Counter Fraud and Pension Schemes Webinar: key points

On 20 October 2021, Burges Salmon hosted a webinar on counter fraud in the pensions sector. Against the backdrop of incidents of fraud growing by 26% in the 12 months ending March 2021, the event considered counter fraud issues through a pensions lens.

I chaired an expert panel including Guy Bastable, Head of Burges Salmon's Corporate Crime team, along with guest speakers Jim Gee, National Head of Forensic Services at Crowe UK, John Bartlett, Head of Enforcement Investigations at the Pensions Regulator (“TPR”) and Paul Sweeney, Principal Intelligence Manager and Head of the Triage Function at TPR.

We highlight the key points below.

1) TPR's participating in multi-agency initiative - Project Bloom

Formed in 2012, Project Bloom is a multi-agency task force that was set up to tackle pension scams. TPR has collaborated with a number of different partners, including the Serious Fraud Office and the Financial Conduct Authority, to consider how best to tackle fraud and protect members of the public. Paul Sweeney outlined the strategy.

• Education is key to Project Bloom's strategic approach, and TPR have run a series of impactful advertising campaigns including the Scam Smart campaign, which aim to raise public awareness of the threat of pension scams.
• Prevention is another central pillar of Project Bloom's strategy, and a cold calling ban was successfully introduced in 2019. A major focus of Project Bloom is how to prevent the internet and websites from disseminating false information that might lead to people losing their pensions. Consequently, Project Bloom has been involved in website take down and has supported the passage of the Online Safety Bill.
• Project Bloom's strategy also has a strong focus on Enforcement, and there have been a number of cases where Project Bloom has brought intelligence to agencies, enabling a criminal prosecution.

2) TPR Enforcement on fraud - Criminal Powers

It is not widely appreciated that TPR itself has strong powers to take direct enforcement action in relation to enforcement, and John Bartlett gave a helpful overview. Pension fraud may be committed by rogue trustees or others with access, or by organised crime groups where money is most likely to be stolen during the transfer phase or at the investment phase.

• Enforcement action includes TPR’s instigation of criminal investigations and prosecutions, banning directors and winding up scam companies, taking down scam websites and fining cold callers.
• Since 2017 TPR has been steadily building its capabilities around criminal investigations and prosecutions. To date TPR has had two successful prosecutions under the Proceeds of Crime Act against "rogue trustees" who have abused their positions. In both cases the offenders were longstanding trustees, considered by their communities to be up-standing and trustworthy. Both received significant sentences despite pleading guilty. There are further cases in the pipeline, including a case notable for TPR obtaining an extradition order.

Current trends in pension fraud

TPR reports:

• a slight decline in new pension liberation methodology
• investment fraud is on the rise. 
• the way fraud is being committed is more complex in terms of the relationships between company structures - money is washed through multiple corporate entities.

3) TPR strategy

TPR summarises its approach to counter fraud as prevent, protect, pursue, restore. 

• Project Bloom is the prevention strand of the approach. 
• Protect’ involves the regulator, where it has sufficient information, appointing independent trustees to protect remaining assets. 
• ‘Pursue’ relates to going after offenders with the objective of punishing them through the courts where appropriate. 
• ‘Restore’ concerns TPR's use of the Proceeds of Crime Act to confiscate criminal benefit from offenders and return that money to the scheme.

4) The Nature of Fraud and New Counter Fraud Guidance

Jim Gee covered the nature of fraud and how it affects the pensions sector, with a nod to recently published counter fraud guidance from the Pensions Administration Standards Association (PASA) and the Pensions Research Accountants Group (PRAG), both chaired by Jim.

• Fraud in the pensions sector is a serious matter. It affects people when sources of income are limited and the chances of recovery are reduced. Pensions providers are attractive targets and may well be less protected than other types of savings. Fraud is estimated to cost the UK £190 billion a year. The pensions sector specifically is estimated to lose over £6.2 billion a year. Since COVID-19 fraud has risen by 24%. 
• The nature of the fraud risk is constantly evolving and changing, so protection must do the same.
• As a priority, pension schemes must meet legal and regulatory expectations. 
• Schemes should take action to understand their vulnerability to fraud.
• Trustees and providers should put in place measures to ensure resilience including good governance, effective risk assessment and securing data.

4) Options for Victims of Fraud

Guy Bastable outlined the main options available to pension schemes who are victims of fraud:

• Contact law enforcement to commence a criminal investigation; or
• Contact a solicitor to pursue a civil action.

Choosing between these options is rarely a straight forward decision – there are pros and cons to each.

The criminal route:

• In effect the 'no-cost option' as you do not have to pay lawyers and conduct an expensive investigation and litigation. 
• There are criminal sanctions available. 
• Criminal investigators have a very full tool box (for example dawn raids, pre-conviction asset recovery and intelligence). 
• However, there is a lack of control and certainty. There is no guarantee that a complaint will lead to an investigation and there is a severe lack of resources, particularly for the police. 
• A higher evidential burden.

The civil route:

• Generally the speedier option, as proceedings can be commenced and ancillary orders obtained very quickly. 
• More control over the proceedings in terms of scope and timetable
• A lower evidential burden. 
• On the other hand however, the civil route is more expensive as the claimant bears the costs of the investigation.

The first steps a victim takes are criticaltake legal advice in order to understand what has happened and what remedies are available. It may also be necessary to apply for emergency injunctive relief. It is very important to take action quickly so that stolen assets can be traced before they are laundered. An internal investigation must then be conducted in order to make informed decisions about the way forward - to ascertain the extent of the fraud and who is involved. Liaison with the enforcement authorities should also be commenced.

. Whilst this is not a one-size fits all situation, the first step should be to

A recording of the webinar will be available to watch on demand on our website shortly.

If you would like to explore this topic further with us, please contact your usual Burges Salmon contact or enquire via Alice Honeywill or Guy Bastable. For specific queries on data protection and cyber security, David Varney or Marcus Clayden from our Tech & Data Team would be pleased to assist.