Sentencing Guidelines: Fraud (statutory offences) - Justice Committee Contents


Examination of Witness (Questions 1-19)

PROFESSOR MICHAEL LEVI

5 MAY 2009

  Q1 Mr Michael: Would you like to introduce yourself for the record?

  Professor Levi: I am Michael Levi, professor of criminology at Cardiff University.

  Q2  Mr Michael: I have said to my colleagues that you and I have known each other for very many years due to the research that you have done and your place in Cardiff. I hope that does not undermine your credibility in the view of the Committee. Can I start off with a general question? How seriously should we regard fraud offences and how do we distinguish between them? For instance, should there be greater emphasis on fraud against vulnerable individuals perhaps in the same way that it is regarded as serious when there is a breach of trust element in an act of fraud?

  Professor Levi: I think it is fair to say that fraud in general has been the kind of Cinderella of the criminal justice system and relatively little attention has been devoted to it up until a few years ago. The sentencing guidelines properly acknowledge that fraud against vulnerable individuals is an aggravating factor, which I agree with. The area known in the trade as "widows and orphans" frauds has always received a little higher priority from policing and prosecution agencies in the past but the generality of fraud and the way it affects people has been generally neglected, except where people feel a sense of outrage, for example over the Ernest Saunders case. When people feel that they have been conned, rightly or wrongly, people get upset and in the current spirit of the aggression and hostility towards banking for example, some of these attitudes may be quite important.

  Q3  Mrs Riordan: You have mentioned public perception and how it might be perceived. Can you expand a little bit on how the public see fraud offences and how this is affected by the media reporting of it?

  Professor Levi: It is pretty difficult, as in other areas, to disentangle some of those issues but in the abstract, in crime seriousness surveys, when people are asked how seriously they view a particular offence, even fraud against business and banks has tended to come out quite high. I did some work in the early eighties on that in Greater Manchester, Devon and Cornwall for example and it came up as high as burglary. People are less fearful of fraud. In a way, that is what makes fraud possible because people are not fearful enough of it and that makes it quite different from other offences. The public are pretty censorious. Whether they fear it is much is doubtful and whether they want similar things to be done to fraudsters as to other offenders we frankly do not know very much about. I have done some work on how business executives want fraud to be treated but the views of the general public are not on the Home Office or Ministry of Justice research map.

  Q4  Mrs Riordan: How do media reports affect that?

  Professor Levi: The media tend to concentrate, as they do on other offences, on the more extreme cases involving famous people as either victims or offenders. There is a bit of bread and circuses about media treatment of white collar crime. Things like identity fraud tend to get quite a good hearing because they affect ministers, MPs and ordinary people in the street. They get quite a lot of publicity but the more routine kinds of cases do not get much publicity.

  Q5  Mrs Riordan: What impact does or should public perception have on the appropriate sentencing for fraud offences?

  Professor Levi: I am personally against translating public views straight into sentencing. If you compare ordinary snap polling with what is called deliberative polling where people get engaged in debates about it, often the results of what we should do to offenders are quite different. I am in favour of more public debate about these sorts of issues. The public in general, from what little work has been done, want fraudsters to be treated quite toughly except where they identify with the behaviour as the kind of thing they might do; or else they feel "good on you, mate". I have just been doing some work for the Australian Government and in old cases like Alan Bond, who won Australia the Americas Cup (possibly on stolen money), but that tends to be viewed with a kind of "good on you, mate" attitude, so I think we are a bit more ambivalent about fraud than we are about many other offences.

  Q6  Mrs Riordan: Do you think the current economic circumstances will affect the way that fraud is sentenced?

  Professor Levi: Yes. Even in the non-prosecution area, if you look at the proposal in the last Budget to publish the names of deliberate tax defaulters, I think naming and shaming and a little more aggression and appreciation of the damage that activities in the financial sector can do to people and the economy generally will probably bump sentencing up despite the prison population. When I last looked, it was under a quarter of people convicted of fraud and forgery who were imprisoned. The average sentences were below what the draft sentencing guidelines suggest. If people follow the sentencing guidelines, we might see an increase.

  Mr Michael: Before I turn to Julie Morgan, can I welcome Mr Douglas Hogg to the Committee? Can I ask the Committee to note the declaration of interest that has gone round? We divided the areas for questioning before you came so perhaps you would indicate if you would like to come in on supplementaries.

  Q7  Julie Morgan: I wanted to ask about who does commit fraud offences and does public perception coincide with the reality?

  Professor Levi: A very broad range of people. The public and media perception of this would be that people from the elite or relatively elite commit fraud because those are the celebrity cases that receive a lot of attention; or often quite poor people, as in benefit fraud. The research shows that there is a much bigger range. There are organised criminals. There are the Romanians who come to this country to commit ATM frauds using various techniques and identity frauds. The issue about foreigners committing fraud does not seem to be explicitly discussed in guidelines. I do not know whether that is a policy issue or not. There are foreigners coming here and committing telemarketing frauds and boiler room scams from abroad to this country. You do not need to be physically present here. They are very often professional liars. Then there are organised crime types who are seeing this as a lucrative area like MTIC (Missing Trader Intra-Community) and carousel frauds, some of them foreign, some of them UK based. It is not just the poor and the elite. It is now quite a wide variety of professional criminals who see fraud as being lower profile, less likely to lead to punishment or indeed to prosecution and you get the money before you get `done', which is an advantage to them. As my colleague, Susan Karstedt, and others have shown as well, there is quite a lot of ordinary, garden variety insurance fraud, people exaggerating their claims or indeed inventing things that they have not lost. There are insurance frauds involving the invention of whiplash injuries. My wife had a crash at three miles an hour against a truck and the truck driver put in a claim for whiplash. That seems vaguely implausible, for the avoidance of doubt and defamation risk. There are opportunist people who steam in. What we have seen, if you like, is the gradual democratisation of the fraudster population from what it used to be.

  Q8  Julie Morgan: There is a wide range of frauds?

  Professor Levi: Yes.

  Q9  Julie Morgan: The point that came out in the Sentencing Advisory Panel advice was on the issue of gender and the fact that the number of women sentenced for fraud had gone up as a percentage from 29% to 39% in 1999 to 2006 and the men had gone down 10%. I wonder if you can explain that to us because obviously it is a 10% rise.

  Professor Levi: Most frauds that are prosecuted are either benefit or credit card fraud type offences by volume, not by economic impact. More women having been brought into identity fraud and credit card fraud as well as the rise in the number of benefit fraud prosecutions would probably explain that. There is no specific research on this subject, though it is a very interesting area. I would think that would probably account for it. Certainly the number of women involved in Serious Fraud Office cases or major tax prosecutions for example is very low.

  Q10  Julie Morgan: Women are more concentrated in benefit frauds?

  Professor Levi: Yes, and the blue collar organised crime type cases.

  Q11  Mr Heath: This may be a very stupid question and please forgive me if it is but the category within the broad sector of fraud which does not seem to be identified within the sentencing guidelines is what I would describe as corporate fraud, false accounting basically, which I would have thought people are much more aware of than they used to be and may be even more aware of in the very near future if the Serious Fraud office does secure its prosecutions. It does not seem to be reflected in the guidelines. Have I completely misunderstood?

  Professor Levi: No, I do not think you have. I was not involved, although I did a review of fraud sentencing for the government fraud review, in the development of sentencing guidelines so that leaves me free. I think that is true. Those would normally be very small in number, with all due deference to the SFO's prosecutions, but they do not seem to be included there and the work I did on SFO sentencing suggested that the average sentence was just over two years in SFO cases.

  Q12  Mr Heath: The victims here are not necessarily HM Revenue; it is equally the shareholders or the employees of the company who could be construed as the victims.

  Professor Levi: You are quite correct. There are frauds on banking but the area of fraud against commercial trade creditors as well as employers does not seem to be allowed for specifically. They sort of defend that position and say, "We are not dealing with those kinds of cases."

  Q13  Mr Heath: Assuming they are not dealing with conspiracy, it is possible particularly in the case of a single finance director that he might well be involved in a fraud against his or her company.

  Professor Levi: That is true. You can probably read across from the general principles but I agree. It is not specifically referred to. I know the title is "fraud" but corruption offences which are often procurement fraud are also not dealt with there. Perhaps they could deal with that at some later stage.

  Q14  Mr Hogg: May I suggest one reason why the false accounting cases are not in the guidelines at the moment? That is the kind of case I was dealing with this morning. They fall into at least two categories. Some false accounting is directed to obtaining permanent gain for themselves—i.e., theft. There is the case of Eton of course which you will be aware of, the muddle cases, and people muddling their way through without the intention permanently to deprive. They are different categories of false accounting and are therefore quite difficult to put into a guideline unless you make that distinction within the guideline.

  Professor Levi: I suppose there is the issue which the guidelines deal with of not defrauding from the outset. I did a typology of fraud involving a pre-planned intermediate fraud where people start out honest and then intentionally turn to fraud; and the final category is slippery slope muddles or people who just keep telling lies like Billy Bunter's postal order, for an older audience, to keep their business alive. I do not think those are clearly allowed for in the guidelines, particularly the intermediate frauds. What do we mean by "at the outset"? Not necessarily at the outset of the business. These intermediate frauds can carry on for quite a long time.

  Q15  Mr Hogg: That is a case for giving a high degree of discretion to the trial judge.

  Professor Levi: Yes, but perhaps it could also be more analytically allowed for in the guidelines. That is a matter for you.

  Q16  Mr Michael: Analytically rather than prescriptive?

  Professor Levi: Yes.

  Q17  Mr Michael: In terms of victims, we have already touched on vulnerability and abuse of trust. You also have quite a wide variety of victims of fraud who can go from individuals, small businesses, large businesses, the taxpayer. Should those be more differentiated within the guidelines or not?

  Professor Levi: I think they have done a reasonable job. I just came back to the country on Sunday. One of the things I did look for was consistency in the treatment of benefit and tax fraud, which I am glad to say is there, which has alarmed me in the past. Those are, in a sense, frauds against us. The list of aggravating and mitigating factors seems common sense.

  Q18  Dr Whitehead: Bearing in mind the distinctions you have made about the nature of fraud, do you think similar distinctions ought to be made in terms of use of custodial sentences for fraud? I ask that question in the light of the fact for example that custodial sentences for fraud have been rising over the last few years and indeed I think they are higher as a proportion of fraud cases than theft currently. It does not appear at first sight to be the case that custodial sentences are necessarily the right way to go as far as fraud is concerned.

  Professor Levi: That raises a lot of quite profound issues. First of all, there are a lot fewer fraud and forgery cases found than there are theft cases. Most of the theft cases will be of lower value. With the exception of benefit fraud—and even including that—it takes a lot more to get you into the criminal justice system if you commit fraud than it does with theft for some of the complex, legal reasons that I am sure I do not need to acquaint you with. The threshold for prosecution is in practice higher for fraud and forgery than for other offences. They tend to be typically more serious or more costly. On the question of whether they should be treated differently, in the past people have often argued, "My client stands before you as a man of reputation lost for all time", that sort of argument which judges and magistrates are familiar with. Some of those issues are genuine. Some people are very embedded in a network of respectability and they do suffer. That, by the way, also applies to little old ladies who get `done' for shoplifting. Nevertheless, that is a genuine thing but in some cases people who are persistent fraudsters are seldom in social networks where they are traumatised. I think the argument is a poor one and sometimes judges get conned. It is difficult to decide when it is the truth and when it is just an argument. Some offenders can be kept out of future harm's way because once they are professionally disqualified they might find it harder to commit fraud, if that was the import of your question. Perhaps, except on the deserts principle, we might allow for less punishment there, but even if you are a struck off solicitor or accountant you can still practise as an accountant. You are just not a qualified accountant. If you are a barrister and you are convicted, that is tougher. The whole area of disqualification and collateral damage of sentencing is ignored in these sentencing guidelines. I find it to be one of the more interesting and complicated parts. Whether you should really take account of a judgment about future consequences for the offender in sentencing is a big issue of principle in sentencing. I think you are right. We ought to think harder—in a way, Revenue and Customs do—about whether there are alternative ways of dealing with offenders other than through the criminal justice process. Of course, those are already taken care of before the criminal justice sentencing process in those sorts of cases. Benefit fraudsters suffer because they do not have the money to repay relative to most revenue fraudsters.

  Q19  Dr Whitehead: In that context, what do you think the role of confiscation is in the debate on fraud sentencing? The background to that particular thought relates to indications in other areas such as drugs cases, where there appears to be some evidence that potential confiscation of assets is perhaps a substantially greater fear than a custodial sentence might be. Does that strike you as an avenue worth contemplating? Do you think the confiscation that has developed so far has been worth developing as a part of sentencing arrangements in fraud cases?

  Professor Levi: Yes, I think it is very important. I have a meeting in Brussels next week with the International Asset Confiscation Group to try and generate more mutual recognition of our system abroad and of theirs here. The internationalisation of that is a really crucial phenomenon. Whether it is a total substitute for sentencing here I doubt. In the big Enron type cases to which Mr Heath was referring earlier and Maxwell etc., they do big investigations and very often they find that most of the money has gone. Even in areas which are well funded, it is very hard, certainly in the British system as opposed to the Madoff type cases in the States, to find parties that you can get the money back from or certainly the offenders themselves. If you spent the money on fast women and slow horses or in the casinos or whatever, then it has gone and it cannot be recovered where the offender has benefited from that. If you can get the money back for the victims or for the government, that is great. I agree with the sentencing guidelines approach, that you should be given some mitigation credit for that. The problem is that in most of the fraud cases that I know about, a large chunk of the money has gone and is effectively irrecoverable. What do you do in a situation like that?


 
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