|
Aggressive Regime for combatting fraud
Can be committed in three ways.
The Fraud Act 2006 received Royal Assent on 8 November 2006. This signals a more aggressive regime for combating fraud – in all its guises – in the UK. The Fraud Act provides for a new general offence of fraud that can be committed in three ways:
- by false representation
- by failing to disclose information
- by abuse of position
In each case the act must be committed dishonestly and with the intention of making a gain or causing a loss or risk of loss to another, but the gain or loss does not actually have to take place.
In July 2002 the Law Commission published a report on reforming the law on fraud, in which it recommended repealing the eight offences of deception created by the Theft Acts 1968 to 1996, and abolishing the common law crime of conspiracy to defraud. In their place, it recommended the creation of two statutory offences: one for fraud, and one of obtaining services dishonestly:
- Fraud would be committed where a person dishonestly makes a false representation, wrongfully fails to disclose information, or secretly abuses a position of trust, in each case with intent to make a gain or to cause loss or to expose another to the risk of loss. A person wrongfully fails to disclose information to another person if he is under a legal duty to disclose it, or if the information is of a kind that he is trusted to disclose and it is reasonable to expect him to disclose it. A person secretly abuses a position of trust when they have been given a position in which they are expected to safeguard another’s financial interest, and they abuse that position without the other’s knowledge.
- The offence of obtaining services dishonestly, intended to be a ‘theft-like’ offence, would make it unlawful to ‘steal’ services by simply helping oneself to them. The offence would not require proof of deception or fraud. It would be committed where a person obtains services by any dishonest act with intent to avoid payment, when payment is required. It would therefore extend to those who obtain services by providing false information to computers and machines.
The Act is substantially based on the Law Commission’s proposals. The Act creates a new general offence of fraud, which may be committed three ways:
- Fraud by false representation The false representation must be made dishonestly and the person must make the representation with the intention of making a gain or causing loss or risk of loss to another. 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. And representation means any representation by words or conduct as to fact or law, including a representation as to a person’s state of mind.
- Fraud by failing to disclose information A person will be in breach of this section if he dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and, again, intends to make a gain or cause a loss or risk of loss to another.
Fraud by abuse of position A person will in breach of this section if he:
- (a) occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person;
- (b) dishonestly abuses that position; and
- (c) intends to make a gain or causing loss or risk of loss to another.
The offence can be committed by omission as well as by positive action. The offence will carry a maximum sentence of 10 years.
The meaning of dishonestly For the offence of fraud to be committed, the false representation, failure to disclose information or abuse of position will have to be carried out ‘dishonestly’. In determining whether an individual acted dishonestly the test is a two stage test:
- Firstly the question is whether an individual’s actions were dishonest according to the ordinary standards of reasonable and honest people; and
- Secondly, if so, whether the individual realised that his actions were, according to those standards, dishonest.
Practical implications It is expected that the new general offence of fraud will become an additional item in the prosecutor’s toolkit to enhance the prospect of successful prosecutions.
The removal of complex technicalities from the offences and the focus on the offender’s intentions (rather than the outcome of their actions, such as the deception of the victim) may also mean that the general offence of fraud is used by prosecutors in preference to other pieces of specialist legislation. For example, insider trading is notoriously difficult to prosecute under the Criminal Justice Act 1993.
The simplicity of the offence of fraud by abuse of position may be attractive to prosecutors as an alternative in circumstances where the individual is the insider. The abuse of position offence will be established if a person occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person, and then dishonestly abuses that position with the intention of making a gain, causing a loss or exposing someone to a risk of loss.
It is not, therefore, necessary to prove that an actual gain, loss or risk of loss occurred. Similarly the offence of fraud by failure to disclose information may be used alongside or in preference to legislation requiring directors to comply with a duty to disclose information (such as price sensitive information) to the market or to provide complete and accurate accounting information.
The Act provides that this offence will be committed if a person dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and intends by such failure to make a gain, cause a loss or expose another to a risk of loss.
The Law Commission has said that a legal duty to disclose may include duties under oral or written contracts, statute, transactions of utmost good faith (such as insurance contracts), from the custom of a particular trade or market, or under fiduciary relationships.
The offence of fraud by false representation is likely to be committed by someone who engages in ‘phishing’ i.e. where a person disseminates an email to a large group of people falsely representing that the email has been sent by a legitimate financial institution. The email prompts the reader to provide information such as credit card and bank account numbers so that the ‘phisher’ can gain access to others’ assets.
If you require any further information about the services that we provide or would like to review your financial planning position, please
contact us
Back to Articles
|
