Rahman Ravelli | View firm profile
What those working in pensions must do to avoid being a
victim of fraud – or being accused of it.
Official figures from ActionFraud, the national fraud
reporting centre, report that £1.2 billion is lost to investment fraud every
year in the UK. Pensions is seen as an area where such fraud is increasing.
Part of this is because legal reforms have created a boom in
pension liberation. But a worryingly large part of it appears to be due to a
lack of anti-fraud measures among many pension funds.
Recent research showed that in 2013, 17% of pension funds
had experienced fraud. By last year, that figure was up to 37%. The same
research reported that more than a quarter of pension fund trustees did not
know that they were responsible for fraud detection and prevention. More than a
fifth of those funds questioned admitted they were not “actively considering’’
This means pension funds are fertile ground for those
looking to defraud investors – and that the pressure and responsibility is on those
who create, manage and invest on behalf of pension funds.
Every pensions professional has to act in accordance with
the wishes of the pension holder. This means carrying out the instructions of
the person whose money is being managed. While this may seem relatively
straightforward, it is not once you consider the danger of pensions fraud.
Pension funds – and the people who manage them – are
attractive targets to those looking to fraudulently obtain large amounts of
money or launder their proceeds of crime. Should either of these happen, the
pensions professional who failed to prevent it will find themselves under
intense scrutiny from the authorities.
Pleading ignorance will be of no use. The dangers of pension
liberation have been highlighted at length by HM Revenue and Customs and the
Pensions Regulator. And while 37% of pension funds experienced fraud last year,
the same research revealed that 40% of pension schemes have not tested their
internal controls in the last 12 months – and 47% of pension trustee boards
have not received training on mitigating fraud risk.
Should one of those pension funds fall victim to investment
fraud, those managing it will find it hard to convince the authorities and
their members that they were neither incompetent nor criminal. So what has to
be done to avoid such a scenario?
If those managing pensions are to reduce the risk of fraud,
they must carry out due diligence. If they are not sure what to do, they must
seek appropriate legal advice to assess the danger of criminality and introduce
procedures to prevent it.
Investment fraud can take many forms. But regardless of the
nature of the “investment opportunity’’ that pension fund managers are being
offered, caution has to be exercised on every occasion.
Those managing pension funds need to ask themselves whether
the investment opportunity being offered:
* Makes financial sense. Is there evidence that it is a
safe, genuine opportunity? Are the potential benefits clearly and adequately
* Has a proven track record. Can the person promoting it
produce clear, well-documented records and people who have already benefitted
from the scheme?
* Provides guarantees or safeguards regarding profits or
returns. And is there clear, verifiable evidence of these returns?
* Is the best possible option. Are there other opportunities
out there which are safer and have a better track record?
* Is legal. Business crime solicitors can help devise
procedures to prevent a pension fund being vulnerable to fraud but they can
also carry out individual fraud assessments on proposals put to fund managers.
The research clearly indicates that pension funds are targets
for fraud. Clearly, this is not a situation that all pension funds find
themselves in. But even the most diligent fund manager needs to remain vigilant
regarding the risk of fraud.
The figures indicate that many of those running pension
funds are at least honest about the lack of fraud prevention they have
initiated. Their next step has to be taking action to remedy this….otherwise
their honesty is likely to be called into question should their fund suffer