FINANCIAL institutions are losing millions of pounds to fraud because of flaws in detection systems, according to a leading investigator.

Adam Bates, global head of forensic services at KPMG, the accountancy firm, said that banks are focusing on money-laundering at the expense of financial crime generally.

Mr Bates said: “Banks have well-developed anti money-laundering procedures, but when it comes to financial crime, there’s no single model. The two should be joined up, since anti money-laundering controls can help identify fraud.”

Banks are finding it technically quite difficult to link different systems. Mr Bates said: “One of the challenges for the financial sector, both in the UK and abroad, is: how do you make all these different anti-fraud, anti money-laundering controls work together?”

Mr Bates helped to set up a fraud investigations unit for the Bank of England in the aftermath of the Bank of Credit and Commerce International scandal.

He was also drafted in by the interim government in Iraq to investigate corrupt payments linked to the United Nations’ oil-for-food programme.

His comments follow a warning by Ken Farrow, head of the City of London Police’s economic crime department, about rising levels of fraud against banks. He told a conference in London that dormant bank accounts were particularly vulnerable to attack because fraudsters know their crime can go undetected for a long time.

City of London police recently foiled a £175 million fraud on a City bank.

Fraud is a low priority for many UK police forces. Britain has about 600 police officers tasked with investigating financial crime, but they are routinely called off to assist with murder investigations and other cases.

Mr Bates said that police officers were often put off by the complexity of fraud cases. He said: “If you’re a normal fraudster and the police find out what you’re doing, if it’s very complicated, you might well get off, because the police don’t have the resources to prosecute and investigate it.”

New developments such as the Assets Recovery Agency, set up under the Proceeds of Crime Act 2002, have made it easier to hit criminals where it hurts. Criminal assets worth £54.5 million were recovered last year.

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