What does long and short firm fraud involve?
Long and short firm fraud happens when criminals set up
an apparently legitimate business intending to defraud its
suppliers and customers. Long
firm fraud happens after the business has
developed a good reputation and credit history. Short firm
fraud, often internet-related, happens when the business
has only been in operation for a few months.
Long firm fraud
This type of fraud starts with the criminals placing
numerous small orders with wholesalers and paying
them promptly. Having established a good credit history and won the
trust of their suppliers, the fraudsters then place several larger
orders with their suppliers. But once they receive the goods, they
promptly disappear and sell the goods
elsewhere.
Short firm fraud
Also known as phoenix
fraud, this is similar to long firm fraud but it takes
place over a much shorter timescale. Usually, the
business doesn’t try to establish any form of credit history or
credibility, apart from perhaps filing false accounts at Companies
House if it is a limited company.
The fraudulent business has no day-to-day trading activity.
Instead, the fraudsters use credit to obtain goods that are
delivered to third-party addresses, often on multioccupancy trading
estates. Again, the goods are sold for cash and the criminals then
disappear.
Fraudsters are happy to deal in anything with a market
value - goods or services. They prefer goods that are not
traceable, turn over quickly and are easily disposable. For
example: electrical goods, computers, toys, toiletries, wines,
spirits, fancy goods and confectionery.
How do long and short firm frauds affect me?
The most immediate impact of these frauds is serious
financial loss. As a victim, your organisation may also
suffer from:
- Low staff morale
- Adverse publicity
- Disruption caused by a major investigation
- Further fraud under a different guise.
What should I do?
There a several measures you can take to protect your
organisation from long firm and short firm fraud. For example:
- Stop and evaluate before accepting a much
larger order from a business you have only been dealing with for a
relatively short time
- Check the trading history of any business you
are dealing with
- Ask the business for trade references. If
necessary, check the authenticity of the referees. Sometimes,
criminals form companies to fraudulently provide references for
each other
- Take steps to verify the identity of the
office holders
- Visit potential new customers for a thorough onsite inspection
of the business premises
- If it is a limited company, find out if it has filed accounts;
check whether the accounts are credible given the trading period;
and ensure they have been prepared by a genuine reporting
accountant
- Obtain consent to check the credit histories
of the people running the business
- Check for evidence that they live where they
say they live
- Check publicly available data bases on the
Insolvency Service and Companies House websites to see if the
individuals are bankrupt or otherwise disqualified from acting as
directors of a limited company
- Check who owns the domain names of any website
the business uses
- Be wary if the only ways of contacting a
business are through webmail-based email addresses and mobile
telephone numbers
- Ensure that goods are delivered to identifiable
individuals and addresses, and do not allow goods to be
cross-loaded to unidentifiable vehicles waiting at the delivery
location.
- Visit credit reference agencies such as
Callcredit, Equifax, Experian