A look back at 2022
2022 was a big year for fraud cases, and 2023 looks like it will follow suit, with seven of The Lawyer's Top 20 Cases for 2023 involving allegations of fraud. As Hugo Plowman, Head of Mishcon's Fraud Group, comments: "From the resignation of Lord Agnew in January 2022 over the government's handling of covid loans fraud, to the arrest of FTX's Sam Bankman-Fried in December, fraud was rarely far from the headlines in 2022. It also remained high on the agenda for those working to combat fraud, amid promising signs within the financial services sector that the increasing adoption of fraud prevention technology is starting to have a positive impact on levels of fraud.
The Courts continued to adapt and to develop new routes of recourse where needed. The introduction of the new jurisdictional gateway, enabling victims of fraud to serve information orders out of the jurisdiction, was a significant development. We have seen time and time again how obtaining information at an early stage can unlock a fraud investigation for our clients, and serve as the first crucial step in a successful asset recovery exercise. Being able to obtain that information from overseas organisations is essential given the global nature of fraud, and the ability to work across borders will become ever more critical in 2023."
As we look ahead to 2023, amidst a general expectation that fraud will continue to feature heavily on the global stage, some of our Fraud partners share their predictions for the year ahead.
2023 - The economic downturn
The economic downturn will be a central focus, with any period of economic uncertainty creating the perfect storm for an increase in fraud. As Naomi Simpson points out, "The financial downturn is, as with any recession, going to hit everyone. People will take more chances, whether it's withdrawing money from an account they have access to for an employer, falsifying invoices to inflate revenue, or receiving bribes. These types of frauds could be big or small but have the potential to affect anyone who does not have adequate controls on their financial affairs. People in positions of untapped power over the wealth of high-net-worth individuals, could find the next few years particularly tempting."
Rogue directors and Ponzi schemes
Barry Coffey sees this 'temptation' extending to company directors, with increased financial pressures meaning we can expect to see the actions of rogue directors who have misrepresented accounts or stolen company funds, being uncovered. "Directors will find themselves under the microscope, with decisions scrutinised at every turn, and often with such scrutiny taking place with the benefit of hindsight. It is inevitable that some - regardless of whether they have committed wrongdoing or not - will find themselves accused of wrongful acts. For those who are unfortunate enough to end up in that situation, the right advice and swift action to take advantage of D&O insurance will put them in the best possible position to defend themselves.
We are also likely to see investors moving away from more speculative investments, withdrawing funds from, and avoiding investing in, exotic schemes. This will precipitate the exposure of fraudulent investment schemes - in particular Ponzi schemes and we expect to see such schemes collapsing in on themselves as the in-flow of funds dry up".
APP frauds are also expected to remain a hot topic this year, with banks and customers battling over who should bear the cost. As Oli Felton explains, the scope of banks to compensate victims of Authorised Push Payment frauds will be under the spotlight, with Barclays appealing the Court of Appeal's decision in Philipp v Barclays Bank UK Plc to the Supreme Court. The case is due to be heard in early February and will consider the existence and extent of a bank's duty to protect customers who find themselves in Mrs Philipp's situation.
"Whatever the Court decides, the proposed introduction of mandatory reimbursement for APP fraud through the Financial Services and Markets Bill and the Payment Systems Regulator's liability framework shows a clear direction of travel. The Courts may wish to follow, and if so, are likely to be similarly sympathetic to the customers of the Banks, whilst remaining cognisant of not wanting to 'open the floodgates' such that every customer, no matter the circumstances of the particular case, is compensated. The onus though is clearly going to be on the banks to step up their efforts to spot and prevent scams."
The injunctive landscape
We have seen that the courts remain willing to grant robust orders to combat fraud, including to ensure that evidence is not destroyed. However, in an increasingly digital world, we expect to see a trend towards imaging orders over search orders. As Oli Gepfert identifies: "The introduction of the new standard form imaging order in April 2022 reflects a trend towards this type of relief, and away from 'full blown' search orders. While the latter remain appropriate in the right circumstances, judicial thinking appears to be that imaging orders are often just as effective and less intrusive. In our experience, the new standard form imaging order is a starting point for discussions, and the Courts will take a pragmatic approach if more draconian measures can be justified".
The same pragmatic approach was also seen very clearly within the crypto space in 2022, with the court continuing in its willingness to adapt existing remedies and legal concepts to combat crypto fraud, and to expand existing court processes to ensure they remain effective - service of proceedings by NFT is a case in point. Rebecca Belgrave sees several key trends that are likely to emerge in the crypto market in the year ahead, with an increase in crypto-related litigation being inevitable. "Several big industry players collapsed in 2022, including 3 exchanges (Celsius, Voyager and FTX) and a crypto hedge fund (Three Arrows Capital). This led to various bankruptcy proceedings and class action claims being brought last year. As further dominoes fall (such as Genesis this month), the number of crypto disputes is expected to continue to rise.
As well as litigation brought by those looking to recover losses, regulators are expected to double down on investigations and claims aimed at the crypto space. There was no shortage of this last year, and even in the first half of this month, it has been announced that the crypto lender Nexo is under investigation in Bulgaria, and claims have been issued by the New York Attorney General against Alex Mashinsky, the ex-CEO of Celsius. As regulators continue to make sense of what caused the downfall of some of crypto's major players in 2022, further investigations and claims are expected to be announced. This in turn is likely to lead to a tightening of regulation in the crypto space, with the EU seeking to push through the Markets in Crypto Assets (MiCA) Regulation, and the UK government also reportedly finalising plans for a package of reforms in the crypto space. Many believe the 'Wild West' era for crypto is over."
Public/private sector collaboration
As we look beyond regulation and prevention to enforcement, we finish our review with thoughts on developments we would like to see in the year ahead.
The downturn in the economy impacts not only the private sector, but also leads to constraints on public spending and, in turn, a reduction in the availability and allocation of resources in the fight against fraud, and economic crime more generally. Despite fraud accounting for more than 40% of all recorded crime, it has been reported that fraud only receives 2% of police resources. This is where greater and deeper collaboration between the public and private sectors can play a game-changing role.
Whilst recommendations relating to enhanced public/private sector collaboration have, to date, tended to focus on preventative approaches aimed at designing fraud out, we would like to see a more ambitious approach that both shifts and intensifies the focus onto other elements of criminal enterprises.
As Gareth Minty explains, "There is also a strong argument for greater cooperation when taking enforcement action against wrongdoers. 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 proceedings. 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."
As 2023 unfolds, it is clear that there will be no shortage of activity in the fraud space. Fraudsters will always be looking for the next opportunity to exploit, whilst those tasked with fraud prevention, detection and enforcement will continue in their efforts to counter it. It is hoped that the shared ambition of the government, courts, regulators and private companies to combat fraud will result in greater collaboration and increasingly effective results.