Leasing fraud

# Leasing fraud.

Leasing crime (fraud) is a 'river topic'. Rule No. 1 From the classics of training for leasing company employees is: "It is the crook who is looking for the lessor, not the lessor for the crook.". Thus, the greatest risk of 'fraud' is with previously unknown lessors addressing an inquiry (either on their own or through an intermediary). Statistics don't lie. I suggest you track fraud cases in your own company. Fraud almost always happens where the customer is looking for a lease, not where the lease is looking for a customer. The principle of limited trust therefore applies to those directing inquiries, especially online, bypassing direct contact, by proxy, or by other questionable means. I have encountered in my work such obvious attempts to deceive leasing companies that they were verifiable from simply accessing the interested party's website, which looked as if it had been created for the purposes of an illegal procedure (fictitious information and customers, photos downloaded from the Internet intended to show the real appearance of board members or the company's headquarters, etc.).

However, do not forget about rule no. 2 - being an exception to the first - namely - "Opportunity makes the thief (here: the crook)". This means that also in a properly functioning lease, leasing fraud can occur for various reasons - especially when the initial stage of the lease was only a form of putting people to sleep, building trust and financial history. At training sessions, I discuss fraud cases in which, for example, the lessee decided to commit fraud after several years of correct cooperation, only when a crisis arose. And this is just another 

rule no. 3 - "The propensity to cheat increases during a crisis." - The principle made itself known again in 2020 (the coronavirus pandemic), when the shift to remote working (as well as the reluctance of many employees in the peri-leasing industry to interact in person, including activities at leasing) presented new opportunities for fraudsters, many of whom took advantage of them.

# Types of leasing fraud.

What are some examples of leasing fraud? [PL = object of lease]. Below is a list of selected types of leasing fraud (nomenclature).

1. Ordinary fraud. It is not much different from defrauding a bank in extortionate credit. An entity that would not get a lease, deceitfully obtains a lease, despite the fact that its real situation does not allow it (lack of financial capacity, e.g. too much debt / poor financial performance). Most often, the lessee hides information about his real financial situation, conceals liabilities, gives fictitious income, hides another lease, and sometimes falsifies the certificate of non-default, financial statements and other data. This fraud is most often a prelude to other frauds. After all, it is logical that the lessee entity on which the leasing fraud is supposed to occur is supposed to be, or in due course become, insolvent (in order to thwart a possible promissory note/indemnity claim by the lessor).
2. Lease security fraud. It tends to happen on larger leases - where the lessor, for the granting of the lease, requires specific collateral either in kind (mortgage / registered pledge) or otherwise (bill of exchange, 777, surety, assignment, RB power of attorney). It relies on the establishment of such collateral: (i) ineffective, and/or legally defective, and/or of real uselessness.
3. Fictitious leasing scam. It involves leasing a non-existent leased object. The point of the scam is that the supplier of the leased object makes money from the sale to the lessor. The supplier usually acts jointly and in concert with the lessee. The fraud is made possible by the fact that the lessor does not participate in the transfer of the PL (or participates but his employee certifies untruthfully) and the supplier is not a trusted supplier of the highest rank, but, for example, a newly hired one.
4. PL valuation fraud. It involves drastically inflating the value of the PL under lease. The point of the scam is that the PL supplier makes money from the sale to the lessor. The supplier usually acts jointly and in concert with the lessee. Fraud is possible only on PLs on which it is difficult to verify their real value (e.g. real estate, production lines, complex machinery, individualized products including software);
5. Fraud on the "second life" of PL. It involves the fictitious leasing of old equipment pretending to be new, ie. in fact On strong overvaluation of the leased item. Fraud is only possible on PLs that can be easily restored/rebuilt.
6. Duplicate lease scam. A customer leases the same PL from several lessors. The equipment supplier sells the same PL several times to several lessors. The point of the scam is that the PL supplier makes money from selling the same PL several times. Scammers take advantage of the lack of records for movable property (except for means of transportation) or falsify identification numbers.
7. Fraudulent misappropriation PL. The lessee sells the PL as if he owned it. After the sale, the scammer stops selling installments, moves the funds out and the company itself becomes insolvent. This scam is the most classic leasing scam and comes in different variations, variants and motivations.
8. Fraudulent bailout sales of leased property (fictitious debt). The mechanism involves knowingly bringing about the auction of PL while concealing the fact of the lessor's ownership and satisfying the (usually fictitious) claim of a related party from the sale of the lessor's movable property.
9. Rebate/commission scam. The real profit in this scam is to get commissions from the equipment supplier - where there is ample room for discounts (such as the auto industry). This scam has been diagnosed in the automotive industry.
10. Identity theft scams.

• Fraudulent identity theft of the lessee (classic impersonation of the lessee's representatives);
• Fraudulent PL acquisition (impersonating debt collectors);
• Fraudulent change of lessor data (impersonation of lessor);

# Regulations - Leasing frauds

On the legal side, leasing fraud (depending on the type) can 'fall' under a wide variety of criminal laws. Below is an excerpt of the most common.

# Defense mechanisms

• Internal procedures (compliance);
• "Fraud-proof" documentation (regulations / contract, etc.);
• Training (in procedures / anti-fraud / sector);
• Learning from mistakes and analyzing internal and external cases;
• Feedback/whistleblowing - quick reporting of abuses, suspicions, gaps, alerts;
• Know Your Customer (KYC) - only a thorough understanding of the customer's business will enable the detection of possible fraud and abuse;
• Confrontation (tel., letters, termination of contract, reduction of limits, exclusion of contractor, securing evidence, etc.);
• Auditing the customer / requesting bank statements / documents;
• Monitoring of customers - their behavior, assets;
• Regular customer reviews;
• Customer contact;
• Programs;
• Hunch / instinct.

The general rule is PROVENANCE. What is forgotten, especially by new companies on the market (without a rich long-term know-how In the industry)? About training your employees on leasing fraud mechanisms, dangerous behavior alerts, etc. Why is this important? Because: (1) staff turnover in the leasing industry has been and continues to be considerable; (2) leasing in Poland continues to grow at a high rate, resulting in a shortage of specialists in the market and the need to recruit them from other industries and further educate and adapt them to work in leasing. Such individuals, therefore, do not have many years of experience in fraud in the financial sector, especially in leasing, which have their own individual characteristics. Companies also start operations before developing well thought-out, even "fraud-proof" documents related to operations, especially such as terms and conditions / contract / OWL. They also do not introduce complinace systems. On top of that, the market expects simple, short, accessible and friendly documents. These loopholes are being exploited by fraudsters.

The defensive measures used depend on the particular types of fraud. When it is too late for prevention - what counts is the prompt and active representation of the wronged company in both civil and criminal cases, including the skillful use of existing lease collateral, or the use of collateral in civil proceedings. In the case of insolvent entities - quick decision-making and dynamic response to the actions of the debtor is what gives the chance to minimize losses and even still make money on a seemingly lost transaction.

# Training - leasing scams

I conduct trainings and seminars on the subject of leasing fraud and its prevention. Trainings are held in both direct and Online (MS Teams / Skype for Business). The principals are leasing companies, insurers and financiers of the leasing industry. Participants are employees of teams - sales, operations, risk monitoring, legal, control, audit, relationship maintenance, etc., as well as managers and executives. The trainings are part of the compliance system that should be in place at every leasing company. Their purpose is to broaden knowledge on the subject of leasing fraud, increase awareness, sensitize to signals of potential criminal activities, enhance crime prevention skills, etc.

In training sessions, I discuss, among other things:

• leasing fraud mechanisms,
• behavior indicative of a suspected crime,
• Real cases (cases) of leasing fraud that actually took place,
• New criminal trends and fraud mechanisms,
• Practical problems occurring at a particular lessor.

In order to obtain a training offer and a training plan please feel free to contact me. I will also provide references and portfolio upon request.

HERE you can see sample leasing training plan.