Fraud investigator Simon Padgett recalls poring over financial documents of an African company, in search of peculiar transactions, when he heard a distinguishable sound behind him.
A high-ranking military official, the owner of the business, was standing behind Padgett, and had a gun pointed at his head.
“They escorted myself and my team, by tank, to the airport,” Padgett said, adding they were flown out of the country on a government airplane.
Within 24 hours, the business was shut down.
It’s one of several stories Padgett shared with Peace Arch News Wednesday, after spending more than 20 years as an international forensics fraud investigator.
Originally from the U.K., Padgett has lived in the Caribbean, South Africa and Abu Dhabi, and has worked in more than 40 countries. In the past few months alone, he’s worked in China, Sri Lanka, Malaysia, London and Dubai.
For the past three years, however, he has called South Surrey his home.
A chartered accountant since 1990, Padgett said he quickly got bored of “mundane auditing,” and moved to forensic accounting. After years of working as an investigator for several companies, Padgett started his own business, Forensicintegrity (forensicintegrity.com).
Companies call Padgett when they suspect fraud or corruption, or they require fraud risk-management training.
Due to non-disclosure agreements, Padgett would not share the names of companies – nor specify governments – he’s worked for over the years.
“I can’t really tell you details, but I’ve done work for many governments, and maybe for Canadian governments as well,” he said.
Most of Padgett’s clients, he said, are based overseas.
“In terms of fraud and corruption work, there isn’t a massive amount of it (in Canada),” he said. “You have the Canadian culture, which is one of reasonably high levels of integrity, one that follows the rules.”
Padgett said 85 per cent of fraud is committed by an employee in a trusted position.
He noted there’s a number of ways an employee can defraud a company, but in most cases money is stolen from either the revenue stream coming in or as the money goes out. That can be accomplished by misleading information, forgery or counterfeiting documents, overcharging or duplicating invoices.
“More often than not, the financial director who called us in, who has total control of everything financial, he’s the culprit. He called us in for a smoke-screen,” Padgett said.
Investigating government, Padgett said, is slightly different.
“In government, there’s a distance between ownership, and people think the tax base is a free pot of money, maybe.”
According to the Association of Certified Fraud Examiners, he said, an average of five per cent of revenue from an average organization goes to fraud.
“If you think about the government organization, that’s five per cent of what government spends… If you apply that to the gross domestic product of the world, it comes out to $4 trillion a year, fraud. That’s the amount of fraud that’s being taken out of the economy.”
The largest case Padgett has worked for, one he was hesitant to share details of, was based in a Middle East country.
“Just over $500 million was stolen from a major organization. That’s the biggest. That affects the country’s gross domestic product, prediction levels and everything.”
Three executive directors of the company went to jail for eight years, he said.
“The average fraudster, in a Canadian city, might be stealing half a million to over a million over a one- to two-year period. A lot of our work in that situation is finding out what they might have spent the money on and trying to get it back for the company. Civil action, and at the same time we will take criminal action.”
The financial industry, particularly the fraud risk-management industry, has been taking a turn with the emergence of blockchain and bitcoin technology, he said.
Bitcoin is a type of digital currency where encryption techniques are used to transfer the money from one digital wallet to another. Blockchain is the digital ledger – transactions made in bitcoin, or any other cryptocurrency – of the transaction, however, the details are encrypted.
As the director of forensic services for DMG, Padgett’s role is to trace how cryptocurrency services are used to move the proceeds of crime, whether that money is from fraud, drug sales, human trafficking or to finance terrorism.
“We’ve got some fantastic software that can trace the corruption money – for example, bribes. The big thing now is to pay me that bribe in bitcoin because it’s anonymous.”
Padgett said they can effectively determine the movement of bitcoin from a company’s digital wallet to the destination wallet. From there, he said, his company is able to determine where the destination wallet was opened and what other transactions it has received, and whether they relate to any proceeds-of-crime investigations.
The destination wallet is given a “bit score” which ranks the wallet depending on the probability it’s related to illegal activity.
“Financing of terrorism overshadows everything,” he said. “I know in the U.A.E., you could be put to death because there’s a link to terrorism. Money laundering, terrorism… these wallets are a very important part of cleaning up the world.”
Padgett wrote a book on the aspects of his job, Profiling a Fraudster.