How the travel industry is fighting fraud – 15 Mar 2007

No one is sure how much fraud costs the travel industry annually but conservative estimates put it at around £6 million and growing.

The financial losses, however, are just one effect of the increasingly sophisticated ways in which travel is being targeted, often by well-organised international gangs of fraudsters.

The reputations of the businesses these gangs dupe into being the respectable fronts for their fraudulent activities are often shattered, as well as consumer confidence in the industry as a whole.

Fraud has also had a fundamental effect on ABTA and is behind many of the recent changes to the association, including protecting itself from exposure to potentially unlimited claims by ending its consumer promise to pay out in the event of an agency member collapse, whatever the circumstances.

Travel Weeky - Stamp out fraud in travelIt has been at the front line of the battle against fraud for more than a decade and knows better than most about the damage it does and how difficult it is to prevent, detect and clear up after it has happened.

In the mid to late 1990s he started to realise there were some clear connections between failures of ABTA agency members that were too unlikely to put down to sheer chance.

At this time the basic modus operandi was for the fraudster to set up a company and obtain membership of an industry body and an ATOL licence, trade for a short time while advertising cheap offers, supply nothing, collapse the company and then just disappear with customers’ money.

“The more we started to look at it the more obvious it was,” said Monk. “I started to get a bit of a nose for it so I drew up a ‘plumber’s chart’, basically a giant spreadsheet, and a pattern started to emerge.

“People thought I’d been watching too many cop shows. There was a huge amount of scepticism at the time about whether what I was saying was going on was right. It was only when I started talking to other people the bits of the jigsaw came together and it was obvious what was going on.”

Among the people Monk started talking to were IATA legal counsel Trevor Sears and Teletext compliance manager Barry Gooch, himself a former Trading Standards officer, and the Civil Aviation Authority.

They began talking to the credit card companies’ investigation teams and once they started to compare notes the same names cropped up time and again.

“It was decided to establish an anti-fraud group that would meet regularly behind closed doors and share information in the hope of persuading the authorities to act.

However, because industry bodies such as ABTA, the CAA, IATA and credit card companies were prepared to reimburse victims of fraud, it is dealt with as though it is a victimless crime and not, therefore, a priority.

In addition, fraud in the travel industry presents the police with a tricky problem regarding jurisdiction because it is a crime that can be committed by a company based in London against a customer living in Blackpool and an airline flying from Manchester.

“Fraud in the travel industry presents the police with a tricky problem regarding jurisdiction.”

Although police involvement has improved and they now work closely with the anti-fraud group, resources for fraud squads are being diverted to counter-terrorism, and with ABTA’s future being put at risk by a well organised criminal element, the association could not rely on the police for protection.

“There are people who say it is up to ABTA to stamp out fraud, that’s easy to say but impossible to do,” Monk said.

“I had to say to the board many years ago that while I can do so much to mitigate losses in respect of ordinary business failures it’s very difficult to bring in any kind of rules that will stamp out fraud.

“Looking back over the years I can put a red ring around the failures I know were fraud, or I believe were fraud. On average there might be 25 to 30 failures in a year and only four of those will be fraud but the cost of those was completely off the scale.”

When the Metropolitan Police launched a new approach to fraud and financial crime called Operation Sterling in 2004 it advised industries to establish working groups similar to the one travel already had. “Without knowing it we were ahead of the game,” Monk said.

The travel anti-fraud group

ABTA head of finance Mike MonkThe aims and objectives of the travel anti-fraud group have had to expand over the years to keep pace with increasingly sophisticated fraudsters.

It started out as a loose alliance of industry organisations and Teletext that looked at pioneering best practice for dealing with and vetting advertisers and travel firms.

But after a particularly bad year for fraud in 2004/05 it was decided to expand the remit of the group and a link was established with the Metropolitan Police’s anti-fraud unit Operation Sterling.

Now the group assists law enforcement agencies with prosecutions and attempts to recover lost money where possible. It has worked to bring in better vetting procedures for membership organisations and monitoring of travel companies.

“We do not say to one another you should not give this person membership or credit facilities, it’s more a pooling of information and everyone goes away and makes their mind up about what they should do,” ABTA head of finance Mike Monk said.

“The value of it is in the exchange of information; sometimes it’s the mere exchange of information that identifies what’s going on.”

The group meets three or four times a year but if any member feels there is a particular problem to address, a meeting can be called at any time. “It’s industry driven.” Monk added. “If we spot something, we will get together to stop it.”

But criminals are constantly changing direction in an effort to avoid detection. “These people are not chancers, they are organised. Every time we do anything to try to stop them they put in a counter measure. They know we have this group and they have started putting credit card business overseas where we have no contacts.”

The difficulty the group will always face is that travel is unusually susceptible to fraud because there is often a long time between purchase and delivery of goods – customers do not walk out of a travel agency in possession of the holiday they have bought and they are used to being offered bargains.

“When the public sees advertising which is in reality unachievable it does not ring alarm bells,” Monk said. “Fraudsters can generate a lot of money over a very short space of time without having to deliver anything.”

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