There were 52 cases of white-collar crime brought before Swiss courts during the past year involving losses of CHF 365 million. Figures show that multiple defendants are standing trial in many of these cases and also that many suits entail accusations of professional fraud or gang-related money laundering.
Compared to the previous year, 2010 saw a slight drop in the number of cases being brought to trial which are relevant for the KPMG Forensic Fraud Barometer: This number declined from 57 in 2009 to 52. There has also been a decline in terms of the amount of losses sustained: the previous year's total of CHF 1.5 billion was largely attributable to the biggest case of organized crime and money laundering ever to have been brought to trial in Switzerland. The criminally relevant damage in 2010 came to a total of just under CHF 365 million. One reason for this decline could lie in the fact that many of the victimized companies are increasingly reaching damage restitution agreements with the employees who committed the crimes and refraining from bringing criminal charges against them. One particularly advantageous aspect of this approach is that it enables companies to resolve the problem quickly, economically and discreetly. Twenty-four of the cases (prev. year: 18) or nearly half were sent to court in the Zurich region. Most of these were fraud cases, some of which coupled with accusations of money laundering.
Investors and commercial enterprises hit particularly hard
During the period under review, the greatest damage was suffered by investors with losses totaling CHF 130 million. In 2009, by comparison, financial institutions were the hardest-hit group with CHF 287 million in damage. Anne van Heerden, Partner and Head Forensic at KPMG Switzerland, has this to say about the results: "The slight decline in the loss amount compared to previous years might be surprising at first glance. Yet despite the lower monetary value, we still shouldn't underestimate the immense economic damage caused by white-collar crime nor its social components. Retirees lose their savings and employees lose their jobs. Corruption distorts both prices and competition and that has a noticeable impact on consumers and suppliers.”
Only the tip of the iceberg
In this respect, the KPMG Forensic Fraud Barometer only examines the tip of the iceberg. According to surveys conducted by KPMG, judicial authorities are only called in on some 20% of all cases. Of these, many are not sent to court and are instead either handled in summary proceedings without trial or abandoned for lack of evidence. White-collar crime can easily drive companies to the brink of bankruptcy. It is important that businesses are aware of this and, accordingly, take preventive measures on time.
Overly trusting investors
In terms of the amount of losses incurred, investors (12 cases, 19 in prev. year) suffered the greatest damage, namely CHF 130 million (prev. year: CHF 168 million). Of these, five were cases of embezzlement and another five were fraud cases, some involving money laundering. Two concerned investment fraud. Investors suffered losses at the hands of different groups of perpetrators, many of them professional fraudsters. On average, damages amounted to over CHF 10 million per case; some cases affected dozens of investors. Bills of indictment called investors naive, overly trusting, gullible, easily deceived by outward appearances or even manipulable. Philippe Fleury, Head of Forensic Suisse Romande at KPMG, says, "Fraudsters' creativity and criminal energy know no bounds. A fraudster knows that he's committing fraud which gives him a huge edge. Investors, on the other hand, frequently trust the little information they have at their disposal, might not conduct their own investigations and, in some circumstances, they are then deceived by a seemingly flawless facade and maybe high returns paid out at the beginning or even a perfect homepage with individualized access to a fake client account. Investors should be extremely skeptical of whom they entrust with their money and carefully check any parties involved such as agents and debtors.
Largest number of cases in the Zurich region
Both in terms of the damage amount and the number of cases, the Zurich region once again topped the statistics with 24 cases (prev. year: 18) and damages of nearly CHF 200 million (prev. year: CHF 166 million). The renewed prominence of Zurich, Switzerland's key financial hub, in this list is particularly attributable to the fact that many white-collar crimes concerned embezzlement or fraud in the financial sector and against investors. One conspicuous aspect is that a third of the damages claimed in the Canton of Zurich could be ascribed to management. By contrast, only four of the 24 cases were caused by non-management staff involving a comparably low damage amount of CHF 2 million. In the Lake Geneva region, three cases accounting for two thirds of the losses (CHF 40 million) were perpetrated by members of management; the CHF 30 million in damages incurred in the Ticino region were also caused exclusively by management.
Apart from the Zurich region, charges were also filed in quite a few cases in the Mittelland region (9 cases, prev. year: 13 cases). As in the Lake Geneva (7 cases, prev. year: 2 cases) and Eastern Switzerland (7 cases, prev. year: 4 cases) regions, embezzlement and fraudulent activities accounted for the lion's share, some also in connection with accusations of money laundering. Notable in the Mittelland region is the fact that nearly half of the perpetrators were customers. According to Matthias Kiener, Head of Forensic at KPMG in Bern and in charge of Investigations, "Particularly prominent among the Customer perpetrator group are dishonest insurance policy holders who surreptitiously reap financial gains by submitting false claims. We investigated a few cases of suspected insurance fraud over the past year in which businesses in tight financial situations unjustly tried to claim benefits from an insurance company. They hoped that in doing so, they could overcome liquidity bottlenecks, for example.”
Management the most frequent group of perpetrators
In 27% of the cases (prev. year: 25%), the perpetrators were members of management and caused CHF 120 million in damage. In 2010, 16% (prev. year: 11%) of the cases were attributable to non-management staff and 8% (prev. year: 9%) to customers. Professional fraudsters were to blame in 18% (prev. year: 23%) of the cases. It comes as no great surprise that the average loss incurred through crimes perpetrated by non-management staff or customers was lower than for those committed by members of management.
At both financial institutions and commercial enterprises who fell victim to such crimes, more than half of the cases could be attributed to members of management. Here, too, the losses incurred were generally higher than for crimes committed by employees or outsiders. The average loss sustained in cases involving members of management was over CHF 7 million at financial institutions and nearly CHF 5 million at commercial enterprises.
As in previous years, the fraudulently acquired funds were put to a wide variety of uses including luxury goods such as expensive cars and jewelry, a new kitchen or new furniture to name a few. Perpetrators who committed the crime to make ends meet used the fraudulently acquired funds to pay employees' salaries and VAT bills as well as for stock market transactions, loan and mortgage payments, for instance.
Fraud by region/geographical distribution
Cases of fraud broken down by perpetrator
Cases of fraud broken down by victim
In order to prepare the KPMG Forensic Fraud Barometer, KPMG considered cases of fraud and similar white-collar crimes with damages amounting to at least CHF 50,000 which came to trial before a Swiss criminal court or have been charged (pending a court decision) and which were reported in the main Swiss daily and weekly newspapers.
Zurich, January 24, 2011
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