Protect your company from fraud – 22 Mar 2007

The travel industry is the victim of a new kind of fraud in which organised criminal gangs target the sector to fund other illegal activities such as drugs trafficking.

For a long time, fraudsters have abused the travel industry by setting up rogue agencies and taking bookings that they do not go on to make with suppliers. They then run off with customers’ money just before a peak travelling time, such as the summer season or a bank holiday in what has been called a ‘bust out’.

ABTA head of finance Mike Monk said the industry was always attractive to unscrupulous people because “customers are used to walking out of an agency with a piece of paper as a receipt, instead of goods or a service.

“Because the industry has a reputation for offering discounts, customers don’t twig that they could be being defrauded if they are offered a discount to pay the balance of a holiday early in cash,” Monk added.

However, since the authorities, including ABTA, IATA, the Civil Aviation Authority, the banks and the police joined forces to fight against this type of fraud by making it a lot more difficult to set up a rogue business, a much more sophisticated type of fraud has evolved.

What are often violent criminal gangs buy in to established reputable travel organisations to commit “corporate identity fraud”.

Travel Weeky - Stamp out fraud in travelInstead of setting up their own business, they piggyback on the good name of an established business by bringing in a sham director to express an interest in buying the company. Often they are brought in from Eastern Europe because the authorities are unlikely to have records on them.

They claim they need to understand the business better so offer a lump sum as a deposit for future investment. In return, they get a desk in the business and access to phone lines, allowing them to trade under the company’s name.

These gangs can offer cash payments of up to £20,000 to show they are acting in good faith.

The fraudsters then bleed the travel company’s account dry and debit customers’ credit cards several times for the same transaction, siphoning money into different bank accounts, often abroad.

The sham director then disappears overnight with all the money from the con, while the credit card company is left to pay back the customer before reclaiming its losses from the foreign bank.

“One French bank got absolutely hammered,” Monk said. “It called ABTA after and I said to them: ‘Why didn’t you come to us first?’ Because this type of fraud doesn’t happen in their country the foreign banks aren’t looking out for it.”

Monk added in the last two to three years alone ABTA was hit with payouts of up to £700,000 for individual corporate identity fraud schemes.

“It’s still on the margins,” Monk said. “But these ‘bust outs’ are big, which makes them stand out like a sore thumb next to standard ABTA travel agency failures.

“We are getting better at detecting it. I call it the fraud waltz – we take two steps forward, they take one step back.”

In 2004/05, a particularly bad year for fraud in travel, one gang was taking about a third of all UK bookings for the Canary Islands, by operating through three companies, according to Teletext compliance manager Barry Gooch. These companies eventually went out of business.

This period also coincided with the introduction of e-ticketing, which lead to an increase in fraud against IATA and the airlines, he said.

“IATA had a real problem with people setting up in business, apparently trading honestly for a while but suddenly taking loads of money out of peoples’ bank accounts,” he said.

“Everyone tightened up their procedures over that period but the trouble is these guys are clever and they know how to get round the system. We can only hold them off for a certain amount of time.”

Monk urged all travel firms to check with their membership association if a potential partner expresses an interest in their business.

“We are not trying to stop you from selling your company but we might be able to stop you becoming a victim,” Monk said. “One Scottish agent contacted ABTA because he had reservations about a man taking an interest in his business. Once he told us the man’s name, we knew it was a fraud.”

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