Examination of Witness (Questions 1-19)|
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
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
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
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 themselvesi.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
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
Q18 Dr Whitehead: Bearing in mind
the distinctions you have made about the nature of fraud, do you
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 fraudand even including thatit 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
harderin a way, Revenue and Customs doabout 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
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?