Financial Crime Cases on the Rise in New Zealand

A new report by business advisory firm KPMG has shed light on the growing trend of financial crime in New Zealand, with investment fraud being responsible for most of the losses over the past 12 months.

The Annual Fraud Barometer Report

• The annual Fraud Barometer reported that 19 cases went to court in the year ended July, totalling $72 million.
• This represents a significant decrease from the 35 cases involving $123m the previous year.

Investment Fraud: A Growing Concern

According to KPMG partner Stephen Bell, investment fraud tends to affect higher net-worth individuals who are looking for better returns than the normal market. “With the low interest rate environment we’re in now and the possibly negative interest rates in the near future, people are actually looking for alternative investment options and they look for higher returns,” he said.

Notable Cases

• A $45m Ponzi scheme involving a businessman who was offering advice to wealthy Japanese nationals interested in immigrating or investing in New Zealand.
• Investors were defrauded of $62 million, making it the highest victim category by value.

Warning Signs and Preventative Measures

Bell warned that investors needed to be aware and if returns looked too good to be true, that could be the case. He also pointed out that the highest number of frauds were committed by staff, such as taking kickbacks from suppliers, or diverting funds into their own bank accounts.

Government Sector: A Relatively Small Portion

The biggest number of frauds occurred in the government sector although they accounted for a relatively small portion of the overall amount stolen. “More than half of frauds resulted from internal control failures, and some of this may be due to attention being directed elsewhere in recent months due to Covid-19,” Bell said.

Unusual Cases

• An egg producer passing off caged eggs as free range.
• An employee of filmmaker Peter Jackson selling vintage planes without authority and keeping the funds.

The Current Business Environment: A breeding Ground for Fraud

Bell stated that the current uncertain and disrupted business environment had created more opportunities for fraud. “The disturbance in normal business processes and working conditions… have created opportunity to commit fraud, as normal controls are circumvented, and the chaos and uncertainty of the crisis enable others to rationalise bad behaviour,” he said.

A Warning: The Wage Subsidy May be a Target

While there were no reported cases of fraud relating to the wage subsidy, Bell warned that it was possible that this may change in the aftermath of the pandemic.

Conclusion

Overall, the report highlights the growing threat of financial crime in New Zealand and the need for investors and businesses to be vigilant and aware of potential scams and fraudulent activities.