Fighting the fraud epidemic: ways to break the chain
At the start of the new year, an unfortunate and dispiriting reality is starting to dawn: 2022 was the UK’s ‘Year of Fraud’. From headlines of the UK government having lost £16 billion to Covid 19 fraud, to the shocking truth that only one in every 1,000 criminal complaints for fraud results in a conviction, a financial crime wave has become an epidemic and risks, without urgent action, to become endemic.
Efforts are under way to address the problem. The House of Lords’ Fraud Act 2006 and Digital Fraud Committee recently published a report into the fight on fraud. It is a fightback against the disturbing statistic that fraud is reportedly the most commonly experienced crime today, accounting for approximately 41% of all crime against individuals and, with those over 16 more likely to be a victim of fraud than any other individual type of crime.
The report noted, however, that this gargantuan problem was met with a lacklustre counter-fraud policy. Only 1% of law enforcement focuses on fighting economic crime. Responsibility for counter-fraud policy is also spread across multiple departments, allowing fraud to fall through the cracks. Underfunding of enforcement agencies and the sophisticated nature of criminal networks requires a new approach, and the Committee rightly advocated a government review of the use of civil remedies in the fight against fraud.
Civil Recovery Orders
The Committee advocates the increased use of Civil Recovery Orders, which enable the recovery of property under the Proceeds of Crime Act 2002 by enforcement agencies where it can be established, on the balance of probabilities, that the property was obtained unlawfully. This is particularly helpful when prosecutors fail to achieve a criminal standard of proof, but can still satisfy the court of the appropriateness of a civil recovery.
The Committee’s encouragement is welcome: in 2020/2021, Civil Recovery Orders resulted in the recouping of only £12.7 million as against the losses of around £500 million to fraud for the same period. If, as Max Hill KC, Director of Public Prosecution, suggested to the Committee, civil recovery should be seen as one of the weapons in the authorities’ arsenal, then more funding and training will be required by those authorities seeking to recover funds in this way. Partnerships with civil fraud and asset recovery specialists in the private sector are an obvious first step.
Civil proceedings – helping victims achieve their own justice
The Committee noted the need to address obstacles to using civil remedies to tackle fraud. One such obstacle to bringing civil proceedings can be court fees. With claims of over £200,000 requiring a £10,000 fee to be paid, it is no surprise that this may act as a dampener on small- and medium-value claims. Once application fees and trial fees are factored into the equation, the costs of pursuing a claim swiftly become prohibitive, particularly to illiquid victims.
Take, for example, Rachel, a victim of a Tinder Swindler-style romance fraud identified in the Committee’s report. Rachel lost £113,000 after she fell victim to a fraudster on Facebook with whom she believed herself to be in a relationship (the consequence of highly effective social engineering). Rachel borrowed some £90,000 and paid over £20,000 in her own savings. Court fees alone in Rachel’s case would likely be £5,650, before considering solicitors’ fees, counsel’s fees and other fees likely to be incurred such as investigators’ fees in order to find the fraudster and recoverable assets.
A first step could be that the government considers waiving fees in respect of fraud cases. For example, barristers or solicitors could certify a claim as a fraud claim when it is filed with the court, with the consequence that the claim would then be auto-exempted from court fees. While auto-exemption from court fees could, of course, be open to abuse, the professional obligations of barristers and solicitors would act as a safeguard; claims would be certified as fraud claims only if genuine as to do otherwise would risk regulatory consequences. Such certification would be at modest public cost and improve access to justice for individual victims of fraud.
Also at relatively modest public cost would be the introduction of a mechanism making corporates vulnerable to a class action. Such a mechanism already exists for private actions in competition law under the Consumer Rights Act 2015 and the regime has proven highly successful. As with the opt-out collective actions regime for competition claims, any such mechanism introduced in relation to fraud claims could be subject to similar safeguards to alleviate any concerns as to encouraging unmeritorious litigation. Passing greater responsibility to corporates provides the government with the opportunity to share the burden of the costs of fraud prevention while also offering victims additional means of redress.
Further, the government should revisit the ever returning and never settled debate as to the benefits of punitive damages, particularly on professionals that facilitate fraud either by deliberate actions or incompetence. The deterrence effect could be a significant one as the costs of both committing and failing to prevent fraud rise.
A key problem in the fight against fraud is confronting this pernicious wrong’s international and transnational characteristics. Money, including the proceeds of financial crime, crosses borders all too easily and neither enforcement agencies nor banking compliance is doing enough to stop it. To ease their burden, and help achieve redress for victims, the government should focus energies in two key boosts to civil remedies in the international sphere.
First, the government must redouble efforts to reduce the costs of and increase access to international recovery strategies. This can be achieved by increasing efforts to rejoin the Lugano Convention. The Lugano Convention, a treaty between the EU, Switzerland, Norway and Iceland, allows parties to have judgments recognised and enforced in the national courts of the parties to the treaty. As such, the Lugano Convention provides certainty to those involved in disputes and, without being a member, cross-border disputes, recovery and enforcement will be more expensive.
The risk of throwing good money after bad if the trail runs cold abroad is a real one, and judgment recognition is key to solving this issue. While there have been some notable positive developments in this regard, with 2022 seeing the mainland Chinese courts enforcing an English judgment for the first time and the United Arab Emirates Ministry of Justice noting English judgments can now be enforced in its domestic courts, enforcement in Europe remains at risk. After Brexit, the UK applied to rejoin the Lugano Convention in the first half of 2020, but its accession is still pending. The government needs to reconsider this as an important step to take in its fight against fraud.
Second, the government should move beyond the trite suggestions of greater co-operation between law enforcement internationally. While greater co-operation can only help when tackling international fraud, there is no reason that such co-operation should not extend to civil proceedings, for example, by increased judicial dialogue.
An example can be found in the Standing International Forum of Commercial Courts (SIFoCC), established in 2017, as a forum bringing together commercial courts around the globe. SIFoCC promotes collaboration and the just and effective resolution of commercial disputes. SIFoCC, and other international judicial forums, should be encouraged to consider how fraud might be tackled, and to encourage judicial co-operation in cases where fraud crosses borders. Fraud cases move quickly. Improved communication and a more joined-up approach can only assist to reduce costs and recover the assets of victims.
An avenue to be explored
Any public institution’s report is likely to focus on public answers to the problems that it confronts. No one could deny more resourcing is needed for law enforcement to confront economic crime. However, in a time of economic challenge, civil proceedings and private litigation offer a viable way to tackle fraud that weighs less on the public purse. As per the Committee’s report, civil proceedings are certainly an avenue that the government should explore, and do so with enthusiasm.