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In a long firm fraud, the fraudster simply sets up in business as a wholesaler and places orders with suppliers with the intention of evading payment.
Initially payment is prompt in order to establish creditworthiness. Then larger orders are placed. When goods are delivered they are promptly sold for what they will fetch. The primary objectives of a long firm fraud are:
- To establish credibility with manufacturers and suppliers
- To obtain as many goods as possible over a credit period extended as long as possible
- To make little or no payment to suppliers and creditors
- To dispose of goods thus obtained with the minimum of delay
- To abscond with the proceeds
- To avoid identification and prosecution
The Fraudulent Concern
The fraud can be operated in a number of different ways. It may be a 'sole trader', but is nearly always a limited company and one that has been purchased 'off the shelf' from formation agents. It is now possible to create a company with the use of computer software, guiding the applicant through the form-filling process and producing the necessary forms to register the company at Companies House. The details of the directors will nearly always be bogus.
The objective of the fraudster is to lull suppliers into a false sense of security, which means that the initial orders will have to be financed from somewhere, usually a 'Backer', or from the proceeds of crime.
Commodities at Risk
Any marketable commodity can be the subject of fraud and it can be the provision of a service as well as the supply of saleable goods . Certain goods are preferred because they are not easily traceable – toys, toiletries, wines, spirits, fancy goods and confectionery all have a quick turnover, and can be disposed of easily.
Premises
The size and type of premises will depend on the quantity and category of the goods or service to be handled. In the case of goods that turn over very quickly all that is needed is enough room to unload. In most cases, regardless of commodity, the goods do not stay on the premises very long and the premises are usually acquired on a short lease.
Trade & Bank References
The fraudsters can provide references from concerns controlled by themselves, or simply prepare false references using modern desk-top publishing methods. They mayoperate from rented premises or accommodation addresses. Many of these frauds investigated by the police illustrate a basic failure by the suppliers to carry out checks on the creditor for creditworthiness and details of an established trading history.
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