This is the transcript of the podcast Tony McClements on fraud investigations, asset tracing and whistleblowing between GRIP’s commissioning editor Jean Hurley and Tony McClements, former detective and head of investigations at Martin Kenney & Co.
[INTRO]
Jean Hurley: Hello listeners, I’m Jean Hurley, Commissioning Editor at GRIP. Today on the GRIP Podcast, we are here to discuss fraud investigations, asset tracing and whistleblowing with Tony McClements, head of Investigations at Martin Kenney & Co. A specialist Litigation Practice in the British Virgin Islands. Tony, please tell our listeners all about yourself.
Tony McClements: I’m a retired detective, been a police officer since 1982, as you can tell by the accent joined the Merseyside Police. And then latterly went on to Lancashire Police on secondment to investigate what I think is still the largest carousel fraud we’ve had in the UK, which is value added tax. I’ve been with Martin for round about 10 years now. I’ve specialised in fraud investigation and financial investigation for almost 30 years. So I’m an old dog and I haven’t got many new tricks at the moment.
Jean Hurley: Well, I think the term you should be using is “goat”, isn’t it? You know, 30 years investigations.
Tony McClements: Yeah, the problem we have in the police is the investigating fraud and financial investigation isn’t considered that sexy, shall we say. Everyone aspires to work on murders, and one thing or another. I’ve been very fortunate, I’ve done virtually all aspects of detective work. But certainly from my perspective, I’ve always enjoyed the challenge of fraud investigation.
Jean Hurley: Oh, that’s really interesting because I read that apparently fraud costs UK taxpayers 23 times more than any types of other crimes. So I think it said it was £380 billion per year. So for our US listeners, that’s $480 billion per year we lose because of fraud. So, you know, it is very important that it’s been investigated and we’re finding some outcomes. So Tony, can you tell us about the types of fraud you investigate with Martin Kenney?
Tony McClements: Yeah, mainly we do corporate fraud, running into hundreds of millions of dollars, they’re very sizable cases because the cost of the litigation. So we have when new cases come to us, one of the things we have to do is evaluate what the prospects are of success and also what the costs are likely to be in terms of, you know, to the clients. And one of the things we’re very keen on is to make sure that we don’t see people throwing good money after bad.
So it’s important to us that only the right cases are accepted and that we work upon them. So we’ve also seen an increase in things like high value divorce cases coming through where one partner or the other has been less than candid with the court in regards of assets. And then another thing that I think is coming through and we’re going to see a big increase in is inheritance disputes because the boomer generation, who like myself are coming to, you know, are in old age now.
One of the problems that we have is that we have a number of siblings who may or may not have tried to disenfranchise the brothers, the sisters and those sorts of disputes where there’s hundreds of millions of dollars at stake are becoming a little bit more common. We get in contact with now, particularly from the states by law firms in the States for advice in regard to assets that may well have been secreted away in the Caribbean and further afield. So we’re seeing an increase in those as well.
Jean Hurley: Thank you. And one of the most high profile fraud cases that I know that your firm was part of was Allen Stanford. Can you tell us a bit more about it and offer some lessons learned maybe for banks?
Tony McClements: Yeah, from a banking perspective, Stanford basically circumvented a lot of the processes going as far as opening his own bank in the Caribbean. One of the things that jumps out from the Stanford thing is that it’s clear, it was clear to us that some of the due diligence processes, some of the regulatory processes have been quite lax. They weren’t as stringent as one would expect when we’re talking about the considerable sums of money. I think eight billion or thereabouts was mentioned.
So from a banking perspective, one of the things that came out was that we sued one of the mainstream banks on behalf of the victims on the basis that because we considered the processes to have failed, that they had been to some degree complicit in what had gone on. That went all the way to the courts in Canada. The court ruled in favor of the bank, not particularly a decision that we may agree with, but we accept. And the lesson learned from there for the banks is that if you do find yourselves failing on the regulatory front, then there’s now a growing perspective from law firms such as ours. The victims deserve recompense for those failings.
So it’s a case of making sure that the banks up their regulatory game, do what they can to prevent these things from occurring. And I’ve got to say, I’m not here being critical of the banks in a wholesale manner because I do appreciate better than anyone probably that if people are going to lie and cheat their way to bank accounts, and lie and cheat their way around some of the transactions that may take place, I do accept that it’s quite difficult for those who are policing the regulatory aspect of those transactions to pick on every single transaction and identify them. But as I say, if the transactions are reviewed, and the general circumstances are such that clearly there’s been failings. And I think the banks need to expect that in the future that there’s going to be a movement move towards them being sued in order to try and recover the funds on behalf of the victims.
Jean Hurley: Yeah, and also a lot of the regulators you know, the FCA in the UK has definitely been going after the banks for not having correct due diligence and also the consumer duty they’ve got now, isn’t there, to look after clients?
Tony McClements: The regulated sector in the UK, I can speak to that probably better than I can do to the United States and further afield. But there is a move now and a lot of the changes are coming about because of the Russian oligarch situation. So there is a move to actually debank Russian oligarchs and bring them into line.
Now, one of the issues, a lot of the issues that have been identified have come from that process where banks have been lax in allowing these people to have bank accounts in the United Kingdom. And clearly some of the funds that have come through the United Kingdom are from a dubious origin. And we end up in a situation where the banks have been effectively money laundering on behalf of the oligarchs. And again, I go back to what I said earlier, I’m not looking to criticize the banks on a wholesale level.
But clearly, if we can make improvements around the regulatory sector to prevent these things from happening in the future, then that’s a step in the right direction. It’s just a shame that it’s had to come about on the back of the war in Ukraine.
Jean Hurley: Yeah, that’s very true. We were also going to look at the differences between civil and criminal cases. Can you discuss that further, Tony?
Tony McClements: So at the very basic level, a civil case is prosecuted on the balance of probabilities, i.e. you only have to tip the scales slightly one way or the other to establish who has put forward the best case. Whereas in criminal courts, it’s beyond all reasonable doubt, which is a very, very high burden to achieve. And quite rightly so, because obviously people who are being prosecuted criminally are in a situation whereby they could lose everything and end up in prison. So I understand why the thresholds are so different. When I investigate civil matters, I always try to aim for the best evidence possible anyway. So I have experience of working under the proceeds of crime act where we do work to the civil burden of proof.
And it’s fair to say that sometimes not all the eyes are dotted, not all the T’s are crossed because the sheer volume of work means that you’re not aiming for the best evidence. You’re just trying to get over the finishing line. And what I would say is that when you’re dealing with corporate clients who are paying a lot of money for the services that we provide, as a firm, we always aim to reach the highest threshold that we can within reason, which means that we’re not looking just to tip the balance of probabilities. We’re actually looking to try and achieve a much higher threshold to make sure that when it goes to court, the client gets the best outcome possible.
Jean Hurley: Can I ask you about private prosecutions?
Tony McClements: Yeah, in the United Kingdom, certainly in London. We’re seeing an increase in private criminal prosecutions. And there are a number of reasons for that. But primarily, if you think that most civil disputes, where there is an element of dishonesty. One side has been slightly less honest with than other. There’s a school of thought that if it reaches the criminal threshold, i.e. it’s been totally dishonest and the intention was to deprive the other person of their assets, then there should also be a criminal prosecution because those who’ve acted criminally deserve to be punished. So at the moment in the United Kingdom, there are a number of reasons, not least of which is, funding.
The police are finding themselves in a position where really good fraud cases are being brought to them. Lots of evidence. It’s clear what has gone on. And they literally just haven’t got the resources to prosecute the case. And again, fraud cases, those who are familiar with them, especially on a multi-million pound or dollar level, there’s a lot of evidence that has to be obtained.
There’s a lot of issues around disclosure. So in the United Kingdom, we have a law in place, CPIA, which means that we have to disclose to the defense anything which would undermine our own case. So if we find something that actually suggests that the person who’s being prosecuted may not have committed the crime, we are duty bound to tell the defense that that is the case. Now, the other thing we have to do is we have to go through all the material in order to establish that there’s nothing in there that would undermine the case. So in the process of looking for the evidence, we also have to have an idea of stuff that may not assist us in the prosecution.
And as I say, we’re usually bound to disclose that to the defense. The other thing that we’re duty bound to do is we have to follow lines of inquiry, even if that line of inquiry isn’t going to assist us in our prosecution. We have to follow that line of inquiry to make sure that when that particular avenue doesn’t hold information or evidence that’s going to undermine the prosecution case. So effectively, the prosecution is in a situation where it has to look at every instance from both sides of the coin and try to ensure that when the court is presented with the evidence, it is presented also with a balanced perspective of what’s gone on. It’s been described as draconian. I think on a personal level, the CPIA is no longer fit for purpose because in my day in the fraud squad, going back to the late 80s, it was bankers’ boxes of papers, material that we could go through looking for evidence.
Now we’re talking about potentially terabytes of information held. The CPIA needs to be rewritten because it never had computers and digital data at the forefront of the legislation. So it needs to be rewritten and addressed. What needs to happen to my mind is the balance has to be redressed because you can effectively starve a prosecution of oxygen by forcing it down this route. They need to scour every single document, every single piece of information. Now, if that’s the police, then that is problematic.
If it’s a private prosecution being funded by those who have been defrauded, it’s extremely problematic because it pushes the cost of the case significantly. And again, what can happen is the defense who are demanding extra scrutiny of the unused material, for example, can actually starve the clients of funds. So the client runs out of phones and the case dies to death. So tactically, it makes sense.
Ethically, I would suggest that that’s why we need to look at it because if you are launching a private prosecution, foremost in your mind is that you’re going to be spending a lot of money in order to get the case across the finishing line. And if the finishing line just keeps getting pushed further and further away and the costs keep increasing at some stage, you’re going to have to walk away. And that means that the culprits get away scot-free. So for the non-UK and non-law enforcement people, the CPIA is the Criminal Procedure and Investigations Act of 1996.
So just by the sheer fact that it’s 1996, computers were around, but not in the format that we see today with humongous servers and, as I said, terabytes of data.
Jean Hurley: So we were also discussing recent headlines that have been around something that’s called “pig butchering”, which is a form of romance fraud. Have you had any experience of romance fraud or any stories you can tell us?
Tony McClements: Yeah, going back to 2017 or thereabouts, we had a romance fraud in Lancashire, which was quite a sad one. I dealt with it and the lady concerned was in such a state that I thought I would try and publicise as best I can, as best I could at the time. And I had a good relationship with the local radio stations as a new type of fraud hit the news. I’ve gone to local radio stations and explained what it was and trying to alert the listeners to what the problems were.
I did that and it got picked up by the BBC and by ITV, the two main television channels in the UK, terrestrial and both of them turned up. So the headquarters, we set up an interview with the lady concerned, blacked out her face, masked her voice and I undertook an interview with the TV explaining what had gone on and what people needed to be alive to. So it’s effectively online fraud, she befriended who she thought was a young marine in Afghanistan. They fell in love online.
She provided him with funds for things like buying two weeks annual leave. Then his dad wasn’t well, and she provided a lot of money for the father to be treated in hospital in America. And the list goes on and effectively when she ran out of money, he just left the scene. When we did some examination work on the computers, the guy who defrauded her was from North Africa. And clearly, you know, the photographs when we looked at the photographs, they’d just been lifted from the internet as well. So the case was quite clear what had gone on. In the terms of the pig butchering thing, hand on heart, I’ve never dealt with a pig butchering case because they came in after I had retired and left the police. I’m obviously familiar with the mechanics of it and the fact that it’s more geared towards digital currency.
Again, the methodology, the MO is quite similar in most cases. Merely what alters is the actual mechanics of how the funds are moved. Both of them are despicable and clearly both of them are aimed at those who are vulnerable, which makes it even worse.
Jean Hurley: Yeah, fraud’s been going on throughout the centuries, hasn’t it? There’s always people who are going to take advantage. So I know that part of your role includes asset tracing and is there different approaches between the UK and the US.
Tony McClements: Yeah, the mechanics of asset tracing are the same across the globe. Well, you know, if I was an investigator in America, the United Kingdom, anywhere in Europe, Canada, wherever you may be, we’re all looking for exactly the same thing. The evidence of the transaction following the money, trying to see how that money has been turned into property, into yachts, whatever it may be.
So the mechanics of the asset tracing are identical in terms of investigation. The legislation can change and differ slightly. But again, most of the legislation is written and designed to give at least some hope to the victim that they might be able to recover the assets in question. In the United Kingdom, there’s a move towards making asset recovery more of a civil process than a criminal process, depending on the legislation that you’re looking at.
So as I say, from an asset recovery perspective, it doesn’t matter whether you’re British, American, Canadian, from an investigation perspective, we’re all looking for exactly the same clues.
Jean Hurley: Do you find there’s a lot of clues on social media these days because people put everything on social media?
Tony McClements: Yeah, I think I can give some examples of that. If you’re trying to prove association, for example, you know, if you’re from a policing perspective, you’re trying to prove that one drug dealer knows the other drug dealer, you can never get them together in terms of surveillance. Then social media can actually prove quite useful if you go on Facebook and they’ve both got their arms around each other. So that’s a good example. Things like I had a discussion with one of my team a while ago. There was a Facebook photograph of one of our targets on one of the beaches in the British Virgin Islands. And I was trying to explain to them that we needed to try and date the photograph. We needed to establish whether he was a regular at that particular bar.
If he was a regular at that particular bar, how was he paying for his drinks? Was he using a credit card? Could the credit card be of use to us in the asset recovery process? So there’s a lot of things out there. Social media can give you a really good lead and a good heads up as to where you should be directing one of your lines of inquiry. The problem for the “scallies” as we call them, the crooks, the problem for them is that once it’s up there, it’s very difficult for it to disappear. Because even if they take their own account down, other people will have that information on their own accounts elsewhere. So it’s a really good source of intelligence at times.
Jean Hurley: So you’ve talked about your relationship with banks before, but do you think banks could have a more collaborative approach, maybe providing better information in the suspicious activity reports?
Tony McClements: Yeah, suspicious activity reports are, or were when they came in, were one of the bains in my professional career. I can explain why. Suspicious activity reports, SARS as we call them. The banks, I feel sorry for the banks because they are under inordinate pressure to produce suspicious activity reports on anything that an individual deems to be suspicious.
Now, what I see as being suspicious may not be suspicious to you. So it’s not something because of the human element. It’s not something that you can quantify accurately. Now, one of the problems is that the banks find themselves in a situation where they generate themselves sometimes just to be on the safe side to try and cover their backs because they don’t want to be criticized or fined at a later date. And that falls into the category of something we refer to as defensive reporting. And what happens is the volume of SARS hits the police system and we end up in a situation where we can’t see the wood for the trees.
So, whenever you say, 10 reports, there might be one in there that’s really actionable and it’s going to take us towards an objective. The problem is we’ll never see it because of the other nine that are in there. Now, the police have to shoulder a lot of the blame. The National Crime Agency, I think, have that within their remit now. We [Police] have to shoulder a lot of the blame because we’re in a situation where we’re demanding the intelligence but also haven’t got the resources to actually do anything with it. So, what we’re doing is we’re, it’s self-defeating.
So, I would like to see the banks and the people who produce the SARS, I’m going to use the expression better educated and I don’t mean that in an academic way, but the police and the people who generate the SARS, so the people on the receiving end my former colleagues and the people who generate it, need to collaborate more. And they need to educate each other about the problems that each faces because otherwise what we end up with is the banks bad mouthing the police, the police bad mouthing the banks and it’s totally destructive. So, there’s got to be more collaboration between them.
Now, one of the problems that we have there is that because of banking secrecy, the banks are very tied as to what they can actually tell us in a conversation, shall we say. So, the legislation needs to be tweaked. There needs to be a situation where if you’re an accredited police officer, for want of a better description, if you’ve got some qualification that allows you to speak to the bank and in speaking to the bank, take the information without divulging it unnecessarily, that responsibility stays with you. Then you can have an adult conversation, but at the moment, there’s no means of having an adult conversation unless the police have to go to the court, obtain a production order and then use that production order in order to discuss the intelligence with the bank and obtain the relevant bank statements. And what happens is that sometimes we go to court, we obtain production orders and then when we give them to the bank, they’re of absolutely no value whatsoever because there’s nothing in the accounts.
The accounts have been dormant and not been used. So, all these resources, both on our side and on the bank side, are getting wasted. And I also think that it’s unfair that suspicious activity reports can lead to banks getting fined millions and millions of pounds. If we actually took a bit of that responsibility from them, prevented the defensive reporting, they’d have the resources to do a much better job. And if they could pick the phone up and speak to the police, then there’d be a two-way communication where they can discuss what the possibilities are, what the suspicions are. And it may well be a line can be drawn in the sand and everybody moves on because it’s not a viable line of inquiry, but there’s just that system. There’s just this brick wall between the two parties and on both sides of the wall, lots and lots of resources are being wasted.
Jean Hurley: Thank you. Well, your approach definitely sounds more sensible. Something else I want to talk to you about was surveillance, in particular companies putting into place surveillance to avoid employee fraud, because that’s another one of the big frauds, isn’t it?
Tony McClements: What I would say is that we have to differentiate when we mention the word surveillance. There’s different types of surveillance. So, the one that pops into everyone’s mind when you mention surveillance is people being followed, discreetly. All the movies depict this process. But from a corporate perspective, I’ll be talking about a physical surveillance and I would suggest that that would be very rare.
So, what the companies need to do is surveil what is going on in-house and probably the best way of doing that is using software because virtually every transaction, there’s not much hard cash floating around anymore. They’re all transactions done on internal systems or even national systems.
So, from a company’s perspective, I’m not an expert in software, I don’t profess to be. There are firms out there who can provide you with systems to give you the ability to monitor transactions covertly without anyone knowing what’s going on. Now, the people who are undertaking those transactions are going to be a little bit peeved because you’re basically tarring everyone with the same brush. But ultimately, these systems are there not only to protect the company, but they also indirectly and directly protect the innocent because if you’ve done nothing wrong, these systems are going to be able to show that you’ve done nothing wrong.
Conversely, if you have done something wrong, then hopefully the systems will pick it up. But again, I’m not an expert in those systems, but I would implore organisations if they’ve got a worry and concern about employee fraud. There are people out there who can provide them with the systems that they need.
Jean Hurley: Thank you. And when we talked about the Stanford case, you mentioned the whistleblowers which have been involved in that. And I know you’ve got a lot of strong opinions on how whistleblowers can help and how we can make lives of whistleblowers better.
Tony McClements: Yeah, so in the context of whistleblowing, the United States has, I think, a really good system where whistleblowers are rewarded for coming forward and divulging information about wrongdoing. We don’t have that in the United Kingdom. One of the reasons for that is that the consensus when it was discussed was that it would encourage malicious whistleblowers from people who have an axe to grind. I’m not saying that could not, that wouldn’t be a possibility, but it’d be very rare, I would suggest. And also, the malicious whistleblower would leave themselves open to potentially being sued for defamation. And also, if you could write it into the act, there could be, I don’t know, an obstruction offence of some description or a perverting the course of justice type offence. That could be written in there.
So if you, it’s a double edged sword, if you want to come forward, if you want to blow the whistle, then if you’re doing it in an honest and, you know, way for all the right reasons, you’ve got nothing to worry about. And obviously, if you’re making a malicious report, then you have something that you need to be concerned about. Now then, what I would say is the current legislation says that you can’t do anything towards negative towards a whistleblower if you’re the organisation that has had the whistle blown on them.
And what I would say to that is there’s more than one way of skinning a cat. So if you’re a whistleblower and you come forward, I would suggest that in a lot of cases, that’s your career is over with that organisation. What are the chances of getting promoted? What are the chances of getting pay rises? What’s the chances of improving your lot within that organisation? And the chances are they’re not very good.
Jean Hurley: Also within the industry as well, I’d say.
Tony McClements: Yeah, so applying for jobs, expecting references, your reference may be glowing. You know, this is a fine upstanding member of our team, blah, blah, blah. And then in the background, someone makes a phone call and says, don’t touch them with a barge pole, because they’re troublemakers. So, as I said, there’s more than one way to skin a cat.
I think we need to adopt a system similar to the United States, where if you do make that commitment to blow the whistle, that you do so in the knowledge that if your suspicions are proven correct, that you get rewarded for it. You get rewarded because your career within that particular organisation within that particular role is potentially over.
So, why shouldn’t you be compensated for sticking your head above the parapet? So from my perspective, I would replace the word reward with compensated. And also, it’s playing with words, but I do believe that most people who blow the whistle are not coming forward to make millions and millions of dollars. They’re coming forward because they have a genuine concern. And there is the possibility that they may get compensated for coming forward. So, as I say, it’s a bit of a mishmash approach, but the UK, I think, needs to follow the United States’ lead. And I think whistle blowing is the front, that it really is the frontline in terms of regulatory law.
They are the people. If you think about anyone listening to this podcast, now if you’re in the regulated sector and your role is to identify money laundering by your clients. Well, if you find out that somebody in your own organization is paying bribes and is complicit in that money laundering, what do you do? And why would you come forward? Would you come forward purely and simply because there’s a chance of making a few bob? Would you come forward because it’s the right thing to do? And I would hazard a guess that 90% of whistle blowers come forward because it’s the right thing to do. And the offshoot of that, there’s potentially they could also be rewarded in America compensated in the United Kingdom.
Jean Hurley: Thank you. Now it’s time for a quick fire round where you only have to answer yes or no. So, Nick Ephgrave has now been in the office as head of the UK Serious Fraud Office for the past 10 months.
So will he be able to reverse the organisation’s misfortunes and damage reputation? Yes or no?
Tony McClements: Yes.
Jean Hurley: Second question. So I read that only 0.6% of police officers in England and Wales investigate fraud, money laundering and other economic crime. Should fraud become a policing priority?
Tony McClements: Yes.
Jean Hurley: Third question. You describe the UK’s track record on fraud as “as robust as the soggy biscuit on the saucer of that proverbial teacup”. Do you think the new government will provide enough resources to tackle fraud?
Tony McClements: No.
Jean Hurley: And the final question. I know you’re an Evertonian, Tony, and Everton had a pretty tough time in the English Premier League last season. Do you think they’ll do better in the new season? Yes or no?
Tony McClements: Yes.
Jean Hurley: Tony, thank you for your time and sharing your insight, and thanks to listeners for tuning in.