One thing is certain – fraud is on the increase. Statistics may vary depending on the type of fraud being reported and the jurisdiction concerned, but all reports are consistent in their conclusion that the figures are increasing.
In its Half Year Fraud Update, UK Finance reported that in the first half of 2021, £753.9 million was stolen through fraud, an increase of 30% compared to the same period the previous year. Of that figure, £355.5 million was attributable to authorised push payment fraud, an increase of 71%. Chainalysis reported a staggering $14 billion taken home by cryptocurrency scammers around the world in 2021, with losses from crypto-related crimes rising 79% from 2020.
The nature of fraud, however, continues to evolve, with certain types of claims that have historically dominated the legal landscape perhaps beginning to take a back seat, while others establish dominance and we see new types of fraud beginning to emerge.
The development of the cryptocurrency jurisdiction
Cryptocurrency fraud is likely to be one such area in which we see an increase in cases. The development of the court's jurisdiction in this space will be one to watch in 2022, following a number of helpful decisions in 2021.
Two such cases were Ion Science and Fetch.ai, in which the High Court resolved existing uncertainty as to whether a Bankers Trust Order could be obtained against parties outside of the jurisdiction, holding that such relief was available in exceptional circumstances, such as 'hot pursuit'. A helpful development in overcoming the challenge of identifying the perpetrators of cryptocurrency fraud, it can be expected that we will see further applications for Bankers Trust Orders this year, which will in turn help to refine and develop the jurisdiction, in particular as to what other circumstances may be regarded as 'exceptional'.
Despite this welcome development, victims of fraud may still face difficulties in identifying the perpetrators or may face challenges with enforcement or recoverability. It is therefore anticipated that we will see victims seeking alternative routes and alternative defendants to bring claims against. A particular case to watch this year will be Tulip Trading Ltd v Bitcoin Association for BSV, a case involving Dr Craig Wright, who publicly claims to be the inventor of Bitcoin under the pseudonym 'Satoshi Nakamoto'. Tulip asserts that hackers accessed Dr Wright's computer, and deleted all trace of its digitally-held encrypted private Bitcoin keys, leaving Tulip with no means of accessing its $4.5 billion of cryptocurrency. Tulip now claims against the open-source software developers who developed or improved the Bitcoin Core and Bitcoin Cash ABC software, asserting that they owe a duty to re-write or amend the underlying software code to enable it to access the cryptocurrency.
The first hurdle that Tulip has to overcome is a jurisdiction challenge, due to be heard in February. But if that challenge is successfully defeated, it will be a case to watch with interest.
The continuing fallout of the pandemic
We can also expect to see more of the fallout from the pandemic in the form of increased insolvency related litigation, as government support schemes are withdrawn and individuals and businesses realise their losses. In the course of such litigation, we can expect more frauds to be uncovered.
The Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Act 2021, which received Royal Assent in December 2021, will also be significant, enabling the Insolvency Service to investigate and disqualify directors who dissolved companies to avoid paying off liabilities.
We may also see increased pressure on the government in relation to 'covid fraud'. False Covid support claims have been widely reported with figures released in January 2022 showing that during 2020 and 2021 the government's coronavirus support schemes lost around £5.8bn due to fraud and error, with only around a quarter expected to be recovered by 2023. It remains to be seen whether the resignation of Conservative minister, Lord Agnew, will prompt further action in this regard.
The Covid lockdown and consequent increase in remote working also created expanded opportunities for cybercrime, in particular authorised push payment fraud. Increased awareness of such frauds, and a return to office working may limit opportunity for certain types of APP fraud, in particular so-called 'CEO Frauds', which saw an explosion in the second half of 2020 but have since seen a drop-off. However, it can be expected that any decrease in CEO Frauds will be matched, and likely exceeded by, increases in other types of authorised push payment fraud, and it looks set to be a continued presence on the fraud landscape. We can however expect to see more call for action to tackle APP scams, with the Payment Systems Regulator being the latest to issue a consultation paper in November 2021.
New frauds on the horizon?
ESG fraud is expected to become a more prominent feature of the legal landscape, particularly with the rise in ESG-focussed investing, with Bloomberg Intelligence reporting that global ESG assets are on track to exceed $53 trillion by 2025. With high levels of investment, little regulation or common standards, and pressure to claim ESG compliance, there is heightened risk of fraud. We may see a rise in shareholder litigation seeking to hold companies and their executives to account.
With an increase in the availability of litigation funding for shareholder claims, we may also see more cases such as Allianz Global Investors GmbH & Others v G4S Plc (in which complaint is made about statements in the company's annual reports regarding compliance with corporate governance codes and ethical standards, against the backdrop of a subsequent SFO investigation into billing practices). The risk of such claims may act as an added incentive for companies to have robust fraud prevention strategies in place.
Of course, the fraud landscape will continue to evolve, and fraudsters will continue to adapt their strategies to exploit opportunities. However, the English Court's willingness to adapt existing laws and procedures to meet new threats that emerge, the availability of funding for victims, and the continued commitment of organisations to develop preventative systems and measures offer a counterweight to this trend of increasing fraud and economic crime. The level of fraud that we are presently experiencing cannot possibly be met by law enforcement alone.