Fraud and Ecomonic crime
Fraud is now the most common crime in England and Wales.
Get the advice you need to protect yourself, your assets, your career, your home, your liberty.
Fraud is the act of gaining a dishonest advantage, often financial, over another person. It is now the most commonly experienced crime in England and Wales.
Some of the most common examples of fraud and economic crime are as follow:
Covid fraud or furlough fraud
The fraudulent claiming of furlough money or covid related grants or payments from the Government through dishonesty, including failing to report a change in circumstances.
The illegal non-payment or under-payment of tax by an individual or a company. Offences might include the non-declaration of profits or the hiding money in offshore bank accounts.
The fraudulent claiming of money from the Government through dishonesty, including failing to report a change in circumstances.
The process by which criminal proceeds are sanitised to disguise their illicit origins with attempts to find ‘safe havens’ for profits to avoid confiscation orders.
A catch-all term for any type of fraud committed using the internet. Examples may include fraudulent sales of goods, romance scams or any other type of fraud facilitated online.
The use of a stolen identity to obtain goods or service by deception. For example, using identity details to open bank accounts or obtain a loan.
Frauds against banks or bank customers. This can involve posing as a bank or other financial institution, theft of banking details or falsification of bank transaction requests.
Involves cold calls, emails or direct approaches encouraging investment in something which is either worthless or does not exist. Also known as ‘boiler room’ fraud.
A bribe is the giving or receiving of a financial or other advantage in connection with the ‘improper performance’ of people in positions of trust.
Fraud by abuse of position
Where a person abuses a position of responsibility in which they are expected to safeguard the financial interests of another person or organisation.
The process of interfering with an election. Offences may include casting of votes fraudulently, fraud relating to nomination papers, or incorrect declaration of electoral expenses.
A mere allegation of fraud can be enough to result in arrest or a voluntary interview. This can lead to restrictive bail conditions, a charge and a court case.
Police investigations and Court hearings can have a dramatic impact on day to day living. A caution or conviction can affect employment as it would remain on the police national computer and may be disclosed on a DBS check.
Loopholes to consider
Below I have outlined this area of law and defences.
Loopholes are legitimate lines of defence that take into account all the small areas of law.
Loophole defences that may be appropriate to fraud and economic may include:
Can you properly be linked to the fraud?
Can it be proven that you acted dishonestly?
Can it be proven that you intended to make a gain, or cause a loss, or the risk of loss to another?
Do you have witnesses to help prove your account?
Do you have other evidence to help prove your account?
Is it likely the complainant will come to court to give evidence against you?
Section 1 creates a general offence of fraud and introduces three ways of committing it set out in Sections 2, 3 and 4.
Fraud by false representation (Section 2);
Fraud by failure to disclose information when there is a legal duty to do so (Section 3); and
Fraud by abuse of position (Section 4).
In each case:
the defendant's conduct must be dishonest;
his/her intention must be to make a gain; or cause a loss or the risk of a loss to another.
No gain or loss needs actually to have been made.
The maximum sentence is 10 years' imprisonment.
Fraud by false representation (Section 2)
made a false representation
knowing that the representation was or might be untrue or misleading
with intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss.
The offence is entirely focused on the conduct of the defendant.
Fraud by failing to disclose information (Section 3)
failed to disclose information to another person
when he was under a legal duty to disclose that information
dishonestly intending, by that failure, to make a gain or cause a loss.
Like Section 2 (and Section 4) this offence is entirely offender focussed. It is complete as soon as the defendant fails to disclose information provided he was under a legal duty to do so, and that it was done with the necessary dishonest intent. It differs from the deception offences in that it is immaterial whether or not any one is deceived or any property actually gained or lost.
Fraud by abuse of position (Section 4)
occupies a position in which he was expected to safeguard, or not to act against, the financial interests of another person
abused that position
intending by that abuse to make a gain/cause a loss
The abuse may consist of an omission rather than an act.
Like the other two Section 1 offences, Section 4 is entirely offender focused. It is complete once the defendant carries out the act that is the abuse of his position. It is immaterial whether or not he is successful in his enterprise and whether or not any gain or loss is actually made.
As with all the Section 1 offences, though there need be no consequences to the offending, the existence and extent of those consequences will be very material to sentence, compensation and confiscation. It will still therefore be necessary to gather that evidence. In many instances it is the fact of the gain or loss that will prove the defendant's dishonesty beyond reasonable doubt.
Possession of articles for use in fraud (Section 6)
had possession or control of;
for use in the course of or in connection with any fraud.
The wording draws on Section 25 of the Theft Act 1968. The proof required is that the defendant had the article for the purpose or with the intention that it be used in the course of or in connection with an offence.
There is no defence of "reasonable excuse". Those who are, in particular, properly in possession of or involved in the development of computer software or other items for use to test the security of computer or security systems must rely on their lack of intention that the items or programmes are "for use in the course of or in connection with any fraud."
Making or supplying articles for use in frauds (Section 7)
makes, adapts, supplies or offers to supply any article;
for use in the course of or in connection with fraud;
knowing that it is designed or adapted for use in the course of or in connection with fraud (Section 7 (1) (a)) or
intending it to be used to commit or assist in the commission of fraud (Section 7 (1) (b).
"Knowledge" in Section 7 (1) (a) is a strict mens rea requirement. The House of Lords in Montila  UKHL 50 said:
"A person may have reasonable grounds to suspect that property is one thing (A) when in fact it is something different (B). But that is not so when the question is what a person knows. A person cannot know that something is A when in fact it is B. The proposition that a person knows that something is A is based on the premise that it is true that it is A. The fact that the property is A provides the starting point. Then there is the question whether the person knows that the property is A."
In practice, the use to which the article can be put is likely to provide sufficient evidence of the defendant's state of mind. For example, articles such as:
the kits that are attached to ATM machines to capture card details;
forged credit cards or the equipment for making them;
lists of credit card numbers;
counterfeit goods presented as genuine;
articles that do not have an innocent purpose that readily springs to mind.
A person who makes an article specifically for use in fraud, for example, a software programme to create a phishing website or send phishing emails, may be ambivalent about whether the person to whom it is supplied actually uses it for fraud. He will fall foul of Section 7 (1) (a) but will not have the necessary intention for Section 7 (1) (b).
The manufacturer of articles that are capable of being used in or in connection with fraud but have other innocent uses will not fall foul of this section unless he intends that it should be used in a dishonest way (Section 7 (1) (b)). The makers of credit card readers are one example. The readers have an innocent purpose they are commonly used by traders who "store up" the details of all the transactions carried out during a day and submit them all together at the end of the day. The card reader merely verifies the validity of the card at the point when it is read and stores all the necessary information about the transaction. The other, dishonest, use is by point of sale staff who use the readers to "skim" credit card details either for use or sale. The dishonest manufacturer who intended a dishonest use would be guilty of Section 7 (1) (b) offence.
Participation by sole trader in fraudulent business (Section 9)
Section 9 makes it an offence for a person knowingly to be a party to the carrying on of a fraudulent business where the business is not carried on by a company. The offence parallels the offence of fraudulent trading in section 458 of the Companies Act 1985.
Non-corporate traders covered by the new offence include sole traders, partnerships, trusts and companies registered overseas.
A defendant may commit an offence under Section 9 (2) (b) in the following ways:
knowingly being party to the carrying on of a company's business;
with intent to defraud creditors of any person; or
for any other fraudulent purpose.
The phrase "to defraud creditors of any person" covers the situation where creditors are creditors of the business, but the business is not a legal person. The creditors could be creditors of individuals or of other related companies.
The term "fraudulent purpose" connotes an intention to go "beyond the bounds of what ordinary decent people engaged in business would regard as honest" R v Grantham  1Q.B. 675; 79 Cr App.R.86.CA; or "involving, according to the current notions of fair trading among commercial men, real moral blame" Re Patrick & Lyon Ltd  Ch. 786, Ch D, per Maugham J. at p.790
Section 9 (3) (c) refers to section 718 (1) of the Companies Act 1985 which exempts certain types of bodies from fraudulent trading. That exemption also applies to section 9.
"Any body not formed for the purpose of carrying on a business which has for its object the acquisition of gain by the body or its individual members" i.e. a non profit making body cannot be guilty of fraudulent trading, though for example, the individual trustees of a charity can be guilty of offences.
Obtaining services dishonestly (Section 11)
obtains for himself or another;
knowing the services are made available on the basis that payment has been, is being or will be made for or in respect of them or that they might be; and
avoids or intends to avoid payment in full or in part.
This offence replaces obtaining services by deception in Section 1 of the Theft Act 1978 which is repealed by the Act.
The defendant must have the necessary intention at the time that the service is obtained (section 11 (2) (c)).
In many cases, the defendant will also have committed an offence under Section 2 of the Act by making a false representation that payment will be made or made in full. The maximum sentence for the Section 11 offence is five years' imprisonment.
Liability of company officers for offences by company (Section 12)
This section repeats the effect of Section 18 of the Theft Act 1968. It provides that company officers who are party to the commission of an offence by the company will be liable to be charged with the offence as well as the company.
The Elements of the Offences
Section 2 (2) defines the meaning of "false" and Section 2 (3) defines the meaning of "representation".
A "representation" means any representation as to fact or law, including a representation as to the state of mind of the person making the representation or any other person (Section 2 (3)). An example of the latter might be where a defendant claims that a third party intends to carry out a certain course of action perhaps to make a will in someone's favour. It may be difficult to prove to the necessary standard that the defendant knew the state of mind of a third party, but easier to prove that he knew what it might be.
A representation may be express or implied (Section 2 (4)). It can be stated in words or communicated by conduct. There is no limitation on the way in which the representation may be expressed.
A representation can be made by omission, for example, by omitting to mention previous convictions or County Court Judgements on an application form.
An offence may be completed when the defendant fails to correct a false impression after a change in circumstances from the original representation (if the representation may be regarded as a continuing series of representations).
A representation can be made to a machine (Section 2 (5)), for example, where a person enters a number into a CHIP and PIN machine or a bank ATM; or gives false credit card details to the voice activated software on a telephone line; or gives false credit card details to a supermarket website to obtain groceries.
Evidence is necessary to prove that the defendant communicated the false representation to a person or to a machine. It is not relevant whether the false representation is believed or has any affect on any other person.
In some cases it will not be necessary to call evidence from a victim.
Untrue or misleading
A representation is defined as "false" if it is untrue or misleading and the person making it knows that it is, or might be, untrue or misleading. Actual knowledge that the representation might be untrue is required not awareness of a risk that it might be untrue.
In Ivey v Genting Casinos (UK) (trading as Cockfords Club) , Lord Hughes of Ombersley suggested that the Ghosh test was wrong. At paragraph 74 he said ‘the Ghosh test does not correctly represent the law and that directions based upon it ought no longer to be given’.
He went on to provide an alternative two-stage test:
what was the defendant’s actual state of knowledge or belief as to the facts; and
was his [the defendants] conduct dishonest by the standards of ordinary decent people.
In R. v Barton and Booth  EWCA Crim Mr Barton and Mrs Booth appealed their convictions on the grounds that the trial Judge had erred in directing the Jury on the issue of dishonesty by applying Lord Hughes’ new two stage test, which was obiter dictum, and not the two stage test set out in R v Ghosh  EWCA Crim 2. In dismissing Barton and Booth’s appeal against conviction, the Lord Chief Justice said: ‘We are satisfied that the decision in Ivey is correct’.
In Barton and Booth, the Court of Appeal has changed the test for dishonesty from a subjective test to an objective test. The fact-finding tribunal must now decide the actual state of the individual’s knowledge or belief as to the facts and then determine whether his conduct was honest or dishonest by the (objective) standards of ordinary decent people. There is no longer a requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.
Gain or loss
"Gain "and "loss" are defined in section 5 of the Act. The definition is essentially the same as in Section 34 of the Theft Act.
Gain and loss extends only to gain and loss in money or other property (Section 5 (2) (a)), whether temporary or permanent (Section 5 (2) (b)) and means any property whether real or personal including things in action and other intangible property (Section 5 (2) (b)).
"Gain" includes a gain by keeping what one has, as well as a gain by getting what one does not have (Section 5 (3)).
"Loss" includes a loss by not getting what one might get as well as a loss by parting with what one has (Section 5 (4)).
The Defendant must intend to make the gain or cause the loss by means of the false representation.
The breadth of conduct to which Section 2 applies is much wider than the old Theft Act deception offences because no gain or loss need actually be made. It is the Defendant's ultimate intention that matters. If the Defendant gets information by making a false representation, intending ultimately to make a gain or cause a loss within the meaning of Section 5 by doing so, he will have committed a Section 2 offence.
Failure to disclose information
There is no requirement that the failure to disclose must relate to "material" or "relevant "information, nor is there any de minimis provision. If a Defendant disclosed 90% of what he was under a legal duty to disclose but failed to disclose the (possibly unimportant) remaining 10%, the actus reus of the offence could be complete. Under such circumstances the Defendant would have to rely on the absence of dishonesty. Such cases can be prosecuted under the Act if the public interest requires it, though such cases will be unusual.
It is no defence that the Defendant was ignorant of the existence of the duty, neither is it a defence in itself to claim inadvertence or incompetence. In that respect, the offence is one of strict liability. The defence must rely on an absence of dishonesty and the burden, of course, lies with the prosecutor.
Prosecutors must be acutely aware of the public interest in such cases, bear in mind the relative standing of the parties and pay particular regard to any explanation for the failure given by the Defendant.
A legal duty to disclose information can arise as a result of a contract between two parties or because of the existence of a particular type of professional relationship between them; for example, a solicitor/client relationship. In its report on fraud (No. 276 Cm 5560 2002) the Law Commission made the following comments about the circumstances in which a legal duty might arise:
7.28 ... Such a duty may derive from statute (such as the provisions governing company prospectuses), from the fact that the transaction in question is one of the utmost good faith (such as 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 (such as that of agent and principal).
7.29 For this purpose there is a legal duty to disclose information not only if the defendant's failure to disclose it gives the victim a cause of action for damages, but also if the law gives the victim a right to set aside any change in his or her legal position to which he or she may consent as a result of the non-disclosure. For example, a person in a fiduciary position has a duty to disclose material information when entering into a contract with his or her beneficiary, in the sense that a failure to make such disclosure will entitle the beneficiary to rescind the contract and to reclaim any property transferred under it.
Establishing a legal duty
There are three considerations:
Whether the facts as alleged are capable of creating a legal duty is a matter for the judge;
Whether the relationship that would create any legal duty exists on the facts alleged is a matter for the jury directed by the judge;
Where the matter is not in issue the judge may direct the jury that a legal duty exists.
The Explanatory Notes to the Fraud Act provide the following examples of a breach of a legal duty:
The failure of a solicitor to share vital information with a client in order to perpetrate a fraud upon that client;
A person who intentionally failed to disclose information relating to his heart condition when making an application for life insurance.
Abuse of a position
The "position" required by section 4 is one that may be described as a position of trust. It could include company directors, trustees, business partners or employees. In many cases it will be one where there is a legal 'fiduciary' duty; but such a duty is not essential. It is, however, a position that carries something more than a moral obligation.
The Law Commission explained the meaning of "position" as follows:
"The necessary relationship will be present between trustee and beneficiary, director and company, professional person and client, agent and principal, employee and employer, or between partners. It may arise otherwise, for example within a family, or in the context of voluntary work, or in any context where the parties are not at arm's length. In nearly all cases where it arises, it will be recognised by the civil law as importing fiduciary duties, and any relationship that is so recognised will suffice. We see no reason, however, why the existence of such duties should be essential. This does not, of course, mean that it would be entirely a matter for the fact finders whether the necessary relationship exists. The question whether the particular facts alleged can properly be described as giving rise to that relationship will be an issue capable of being ruled on by the judge and, if the case goes to the jury, of being the subject of directions."
Examples of the type of conduct that would give rise to a charge under section 4 are:
an employee of a software company who uses his position to clone software products with the intention of selling the products on his own behalf;
where a person is employed to care for an elderly or disabled person and has access to that person's bank account but abuses that position by removing funds for his own personal use. (This may also be theft);
an attorney who removes money from the grantor's accounts for his own use. The Power of Attorney allows him to do so but when excessive this will be capable of being an offence under Section 4;
an employee who fails to take up the chance of a crucial contract in order that an associate or rival company can take it up instead;
a trustee who dishonestly acts outside the terms of a trust deed in order to produce a gain or loss for himself or others;
a director of a company who dishonestly makes use of knowledge gained as a director to make a personal gain;
an employee who abuses his position in order to grant contracts or discounts to friends, relatives and associates;
a waiter who sells his own bottles of wine passing them off as belonging to the restaurant R v Doukas  1 All E.R. 1071.;
a tradesman who helps an elderly person with odd jobs, gains influence over that person and removes money from their account (This may also be theft but see the guidance on the Public Interest criteria above for the Fraud offences);
the person entrusted to purchase lottery tickets on behalf of others again, this will probably be theft as well.
The terms "financial interests" and "abuse" are not defined in the Act and so may be taken to have their ordinary meaning.
Note that the section refers to a person who "occupies a position in which he is expected ... ". The person who no longer occupies that position when, for example, he uses information properly gained while "in post" dishonestly, does not commit an offence. He may do so if there is a contractual obligation that extends beyond his departure from the post. He will, however, be guilty of an offence if he took steps to plan his actions while "in post" and put the plan into action after leaving the post or after the relationship ceased.
For example, an employee who transferred sensitive commercial information from his office laptop to his home computer while in employment and used it after that employment had ended will commit the offence. At that stage he will no longer be "occupying a position " but he was when the offence was committed (transferring the information intending to make a gain or cause a loss) and so can be prosecuted.
Possession or control
The Act does not offer a definition of "possession or control".
It is probable that the case law on possession of drugs will apply. The phrase "possession or control" suggests something looser than the absolute "possession" in the Proceeds of Crime Act 2002. Under that Act "possession" means having physical custody of criminal property.
Section 37(3) of the Misuse of Drugs Act 1971 provides that for the purposes of that Act "the things which a person has in his possession shall be taken to include anything subject to his control which is in the custody of another". DPP V Brookes  A.C 862 PC. In the case of R v McNamara 87 Cr App R 246 the Court of Appeal acknowledged the difficulties in expressing the concept of “possession” and summarised the position by saying that possession is established against the defendant once the prosecution have proved that he had in his control a package that in fact contained the drug alleged, that he knew that he had the package in his control, and that he knew it contained something; and secondly that once possession is thus established an evidential burden is cast upon the defendant.
Although the Fraud Act does not contain a similar section, the reference to "control" suggests that items in the possession of others but over which the Defendant retains control would qualify as being in the defendant's "possession". It is sufficient therefore that the person from whom the property is appropriated was at the time in fact in possession or control: R v Turner (No.2), 55 Cr. App R 336 CA. It is not necessary to prove that the person’s possession or control was lawful: R v Kelly and Lindsay  Q.B 621, CA.
The law on possession of indecent images will also apply particularly to the possession of software and material stored on computers for use in fraud (covered by virtue of section 8). Prosecutors should bear in mind the judgement of the Court of Appeal in R v Porter  EWCA Crim 560, in which it was held that an image (and, by analogy, a document) will only be considered to be in the possession of the defendant (in the sense of custody or control) if it is accessible to him. In the case of a deleted image, where the Defendant could not retrieve or gain access to it he would no longer have custody or control of it. It follows that it would not be appropriate to say that a person who could not retrieve and image (or document) from a hard disk drive would be in possession of the image by reason of his possession of the hard disk drive itself.
In cases where the prosecution will rely on evidence of material stored on computers, it will be necessary to obtain expert evidence as in cases involving indecent images.
"Article" has its ordinary meaning subject to Section 8. It is extremely wide covering anything from pen and paper to blank credit cards, credit card numbers and sophisticated computer programmes.
Section 8 provides further definition of the term "article". For the purposes of Sections 6 and 7 and the provisions listed in Section 8 (2) which include Section 1 (7) (b) of the Police and Criminal Evidence Act 1984 ("prohibited articles" for the purposes of stop and search powers) "article" includes any program or data held in electronic form.
If a successful Section 2 fraudster has succeeded in obtaining information held either as hard copy or in data form from those he has duped, he will also be guilty of a Section 6 offence in relation to that information.
The Act does not define “services”, but it is likely that that it will encapsulate at least all those benefits which had been said to fall within the definition which was provided under Section 1of the Theft Act 1978.The service must be provided on the basis that it will be paid for. The same restrictions will therefore apply to the obtaining of banking services under this section as before they must be chargeable to fall within the ambit of Section 11 (R v Sofroniou  EWCA Crim 3681). If the banking services obtained are free, Section 11 cannot be charged. The same restriction does not apply to Section 2 fraud by making a false representation.
Obtains for himself or another
Section 11 differs from the offences under section 1 in that it requires the actual obtaining of a service (by a dishonest act).
It is not possible to commit the offence by omission alone. This avoids the situation where unscrupulous service providers might feel able to pressure anyone who had been given services they had not requested.
Evidence of spouse/partner (Section 3)
Section 13 is similar to Section 31(1) of the Theft Act 1968. A person is protected from incriminating himself or his spouse or civil partner for the purposes of offences under the Act and related offences, while nonetheless being obliged to co-operate with certain civil proceedings (for example, civil confiscation) relating to property. This section goes beyond Section 31 (1) of the Theft Act 1968 in removing privilege in relation to "related offences" as well as the offence charged. "Related offences" are defined in Section 13 (4) as conspiracy to defraud and any other offence involving any form of fraud or fraudulent conduct or purpose.
The maximum penalty for offences under Sections 1, 7 and 9 and is 12 months' imprisonment on summary conviction and 10 years' imprisonment on conviction on indictment.
Section 10 of the Act increases the maximum penalty for offences contrary to Section 458 of the Companies Act 1985 to 10 years' imprisonment.
The maximum penalty for an offence under Sections 6 and 11 is 12 months' imprisonment on summary conviction and 5 years' imprisonment on conviction on indictment.