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'Fraud and the Justice System': MPs call for a new approach

Posted on 31 October 2022

Fraud text on paper

On 18 October 2022, the House of Commons Justice Committee published a wide-ranging report setting out its recommendations for a new approach to, as the report puts it, 'an epidemic of fraud cases in England and Wales'.

The scale is evident from the most recent Office of National Statistics report. It states there were 4.5 million fraud offences reported in the year ending March 2022, a 25% increase compared with the year ending March 2020. Separately, the Committee heard evidence that the current level of prosecutions represents only about 0.75% of reported fraud crimes per year.

Below, we look at the Committee's key recommendations for the improved prosecution of fraud, as well as the disruption and prevention of fraud through enhanced public/private sector collaboration.

Prosecuting fraud

Dedicated Courts

The inquiry's evidence highlighted that the complexity and size of fraud cases has resulted in long trials delayed by a lack of court availability, with victims often waiting several years for the conclusion of their cases.

Noting the planned creation of the City of London law courts in 2026, to specialise in hearing fraud and economic crime cases, the Committee found proposals for dedicated economic crime courts compelling. These included ensuring that there are judges with the right skills to oversee what can often be lengthy and sometimes complex cases.

The Committee felt that such courts would also help to address the backlog in fraud cases, which are not always seen as a listing priority. If the pilots are successful, these types of court should be established around the country to reflect the geographic diversity in the fraud being perpetrated.

Disclosure

The Committee's inquiry heard evidence relating to the application of the disclosure rules in fraud cases. It was said this resulted in significant amounts of investigative and prosecution time being spent on redacting and disclosing large volumes of digital material of only marginal, if any, relevance to the trial issues, but which nevertheless had to be reviewed. Alongside highlighting the importance of greater engagement between investigators, prosecutors and the defence, the Committee also felt that the Attorney General should review the current disclosure guidelines. There is particular need to consider whether there is merit in introducing specific guidance for disclosure in fraud cases involving large quantities of digital material.

Compensation

The inquiry also heard suggestions for improving the scope for securing compensation for victims. The Committee felt that the Government should introduce legislative changes that would give courts the flexibility to subsequently alter the value of compensation orders made, if a defendant is later found to have assets of greater value than was originally believed. This could be used to further compensate the victims of their crimes. It was felt this would bring the practice in line with the system already in place for the amendment of confiscation orders to allow for increased recovery where new information comes to light.

Sentencing Guidelines

A key aspect of the Committee's findings focussed on misconceptions surrounding the victims of fraud. Evidence from the Victims' Commissioner explained that 'fraud spans a very wide scale of severity and harm caused, from a minor inconvenience to the loss of life savings and a sense of profound humiliation'. In that context, the Committee felt that the sentencing guidelines should be amended to consider factors beyond pure financial loss, thereby giving greater weight to the emotional and psychological harms caused by fraud.

Disruption and prevention

Technology and telecommunications

The inquiry's findings highlighted the centrality of modern technologies to the evolution of fraud, through the prevalent use of smartphone messaging and email, as well as the use of online platforms. Tech and social media companies were found to have a vital role to play in designing fraud out of their systems to help prevent so many frauds from being conducted online. The Committee called for the Government to prioritise putting in place charters with social media and tech companies. These would capture commitments and responsibilities in relation to tackling fraud, enabling them to thereafter be held to account.

Offence of 'failure to prevent fraud by an associated person'

Banks have regulatory obligations to ensure that they have systems and controls to prevent financial crime, including the exposure of their customers to fraud. However, the Committee heard that similar obligations are not in place for online platforms and social media companies, where frauds can also proliferate.

The Committee noted the success of s.7 of the Bribery Act 2010 in encouraging a corporate focus on the implementation of anti-bribery structures. It found that a similar offence of failing to prevent fraud being perpetrated using a company’s platforms would not only aid prosecution for these failures but would also focus the private sector's efforts in designing fraud out of companies’ systems.

Sharing of Information

The inquiry also heard that companies hold vast amounts of information which could be used to help identify and prevent frauds. However, there is currently little sharing of this information between private and public sector bodies. The Committee heard concerns that businesses’ understanding of regulations can lead them to believe they cannot share information that relates to suspicions of fraud or money laundering.

This was found to be a particular problem where a bank closes the account of an individual on the suspicion that they are committing a crime. Currently, this information is not shared in a way that prevents individuals then opening an account with a different institution and continuing their criminal behaviour.

The Committee was concerned to hear of a perception that legislation such as the UK GDPR is preventing the sharing of information and intelligence across sectors where frauds were suspected. This is despite the UK GDPR enabling a company to process data pursuant to its legitimate interests (Article 6(1)(f)), with Recital 47 specifically describing processing that is strictly necessary for fraud prevention as an example of a legitimate interest. Similarly, the Data Protection Act 2018 also includes certain exemptions, including allowing the processing of data for the prevention and detection of unlawful acts, the protection of the public from dishonesty or for the prevention of fraud.

The inquiry recommended that the Government should provide an update of its review of the legislation relating to the sharing of data. It also said the Government should also look more broadly at the operation of data-sharing legislation and bring forward proposals to ensure data can be better shared for the purposes of combatting fraud as soon as possible.

What's next when it comes to fighting fraud?

Whilst the recent commencement of construction of the City of London law courts and the commitment of £103 million in additional funds over the next three years to countering fraud are encouraging, both developments are set against a backdrop of public spending apparently having to face significant constraints in the immediate term. It is also clear that significant systemic issues exist, and that proper funding is therefore only part of the solution.

Central to the Committee's findings is the importance of public/private sector collaboration – and with technology companies in particular – when it comes to enhancing efforts aimed at fraud prevention, disruption and prosecution.

For example, whilst software can provide valuable tools for processing large volumes of digital material, a clear framework for the use of block listing, metadata, and technological searches will be required. These tools should be applied consistently and in a way that will ensure that all defendants receive a fair trial.

A unified approach is also likely to result in a consistent, clearer message being delivered to the public when it comes to the risk of fraud and its impact. This will also be useful when providing guidance in relation to reporting fraud and how to stay safe from common pitfalls.

A new legal duty due to be added to the Online Safety Bill will require social media platforms and search engines to prevent paid-for fraudulent adverts appearing on their services. The scale of the fraud problem may also mean that the regulatory environment must move from one of voluntary engagement to ever-increasing degrees of compelled action on the part of those caught up in or otherwise facilitating fraud.

Critically, with the Committee reporting that fraud only receives 2% of police resources despite accounting for more than 40% of all recorded crime, we would conclude this article by questioning whether the report's recommendations go far enough, or whether in fact ever more radical change is needed to tackle this 'epidemic' in a serious and meaningful way.

This includes looking at the argument for greater and deeper collaboration between the public and private sectors. This is not just in relation to the use of technology and greater preventative measures, but also with regard to the wider opportunities for cooperation when taking enforcement action against wrongdoers.

For example, in addition to the role that private criminal prosecutions can and do play in the prevention and disruption of fraud and other forms of economic crime, there is also an emerging and compelling argument in favour of the enhanced use of civil recovery proceedings1. Such cases could be brought with the benefit of private sector expertise and resources, as a means of vastly improving the rate at which perpetrators are deprived of their criminally obtained assets.

Importantly, these cases would be complementary of the state's ongoing efforts to prevent, detect and prosecute fraud, and not to its exclusion. They would also reflect a shared ambition to combat fraud by ensuring that stolen assets do not remain in criminal hands but are instead returned to those from whom they were wrongfully taken in the first place.

In this regard, the Justice Committee's report marks a vital step forward in the journey towards acknowledging both the scale of the problem and its capacity to cause misery and distress to people and businesses alike. It is now incumbent on all those who work in this field to demonstrate the will and innovative thinking needed to make a real difference in the fight against fraud.

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