extraordinary circumstances.

Find Out More

These extraordinary circumstances bring new perspectives as well as challenges. Whatever the pressures, it is vital to take a breath, reflect, re-assess the risks posed by the new climate and adapt to meet these immediate and changing risks of fraud.

Some of the potential longer-term effects upon business of the Covid-19 crisis will be discussed in a separate paper by the OTC Business Crime & Regulatory Team.

Contact Nick Johnson QC or Sophie O’Sullivanof our Commercial Dispute Resolution Team, who would be pleased to discuss your specific circumstances in the strictest of confidence.

Read the full guidance note here: Outer Temple Chambers Corporate Fraud Guidance Note

Please contact David Smith on +44 (0)20 7427 4905 or Colin Bunyan on +44 (0)20 7427 4866 for further information and details of future events on this area of law.

Covid-19 2 Apr, 2020