Managing Partner of Martin Kenney & Co., Solicitors
Fraud has become a global “pandemic.” That was the view of bestselling author and organized crime and fraud expert, Jeffrey Robinson, when he spoke at the 2016 ACFE Middle East Fraud Conference last week.
Robinson said, “If fraud were a disease, political leaders of all our nations would have to declare a global health emergency.” I couldn’t agree more. I know that many of my colleagues attending the conference would also concur with Robinson’s perspective.
What I particularly liked was Robinson’s overview concerning drug trafficking and fraud, with the comparative cost of both crimes. Law enforcement focuses on terrorism first, he said, then drug trafficking, followed by firearms and sex offenses. In terms of monetary impact, fraud was second only to drug trafficking, yet it remained far down on the list of crimes that get investigated. I personally consider fraud as having the greatest intrinsic value of the two crimes. I will explain why.
The former U.K. detectives who lead my investigations unit described how “value is attached to a consignment of drugs. Effectively, the pure drugs (let’s use cocaine as the example) leave the shores of South America/wherever in a nearly 100 percent pure state. The wholesale value of the drugs is what the next purchaser values them at, currently in the region of $1,800 per kilo of cocaine.
As the drugs pass through the marketing chain, they are constantly being “cut” or “bashed,” meaning they are mixed with other materials to bulk them up. So the kilo of cocaine reaches New York, for example, and will now be represented by multiple kilos of the cut drugs — one can see the fiscal sense this makes to a drug dealer. The new price per kilo of the bashed cocaine is now approximately $30,000. This figure can be extrapolated further when we commence talking about the street value of the drug.
Once we apply this rationale to the equation, it is easy to see why the drug business is a multi-billion-dollar enterprise. But herein lies the paradox: if a fraudster like Bernie Madoff steals $17.5 billion, the value of the loss to the victims is $17.5 billion (putting aside damages claims). If the Drug Enforcement Agency (DEA) intercepts a $17.5 billion shipment of cocaine, they actually acquire nothing (other than a problem over how to safely destroy the consignment) — the drugs are effectively worthless in law enforcement hands, and only acquire a value once they hit the streets.
However, the losses in fraud cases are tangible. They are made up of real money that has a face value. Therefore, by any comparison, fraud should be dealt with as a policing priority.
Drugs ruin lives, but so does fraud. When pensioners invest their savings in a boiler room scam, the effects on both the pensioners and their families are devastating (and they have done nothing illegal, either). The impact is compounded by families having to bail out elderly relatives and the state having to contribute to their welfare. Businesses, too, that are ripped off may end up having to lay-off employees, leading to severe hardship. The effects of fraud can be endless.
So while the drug trade is a major issue, fraud is real money and real dollars, with genuine innocent victims. It deserves to be a law enforcement priority.
Martin Kenney is Managing Partner of Martin Kenney & Co., Solicitors of the British Virgin Islands, a specialist investigative and asset recovery practice focused on multi–jurisdictional fraud and grand corruption cases www.martinkenney.com | @MKSolicitors