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Far from being a victimless crime, fraud is an indiscriminate crime that wreaks long-term damage to UK business and, wider still, fraud hits the pockets of
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every member of the population. In 2000, the National Economic Research Associates estimated that fraud cost the UK economy more than £14 billion. That means that every person in the UK lost £230 because of fraud. Moreover, that figure, which has no doubt increased since then, does not reflect the part that fraud plays in facilitating other crime types. There are signs that fraud is becoming a crime of choice for organised crime and terrorist funding. Reforming the law forms part of the Government's overall strategy to combat fraud.
It is a peculiarity of our law that it recognises no offence of fraud as such. Instead we have statutory offences of deception, which are too precise, overlapping and outmoded to give effective coverage over the breadth of frauds committed today.
The Fraud Bill is the culmination of a process of careful consideration. In 1998 the Home Secretary asked the Law Commission to consider the introduction of a general offence of fraud. The Law Commission's report on fraud published in 2002 concluded that the existing law could be improved in several respects.
Over-particularisation of the offence has left the law of fraud vulnerable to technical assaults and can pose operational problems. The specific nature of the offences as they stand means that it is possible for behaviour which we would all recognise as clearly fraudulent to fall none the less outside the jurisdiction of the offences.
One example cited by the Law Commission is the case of Preddy, where the defendants made false representations when applying for mortgages. They were charged with the offence of obtaining property by deception, which requires that they obtained property "belonging to another". But it was held that what they in fact obtained were credit balances to their accounts. These were propertythey were choses in actionbut they did not belong to another because they were new items which had not previously belonged to anyone at all. In fact, that particular problem has been fixed, but it is illustrative of the kind of problem that can arise in this area in the view of the Law Commission.
A second difficulty that arises from over-particularisation of the offences is that it is not always clear which offence should be charged at the outset. Defendants have successfully argued on a number of occasions that their particular deceptive behaviour did not fit the offence with which they had been charged.
The reliance on deception also restricts the application of the existing offences, particularly where a gain is not clearly made by that deception. So, for example, if a seller accepts a credit, a debit or a cheque guarantee card in payment for goods or services, he may have little interesthe need have very little interestin whether or not the holder has the authority to use the card because of the nature of the guarantee which is attached to it, but the case for deception may turn on alleging a false representation being made by the presenter of the card in regard to that matter.
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There are other problems with machines and computers. For example, can a machine, which has no mind of its own, be "deceived"? The more we use machines to obtain goods and other services, the more this difficulty arises.
The Law Commission also identified limitations in claiming that a defendant who abuses his positionthis is an important issueto make a gain or cause a loss is guilty of an offence of fraud. It can be argued that there is no deception because the defendant was in a position of trust at the time when the gain was made. Equally, a victim who is in complete ignorance of a loss after the event because information has not been disclosed may have some difficulty in proving that a deception had taken place.
These were the kind of issues identified by the Law Commission and it proposed the changes which formed the basis of the Government's consultation paper issued last year. The reactions to that consultation showed a broad consensus and added much to the formulation of the Bill. The Government are extremely grateful to those who responded to the consultation paper. The responses were full, thoughtful and detailed.
Key stakeholders have supported the Bill. The Fraud Advisory Panel, for example, which represents a wide range of fraud specialists, warmly welcomed the Bill, and Commissioner James Hart of the City of London Police, speaking for the Association of Chief Police Officers, said that the Fraud Bill would,
So what does the Bill do? It proposes that in England, Wales and Northern Ireland the existing eight deception offences in the Theft Acts should be replaced with a general offence of fraud. It aims to produce a clear and robust framework which is flexible enough to deal with increasingly sophisticated kinds of fraud.
The three ways in which fraud can be committed are set out in Clauses 2 to 4. A basic requirement of all of them is that the behaviour of the defendant must be dishonest. There is a further requirement that the defendant's intention must be to make a gain or cause a loss to another. But there will no longer be any need to prove in what form he intended that gain to be realised, that a gain or loss had actually been realised, or that any victim was deceived by the defendant's behaviour. The offence carries a maximum of 10 years' imprisonment.
The general offence can be committed in three ways: first, by false representation in any form; secondly, by failing to disclose information to another person where there is a legal duty to disclose the information; and, thirdly and lastly, by the abuse of positionthat is, by taking advantage of a position where one is expected to safeguard another's financial interests.
In addition to the general offence of fraud the Law Commission recommended a new offence of "obtaining services dishonestly" to replace the current Theft Act offence of "obtaining services by deception". That is to be found in Clause 11.
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Clause 6 represents an addition to the Law Commission proposals which was made following consultation with stakeholders. It introduces a new offence of "possessing articles for use in frauds" to replace, so far as fraud is concerned, the provision in the Theft Act 1968 which makes it an offence for a person to have with him, when not at his place of abode, any article for use in the course of any "cheat", which the Act construes as an offence of obtaining property by deception.
The current restriction to possession of such articles outside the abode of the defendant is unhelpful in relation to modern frauds, which can easily take place, for example, from home computers. The new offence of possessing articles for use in frauds will therefore have no such restriction.
The offence carries a maximum sentence of five years. There will be a greater sentence of 10 years for the additional offence in Clause 7 of making or supplying such articles. We have introduced that offence to tackle the peoplesome of whom are members of organised criminal gangsbehind sophisticated operations involving the making of such articles.
Clause 9 follows a Law Commission recommendation from its 2002 report on multiple offending by creating an offence parallel to the fraudulent trading offence in Section 458 of the Companies Act 1985, which will cover businesses other than registered companies. This recommendation was supported by the Office of Fair Trading in its position paper on bogus trading published in 2004. This "activity" offence carries procedural and evidential advantages as it is not necessarily limited to specific transactions and there is no logic in limiting its application to companies. That offence and an offence under Section 458 will carry a maximum sentence of 10 years to match the sentence for the general offence of fraud.
As I said, the response to the Government's consultation paper last year showed widespread support for the Bill's proposals. There were some reservations and the Government have amended the Bill to meet the main points raised. The greatest reservationto which, no doubt, noble Lords will wish to make referencewas caused by the initial proposal to repeal the common law offence of conspiracy to defraud. In the consultation, however, manyindeed, I think the majorityargued that it would be wrong and rash to remove the offence because it provides great flexibility in dealing with a wide variety of frauds. We recognised, in the light of the consultation, that the common law offence has advantages and works well in cases involving multiple offenders and offences, where there can be hundreds of possible counts.
A recent case of conspiracy to defraud, by way of example, involved a large number of individual victims, several banking institutions and the integrity of those banking institutions. The illicit turnover was something like £4.5 million every six weeks. It involved organised crime and international money laundering.
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The Government listened to the arguments that it is not practical, or as practical, to prosecute such cases using substantive counts or statutory conspiracy. The indictment could run to several hundred counts or several statutory conspiracies, creating a risk that the full picture would be lost in a morass of detail.
Conspiracy to defraud allows the agreement that is the essence of the conspiracy to be reduced to one short, well drafted count that reflects the totality of the criminal enterprise. In addition, there is some conduct that can be prosecuted only as a conspiracy to defraud; for example, cases in which the defendant is ignorant of the details of the fraud and therefore may not be guilty of statutory conspiracy to commit fraud. So in the light of the points put forward, we accepted the case for retention for the mean time.
The Government have also made changes in the light of the consultation to ensure that the offence in Clause 3 of failure to disclose information will be fraud only when a legal duty is breached. We accepted the arguments of those who said that to include other types of case, where the duty was only moral, would be stretching the criminal law too far and would intrude on the principle of caveat emptor.
We have also removed the requirement for secrecy which initially formed part of the offence in Clause 4 of committing fraud by abuse of position. This was a particularly difficult issue because secrecy, arguably, is a hallmark of fraud. But we accepted that it would be an unnecessary complication for the prosecution and that the dishonest behaviour of the defendant and the abuse of his position with a view to make a gain, or cause a loss, should suffice to constitute the offence.
The Fraud Bill, as presented for debate today, has been developed through an extensive review process, involving consultation and dialogue. Early on in the life of the Bill, the Government engaged stakeholders, practitioners and the judiciary to develop a Bill that is up to date and, we hope, fit for purpose. The rationalisation of offences will assist fraud investigators and improve the prosecution process as clarification of the law of fraud will weaken the scope for technical argument.
Fraud is a common crime. In 2003, 13,881 defendants were proceeded against for the deception offences which will be repealed by the Bill. So the cumulative effect of the improvements we are bringing forward will be considerable.
This legislative reform is only part of the Government's strategy in combating fraud. For their part, the Government have already taken a number of other measures. The Domestic Violence, Crime and Victims Act 2004 contains provisions that will enable multiple offenders to be brought to justice for the totality of their offending.
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