White-Collar Crime Reaches CHF1bn In Switzerland, Says KPMG

by Ulrika Lomas, Tax-News.com, Brussels

04 February 2009

In 2008, cases of white-collar crime brought before Swiss courts accounted for more than CHF1bn (USD861m). Recent findings by KPMG's 'Fraud Barometer 2008' indicate that the majority of white-collar crimes are committed at management level and that the most common offence is the misappropriation of funds, with investors suffering the most.

The range of cases brought before Swiss courts in 2008 reflect the diversity within white-collar crime. Examples include the vice president of a bank, who buried part of his fraudulently acquired money in the woods in Tupperware containers; and the employer who promised employees (fictitious) jobs only to clean out their vested benefits accounts. Add to this around 70 more cases of white-collar crime brought before Swiss courts during 2008. The number of cases not brought before a court is unclear – in fact, most cases of this kind never make it to court at all.

Anne van Heerden, Partner and Head of KPMG Forensic, expands on this, stating: "These are worrying signals. Fraud is occurring more and more in Switzerland, a fact reflected in our own current engagements. We don't expect to feel the full effects of the current economic situation for several months, or years. In difficult times such as these, companies are going to have to turn their attention to achieving more streamlined structures and efficient processes. It is key that fraud prevention remains a top priority."

KPMG's findings show that more than half of the cases had been committed by staff at management level, when measured in terms of the total value (28 cases with losses of CHF606m). Only 17 of the cases were committed by lower-level staff members, amounting to a loss of just under CHF20m. "Clearly, the focus needs to be on crimes committed by management, since these frequently result in considerably higher losses. The crimes also substantiate the need for adequate internal controls. As trusted, senior members of staff, management are often in a position to influence or sidestep such systems and checks. The fact that management-level fraud dominate these figures highlights the lack of adequate controls aimed at preventing and exposing fraud on the part of some companies," said KPMG.

In various other cases, crimes were committed by third parties with equally distinctive trust relationships to the victims, notably trustees, notaries and asset managers. The costs of the crimes accounted for some CHF260m, while the ten cases of commercial fraud incurred losses of approximately CHF136m.

For more than half of the total incurred losses, the victims were investors (CHF535m), followed by commercial companies not working in the finance industry (CHF217m) and financial institutions (CHF214m).

Cases of misappropriation contributed to more than half of those brought before the court in 2008, amounting to CHF630m. The techniques employed were manifold; some offenders forged invoices while others entered their own bank account number rather than that of the actual recipient when making payments to third parties. The money embezzled was used to fund a wide range of indulgences, including plastic surgery, gambling addictions, casino visits, internet gambling, private parties, watches, clothes, household items, apartments, cars and luxury holidays. It does appear, however, that some of this money went toward more respectable causes, such as pensions and life insurance investments or securing mortgages for friends and relatives.

Fourteen cases centred on deception (including investment fraud) and money laundering with losses of CHF384m. The crudest example of money laundering comes from a former vice president of a bank. Having embezzled CHF10m from his bank, he proceeded to bury part of the money in the woods, packed in Tupperware containers. In addition to his eight-figure woodland stash, he hid a further CHF0.4m in offshore bank accounts. Once released from prison, he recovered his funds and subsequently earned himself another sentence for seizure of funds and money laundering.

The ‘nastiest’ example of fraud comes from a 51-year-old businessman who promised jobs to people, only to then raid their vested pension benefit accounts. Having approached various pension schemes under the guise of a new employer, he was able to instruct victims to transfer the balance of their pension fund, duly providing them with counterfeit payment slips. Victims took this procedure to be a standard pension fund handover, when in actual fact, their money, which totaled around CHF1.5m, was flowing right into the offender's pockets. However, the fraud scheme was exposed in time to stop a further CHF0.5m being paid out. The embezzled money was spent on private stock purchases and financing the offender's jet-set lifestyle.

Anne van Heerden is convinced of the need for more preventative measures to curtail such fraud: "These figures reveal the increasing risk that white-collar crime continues to pose to business. Even in difficult times, it makes sense for companies to invest in such measures to prevent this. Companies who have so far failed to recognize the sign of the times and implement adequate programs and detection systems need to realize the risks they are taking.”

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