Long and short firm fraud
This is when criminals hijack or set up an apparently legitimate business with the intention of defrauding both its suppliers and customers. They are happy to deal in any goods or services that have a market value - preferably those that are not traceable and easily disposable, such as electrical goods, toys, wine, spirits and confectionery.
An example of long firm fraud
Your business has developed a beneficial relationship with a company that has a good reputation and credit history. The company places lots of small orders with you, paying promptly. You trust this company as a supplier. The company however, changes its activity and starts making much larger orders with your business. You supply your goods but the company disappears without paying you and sells the goods on.
Examples of short firm fraud
Your business supplies to another business which has only operated for a short time. If it’s a limited company, it may have filed several sets of false accounts and director appointments at Companies House within a short space of time. It may also provide false trade references to make itself appear credit-worthy. The company will have no day-to-day trading activity. They will use credit to obtain goods from your business that are delivered to third-party addresses. Again, the company will disappear without paying you and will sell the goods on for cash.
Minimise your risk to long and short firm fraud
Obtain full details of customers, including personal details of those in control.
Obtain trade references. This needs to be from more than one source and follow up with the companies as to how long they have known the business for.
Ensure you complete address checks to confirm their business address and ideally contact the directors of the company to ensure you are happy with who they say they are.
Complete checks with Companies House along with banking references and well known credit reference agencies to identify any unusual filing patterns or dramatic increases in credit searches.
If this is too expensive, use open source checks. Searching on company directors, addresses and trade names can be vital information for you.
If you have time, consider visiting potential new customers for proper on site inspection.
Obtain landline contact numbers, not just mobile numbers. Confirm these details and check they answer the phone in the correct company name.
Do not accept handwritten orders or faxes.
Company impersonations or corporate identity theft
Should you receive a call from a person claiming to be from a company that you have a business relationship with and you are suspicious about the nature of the call or the caller’s identity, then consider the following advice:
- Ask a number of questions that only you and the genuine company know the answer to, such as a contract number or purchase order number
- Ask for any request to be emailed
- Call the genuine company back using your regular contact number and verify the information with the person you normally speak to. Your phone line may have been kept open by the fraudster, so be sure to wait at least five minutes after your call or use a separate phone line
Company hijacks normally involve fraudsters changing the details of company directors and registered offices. To combat this, consider joining the Companies House PROOF scheme and register with the webfiling service.
Company hijack can often precede short firm fraud activity.
Fraud relating to bankruptcy and insolvency can involve companies fraudulently trading immediately before being declared insolvent or ‘phoenix companies’.
Phoenix companies are companies set up immediately following the insolvency of another with the same directors, but are not liable to pay for the losses of the previous company because they are different entities.
Phoenixism can be perfectly legal. Fraud happens when directors abuse the phoenix company arrangement by transferring the assets of the failing company below their market value before insolvency. By doing this, the fraudulent directors reduce the funds available to creditors when the original company becomes insolvent. As a result, the creditors are left out of pocket for the goods or services they supplied. Other associated offences include the reuse of prohibited names or directors acting whilst disqualified.