Author: Azizur Rahman
7 December 2012
6 min read
It is not going too far to say that the Fraud Act 2006 changed the landscape of fraud. For a defendant, it made the offence much simpler to understand and, from the Crown’s perspective, much easier to prosecute.
Much of the old law on fraud was contained in common law and in the Theft Acts of 1968 and 1978. But these Acts had caused technical arguments and had proved difficult to apply, so when the Law Commission produced a report on fraud in 2002 it was broadly welcomed. That report led to the Fraud Act 2006, which widened and simplified the law of fraud, even though some of the common-law offences such as conspiracy to defraud and conspiracy to cheat the revenue remain. The centre piece of the Act is undoubtedly the creation in section 1 of a single offence of fraud. It is a single offence that can be committed in one of three different ways:
A person commits this if he dishonestly makes a false representation with intent to gain or cause loss to another, or to expose another to risk of loss. There does not have to be an actual loss – or even the risk of a loss – and the alleged victim does not have to believe the false representations for an offence to have been committed. 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 risk investments’’. In such a case it would be difficult to prove that a defendant knew in advance that this representation was in fact untrue. It is much easier to show that he was aware that it might be misleading. This part of the Fraud Act is especially relevant when it comes to prosecuting so-called “boiler room’ frauds. In the current economic climate it has become effective in the prosecution of alleged mortgage fraud.
A person is in breach of this section of the Act if he “dishonestly fails to disclose to another person information which he is under a legal duty to disclose and he intends thereby to make a gain for himself or cause a loss, or risk of loss, to another”. This offence requires the Crown to firstly establish that the defendant was under a duty to make some kind of disclosure. The Crown will try to establish this by producing evidence of the relationship between the defendant and the alleged victim. For example, a legal duty to disclose 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; such as a solicitor - client relationship. The intention behind the non-disclosure must be to make a gain or cause loss, or risk of loss to another. This offence is complete as soon as the defendant fails to disclose information that he was under a legal duty to disclose, providing they had dishonest intent. It does not matter whether anyone is deceived or if any property is actually gained or lost. In clarifying the necessary duty, the Crown Prosecution Service’s (CPS) website suggests that this is a matter to be established by the trial judge and not the jury. Quite why the Crown says this is unclear: it certainly does not say that in the statute and it could prove to be a point for the Court of Appeal, as this provision has yet to be tested in the appeal courts. It is certainly a matter that we, as legal people, would not concede as this offence could risk criminalising what would have been purely civil disputes prior to the implementation of the 2006 Act.
This is committed by a person who occupies a post in which he or she is expected to safeguard (or not act against) the financial interests of another but then dishonestly abuses that position, intending to make a gain for him or herself or to cause loss, or risk of loss, to another. Examples given by the CPS include an employee of a software company who uses his position to clone software products for his own personal gain or an employee who grants contracts or gives discounts to friends, relatives or associates. This offence would cover the corruption cases involving “back-handers’’ or bribes and will invariably boil down to the question of honesty. Such an offence makes it imperative that anyone finding themselves facing such a prosecution is able to fully account for all aspects of their behaviour regarding the business activities that have been called into question.
The Fraud Act creates other offences such as possession of articles for use in fraud (ss7) and dishonestly obtaining services (s11). This latter offence replaces the old offence in the 1978 Act of obtaining services by deception – it is now ‘dishonesty’ not ‘deception’. This means that the prosecution does not have to prove that any of the deceptions were operative or had any effect on the victim – it is what is in the defendant’s mind that counts.
We still see non-Fraud Act offences being prosecuted under the previous legislation due to the implementation date of the Act and the very long investigate periods that often occur in complex fraud cases. The principles are, by and large, the same although the precise legal tests may be different. The common law offence of conspiracy to defraud must be mentioned, however, as it still exists and will continue to exist despite the Fraud Act. It must also be remembered that we still have fraudulent trading, false accounting and tax offences; perhaps the most notable being the MTIC frauds.
Broadly speaking, defenders in financial allegation cases will look at a defendant’s patterns of behaviour and his business practices. Honesty will usually be the central issue: one “dodgy” invoice may be a mistake but several may be deliberate. It may be that an accountant, or auditor with a particular knowledge of some business area, can help explain to the jury that what appears odd, or commercially risky, may be acceptable in a particular line of business. When it comes to using forensic accountants it makes sense for a solicitor and counsel to understand at an early stage what issues the accountant should concentrate on. Simply asking a forensic accountant to ‘have a look’ is not the right approach. The evidence of such an expert may be critical and he or she should have their energies focussed on the most relevant areas. For example, a man who appears to be trying to split monies between a number of bank accounts before withdrawing it can demonstrate, through the use of an accountant as an expert witness, that he is behaving as he always has done. He can show, therefore, that this behaviour is not irregular and has never before been called into question. Having this backed up by a forensic accountant as a witness can go a long way to diminishing the allegation of dishonesty. Audit trails may be poor but, armed with the right banking records and relevant documentation, an accountant may be able to help prove that, for example, a particular business venture was, or could have been, commercially successful and was not the scam that the prosecution claims.
We sometimes deal with accountants as clients as well as witnesses. There seems to be an increased appetite these days for prosecuting professionals who are dragged into court behind their clients. Accountants, for example, who have acted for clients accused of tax fraud or conveyancing solicitors in a mortgage fraud allegation. These will usually be professionals who worked in the ‘regulated sector’ under the Proceeds of Crime Act 2002 – those who are required to inform on their clients by way of a Suspicious Activity Report (SAR) if they are suspicious about where clients get their money from. On the one hand, the Crown will suggest that the lack of a SAR is evidence that the professional – whether it is an accountant, solicitor or other expert - is actually a party to the conspiracy to defraud. It is an argument that claims that what the professional does not report is blatantly suspicious. On the other hand, if a SAR is made about a particular transaction on a precautionary basis, the prosecution could say that because a SAR was made then the professional cannot possibly say they were not at least suspicious about where the money was coming from. This could then lead to a charge of money laundering if not involvement in the principal offence.
These are thorny practical issues. There is no “one size fits all’’ answer. Often it will be a case of comparing a client’s activity to accepted, legitimate practice. This can help make the point that the accused professional has done no more and no less than they would have done for a different client or if they were working for a different firm.
Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.