UK  

How factoring fraud takes place

In some cases, the OCG trades in goods from a commercial premises, but when the decision to collapse the scheme is taken by the criminals, stock is spirited away, leaving the premises vacant and the factoring company with little hope of recovering their loans issued against the valueless fake invoices or any stock.

Greensill's business model – called supply chain finance – worked like many other factoring companies by placing itself between customers and suppliers. It would immediately pay the invoices that suppliers gave to their customers, meaning those suppliers would not have to wait, possibly for months for payment.

Such a source of funding has proved popular across many jurisdictions and become an important part of the economy.

Media reports presented to David Cameron when he gave evidence before the Treasury select committee in May 2021 claimed that one of Mr Gupta's companies had sent Greensill invoices for business it had supposedly undertaken with four European metal companies.

Those European companies however, allegedly told the media they had not dealt with GFG. Mr Cameron acknowledged that such media reports of invoices supposedly issued by Mr Gupta’s group to companies that claim they have no connection with GFG were “very disturbing”.

The SFO are likely to limit their investigation into GFG to specific high-value invoices and focus on which services, if any, were either delivered by GFG or agreements reached with the supplier that may have justified raising such an invoice.

The investigation may take some time given that the SFO is likely to have to secure evidence in other jurisdictions, trawl through emails and conduct multiple interviews. We will all need to wait years before we know if a crime has been committed.

Prevention is always better than cure, so what can be done to reduce the risks of factoring fraud?

Verification of invoices is an important step that can protect lenders. Verification itself could involve a physical review of the documentation or e-invoicing, although, naturally, it is not always realistic for lenders to verify all invoices.

Sampling, therefore, can be a solution, with lenders often employing verification by value and by payment terms.

Advances in receivables finance technology, combined with the right training and realistic checks, can further reduce the risks that fraudsters do not slip through the cracks. Keeping up to date on how criminals switch between different types of fraud remains a challenge. Any person wishing to expand their understanding of how the various types of fraud can be perpetrated, and more importantly prevented, should read the excellent UK Finance online publication entitled 'Fraud – The Facts 2021: The Definitive Overview of Payment Industry Fraud'.