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Chris Bryant (Rhondda) (Lab):
Might that include the position of a friend? For instance, if I am selling something to a friend of mine who happens to know that its value is far higher than the price that I am
selling it to him for, will he be required in law to reveal to me the full value, and will he be guilty of fraud if he fails to do so?
The Solicitor-General: I do not think that that would arise under this limb of the offence, but it would depend on the circumstances and the relationship between the friends. If they are dealing as equals, it would be a straightforward contractual relationship. Under this limb, for there to be an abuse of position, it is required that a particular duty is owed by the individual, over and above that which people have when they enter into a normal contract to purchase property, or anything else.
John Bercow: I note the characteristically cautious reply that the Solicitor-General gave to the hon. Member for Rhondda (Chris Bryant), but is it not the case that the far more likely reaction of his friend would simply be to think that he has undervalued one of his own possessions? That is such a spectacularly implausible scenario as to merit no further discussion.
The Solicitor-General: In fact, my hon. Friend should perhaps look at clause 3 rather than clause 4, because the former covers fraud by failing to disclose information. That probably covers the issue better than clause 4.
Mr. Grieve: The nature of the Bill probably means that the detail is the most important aspect, but it is true that clauses 3 and 4 overlap. It is possible for one single action to be an offence under clause 3, which is reasonably happily drafted, and under clause 4, about which I have much greater concerns.
The Solicitor-General: There is some overlap and I say again that it would depend on the circumstances between the two friends undertaking the financial deal that my hon. Friend the Member for Rhondda (Chris Bryant) described.
Fraud by abuse of position improves upon the current law, because it may be problematic under the current law to show that a victim has been deceived in circumstances where the defendant occupies a position of trust. In proposing the new offence, the Law Commission recommended that it should be an offence of fraud only if the abuse of position is both dishonest and secret. However, again after considering the arguments put forward during the consultation in 2004, the Government decided not make secrecy an essential part of the offence. We took that view because secrecy is difficult to define and would represent an unnecessary complication, which could lead to technical arguments in court. Moreover, conduct that is not secret is not any the less reprehensible and thus should come within the ambit of clause 4.
The Fraud Bill also creates some offences designed to complement the new general offence.
Keith Vaz (Leicester, East) (Lab):
My hon. Friend will know that on 1 June EU Ministers met and agreed a formula for sharing evidence between EU countries on matters such as fraud. Does he agree that that
decision, along with the decision to implement the European arrest warrant, which came into effect in 2004, will help us on cross-border issues, so that no one who commits a fraud in another EU country should believe that that will necessarily prevent them from being brought to justice here?
The Solicitor-General: It is certainly right that some of the developments in the global economy that have so benefited our economy have also benefited a lot of fraudsters, who operate in Europe and globally. We now see frauds committed by a group on one continent against victims on another, especially by use of the internet. We are now developing relationships between the various prosecutors and Governments to build up new mechanisms, such as the one that my hon. Friend described, that will enable law enforcement agencies to keep abreast of the changes that the global economy is bringing. I hope that those mechanisms will enable us to get ahead of the fraudsters. My hon. Friend is not only well informed but right about the importance of developments in the EU, especially the European arrest warrants.
Some of the other changes in the Bill were recommended by the Law Commission, but others were not. Clause 11 was recommended by the commission and creates a new offence of “obtaining services dishonestly”. It is probably the most important other provision in the Bill, and the offence will have a maximum penalty of five years on indictment. It will replace section 1 of the Theft Act 1978 and will fill a gap in the existing law. At present, it is questionable what crime is committed by a person who dishonestly obtains services from a machine. Under current law, the problem is not only that fraud must involve deception, but that services cannot be stolen.
Jeremy Wright (Rugby and Kenilworth) (Con): The Solicitor-General mentioned that the maximum sentence for the offence would be five years, which is a restatement of the current law. Did the Government give any consideration to increasing the maximum sentence for the offence to make it comparable with the sentence for obtaining property by deception, or with the offences that replace that offence?
The Solicitor-General: We are responding to the broader consultation that took place and the work done by the Law Commission. On the face of it, the penalties that we have set out in the Bill look to be appropriate in all the circumstances. Consideration is always given to whether penalties are adequate, and we took the view that in all the circumstances they were adequate in this case. It is always possible to increase sentences, but it is necessary to look at the circumstances that the offence would contain and to determine the appropriate maximum penalty, in the knowledge that the maximum penalty is rarely imposed. None the less, the provision gives the court an indication of the relative seriousness with which Parliament regards various offences. We have taken the view that five years on indictment is the appropriate maximum, but in due course we can consider in Committee whether a higher sentence is more appropriate, and I shall be happy to discuss that point with the hon. Gentleman then.
As I indicated, the problem under current law is that fraud must involve deception but that services cannot be stolen, so the new offence of obtaining services dishonestly is a “theft-like” offence and will, for example, deal with a person who gains access to a Sky machine, or television, with an illegal decoder. It would also cover longer-standing misbehaviour such as gaining access to football matches without paying, so it moves from the more substantial to the not necessarily more substantial.
Mr. Heath: I do not want the Solicitor-General to expand his examples too widely, but would the provision also apply to downloading music? Would it put a new weapon into the hands of large music corporations for protecting their intellectual property—as they would see it?
The Solicitor-General: It may. Such corporations could use other provisions, but often the real problem in the area that the hon. Gentleman mentions is not so much with the law but with the practicalities. Some of those items are downloaded from countries a long way away, so whatever our law, it is sometimes difficult for people, artists or companies to protect their copyright. That has been a long-term issue, and is better dealt with not so much through the criminal law, which is obviously related to a particular jurisdiction, but through international agreements. When I had ministerial responsibility for dealing with issues relating to internet fraud, I helped to negotiate agreements with Japan and a number of other countries so that we could begin to make the international agreements that would provide a basis for trying to protect some of the copyrights and international artistic licences that need protection. The provision could be used, but the jurisdictional problem is greater than the legal one.
Mr. Edward Garnier (Harborough) (Con): How will clause 11 create a better set of circumstances than the offence of obtaining pecuniary advantage under the old law? How will it produce a better set of circumstances than the provisions of the Theft Act 1978?
The Solicitor-General: The provisions to which the hon. and learned Gentleman referred had some limitations, which we believe that the broader offence will be able to ensure are covered. There have been quite a lot of changes in technology and in the way in which people commit frauds. The previous legislation had constraints. The proposed provisions are designed to ensure that we can deal with some of the modern phenomena that are causing problems, various frauds and the dishonest obtaining of services. They will ensure that the legislation covers those issues in a broader and more effective way than the previous legislation did.
That is why the Law Commission came forward with the proposal. If the hon. and learned Gentleman reads the report—I am sure that he has done so—he will be aware that the Commission argues that the provisions set out in the current legislation need to be updated. The Government have endorsed that view. When we went out to consultation, the proposal was warmly welcomed by all who commented on that consultation in 2004.
Clause 6 did not form part of the Law Commission’s report, but was developed through consultation with law enforcers and other key stakeholders who were concerned about the restricted scope of the existing law as regards the possession of articles preparatory to committing acts of fraud. The clause therefore introduces a new offence of possessing articles for use in, or in connection with, the commission or the facilitation of a fraud. It draws on the current offence in section 25 of the Theft Act 1968. Under that section an offence is committed when a person has with him, when not in his place of abode, any article for use in the course of, or in connection with, any burglary, theft or cheat.
The requirement that a person be outside his place of abode when going equipped may have worked in 1968, but in the modern world, with computers, fraud may be perpetrated by a person sitting at his computer terminal in his home. The offence should not be limited to possession outside the home.
Mr. Elfyn Llwyd (Meirionnydd Nant Conwy) (PC): Some commentators have referred to the fact that there is an absence of any mens rea element in this part of the Bill. The Solicitor-General has already referred to the “going equipped” part of the provision. I am concerned that a person could be in possession of an article that was for use in the course or in connection with a fraud, without knowing that that article would be for use in connection with the fraud. That is dangerous. Although I understand the reasoning for updating the law, which is very important, I think that it would have been preferable to put in the Bill a clear mens rea element.
The Solicitor-General: As it needs to be shown that there was an intention that an article would be used for any involvement where someone was going equipped in connection with any burglary, theft or cheat, there is a requirement for some degree of intention. There is a mens rea, and case law shows that.
Mr. Grieve: I suggest that the problem may go further, particularly with regard to clause 7. If one were a member of the Magic Circle, with all the impedimenta for deceiving people, and one were going through the streets or even in one’s own home, one might frequently be making an article that could be used or adapted in a connection with fraud. I suspect that that is one of the reasons why the original cheating provisions were so tightly drawn. That is something else that we may be able to examine during the passage of the Bill. I am sure that it is not the Government’s intention to make it impossible for conjurors to perform their trade.
The Solicitor-General: Let me reassure conjurors throughout the land that, provided that they are not intending to get involved in burglary, theft or cheats or anything else of a similar nature, they should be all right. Let them continue with their tricks.
The aim of the Bill is to ensure that we get particular individuals who are seeking to go equipped, and may be equipped in their home, and to ensure that—
Jeremy Wright: Will the Solicitor-General give way?
The Solicitor-General: If the hon. Gentleman will let me complete my thought, perhaps I will. It is the intention that we should be able to catch those who are involved in something that is, properly, prosecuted. It is also the intention that there should be a maximum custodial sentence of five years, and that no tricks should be able to get someone out of choky.
Jeremy Wright: May I bring the Solicitor-General back to the point made by the hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) about the possibility of someone being in possession of an item defined in clause 6(1), but not knowingly? Would the Solicitor-General be amenable to returning to that matter in Committee? The simple addition of the word “knowingly” in that subsection would deal with the point.
The Solicitor-General: May I make it clear that clause 6 does not go too wide, in my view? It does not introduce a strict liability offence in any way. Its wording draws on the wording of section 25 of the 1968 Act in order to attract the case law that goes with that section—notably the case of Ellames, which is referred to in the explanatory notes and which established that the prosecution have to prove a general intention that the article will be used by the possessor, or by someone else, for a fraudulent purpose. We are not dealing with a strict liability offence for which members of the Magic Circle or ordinary honest citizens are going to be caught.
Mr. Llwyd: There is a distinction. Under the present law of going equipped, if a person were out at night with a jemmy and various other tools, as an initial starting point it would be fairly obvious from the nature of those tools that he was up to no good. The distinction is that an article that could be used in connection with fraud might look perfectly innocent to a person such as me, who is not high-tech, or whatever the word is. Without knowing it, I could have something on my computer that might be used in connection with fraud. If I walked down the street with a jemmy, clearly that would be a different thing altogether.
The Solicitor-General: Again, the hon. Gentleman seems to suggest that this is a strict liability offence, but it is not. If he were in possession of something that he ought not to be, but did not know and did not have any intention, he would be able to put forward a defence. That is right and proper. Nobody intends to catch people who are not acting inappropriately or in a way that goes outside the provisions set out in the case of Ellames. No doubt this is the sort of issue that we can discuss at some length in Committee. Having given way fairly generously, and being aware of the time that has elapsed, I would now like to try to make some progress on the rest of the Bill.
Clause 7 introduces a higher-level offence of making and supplying articles for use in fraud. This aims to catch groups who create articles for use in what may be very substantial frauds. For example, there are organised criminals who do not engage in actual frauds themselves but who sell lists of personal financial and banking details for others to misuse. The maximum
custodial sentence of 10 years serves as a strong deterrent to criminals who prosper from an industry based on fraud.
Clause 9 implements a recommendation made by the Law Commission in 2002 in a separate report on multiple offending. The commission recommended that, as the existing offence of fraudulent trading under companies legislation applies only to companies, it should be “extended to non-corporate traders”—for example partnerships, sole traders, trusts or companies incorporated abroad. Fraudulent trading is an activity offence, and carries procedural and evidential advantages because it is not limited to specific fraudulent transactions. The proposal was widely welcomed in the Government’s consultation of 2004. The new clause 9 offence, together with section 458 of the Companies Act 1985, will carry a maximum sentence of 10 years.
Let me now turn to the one area of the Law Commission’s proposals that elicited opposition when the Government consulted stakeholders. The Law Commission proposed the repeal of the common law offence of conspiracy to defraud. Opposition to that proposal has come not only from law enforcers and the judiciary, through the senior judges on the Rose committee, but from many others, including the Fraud Advisory Panel, the Confederation of British Industry and the Law Society. The Government took account of those considerable objections, so the Bill does not include that repeal, although we will review the position three years after its implementation. We accepted the arguments for the retention for the time being of the common law offence, based on the need to provide a seamless transition between the current situation, in which there is heavy reliance on the offence, to compensate for defects in the statutory law, and the stage when its abolition can be safely contemplated.
The common law offence of “conspiracy to defraud” is flexible. It is of use in frauds that involve a number of conspirators and hundreds of offences. If each item were charged, the indictment would be lengthy and extremely complex. Conspiracy to defraud allows a charge that covers the agreement to carry out the crime. There are limitations, too, on the application of statutory conspiracy, and the common law offence can be used in situations where statutory conspiracy cannot be used—for example, when the final offence is carried out by someone outside the conspiracy. Overall, the new offences go a long way towards filling many gaps in the law. However, we are concerned about a number of issues, and we should ensure that the common law offence of conspiracy to defraud remains in place, at least for the meantime.
The Law Commission will shortly publish a report on assisting and encouraging crime. Any reform of the law on conspiracy to defraud or of other laws that flows from that work should be taken into account. We intend to consider the report, all the circumstances and the way in which conspiracy to defraud has been used, then make a decision, which will be informed by our operational experience, not only from the Bill once it is in force, but from the multiple offending provisions in the Domestic Violence, Crime and Victims Act 2004. Those provisions enable multiple offenders to be brought to justice for the totality of their offending. They have not yet been implemented, but we hope to bring them in later this year, making it possible for the
courts to deal appropriately with fraudsters who are responsible for scams involving hundreds of victims. The Home Office will review the operation of the Bill three years after its implementation, and it will focus on conspiracy to defraud. We have put in hand measures to collect the information for the review from all Crown prosecutors so that we have a clearer picture of the way in which the common law is used after the new law is implemented.
I met the staff of the Serious Fraud Office this morning, when I made the same point. I want them to look at the ways in which they use conspiracy to defraud to ensure that it is used appropriately, and to set out their reasons for using it in particular cases so that we can make a more effective assessment in three years’ time. That will provide information on which to base a decision about whether the common law offence can be repealed. In the meantime, the Attorney-General’s guidance to prosecutors on the use of the common law offence will prove instrumental. It will state what information must be collected from the outset to inform the review, as well as setting out the circumstances in which the use of the common law might, or might not, be justified.
Mr. Nick Hurd (Ruislip-Northwood) (Con): The Bill intends to make fraud law easier to understand. In that spirit, can the Solicitor-General define exactly which areas the common law offence of conspiracy to defraud will cover that are not covered by the new offences in the Bill?
The Solicitor-General: The conspiracy to defraud has proved useful to prosecutors in several ways. For example, it can be used to reduce the number of charges that would otherwise be brought. It can be used, too, if the substantive offences are steps to achieve a wider dishonest objective, such as swindling a large number of people. It should not be used where, for example, statutory conspiracy is more appropriate. There are circumstances in which the conspiracy has involved certain individuals who carried out the steps preparatory to the offence, but the substantive offence was committed by somebody outside the circle involved in the conspiracy. There are a number of examples where prosecutors have been able to prosecute people who clearly had a dishonest intent and who were clearly carrying out acts preparatory to a fraud, but who were not involved in the final substantive act. Such cases are extremely useful to the prosecutors.
We hope that the Bill will cover many areas of fraud. However, since even Ministers do not claim infallibility, we cannot be sure that we can create a set of legal provisions encompassing all the areas currently covered by conspiracy to defraud. We therefore need to await the outcome of events and see how the Bill operates in practice. If we do not need conspiracy to defraud to capture those who are committing serious frauds, our preference would be to repeal that provision in due course. But if we still find a series of examples in which we need to use conspiracy to defraud, we will have to consider whether we can repeal the provision, or whether we should consider alternative tightening provisions.
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