Question 2: A council health inspector threatens to close down a restaurant by issuing a fake health violation notice if the owner does not make a financial payment to him. If the restaurant owner does not cooperate, the restaurant cannot be opened for business and the negative publicity will drive customers away. Faced with the potential economic loss, the owner makes the payment.

Required:

a) What type of fraud is this? (4 marks, maximum 150 words)

b) What controls can be implemented to prevent or detect the fraud? (6 marks, maximum 200 words)

(a) Economic Extortion (b) The only way this type f fraud can be prevented is if the party under pressure does not agree to comply with the threat and takes a criminal action against that party in court.

Explanation:

Solution

(a) The kind of fraud where a procurement agent of the huge metropolitan building specialist threatens to the blacklist building contractor, if he does not create or provide payment to agent is called Economic Extortion.

(b) The only way or method to prevent economic extortion is if the party under pressure does not agree to comply with the threat and takes a criminal action against the other party in court.

This is usually not carried out as the person who is threatened fears the other party. an attempt or effort can be made by joining with other similarity affected building contractors in the business.