Prosecuting fraud has never been easy under UK law. The collapse of several recent high-profile fraud cases, such as the failed Jubilee Line extension litigation in May 2005, which tried six men for alleged conspiracy to defraud over building contracts, has brought into question the adequacy of existing legislation and what actually constitutes 'fraud'.
The problem, say lawyers, is that the specificity of existing fraud laws and their susceptibility to technical defences has made successful prosecution difficult and bringing a case enormously expensive. The Jubilee Line extension trial cost £60m alone, for example. As a result, the Government has set about creating a Bill that will, it hopes, make prosecution for fraud a lot easier. Introduced into the House of Lords in May 2005, the Government hopes the Fraud Bill will receive Royal Assent by the end of this year.
The Bill creates a statutory offence of fraud, which can be committed in three ways. Under the Bill, a fraud is committed 'where a person dishonestly makes a false representation, or wrongfully fails to disclose information, or secretly abuses a position of trust with intent to make a gain or to cause loss or to expose another to the risk of loss'.
Under the terms of the Bill, 'failure to disclose' would, for example, cover a situation where an investment adviser dishonestly failed to share information with a client in order to make a gain as a result, or to expose the client to loss or the risk of loss. 'Abuse of trust' would cover such issues as insider dealing, as the person committing the fraud would have been given a position in which he is expected to safeguard another's financial interests. Where an employee uses his position to make a secret profit, or to copy the intellectual property of his employer, it would also constitute conduct falling within fraud, by abuse of position. Although 'abuse' has not been defined, senior associate Adam Vause of solicitors Norton Rose says that "the Bill makes it clear that it is to be widely construed".
The new fraud offence carries a maximum custodial sentence of 10 years - three years more than the current seven year tariff for offences of theft and false accounting. The Bill's new offences of obtaining services dishonestly and possessing articles for use in frauds carry a maximum sentence of five years in custody. The prison sentence for fraudulent trading remains at a maximum of seven years. Organisations involved in fraud can receive an unlimited fine.
The new offence of fraud relies on proof of dishonesty (mens rea) on the part of the defendant, rather than the effect of any representations made on the mind of the victim, as in traditional offences of deception. The new offence will replace at least eight Theft Act offences such as obtaining by deception and related offences, though it is likely that the offence of conspiracy to defraud will be retained.
Alex Plavsic, head of fraud services at the forensic accounting practice of professional services firm KPMG, says that "the Bill states that it is irrelevant what sum of money has been defrauded, which means that it will become much easier - and probably more worthwhile - to prosecute individuals and criminal gangs for high volume, low value frauds. The Bill's emphasis is on proving the intent to act dishonestly as opposed to the impact of the fraud on the victim."
Rosalind Wright, chairwoman of the Fraud Advisory Panel, an independent group of volunteers which aims to raise awareness about the economic damage caused by fraud, believes that the new Bill will increase the number of successful prosecutions against companies and individuals. "At the moment, the limitation of the eight or so statutory offences, principally under the Theft Acts, means that prosecutions can only be brought for cases where the facts can be fitted into the wording of the sometimes arcane offences, such as procuring the execution of a valuable security by deception or obtaining property by deception itself," says Wright.
"The limitation, particularly of the latter offence, is that you need to be able to prove that someone was actually deceived by the fraudulent representation made - often an impossibility in an investment fraud, where investors often part with money for no better reason than colleagues had invested with the same enterprise, or that the fraudster 'sounded genuine'. Where a machine, such as a computer, has been the instrument whereby money was fraudulently obtained, a charge for deception cannot currently be brought at all, as no human being was actually deceived."
"The merit of the new law is its flexibility," says Wright. "It will also shift the legal focus to the intent of perpetrators, rather than the outcome of fraudulent actions. It will therefore be capable of application no matter how business practices change."
The Bill will also create two new offences, mainly aimed at tackling frauds committed via technology which are difficult to prosecute under existing law. The offence of 'obtaining services dishonestly' will cover a situation where a credit card that has been improperly obtained is used to obtain services from the internet, or any other situation where false information is provided to a machine. The second new offence will be 'possessing articles for use in frauds', which will cover computer programs designed to generate credit card details that are then used to commit or facilitate fraud.
A welcome step, but not perfect
According to Peter Kiernan, partner in the fraud and financial crime team at law firm Eversheds, "One of the notable features of the new offence is that it will be sufficiently flexible to allow prosecutions where a defendant has been proved to have acted dishonestly, irrespective of the method used to carry out the offence, thus allowing for the law to keep pace with technological advances".
Specifically, the new offence will capture 'phishing'. This generally involves the sending of an e-mail to an individual, falsely representing that the e-mail has been sent by an institution where the recipient maintains a financial account. The recipient is asked to click on a link to a website masquerading as the genuine one, thus enabling the phisher to access password details for subsequent fraud.
The need to address the issue of technology in fraud is highlighted by the case of R v Preddy in 1996. In that case - a mortgage fraud - money was obtained by electronic bank transfer, which creates a debit balance in the payer's account and establishes a credit in the recipient's account. Electronic bank transfers were unknown in 1967-8 when the Theft Act was passed. This method of money transfer was held by the House of Lords not to be 'obtaining property' under the strict wording of the Theft Act, 1968, and many convictions for offences in similar circumstances were quashed.
Businesses have generally backed the new Bill. A spokesman at the Confederation of British Industry (CBI), the business lobby group, says that "anything that helps organisations deter losses through fraud is welcome." Yet, despite mostly positive feedback, the Bill is not without its potential demerits. One of the more keenly debated issues concerns the nature and extent of the jurisdiction of the English courts. The Home Office raised the question of whether the courts should be granted 'nationality jurisdiction', which would provide them with jurisdiction over English nationals and companies that commit frauds overseas. The Government, however, rejected this suggestion, claiming that the provisions of the existing Criminal Justice Act 1993 (which apply to all statutory fraud offences) are sufficiently broad as they provide the English courts with jurisdiction (in relation to a person of any nationality) where a 'relevant event' takes place in England or Wales.
However, law firm Olswang says that neither of these two options seems particularly appropriate to a crime which, by its very nature, can easily be committed from anywhere in the world and is a global, cross-border phenomenon. "One of the reasons for the inclusion of phishing in the Fraud Bill was that the provisions of the Computer Misuse Act 1990 were not deemed clear enough to capture phishing in all its forms, and yet the Computer Misuse Act provides the courts with a far broader, more comprehensive jurisdiction than the Fraud Bill," says Clive Greengrass, a partner specialising in IT and e-commerce at the firm.
He adds that while the new regime is welcome, tracking down and bringing online fraudsters to book - particularly where they operate outside the UK - remains another matter. "It is perhaps regrettable that the new legislation does not explicitly facilitate private prosecutions under the Bill to enable private companies and other victims of online fraud to take action in cases which the police and Crown Prosecution Service do not intend to pursue," he says.
- Neil Hodge is a freelance writer.
