Conspiracy to Defraud & Conspiracy to Cheat
The National Fraud Authority estimated in its latest figures (January 2011) that fraud is costing the UK over £38 billion per year. We are certainly seeing an increase in heavyweight fraud allegations coming to charge. Over the last few years serious fraud allegations have been springing to the fore with predictable regularity. Fraud investigations range from the mundane exaggeration on a mortgage application to embezzlement by multi-nationals and wealthy businessmen on a global scale.
In this article we consider specifically the offences of conspiracy to defraud and conspiracy to cheat – we cannot hope to do justice to the multitude of possibilities that these offences throw up but do hope to show how these offences ‘work’ and how they are best tackled from a defender’s point of view.
Conspiracy Offences
Books can, and have, been written about this issue alone. The vital thing to remember is that an offence of conspiracy is made out in the ‘agreement’ – i.e. agreeing to commit an unlawful act. There are two types of conspiracy; common-law and statutory conspiracy. The latter is found in section 1 of Criminal Law Act 1977 and it simply provides that an offence will be committed “if a person agrees with any other person or persons that a course of conduct shall be pursued which, if the agreement is carried out in accordance with their intentions…” results in the commission of an offence – thus e.g. agreeing with another to kill someone is an offence under this Act. The 1977 Act abolished most forms of common-law conspiracy but expressly preserved the common-law offence of conspiracy to defraud; s5(2).
What is the definition of conspiracy to defraud?
[A]n agreement by two or more by dishonesty to deprive a person of something which is his or to which he is or would be or might be entitled and an agreement by two or more by dishonesty to injure some proprietary right of his, suffices to constitute the offence of conspiracy to defraud.
Scott v Metropolitan Police Commissioner [1975] AC 819.
In cases of fraud against non-State persons or bodies we are more likely to see common-law conspiracy to defraud being charged rather than conspiracy under the 1977 Act, though there is little practical difference. In either case ‘agreement’ is the essence of the offence. Deception and economic loss are not requisites elements of conspiracy to defraud; Wai Yu tsang v R (1991) Privy Council. ‘Agreement’ is the act – the state of mind of the guilty party must be ‘dishonesty’.
The common-law offence of ‘cheat’ was abolished by section 32 of the Theft Act 1968 – but it was expressly preserved in relation to offences against the public revenue – i.e. State revenue collecting bodies such as HMRC etc. It remains a common-law conspiracy offence (not a statutory one), the principal offence being the only ‘cheat’ offence left – thus ‘conspiracy to cheat the revenue’. Once again this quite archaic offence was expressly preserved not just by the 1968 Act but also the Fraud Act 2006. There is only one reason for this – Parliament simply did not want to take the risk of abolishing and replacing an offence aimed at tax evaders in case the new law presented problems. The new law has not proven problematic and, now, as in 1968 and 1977 the law-makers have left the old law in place to give prosecutors a degree of flexibility in cases where the public purse was the victim or intended victim.
Cheating the revenue has in reality been an offence for as long as there have been government’s collecting taxes. To make or deliver a false statement relating to income tax with intent to defraud is an offence: R v Hudson [1956] 2 QB 252. Once again deception is not necessary, all that is required is any form of fraudulent conduct which results in money being diverted from the revenue – whether it is income tax, VAT, excise duty etc. Thus it is conspiracy to cheat that will be the principal charge in MTIC (VAT carousel) allegations as well as excise duty diversions frauds. As with conspiracy to defraud – no offence is complete unless the prosecution can prove the defendant acted dishonestly.
The Fraud Act 2006
Much of the ‘old’ law on fraud was to be found in the Theft Acts of 1968 and 1978 as well as the common-law offences. Many of the statutory provisions led to technical arguments and difficulties in practical application. It was clear that the law on fraud needed updating and the Law Commission produced a report on the topic in 2002. That report led to the Fraud Act 2006 which came into force on 15/1/07. Its provisions apply to conduct committed on or after that date. The Act widened and simplified the law of fraud. The centre piece of the Act is undoubtedly the creation in section 1 of a new single offence of fraud – a single offence that can be committed in one of three different ways; fraud by False Representation; fraud by Failure to Disclose and fraud by Abuse of Position.
The first of these, fraud by false representation, is perhaps the most obvious alternative to a common-law conspiracy to defraud allegation. A person will be guilty of this offence if he dishonestly makes a false representation with intent to gain or cause loss to another, or to expose another to risk of loss. Once again the offence carries no requirement for actual loss or even the risk of loss and in fact no requirement of even causing an alleged victim to believe the false representations. Dishonesty is the key.
For a ‘representation’ to be ‘false’ the maker of the statement must “know that it is or might be, untrue or misleading”. This latter part is designed to catch representations such as the promotion of a scheme involving high yield investments. In such a case it would be difficult to prove that a defendant knew in advance that a representation was in fact untrue, but easier to show that he was aware that it might be misleading. This offence can be used to prosecute so-called ‘boiler room’ frauds.
In conspiracy cases against the revenue however, even though the 2006 Act could be used the prosecution will invariably opt for the common-law offence.
The Indictment
We find that is vital when dealing with these cases to have a complete understanding of how the prosecution have constructed their case and why they have done it in that way. That is to say defenders have to really know why the indictment is set out in the way that it is. That will not always be easy to ascertain in multi-handed cases. For example in an investment fraud count 1 will often allege conspiracy to defraud – i.e. defrauding the investors. Whereas count 2 will be conspiracy to cheat – i.e. that the scheme was designed to manipulate the tax system by e.g. generating tax rebates. Are these alternatives? Can the revenue be cheated but not the investor? If a dent can be made in one allegation how far does it affect how the other stands-up? Count 3 may be a true alternative, e.g. some of the defendants may be charged with money laundering or false accounting. The defender must understand exactly what was in mind when the indictment was drafted and, more so than in other cases, what is alleged against a co-defendant may influence what tactical turns to make in respect of your own case.
What is dishonesty?
The majority of the preparation that defenders put into complex fraud trials should be focussed on this one issue. The question of dishonesty is always a matter of fact for the jury and it always relates to the defendant’s state of mind – not his conduct. In Ghosh [1982] QB 1053, the Court of Appeal set down guidance on this most basic of ingredients to any fraud allegation. Dr. Ghosh was a surgeon who was committed on offences under the Theft Act 1968. He had obtained fees by claiming for work done by others or under the NHS. He appealed on the basis that his trial Judge had left the question of dishonesty to the jury’s common-sense. The Appeal Court set down the proper approach which requires a two-stage test. The jury must be directed first of all to decide whether “according to the ordinary standards of reasonable and honest people what was done was dishonest” (this is assuming ‘what was done’ is proven). If so the jury then goes onto to consider whether the defendant “himself must have realised that what he was doing was by those standards dishonest….”. This is the so-called objective/subjective test of putting a reasonable ordinary man in the shoes of the defendant.
This is why, in large scale fraud allegations, it is vital for defenders to get under the skin of those they represent. Defendants are very often hugely concerned that the jury will not understand their motivation to e.g. forge a signature on a document or some other ‘spike’ in the Crown’s case because the jury will not understand how, for example, the share-trading industry works in practice, or the pensions market or whatever field of endeavour is being considered. To truly put the jury in the shoes of the innocent defendant the jury must know the man, know his motivation, understand his impulses, his pressures, his foibles his strengths and weaknesses and then, and only then, ask ‘can I be sure he was acting dishonestly?’
This is easier said than done. It will often mean the instruction of an independent expert to explain to the jury how, for example, the industry in question works in practice. The choosing of which witnesses to cross-examination will be vital and quite a different skill to other types of cases e.g. a witness may be chosen for cross-examination by the defence more by a desire to ‘get the message across’, than challenging direct facts on the witnesses’ statement. For example a witness may be an insurance firm’s employee who, on paper, simply produces lots of invoices – he or she may find themselves being used by the defence to get across to the jury that, for example, most fraudulent insurance claims will include a claim for X, Y or Z - patterns not existing in the defendant’s case.
Of course there can be no formula – when it comes to establishing the lack of dishonesty it is all a case of full and early preparation.
Jonathan Lennon is a Barrister specialising in serious and complex criminal defence cases based at 23 Essex Street Chambers, London. He is a contributing author to Covert Human Intelligence Sources, (2008 Waterside Press) and is ranked by both Legal 500 Chambers & Ptnrs. Jonthan Lennon is one of only 22 counsel nationwide recognised in C&P’s specialist POCA section.
Aziz Rahman is a Solicitor- Advocate and Partner at the leading Criminal Defence firm Rahman Ravelli Solicitors, specialising in Human Rights, Financial Crime and Large Scale Conspiracies/Serious crime. Rahman Ravelli are members of the Specialist Fraud Panel and have been ranked by Legal 500 as an 'excellent' firm with Aziz Rahman being described as 'first class and very experienced'. The firm is also ranked in Chambers & Partners.
