Financial Fraud Detection
Our commercial litigation team of solicitors specialise in situations where companies and/or shareholders become aware that fraud in one form or another has taken place. Perhaps opportunities have been diverted elsewhere or money has been removed. We have also litigated disputes where assets have been removed from one company to another and we then get involved in unwinding those transactions and putting everyone in the position they should have been in. There are few situations we haven’t come across and our team act in disputes across the country in this area.
Fraud is everywhere – from convincing yet false invoice schemes to full-scale identity theft. It’s a growing business problem, but how do you spot it and what do you do after identifying it is, or has, taken place?
At its core, fraud detection is about catching suspicious activity and making you whole. Legally conduct amounting to fraud will be unlawful- with a range of different potential claims ranging from breach of contract to negligence to misrepresentation to unjust enrichment, breach of trust, and/or unlawful means conspiracy. In the commercial world we and businesses generally rely on a mixture of technology, analytics, and common sense to flag odd transactions or pick up discrepancies that don’t add up before instructing us to seek recovery.
It is a common misconception that if fraud is taking place that is a matter for the police and is a criminal matter. Whilst that might be true that doesnt equate to recovery of money, property, assets or intellectual property- thats where litigation can assist you.
Unfortunately, fraud detection is not a one-and-done situation where you can simply install software and let it run in the background. That’s because detection comes with its fair share of challenges, from increasingly sophisticated scams to balancing security with customer convenience. For smaller owner managed companies or where investors are slightly removed, that sort of technical oversight is disproportionately expensive and impossibly difficult to mange.
For businesses of all sizes where fraud is detected, acting promptly can be fundamentally important to protect and improve your, and the company, position.
Why Is Fraud Detection Important?
Fraud costs UK businesses billions annually, with the 2024 Annual Fraud Indicator estimating losses to the private sector at around £1.17 billion. However, the financial hit is only part of the story. The fallout often includes damage that’s less easily quantifiable, such as damaged reputations, decreases in employee morale, and lost trust among customers or stakeholders—all of which can take years to rebuild. For shareholders considerable value can be lost where fraud is not tackled quickly.
Identifying fraud early helps businesses stay compliant with regulations and avoid penalties or losses escalating.
How Does Financial Fraud Detection Work?
Financial fraud detection is about spotting unusual activity and not making any assumptions (or automatically believing what is said by way of explanation) without first obtaining full transparency.
Businesses start by defining what “normal” looks like for their operations, such as typical spending patterns or regular transactions. Any variation, such as an unexpected transaction, request, email or alert should raise a flag for further review, which is usually conducted manually. It can also be the case that silence in itself can cause sufficient concern to merit further investigation.
For example if you note an unusual transaction and request an explanation but do not hear or receive anything in reply that might indicate something of concern.
Fraud detection systems, capabilities, and processes vary depending on a business’s size and needs. A small company might rely on manual reviews and regular audits, for which you will need access to information. At the same time, larger organisations often use a combination of tech, staff training, and ongoing monitoring with specialised employees whose job is to manage fraud detection. Regardless of the size of the organisation, the goal is simple: spot issues early and stop them from growing into bigger problems.
Key Components of Fraud Detection
Fraud detection works by monitoring activity, identifying anomalies, and stopping threats before they escalate. It’s a combination of proactive systems, detailed analysis, and sharp human judgment.
- Data Monitoring and Analytics
The most important pillar of fraud detection is monitoring transactions, accounts, and user activity. Patterns in the data, such as an unusually high number of transactions or logins from unfamiliar locations, can act as early warning signs. - Machine Learning and AI
These tools help sift through massive data sets to identify patterns and anomalies that might not be immediately obvious to the human eye. For example, AI can detect subtle behavioural changes that suggest phishing attacks or synthetic identity fraud. - Human Expertise
Even with advanced tools, human oversight is essential. Fraud detection teams review flagged activity, separate real threats from false positives, and refine systems to improve accuracy over time. - Rules-Based Systems
Basic fraud detection often starts with rule-based systems, where predefined criteria trigger alerts, such as unusually large withdrawals. While less sophisticated than AI, these rules remain an essential first line of defence. - Real-Time Alerts
Speed matters in fraud detection. Systems designed to catch instances must notify businesses or individuals immediately when something doesn’t add up, and team members must follow up swiftly to minimise the potential damage.
Common Types of Fraud
Fraud comes in many forms.
Payment Fraud
We deal with many situations where directors or shareholders (or both) either brazenly transfer money to themselves or connected third parties, or create sham transactions justifying that same conduct. Care needs to be taken at the outset, for example by considering a banking mandate with sufficient protection such as dual signing to protect against this.
Insider Fraud
Fraud often isnt external. We regularly deal with situations where a rogue transaction or conduct will take place that we then have to prevent or take steps such as applying to court for an injunction in order to prevent further transactions. This might apply to property, money or other assets.
Invoice and Supplier Fraud
Fraudsters often send fake invoices to businesses, pretending to be legitimate suppliers. If these invoices are paid without scrutiny, companies can lose significant amounts before discovering the fraud. Often, fraudsters will impersonate existing suppliers, altering payment details to divert funds, making detection even more challenging.
Identity Theft
This involves stealing personal information such as names, National Insurance numbers, or bank details, to impersonate someone. Fraudsters can then use this data to open credit lines, withdraw funds, or carry out other financial crimes under the victim’s name.
Phishing and Email Fraud
Phishing scams trick victims into sharing sensitive information, such as passwords or account details, often via fake emails, texted links, or websites. Cybercriminals disguise themselves as trusted entities like banks or service providers to gain access to personal or business accounts.
The Challenges of Fraud Detection
Detecting fraud is no small task. While technology and experience help, the constantly evolving tactics of fraudsters present ongoing challenges for businesses. Pressures on individuals leading to fraudulent behaviours can be hidden and might not be immediately visible.
Insider Threats
While most detection efforts focus on external threats, fraud from within a business, such as embezzlement or data leaks, can be even harder to spot. Employees, directors and shareholders with authorised access to sensitive systems may exploit their position and then cover their tracks, leaving fewer obvious trails for detection systems to follow. If you suspect something is taking place the best advice is to obtain legal advice. We have access to experts including forensic accountants and investigating computer scientists. Using various techniques and tools we can review systems and hardware for traces and evidence of wrongdoing that can then form part of a litigation case against the rogue party.
Final Thoughts
Fraud can cause severe damage in terms of loss of property, assets and money. Having a heightened sense of awareness and ensuring you have as much transparency as possible is critical to protect your position. Where you become aware or suspicious of unusual or unlawful conduct, acting promptly will materially improve your prospects of successfully unwinding whatever has happened or has taken place.
Our commercial litigation team have experience stepping in urgently including in situations where injunctions and court proceedings were needed; to prevent unlawful and fraudulent property transfers from one company to another; to prevent dissipation of money and assets and to preserve funds so that they are not moved to a location where they can’t be recovered.
If you are facing a situation where you are concerned there is a risk of fraud taking place in one form or another, contact our specialist commercial litigation team and we will be happy to assist you. We act nationally in these disputes and are well placed to help you with solutions. Contact Helix Law today; we would love to help you.
