Beware – advance fee fraud is rampant                                                                       

Lord Davenport sentence is but one out of circulation: there are others.

Issue two of Business Money, dated July 1993, ran a feature by Dick Appleby on the prevalence of advance fee fraud. This occurs when bank lending is tight and crooks convince desperate business people that they have access to funds that could be made available.

Fees are always demanded to facilitate the release of funds, initial appraisal fees, due diligence fees or valuation fees are all sought along the way as the web is spun convincing business people that a legitimate process is under way. A substantial fee is then demanded for a facility letter. That this letter often contains conditions precedent to the deal, at least one of which can never be satisfied, is often a loophole used by the fraudsters to evade the courts.

The National Association of Commercial Finance Brokers was founded in 1992 with the aim of offering businesses an intermediary channel that operated to a code of conduct. The strenuous efforts of the association, along with the plentiful supply of credit up until 2008, virtually wiped out advance fee fraud in the commercial lending sector.

But come the credit crunch and this phenomenon is with us again and business owners must be on their guard. Many are desperate to find the liquidity to tide their businesses, families and workforce over the present depressed business environment and it is no secret that angel investors, venture capitalists and equity funds are sitting upon piles of cash.

So when a plausible story is spun, it is tempting to pay up in the belief that funds can be found.

Lord Davenport, as he was known, also employed the clever strategy of producing the Gresham Limited balance sheet ostensibly oozing with assets to reassure those he was encouraging to deal with him.

This is not difficult. Many years ago I published the results of my investigation into an outfit called Imperial Consolidated Limited. My attention was drawn to it by someone who had been asked for an upfront fee on the basis that the firm was a venture capitalist: that and the fact that when I examined the accounts of Imperial Consolidated the net worth had climbed, in one years, from the £2 starting capital up to several million pounds.

Casting an eye over the accounts I noted that five mortgages had been created by the company and three redeemed in the space of twelve months. Mindful also that the company had associated operations registered in Delaware and Dubai, neither location then being noted as hotbeds of exacting corporate compliance, I suspected that assets had been slung around the world, revalued where local standards allowed massaging of these numbers, then re-domiciled with their inflated figures.

Most telling, there was not a single investment in another business in the accounts despite its stated aim.

I published my findings in the hope that others would give Imperial Consolidated a wide berth. I ignored a plea from its chairman to hold my fire and I did not call the lawyer with the top London firm that was offered as a referee. I know of one or two that have been beguiled into speaking for a client without knowing the full extent of their potential for villainy.

I was delighted when the Department of Trade and Industry as it then was shut Imperial Consolidated down in the United Kingdom a year later.

I recount this story because businesses should be aware of pumped up accounts and well-meaning but dangerously naive lawyers when offered private funds and especially when upfront fees are demanded.

The National Association of Commercial Finance Brokers, working with Richard Spicer of Fraud Intelligence Services has done a first class job in co-operating with the police and the National Fraud Authority in bringing this to the attention of the authorities and subsequently the small business community.

A feature in Mail on Sunday on 9 October 2011 related the demise of Gresham Ltd and the jailing of several involved with it. It also mentioned that several who had dealt with Hallmark Finance had suffered disappointment too.

So business owners beware. If your intermediary is a member of the National Association of Commercial Finance Brokers, you are covered by a code of conduct that has stood the test of time.

editor