A clearer picture

Fraud is nasty stuff. It is estimated to cost UK plc between £40bn and £72bn a year, yet it is difficult to uncover, investigate and prosecute successfully. One problem that has been identified for many years has been the absence of a statutory definition of 'fraud'. The Government has dealt with this in the Fraud Act 2006, which came into force on 15 January, 2007.

The intention is that, by providing a single definition of fraud, the Act should make deception offences easier to prosecute as well as keeping pace with technological advancements.The question is whether the Act will make a material difference in the fight against fraud, or whether lack of resources will continue to mean relatively few cases are investigated and even fewer successfully prosecuted.

The statutory definition
Clause one of the Act sets out a general offence of fraud with three ways of committing it: by false representation; by failure to disclose information; and by abuse of position.
Common to each element is the need for:
- dishonesty (in accordance with the two stage test established in R v Ghosh [1982] and
- an intention by the perpetrator to make a gain for himself or another or cause a loss to another person or expose that person to a risk of loss. Note that the gain or loss does not actually have to take place.

False representation
An offence will be committed if a person dishonestly makes a false representation with the intention of making a gain for himself or causing loss to another/exposing another to a risk of loss. A representation will be false if it is untrue or misleading and the person making it knows it is untrue or misleading. It may be as to fact
(including a person's state of mind) or law and can be stated in words or communicated by conduct. A false representation may be made to a computer system. The offence will cover, for example, the situation where a person dishonestly uses a credit card to pay for items; and 'phishing', where a person sends an email to
large groups of people falsely representing that the email has been sent by a financial institution to obtain personal information which may be used in identity theft and/or to gain access to others personal financial information.

Failing to disclose information
An offence will be committed if a person fails to disclose information to another person where there is a legal duty to disclose that information, with the intention of making a gain or causing a loss.This includes a wide range of situations: the legal duty may derive from statute (e.g. the provisions governing company prospectuses); from the fact that the transaction in question is one of utmost good faith (e.g. a contract of insurance); from the express or implied terms of a contract; from the custom of a particular trade or market; or from the existence of a fiduciary relationship between the parties (e.g. that of agent and principal).

Abuse of position
This offence will be committed if a person who occupies a privileged position by virtue of which he is expected to safeguard another's interests dishonestly abuses that position and in doing so intends to make a gain or cause loss.It can be committed by omission; for example by an employee who fails to take up the chance of a crucial contract in order to allow an associate or rival company to take it up instead, at the expense of the employer. The term 'abuse' is not limited by definition because it is intended to cover a wide range of conduct.

Other offences
The Act also:
- Creates new offences of:
1) possessing, making and supplying articles for use in frauds ('article' includes any program or data held in electronic form); and
2) obtaining services dishonestly (with no requirement for the provider of the service to be deceived), for example, by using false credit card details to access data or software on the internet.
- Contains a new offence of fraudulent trading applicable to non-corporate traders which parallels the offences in section 458 of the Companies Act 1985 and increases the maximum custodial sentence for fraudulent trading under the companies legislation to 10 years.
- Repeats the position under the Theft Act 1968 that if a body corporate is charged with an offence, any officer of the company (or, where a body is managed by its members, any member) party to the commission of an offence can also be charged.
- Expands on the limitation on the privilege against self-incrimination provided by the Theft Act 1968 and Theft Act (Northern Ireland) 1969 by including related offences (namely conspiracy to defraud and any other offence involving any form of fraudulent conduct or purpose). The offence of conspiracy to defraud, which the Law Commission report recommended be abolished, has been retained as a safety net for cases that would otherwise fall though gaps in the law. The Government has indicated that it will continue to assess the need for such an offence in light of the operation of the Act.

International fraud
Many of the big cases involve fraudsters who commit their fraud here and internationally, bank the proceeds offshore, and manage the proceeds through a series of offshore companies and trusts run by nominees or professional agents. These cases are very expensive and time consuming to investigate. They require much international cooperation and painstaking detailed attention. Will the Act help prosecute such international cases? It is too soon to tell. The Act applies to England, Wales and Northern Ireland. However, through an amendment to the Criminal Justice Act (CJA) 1993, its provisions also apply to international frauds in so far as any act or omission, proof of which is required for conviction of a crime of deception, takes place in England and Wales. Two key issues therefore arise: firstly, will the police and prosecution authorities make greater use of their powers under the CJA to tackle international cases? They do not appear to have done so greatly in the past; and secondly, will they be given the resources that are required?

On 22 March last year, Robert Wardle, the director of the Serious Fraud Office, commented on the lack of resources: "If you commit a fraud, the chances of being detected are low; the chances of being investigated lower; the chances of being prosecuted even lower; the chances of being tried or all you have done lower yet and consequently the chances of being sentenced for your crimes - and of being deprived of the benefit you have obtained - even lower." The Fraud Act is a step in the right direction but we will have to wait and see if it leads to a greater number of investigations and successful prosecutions.

Robert Goldspink is London managing partner and head of international litigation and arbitration and Clare Semple Westermann a litigation associate at Morgan Lewis.