Drag.net: Fraudsters-Especially the New Breed of Criminal That's Exploiting Web Technology-Have Largely Kept One Step Ahead of the UK's Antiquated Legislation, but It's about to Be Upgraded. Neil Hodge Asks the Lawyers Whether the Fraud Bill Will Close All the Loopholes
Hodge, Neil, Financial Management (UK)
At the end of 2005 Norwich Union estimated that fraud had cost the UK economy 16bn [pounds sterling] over the year--the equivalent of each adult in the country being 340 [pounds sterling] out of pocket. Compare that figure with the amount of money under consideration in the 222 fraud cases that reached court over the same period: 942m [pounds sterling], or just under six per cent of the total. According to KPMG's annual Fraud Barometer publication, this was an improvement on the 172 fraud cases, worth only 329m [pounds sterling], prosecuted in 2004. The research also found that, although the government was the biggest victim, financial companies had lost ten times more to fraud in 2005 than they had done over the previous year.
The conclusion from these figures is clear: fraud cases are tremendously difficult to prosecute, never mind prosecute successfully. The collapse of several recent high-profile cases, such as the failed Jubilee line litigation in May 2005, which tried six men for an alleged conspiracy to gain inside information on the 2bn [pounds sterling] extension to the London Underground network, has brought into question the adequacy of existing legislation--and what actually constitutes fraud. The problem, according to legal experts, is that the specificity of the current regulations governing this area and their allowance of technical defences has made bringing cases enormously expensive and securing convictions virtually impossible. The Jubilee line trial cost 60m [pounds sterling] alone, for example.
As a result, the government has announced that it's taking a co-ordinated approach to tackling the problem. It has introduced the fraud bill, which is currently before Parliament, and it will bring forward another bill to allow for non-jury trials in a limited range of serious and complex fraud cases.
In addition, the government has just published for consultation the final report of the Fraud Review, which began a year ago. This advocates the establishment of a financial court jurisdiction so that the different proceedings arising from serious fraud cases can be combined in one court and be heard by specialist judges. It suggests allowing plea-bargaining as an alternative to a full criminal trial.
The report's other proposals include setting up a national strategic authority as a public-private partnership to devise and implement a UK-wide anti-fraud strategy. It also recommends that the government should establish a national lead police force and fraud reporting centre. The consultation period closes on October 27.
Rosalind Wright, chairwoman of the Fraud Advisory Panel, an independent group of volunteers that aims to raise awareness about the economic damage caused by fraud, says that the success of the proposals is "completely dependent on how much money the government is prepared to put into them". And funding is an issue. The attorney-general, Lord Goldsmith, estimates the costs of establishing a strategic authority, reporting centre, lead police force and, if appropriate, regional support centres at between 13m [pounds sterling] and 27m [pounds sterling] a year.
But Wright believes that the plea-bargaining proposal is "deeply flawed". This is because the fraud bill provides for only a ten-year maximum prison sentence, whereas convicted fraudsters in the US can expect to face much stiffer sentences. For example, Enron's former chief executive, Jeffrey Skilling faces a sentence of up to 185 years after being found guilty of 19 counts of fraud and conspiracy relating to the company's collapse. The US is also more proactive in seeking extradition to try those suspected of committing a major fraud, as illustrated by its determination to bring the NatWest three to book (see panel).
"Plea-bargaining can save a lot of court time and money, but it works only if there is a real threat of a long prison sentence, which we don't have in the UK," Wright says. …