In his review of the Fraud Act, published a year after its launch, Ben Summers, a skilled barrister specialising in fraud asked, "If it is right that the Fraud Act turns out to be an improvement upon the old law theoretically, but in practice has little impact, is that a result of our system rather than the black letter law?" (Summer, B 2008).
Ten years on, we now revisit this question and evaluate the impact the Act has had on the fight against fraud. In this article, the Counter Fraud Centre’s Head of Training, Les Dobie, and Technical and Development Advisor, Oliver Stopnitzky, take a pragmatic look at the legislation, sharing their views on its success.
There is no question that the Fraud Act was long overdue when it was introduced in 2007. The need for change was driven by the expanding, everyday use of and reliance on the internet and by the limitations of the deception-based Theft Act offences, which were typically used to try offences of a ‘fraudulent’ nature.
The deception offences in the Theft Act (later repealed by the Fraud Act) were:
- obtaining property by deception
- obtaining a money transfer by deception
- obtaining pecuniary advantage by deception
- dishonestly procuring execution of a valuable security
- obtaining services by deception
- securing the remission of an existing liability to make a payment
- dishonestly inducing a creditor to wait for payment or to forgo payment with the intention of permanently defaulting on all or part of an existing liability
- obtaining an exemption from or abatement of liability to make a payment.
The limitations of these offences are clear – many focus on the victim being deceived rather than the dishonest intentions of those carrying out the alleged fraud. Another shortcoming was highlighted in the
R v Preddy ([1996] 3 WLR 255) Court of Appeal case, in which it was held that an electronic bank transfer did not represent tangible property being transferred from one person to another. It seems astonishing now but this is just one example of many cases that exposed loopholes in the Theft Act’s ability to handle cases of a fraudulent nature.
When the Fraud Act was introduced, its main aim was to reform and modernise the way in which the deception-based offences listed above were dealt with by the legal system. It introduced one general offence of fraud that could be committed in three ways:
- False representation.
- Failure to disclose information.
- Abuse of position.
The Act set out to provide a more straightforward route to prosecute this type of crime, focusing less on the element of deception and more on dishonesty. This change was ground-breaking – it meant that prosecutors would find it easier to prove that the alleged crime itself was of a dishonest nature rather than trying to prove that the victim was deceived. In other words, you can’t easily prove that a machine or computer was deceived but you can prove that the intentions of the user were dishonest.
Dishonesty, under the then new Fraud Act, would be determined by a two-stage test set out by the judgement of Lord Lane in the case of R v Ghosh [1982]:
- The jury must first decide whether, according to the ordinary standards of reasonable and honest people what was done was dishonest.
- If it was dishonest by those standards, then the jury must consider whether the defendant himself must have realised that what he was doing was by those standards dishonest.
Given these significant, very positive changes introduced in the Fraud Act, what has the impact been on the rate of fraud and cybercrime experienced in the UK? The answer is not what anyone had in mind in 2007: billions of pounds continue to be lost each year in the public sector alone and according to the Crime Survey for England and Wales (year ending September 2016), fraud and cybercrime is now the most commonly experienced offence with almost one in ten people falling victim.
Perhaps this is not surprising when you consider the myriad of (mostly technological) enablers now available to fraudsters.
However, legislation alone was never going to fix the problem. Although the Fraud Act provided the legal system with the tools to tackle fraudulent behaviour in the UK, it could only ever be as good as the resources available to support it. As the former Commissioner of the City of London Police, Adrian Leppard said, "to detect our way out of the [fraud] problem is impossible."
The focus therefore must now be on widespread education to help prevent fraud from occurring in the first place and the creation of a strong anti-fraud culture that extends right across government and the private sector, alongside a strong investigative function.
This brings us back to Ben Summers’s original question. We at the CIPFA Counter Fraud Centre think that the Act’s relatively small practical impact is very much the result of our system rather than the ‘black letter law’. Yes, there have been many successful prosecutions and marked successes in countering fraud, but our collective, overall approach is still very fragmented.
The system itself must now change and the key to that, we believe, is greater and more concerted collaboration.