New law helps fight on fraud

The
Fraud
Act 2006 , which establishes new criminal laws
to
assist in the fight against fraud, received Royal Assent in November. The Act
abolishes the various offences of deception under which fraud has historically
been prosecuted and, for the first time, establishes a single statutory offence
of fraud. The breadth of the new offence means it is likely to have far-reaching
implications.

The Fraud Act is part of an ongoing programme of reform. In the
Queen’s
Speech on 15 November, the government announced plans to introduce a new
stanalone bill to allow for trials without a jury in cases of serious and
complex fraud. In addition, the Fraud Review is currently looking at proposals
to ensure greater coordination between the civil and criminal aspects of fraud
cases.

Until now, there has been no single, statutory offence of fraud. Instead,
fraud has generally been prosecuted under numerous very specific, and
increasingly antiquated, statutory offences such as “obtaining a pecuniary
advantage by deception”, as well as the vague common law offence of “conspiracy
to defraud”.

Those offences are so narrow and intricate that offenders are often charged
with the full range of offences in order to minimise the prospect of an
acquittal on a technicality. This contributes to the complexity and cost of
fraud trials, such as the high-profile Jubilee Line trial, which collapsed last
year at an estimated cost to the taxpayer of £60m.

Introducing the Fraud bill in parliament, the attorney general commented that
the existing offences were “too precise, overlapping and outmoded to give
effective coverage over the breadth of frauds committed today”.

Streamlined offence
The Fraud Act 2006, which is expected to come into force this year, introduces a
new, streamlined offence of fraud, which can be committed in three ways:
• By false representation;
• By failing to disclose information; or
• By “abuse” of position.

In each case, the relevant conduct must have been carried out “dishonestly”,
with the existing common law test continuing to apply. Although “abuse” has not
been defined, senior associate Adam Vause of Norton Rose says that “the Act
makes it clear that it is to be widely construed”.

The Fraud Act:
• Simplifies the law by removing the complex technicalities associated with the
deception offences and by shifting the focus away from the outcome of an
offender’s actions; and
• Makes it no longer necessary to prove either that the victim was deceived, or
that they suffered any loss, provided there was a dishonest intention to cause
loss.

According to Peter Kiernan, partner in the fraud and financial crime team at
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.”

The new fraud offence carries a maximum custodial sentence of ten years –
three years higher than the current tariff for offences of theft and false
accounting.

Technology fraud
The Act 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.

In essence, the Act makes it clear that it is irrelevant what sum of money
has been defrauded, which means it will become much easier to prosecute
individuals and criminal gangs for high-volume, low-value frauds.

Specifically, the new offence of fraud will capture
“
phishing ”. This generally involves the sending of an email to an
individual falsely representing that the email 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 the 1960s 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.

Rosalind Wright, chairwoman of the
Fraud
Advisory Panel , believes that the new Act will increase the number of
successful prosecutions against companies and individuals. She says: “The
limitation of existing legislation is that you need to be able to prove someone
was actually deceived by the fraudulent representation made – often an
impossibility in an investment fraud. Where a machine, such as a computer, has
been the instrument whereby money was fraudulently obtained, a charge for
deception can’t currently be brought as no human was actually deceived. The new
Act should change that.”