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RESEARCH PAPER 06/31 The Fraud Bill [HL] 6 JUNE 2006 Bill 166 of 2005-06
This paper discusses the provisions of the Fraud Bill [HL] which has completed its passage through the House of Lords and was introduced in the House of Commons on 29 March 2006.
The Bill is designed to implement the Government’s proposals for reform of the criminal law relating to fraud in England and Wales and Northern Ireland. The proposals are based on the recommendations of a 2002 Law Commission report on Fraud and the results of a parallel consultation in Northern Ireland. The Government has decided not to implement the Commission’s recommendation that the common law crime of conspiracy to defraud be abolished, at least for the time being.
The Bill seeks to replace the current statutory offences involving fraud with a general offence of fraud, which may be committed in three ways. It also creates a number of new offences.
Miriam Peck
HOME AFFAIRS SECTION
HOUSE OF COMMONS LIBRARY
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ISSN 1368-8456
Summary of main points
A recent estimate suggests that fraud cost the UK economy in the region of £16 billion in 2004. At present there is no specific offence of “fraud” in English criminal law and cases involving fraud are prosecuted using the common law crime of conspiracy to defraud or a number of statutory offences involving fraud, most of which are set out in the Theft Acts 1968-96. In recent years a number of high-profile and costly fraud prosecutions have collapsed and concern has been expressed about whether the current criminal offences and prosecution arrangements are adequate to deal with the many and varied types of fraud that are currently being perpetrated, particularly in the light of developments in modern technology and electronic commerce.
In April 1998 Jack Straw, who was then Home Secretary, asked the Law Commission to examine the law on fraud. The Law Commission published a consultation paper in March 1999 and this was followed by a report, published in July 2002, which recommended that the eight different offences of deception created by the Theft Acts 1968-96 and the common law crime of conspiracy to defraud be replaced by two new statutory offences, one of fraud and one of obtaining services dishonestly.1 The Commission considered that the introduction of a single general offence of fraud would:
- make the law more comprehensible to juries - be a useful tool for the effective prosecution of fraud from investigation through to trial - simplify the law and be fairer to potential defendants - encompass fraud in its many unpredictable forms.
In May 2004, the Home Office published a consultation paper saying that the Government agreed with the Law Commission report and proposed to introduce a Bill based on it, subject to the views of stakeholders and other consultees. In its subsequent report following the consultation exercise the Government said that a large minority of respondents had agreed with the Law Commission’s view that the common law offence was unfairly uncertain and too wide. They had also agreed with the Law Commission’s view that the common law offence was illogical, in that it made conduct by a group a criminal offence where the same conduct would not be criminal if carried out by a person acting alone. The majority of consultees had argued, however, that until the courts had experience of how the proposed new offences would operate in practice, abolition of conspiracy to defraud would be rash as it provided flexibility in dealing with the wide and ever-changing varieties of fraud. The Government decided to accept the view of the majority and retain common law conspiracy, while noting that repeal of the common law crime was its long-term aim. The Government said the position would be reviewed in the context of the Law Commission's forthcoming report on assisting and encouraging crime.
The Fraud Bill, which has completed its passage through the House of Lords and was introduced in the House of Commons on 29 March 2006, seeks to simplify the criminal law of
1 Law Com no 276
fraud along the lines proposed by the Government, by creating a general offence of fraud, which may be committed in three different ways, and a number of additional offences. The Bill was warmly welcomed in the House of Lords, although several peers expressed concern at the Government’s departure from the Law Commission’s recommendation that conspiracy to defraud be abolished. Peers also expressed concern about the Government’s attempt to implement provisions in the Criminal Justice Act 2003 which seek to permit non-jury trial in cases of serious and complex fraud. The Government now intends to bring these provisions into force through further primary legislation at a later date.
CONTENTS
I The Law of Fraud 7
II The Fraud Bill [Bill 166 of 2005-06] 11
A. The three types of fraud 11
1. Fraud by false representation 11 2. Fraud by failing to disclose information 12 3. Fraud by abuse of position 13 B. Common elements in the three types of the new offence of fraud 14
C. Articles used in frauds 15
D. Participating in fraudulent business carried on by a sole trader 16
E. Obtaining services dishonestly 17
F. Supplementary provisions 17
1. Liability of company officers 17 2. Incriminating evidence 17 G. Regulatory Impact Assessment 18
III Comment on the Fraud Bill 2005-06 18
IV The Extent of Fraud 24
V Notable prosecutions involving serious fraud 25
A. SSL International: R v Cater, Sanders and George 26
B. VAT frauds: R v Chandoo, Baig, Golechla, Ali and Ali: 27
C. Prudential 27
D. Jubilee line fraud: R v Rayment & Others 28
E. Wickes: R v Rosenthal, Sweetbaum, Llewelyn, Carson, & Battersby 31
F. Co-op: R v Regan 32
G. Polly Peck: R v Nadir 33
H. Comments on problems with fraud prosecutions 34
VI Jurisdiction 37
VII Jury trial 38
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I The Law of Fraud
In April 1998, Jack Straw, who was then Home Secretary, put a request to the Law Commission:
As part of their programme of work on dishonesty, to examine the law on fraud, and in particular to consider whether it: is readily comprehensible to juries; is adequate for effective prosecution; is fair to potential defendants; meets the need of developing technology including electronic means of transfer; and to make recommendations to improve the law in these respects with all due expedition. In making these recommendations to consider whether a general offence of fraud would improve the criminal law.2
In March 1999, the Commission published a consultation paper, Legislating the Criminal Code: Fraud and Deception, considering the case for a general offence of fraud to replace the numerous existing offences which involve fraud, and other options for reform.3 The Law Commission’s final report on Fraud was published in July 2002.4
As the Commission noted, at present there is no offence of “fraud” in English criminal law.5 The common law crime of conspiracy to defraud, which was specifically preserved as an offence by the Criminal Law Act 1977, requires proof that two or more conspirators dishonestly intended to defraud another party or parties. The conspirators would not necessarily commit a crime if they acted separately, an anomaly that has been much criticised as “indefensible” by the Law Commission and others.6 The statutory offences involving fraud are summarised in the Law Commission’s 2002 report on Fraud as follows:
2.8 The most general statutory crimes of fraud are those created by the Theft Acts 1968 and 1978, as amended by the Theft (Amendment) Act 1996. They include:
(1) theft, defined as the dishonest appropriation of property belonging to another with the intention of permanently depriving the other of it; and
(2) eight offences of deception, committed by a person who dishonestly and by deception
(a) obtains property belonging to another, with the intention of permanently depriving the other of it, (b) obtains a money transfer, (c) obtains services, (d) secures the remission of an existing liability to make a payment, (e) induces a creditor to wait for payment or to forgo payment with intent to permanently default on the debt, (f) obtains an exemption from or abatement of liability to make a payment,
2 HC Debates 7 April 1998 c.176–177WA 3 Law Commission Consultation Paper No 155 4 Fraud Law Com No. 276 Cm 5560 2002 at http://www.lawcom.gov.uk/docs/lc276.pdf 5 ibid. paragraph 2.4 6 Fraud Law Com No. 276 (2002) paragraph 1.4
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(g) obtains a pecuniary advantage, or (h) procures the execution of a valuable security.
All of these offences require the prosecution to provide evidence of dishonesty.
In its final report, published in July 2002,7 the Law Commission took the view that the problem with the current offences involving fraud was that, while conspiracy to defraud was too wide in its scope, in that it included agreements to do things which were rightly not criminal in themselves, the statutory offences were too narrow and particularised and failed to catch certain conduct which should be criminal.8
The Law Commission argued that there was a need for simplification and rationalisation of the existing statutory offences:
3.10 At present, there is a multitude of overlapping but distinct statutory offences which can be employed in fraud trials. As Griew noted:
No one wanting to construct a rational, efficient law of criminal fraud would choose to start from the present position. The law … is in a very untidy and unsatisfactory condition. The various offences are not so framed and related to each other as to cover, in a clearly organised way and without doubt or strained interpretation, the range of conduct with which the law should be able to deal.
3.11 Arguably, the law of fraud is suffering from an “undue particularisation of closely allied crimes”. Over-particularisation or “untidiness” is undesirable in itself, but it also has undesirable consequences.
Giving examples from recent cases the Commission suggested that the “over- particularisation” of offences involving fraud had the following undesirable consequences:
• It allowed technical arguments to prosper • A defendant could face the wrong charge, or too many charges • Indictments tended to become complex because of the charging of alternative offences.9
The Law Commission noted that the difficulties with the existing statutory offences could arguably be met by consolidating most or all of the eight existing deception offences into one general deception offence. The Commission took the view, however, that there were further defects in the law of fraud which an offence of deception would not resolve because deception itself had limitations as a concept:
3.26 The concept of deception was introduced by the Theft Act 1968 in place of the older concept of a “false pretence”, which was broadly synonymous with fraudulent misrepresentation. The CLRC wanted to move the focus from the defendant’s conduct to the deceived person’s mistaken belief:
The word “deception” seems to us … to have the advantage of directing attention to the effect that the offender deliberately produced on the
7 Fraud Law Com No. 276 Cm 5560 2002 at http://www.lawcom.gov.uk/docs/lc276.pdf 8 ibid. paragraph 3.5 9 ibid. paragraphs 3.11-3.24
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mind of the person deceived, whereas “false pretence” makes one think of what exactly the offender did in order to deceive. “Deception” seems also more apt in relation to deception by conduct.
3.27 The change was not intended to have any great practical effect, because even before 1968 it was necessary to prove that the defendant had obtained property by a false pretence. This required evidence that the pretence caused the transfer of property to the defendant. If the false pretence was operative, this almost inevitably meant that the dupe was deceived by it.
3.28 Even so, two cases involving payment cards went to the House of Lords, because the defendants argued that even if they had committed a false pretence they had not committed a deception. The argument was rejected by the House of Lords, but some concerns with the reasoning in these decisions remain. Furthermore, there are two kinds of frauds in which the gain is obtained by neither deception nor false pretence: those which are practised on machines, and those involving an abuse of position.10
In the introductory chapter of its report the Law Commission noted that it had been working on the law of fraud intermittently since the 1970s and that its work in this area had been mainly directed towards two different and arguably competing objectives:
One is to ensure that the scope of the criminal law of fraud is wide enough to enable fraudsters to be successfully prosecuted and appropriately sentenced, without being so wide as to impose unacceptable restrictions on personal freedom, or so vague as to infringe the principle of the rule of law. The other is to eliminate the indefensible anomaly represented by the continuing survival of conspiracy to defraud, under which it may be a crime for two people to agree to do something which, in the absence of an agreement, either of them could lawfully do. The task with which we have several times had to grapple is that of devising a statutory law of fraud which, by satisfying the first objective, would in turn make it possible to achieve the second, by abolishing conspiracy to defraud. In this report we bring those efforts to what we believe is a satisfactory conclusion.11
The Law Commission recommended that the eight offences of deception created by the Theft Acts 1968-96 and the common law crime of conspiracy to defraud be replaced by two new statutory offences, one of fraud and one of obtaining services dishonestly. The latter would make it unlawful to “steal” services by helping oneself, extending to those who obtain services by providing false information to computers and machines. A draft Bill was included with the report. The Law Commission considered that the introduction of a single general offence of fraud along the lines recommended in its report would:
- make the law more comprehensible to juries - be a useful tool for the effective prosecution of fraud from investigation through to trial - simplify the law and be fairer to potential defendants - encompass fraud in its many unpredictable forms.
10 ibid. 11 ibid. paragraph 1.4
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In May 2004, the Home Office published a consultation paper on Fraud Law Reform which sought seeking stakeholder views on the Government’s reform proposals. It said that the Government generally agreed with the Law Commission report, and proposed to introduce a Fraud Bill based on it, subject to the views of consultees. The 10 specific questions for consultation included:
Question 5 Do you agree that there should be a new offence of 'obtaining services dishonestly’? Question 6 Do you agree that all behaviour which is in practice rightly prosecuted as conspiracy to defraud can be prosecuted as fraud under the Bill (or under another existing law), and that conspiracy to defraud can be repealed?
The Government response was published in November 2004, with annexes listing the respondents and summarising the problems with the existing law.12 In its response the Government said that the repeal of common law conspiracy to defraud was the only proposal to which there had been widespread opposition:
A large minority of respondents agreed with the Law Commission that it was illogical that what was legal for one person should be criminal for many, and that the offence is unfairly uncertain, and so wide it has the potential to catch behaviour that should not be criminal. They took the view that the new statutory offences, together with the possibility of charging statutory conspiracy to commit these new offences, and bearing in mind other possible charges – such as the new offence of cheating at gambling that is in the current Gambling Bill - cover all the behaviour that in practice should be covered by the criminal law.
However the repeal was opposed by the majority of consultees. The main argument was that, at least until we have experience of how the new offences operate in practice, it would be rash to repeal conspiracy to defraud as it provides flexibility in dealing with a wide variety of frauds. They argued that it was not clear that the new offences could successfully replace it in every case, especially bearing in mind developing technology and possible new types of fraud.13
The Government said it had decided to accept the view of the majority and retain common law conspiracy, but that repeal of the common law crime remained its long-term aim, and the position would be reviewed in the context of the Law Commission's forthcoming (consultative) report on assisting and encouraging crime.14 This report was expected to be published in 2005, but its publication has been delayed, although it is expected imminently.15
The Law Commission’s report was concerned solely with the law in England and Wales. The Government also carried out a parallel consultation process in Northern Ireland,
12Fraud Law Reform: Government Response to Consultations Home Office November 2004 http://www.homeoffice.gov.uk/documents/cons-fraud-law-reform/ 13 ibid. paragraphs 39-40 14 ibid. paragraph 45 15 http://www.lawcom.gov.uk/criminal.htm
10 RESEARCH PAPER 06/31 launching a public consultation on 17 May 200416 to which the responses were broadly the same as those in England and Wales. On 19 October 2004 the Government announced that reforms to the law of fraud in Northern Ireland would be included in the forthcoming Fraud Bill.17
II The Fraud Bill [Bill 166 of 2005-06]
The Fraud Bill, which was introduced in the House of Lords on 25 May 2005, has now completed its stages there and been passed to the House of Commons.
The Bill seeks to abolish the existing deception offences in sections 15, 15A, 16 and 20(2) of the Theft Act 1968 and sections 1 and 2 of the Theft Act 1978 (and equivalent provisions in the Theft Act (Northern Ireland) 1969 and the Theft (Northern Ireland) Order 1978)18 and replace them with new offences based on the Law Commission’s recommendations in its 2002 report on Fraud.19
Clause 1 of the Bill sets out a new general offence of fraud, the maximum penalty for which will be ten years’ imprisonment and a fine. This is the current maximum penalty for the principal existing statutory offences involving deception and for the common law offence of conspiracy to defraud. There will be three different ways of committing the new offence and these are set out in Clauses 2, 3 and 4 of the Bill. They are:
• By false representation (Clause 2) • By failing to disclose information (Clause 3) • By abuse of position (Clause 4)
A. The three types of fraud
1. Fraud by false representation
Under Clause 2 it will be an offence for a person to commit fraud by making a false representation dishonestly. Clause 2(2) defines a representation as being “false” if it is untrue or misleading and the person making it knows that it is, or might be, so. “Representation” is defined in Clause 2(3) as any representation as to fact or law, including a representation as to a person’s state of mind. The representation may be expressed or implied. The Explanatory Notes comment that there is no limitation on the way in which the representation must be expressed and that it could therefore be written, spoken or posted on a website. They add that:
16 http://www.nio.gov.uk/governments_response_to_public_consultation_on_fraud_law_reform.pdf 17 “Laws to combat fraud to be reformed – Spellar” Northern Ireland Office Media Centre 19 October 2004 http://www.nio.gov.uk/media-detail.htm?newsID=10425&keywords=fraud+AND+reform 18 S.I. 1978/1407 (N.I.23) 19 Law Com No.276 Cm 5560
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15. A representation may also be implied by conduct. An example of a representation by conduct is where a person dishonestly misuses a credit card to pay for items. By tendering the card, he is falsely representing that he has the authority to use it for that transaction. It is immaterial whether the merchant accepting the card for payment is deceived by the representation.
16. This offence would also be committed by someone who engages in "phishing": i.e. where a person disseminates an email to large groups 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' personal financial information.
Clause 2(5) states that:
For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention).
The Government has introduced this provision with the intention of ensuring that the new offence extends to cases that can be committed where a person makes a representation to a machine and a response is produced without any human involvement, such as where a person enters a number into a “CHIP and PIN” machine.
2. Fraud by failing to disclose information
A person will be committing fraud by failing to disclose information if he has a legal duty to disclose information to another person and he dishonestly fails to disclose it. 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. In its report on Fraud 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.20
20 Fraud Law Commission Report No.276 Cm 5560 (2002)
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The Explanatory Notes provide the following examples of situations in which a failure to provide information could constitute the type of fraud covered by Clause 3:
For example, the failure of a solicitor to share vital information with a client within the context of their work relationship, in order to perpetrate a fraud upon that client, would be covered by this clause. Similarly, an offence could be committed under this clause if a person intentionally failed to disclose information relating to his heart condition when making an application for life insurance.21
3. Fraud by abuse of position
The type of fraud set out in Clause 4 is intended to enable the prosecution for fraud of a person who occupies a position in which he is expected to safeguard, or not act against, the financial interests of another person and who dishonestly abuses his or her position, through action or omission, in order to commit fraud. In its report on Fraud the Law Commission gave the following examples of the types of relationship in which this situation might arise:
7.38 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 upon by the judge and, if the case goes to the jury, of being the subject of directions.22
The Explanatory Notes add that:
21……For example, 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 at the expense of the employer, commits an offence under this clause.
22. An employee of a software company who uses his position to clone software products with the intention of selling the products on would commit an offence under this clause.
23. Another example covered by this clause is where a person who is employed to care for an elderly or disabled person has access to that person's bank account and abuses his position by removing funds for his own personal use.
21Explanatory Notes, paragraph 19 22Fraud Law Commission Report No.276 Cm 5560 (2002)
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B. Common elements in the three types of the new offence of fraud
For the offence of fraud to be committed the false representation, failure to disclose information or abuse of position will have to have been carried out “dishonestly”. The Explanatory Notes comment that:
The current definition of dishonesty was established in R v Ghosh [1982] Q.B.1053. That judgment sets a two-stage test. The first question is whether a defendant's behaviour would be regarded as dishonest by the ordinary standards of reasonable and honest people. If answered positively, the second question is whether the defendant was aware that his conduct was dishonest and would be regarded as dishonest by reasonable and honest people.
The Attorney-General, Lord Goldsmith, made the following comments about the requirement of dishonesty during the debate on Clause 3 of the Bill in committee in the House of Lords:
The Government agreed with the Law Commission that dishonesty should be an underlying requirement for all three limbs of the general offence of fraud. The commission, after very careful consideration, concluded in paragraph 7.9 of its report that,
"we are persuaded . . . that the element of dishonesty should be essential to (though not sufficient for) criminal liability for fraud".
That conclusion was widely supported by stakeholders in response to the Government's consultation paper. It is an underlying safeguard for the innocent, and we do not see any justification for changing it now, for any limb of the general offence.
As I have said, there is a shared understanding of what "dishonesty" means, thanks to the case of Ghosh. I remind noble Lords that the Ghosh test requires some subjective awareness by the offender that what he did was not in accord with the standards of ordinary people. This is an essential test for criminal liability for fraud. To remove the requirement for dishonesty would result in a criminal offence that is too widely drawn.
The same would apply, if perhaps to a lesser extent, if we were to accept Amendment No. 10 and introduce the possibility of prosecutions for actions that were carried out not dishonestly but merely "wrongfully". We have no common understanding of what is meant by the term "wrongfully". We have a common understanding of what is meant by "dishonestly" because the case of Ghosh and our common experience tells us what it is.
The Law Commission used the term "wrongfully" in its draft Bill, but that was because, at that stage, it wanted to find a drafting device, a label, to cover two different sets of circumstances which it believed ought to be covered in this clause. If I may paraphrase, those were a legal duty and a moral duty. We will come to those in later amendments. We did not agree, following the consultation, with part of its definition; that is, where there is no legal duty to disclose the information. Once we had made that policy decision not to include the non-legal duty, there was no point in retaining the label which the commission had come up with to describe the two sets of circumstances, so "wrongful" disappeared.
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In short, we agreed with the commission that dishonesty ought to be not a sufficient but an essential part of the offence. 23
The prosecution will also need to show that the person who made a false representation, failed to disclose information or abused his or her position did so with the intention of making a gain or causing a risk of loss to another. The prosecution will not have to show that an actual gain or loss took place.
“Gain” and “loss” are defined in Clause 5 in broadly the same way as they are in the Theft Act 1968. Thus the “gain” or “loss” may be temporary or permanent, but will extend only to gain or loss in money or other property. A “gain” will include keeping what one has, as well as getting something one does not have, and “loss” will include not getting what one might get, as well as parting with what one has.24
Clause 5(2) defines “property” as
any property whether real or personal (including things in action and other intangible property).
The Explanatory Notes comment that this definition 5(2) includes intellectual property. The definition follows the existing definition of property in the Theft Act 1968.
C. Articles used in frauds
Section 25 of the Theft Act 1968 currently makes it an offence, punishable by up to three years’ imprisonment, for a person to “go equipped” with articles for use in the course of or in connection with any burglary, theft or cheat. Section 25(3) of the 1968 Act provides that:
Where a person is charged with an offence under this section, proof that he had with him any article made or adapted for use in committing a burglary, theft or cheat shall be evidence that he had it with him for such use.
Clause 6 of the Fraud Bill seeks to make it an offence, punishable by up to five years’ imprisonment and a fine, for a person to have in his possession or under his control any article for use in the course of or in connection with any fraud. Clause 6 does not include any provision equivalent to section 25(3) of the 1968 Act but the Explanatory Notes comment that:
The intention is to attract the caselaw on section 25, which has established that proof is required 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 the offence, and that a general intention to commit fraud will suffice. In R v Ellames 60 Cr. App. R. 7 (CA), the court said that:
“In our view, to establish an offence under s 25(1) the prosecution must prove that the defendant was in possession of the article, and intended the article to be used in the course of or in connection with
23 HL Debates 19 July 2005 c1424 24 Clause 5
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some future burglary, theft or cheat. But it is not necessary to prove that he intended it to be used in the course of or in connection with any specific burglary, theft or cheat; it is enough to prove a general intention to use it for some burglary, theft or cheat; we think that this view is supported by the use of the word ‘any’ in s 25(1). Nor, in our view, is it necessary to prove that the defendant intended to use it himself; it will be enough to prove that he had it with him with the intention that it should be used by someone else.”
Clause 7 of the Bill will make it an offence punishable by up to ten years’ imprisonment for a person to make, adapt, supply or offer to supply any article knowing that it is designed or adapted for use in the course of or in connection with fraud or intending it to be used to commit or assist in the commission of fraud.
Clause 8 provides that for the purposes of Clauses 6 and 7 and a number of other related provisions “article” includes any program or data held in electronic form. This could include computer programs, templates and files.
D. Participating in fraudulent business carried on by a sole trader
Section 458 of the Companies Act 1985 and Article 451 of the Companies (Northern Ireland) Order 1986 create offences concerning fraudulent business carried on by companies and various other corporate bodies. Clause 9 of the Fraud Bill seeks to make it an offence for a person knowingly to be a party to the carrying on of a fraudulent business carried on by a person who is outside the reach of the offences under the 1985 Act and the 1986 Order. The new offence, which would apply to non-corporate traders, such as sole traders, partnerships, trusts, or companies registered overseas, is intended to mirror the existing offences under the 1985 Act and the 1986 Order. The Explanatory Notes comment that:
30. A person commits the offence of fraudulent trading under the companies legislation if he is knowingly party to the carrying on of a company's business either with intent to defraud creditors or for any other fraudulent purposes. This clause creates a similar offence that applies to persons knowingly party to the carrying on of non-corporate businesses in either of those ways. Fraudulent trading is in effect a general fraud offence, comparable to conspiracy to defraud, but requiring the use of a company instead of the element of conspiracy. The case law has established that:
• dishonesty is an essential ingredient of the offence;
• the mischief aimed at is fraudulent trading generally, and not just in so far as it affects creditors;
• the offence is aimed at carrying on a business but that can be constituted by a single transaction; and
• it can only be committed by persons who exercise some kind of controlling or managerial function within the company.
It is intended that these principles should apply to the new offence in clause 9 too.
The new offence will be punishable by up to ten years’ imprisonment and a fine. Clause 10 of the Bill increases the maximum term of imprisonment for the equivalent offences in
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relation to fraudulent trading by companies under section 458 of the Companies Act 1985 and article 451 of the Companies (Northern Ireland) Order 1986 from seven to ten years. As section 458 of the 1985 Act extends to Scotland as well as England and Wales Clause 15(4) of the Bill also seeks to extend the increase in the maximum penalty for the offence under the 1985 Act to Scotland.
E. Obtaining services dishonestly
Clause 11 of the Bill is designed to make it an offence, punishable by up to five years’ imprisonment and a fine, for a person, by a dishonest act, to obtain services for himself or another person, for which payment is required, with intent to avoid paying the full amount required. For a prosecution to succeed it will have to be proved that the person knew when he obtained the services that payment was required or that it might be. The offence is designed to replace the existing offence under section 1 of the Theft Act 1978 of obtaining services by deception. Deception is not required in respect of the new offence.
A person will not be liable under the new offence for acts of omission alone. The Explanatory Notes comment that the new offence will be committed only where the dishonest act was done with the intention of avoiding the expected payment for the services concerned. The Explanatory Notes add that:
35. The offence is not inchoate; it requires the actual obtaining of the service. For example, data or software may be made available on the Internet to a certain category of person who has paid for access rights to that service. A person dishonestly using false credit card details or other false personal information to obtain the service would be committing an offence under this clause. The clause would also cover a situation where a person climbs over a wall and watches a football match without paying the entrance fee - such a person is not deceiving the provider of the service directly, but is obtaining a service which is provided on the basis that people will pay for it.
36. Clause 11 also covers the situation where a person attaches a decoder to her television to enable viewing access to cable / satellite television channels for which she has no intention of paying.
F. Supplementary provisions
1. Liability of company officers
If any of the new offences in the Bill are committed by a company or body corporate and it is proved that they were committed with the consent or connivance of the company officers (or members, where the corporate body is managed by its members) Clause 12 will enable the officers or members to be prosecuted and sentenced for the offences as well as the company. The clause is intended to mirror the provisions of section 18 of the Theft Act 1968.
2. Incriminating evidence
Clause 13 is intended to prevent a person being excused from answering questions or complying with orders, in certain civil proceedings relating to property, on the grounds that answering the questions or complying with the orders might incriminate him or his spouse or civil partner in relation to an offence in the Fraud Bill or a related offence. A
17 RESEARCH PAPER 06/31 statement or admission made by a person in answering questions or complying with orders in such circumstances will not, however, be admissible in evidence against him (or against his spouse or partner at the time the statement or admission was made) in any proceedings for an offence in the Bill or any related offence. There are similar provisions preserving this aspect of the “right to silence” or the “privilege against self- incrimination” in section 31(1) of the Theft Act 1968 and section 29(1) of the Theft Act (Northern Ireland) 1969.
G. Regulatory Impact Assessment
The Regulatory Impact Assessment for the Fraud Bill has been published by the Home Office. It makes the following comments about the possible benefits of the Government’s proposals: There was general support by most of those who responded to our Consultation Paper for the focus on the intention rather than the outcome, and the focus on the dishonesty of the perpetrator rather than the deception of the victim. That should simplify prosecution and give fraud trials greater focus and structure. Even a modest saving of court time per case could have an impact as fraud is a common crime, and some of the more complex fraud cases occupy a disproportionate share of court time.
In 2003 14,899 defendants were proceeded against at the magistrates’ courts in England and Wales, 1018 for the common law crime of conspiracy to defraud and the remaining number for the Theft Act deception offences which would be repealed by the Bill. (10,581 were found guilty, of which 449 were found guilty of conspiracy to defraud. In the same period, 34 defendants were found guilty of fraudulent trading.)
Most of those who commented on this RIA in consultations anticipated benefits. The British Bankers' Association said that they expected Option 4 would lead to increased efficiency in police investigations and the conviction rate which, combined with confiscation under the Proceeds of Crime Act 2002, would reduce losses from fraud. The Audit Commission and the International Underwriting Association anticipated long-term benefits from raising corporate awareness and the deterrent effect. The Institute of Legacy Management said charities would benefit by up to £2-3m if legacy fraud were prevented. No other specific figures were given and Barclays Bank said it was too early to quantify the benefits.25
III Comment on the Fraud Bill 2005-06
The Fraud Bill was warmly welcomed when it had its Second Reading in the House of Lords on 22 June.26 The Law Officers’ statement, on the previous day, that provisions for non-jury fraud trials were to be brought into force, did, however attract much criticism in both Houses.
During the debate on the Bill in the House of Lords critical comment was largely directed at the Government’s departure from the Law Commission recommendation that the common law conspiracy to defraud be abolished. During the Bill’s second reading in the
25 http://www.homeoffice.gov.uk/documents/ria-fraud-bill-060905?view=Binary 26 HL Deb 22 June 2005 c1651-1677
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House of Lords on 22 June 2005 several peers expressed concern at this. The Liberal Democrat peer Lord Thomas of Gresford drew attention27 to the Law Commission’s conclusion that -
To retain conspiracy to defraud on the ground that it might occasionally prove useful in such a case would in our view be an excess of caution. Since it is not practicable to identify all such cases in advance, it would mean that we could never be in a position to abolish conspiracy to defraud . . . The advantages of abolishing it, in our view, greatly outweigh any possible advantage that might accrue from retaining it alongside the new offences which we recommend.28
The Conservative spokesman Lord Kingsland commented that although it had been indicated that the majority of consultees supported the retention of the conspiracy offence,
that conflicts with the information that I received from his department. I may have misread or misunderstood the information, but my belief is that Liberty, the Criminal Law Solicitors' Association, the Institute of Counter Fraud Specialists, the International Underwriting Association, the London Criminal Court Solicitors Association, HM Customs and Excise, the Audit Commission and the Institute of Legal Executives all supported the abolition of the offence of conspiracy to defraud.
The two main supporters of its continuation were, not surprisingly, the CPS and the Serious Fraud Office. One would expect those organisations to want the continuation of that offence. It makes writing indictments much easier.29
The cross-bench peer and former law lord Lord Lloyd of Berwick said:
I say at once that I have an instinctive dislike, and I think that many judges have, of these catch-all offences such as conspiracy to defraud. Of course, as the noble and learned Lord the Attorney-General has pointed out, it makes it easier for prosecutors, but that surely is the whole danger.
It seems to me that offences of such generality, and so amorphous as conspiracy to defraud, offend against one of the more fundamental principles of our judicial system: the principle of legal certainty. How can anyone know whether they are guilty of a conspiracy to defraud until it is too late as far as they are concerned? So I urge the Government to think again on that point.
There is a practical argument. We now have good new offences which I greatly welcome. Surely it ought to be a working rule for the Government that for every new offence that they create they should repeal at least two old offences. Here they have a chance to repeal the old common law offence of conspiracy to defraud, and I hope that they will think again before the matter comes to Committee.30
27 HL Debates 22 Jun 2005 c1664 28 Law Com No. 276 paragraph 9.4 29 HL Debates 22 Jun 2005 c1670 30 ibid. c1665
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The Attorney General Lord Goldsmith made the following comments about this issue in his speech concluding the debate on the Bill’s second reading:
There are two issues, perhaps three, that we will need to consider when we return to the matter of conspiracy to defraud. The first is the practical value of the offence. We will need to explore that in more detail than is appropriate today, but I mentioned that in my opening speech.
The second is whether there is conduct that would be caught by conspiracy to defraud that would not be caught by present offences. The noble and learned Lord referred to a decision in Hollinshead. That was an example where the conduct involved was a number of people conspiring to manufacture devices that were then used to help people avoid paying for electricity. It was held by the courts that they—that is to say, the manufacturers—could not be found guilty of conspiracy to commit the offence of obtaining the electricity by use of those devices because they were not involved in the actual abstraction of electricity. I do not comment on whether the noble and learned Lord is right to say that the decision was a bad one, but it illustrates the problem that people may be involved in conspiring to do something but not in the substantive offence because that is done by a third party who is outside the conspiracy. That is one aspect that we will need to consider.
My third point, on which I have already touched, is that the Law Commission is publishing a report on participation in crime.
Lord Goodhart: My Lords, I am grateful to the noble and learned Lord for giving way. Would not the Hollinshead example of something manufactured with a view to being used by other people to abstract electricity now be covered by Clause 7, so that that problem would no longer arise?
Lord Goldsmith: My Lords, I am absolutely conscious of that. The question, which we will want to debate when we return to this topic, will be whether that is an adequate response in the circumstances where that is the only aspect on which one would be proceeding against those people. That creates difficulties, because we would not necessarily then be able to include in the same proceedings the people who were abstracting the electricity—the severing of indictments and issues of that sort. But I do not want to go further than that; I just want to indicate the sort of areas that we will need to consider.
The point that I wanted to make was that the Law Commission is publishing a report on participation in crime and any reform of the law that flows from that work would inform this area of law as well. Secondly, we do not yet know how effectively the provisions on multiple offending in the Domestic Violence, Crime and Victims Act 2004 will work. Obviously, we hope that they will work. If they are in force, I am not aware that they have yet been operated in any case. Thirdly, in congratulating the Law Commission, noble Lords have assumed that it must have got it right: that these offences cover everything. Again, we do not yet know that that optimism will turn out to be correct.
Lord Lloyd of Berwick: My Lords, with respect, how will we ever know that? The answer is that we cannot. That is one point made by the commission. Now is the time to do it. If necessary, we could postpone bringing the abolition or repeal into force, but please let us do it now.
Lord Goldsmith: My Lords, the difficulty is that we are dealing with an offence— conspiracy to defraud—that is at present quite regularly indicted. Therefore, the question that we must ask ourselves as we legislate responsibly, as I know we will, is whether we can be sufficiently confident that we will not be leaving outside the area of conduct that ought to be prosecuted in the public interest conduct of that sort.
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I will come back to this, but we can take the view that it is unnecessary to abolish conspiracy to defraud now in the Bill. We can look to see how the Act operates in practice; we can look to see what the Law Commission has to say about the law of conspiracy and participation more generally; and we can look to see how the multiple offending provisions operate. We can always return to it in future if it appears clear that it is no longer necessary. I know that noble Lords will wish to return to the issue.31
On 15th July the Attorney General, Lord Goldsmith, published a letter to Lord Kingsland setting out in some detail the Government’s case for retaining the common law offence of conspiracy to defraud.32 During the Bill’s committee stage in the House of Lords the Liberal Democrat peer Lord Goodhart moved an amendment designed to abolish the common law offence of conspiracy to defraud. There was a lengthy debate on the subject before Lord Goodhart withdrew his amendment, saying that the issue was likely to be considered again.33 He duly introduced the same amendment during the Bill’s report stage. In opposing the amendment, which was subsequently withdrawn, the Attorney General expressed concern that, as the Law Commission itself had acknowledged, abolition of the common law offence of conspiracy to defraud might leave gaps in the law that might prevent the prosecution of acts that should be regarded as criminal. He went on:
I make this point at this stage because I have said that we do not yet have a clear picture of whether repeal is possible, and if so whether ancillary changes to the law are needed. Despite the fact that this point has arisen at Second Reading and in Committee, no one has come forward with amendments proposing changes that would go along with the repeal of the common law offence of conspiracy to defraud so as to fit those gaps. I will come back to that—it is one of the disadvantages of a prospective repeal, because we have not identified those gaps perhaps with sufficient precision to be able to say what would need to be put in their place.
The most important point is that we are not yet in a position to draw conclusions from the operation of the new fraud offences. We intend and hope that when the Fraud Act is in force, it will be the primary tool used to prosecute fraudsters. The offences in the Bill, and the charge of conspiracy to commit them, should be flexible enough to cover a wide variety of fraudulent activities, some of which have until now been difficult to capture. Aside from the new general offence, the offences of possessing and making articles to commit fraud and of fraudulent trading applicable to businesses other than companies will assist law enforcers to tackle frauds that previously may have required to be dealt with under the common law.
I have said before that we need to retain common law conspiracy to defraud for two reasons. We have spent a lot of time looking at this. It has meant not just that noble Lords have focused more on this, but we have focused more on this. I certainly have done so in detail. If anything, I am more persuaded at this point than I was before that we need to retain common law conspiracy to defraud for the time being. First, it has a broad practical application that the Bill's offences
31 ibid. c1675-1677 32 MGP 05/1447 33 HL Debates 19 July 2005 c1437-1450
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may not be able to reproduce in every case. The flexibility of the common law offence is most effective in containing the detail involved in very large and complex cases, where there may be many defendants and multiple counts on an indictment. The conspiracy to defraud offence provides the ability for the prosecution to reveal and for the court to see a fraudulent course of conduct from beginning to end.
On 19 July, I identified some of those people who had taken the view and responded to the Government's consultation by saying that the common law offence should not be repealed. They included, and that had been apparent from the start, those prosecutors who are charged with the responsibility of prosecuting these offences, the Crown Prosecution Service and the Serious Fraud Office. It went beyond that to the Association of Chief Police Officers; the Fraud Advisory Panel, which has a wide and experienced membership; the Law Society; the Confederation of British Industry; the NHS Counter Fraud and Security Management Service; the British Bankers' Association; the Association for Payment Clearing Services; and the British Retail Consortium. Quite a number of different bodies have supported it.
I referred also to the Rose committee in particular. The noble and learned Lord, Lord Lloyd of Berwick, asked me at that stage whether there was any record of what the Rose committee had said. I undertook to follow that up, and I sent to him and to others who took part in the debate the views of Lord Justice Rose and his committee in a letter dated 26 July 2005. As it has been referred to by all those who have spoken so far, it is right that I should put on the record what Lord Justice Rose wrote. He said: "It would be risky to repeal common law conspiracy to defraud as it can be the most effective charge in a case where multiple defendants are engaged in a fraudulent course of conduct. There are limitations on the law of statutory conspiracy, which has had something of a chequered history. All the judges present at the meeting agreed the Bill should not repeal common law conspiracy to defraud". I find that a very strong endorsement of where we stand at the moment and of the approach that we ought to adopt.
We will all recall the legislative solutions that we have proposed in the past to solve all problems, but which turned out, in the event, not to do so. This may have been in the mind of the Rose committee at the time. The Theft Acts themselves come into that category; they had to be amended several times and we are now making an even more radical change. It may therefore be cautious of us to want to retain the offence for the time being, but the caution is well supported by those who know what they are talking about. It is an appropriate caution in a serious matter.
The alternative—I used the word on the last occasion—would be irresponsible. In the face of prosecutors, police and senior judges saying that this is a risk, it is not a risk that I am prepared to take. Nobody who is serious about prosecuting fraud—as I hope the whole House is—would want to take that risk.
Nor do we want to add to the real problems we already face in the management of some trials of large or complex cases. We are grateful because of the limitations in that area of the law. In Committee, and in a letter sent out before that stage, I explained—probably at too much length—some of the problems. A particular problem is where the final offence is committed by somebody outside
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the conspiracy. A number of for the steps that the Lord Chief Justice has taken to address this issue in the protocol for the control and management of heavy fraud and other complex criminal cases. Yet it is too early to reach a conclusion on its affect. We will return to that in the course of this Bill. We also hope that the provisions on multiple offending in the Domestic Violence, Crime and Victims Act, which we plan to implement this year, will have an impact on the management of complex fraud trials. Yet we need experience of how that operates before we can conclude that it has had the affect that we hoped for.
The second reason not to repeal the common law is that there remain some specific forms of conduct that can be prosecuted only as conspiracy to defraud. One reason for that is the problem with statutory conspiracy, people can conspire together, the purpose of which is to ultimately enable someone else to commit an offence. If that person is outside the conspiracy, then they cannot all be charged as part of a statutory conspiracy. Statutory conspiracy also requires a degree of knowledge of the substantive offence to be committed. I have done my best to draw attention to what these problems are; I set it out in the letter, I explained it in the House, and I held an open meeting to which I invited all noble Lords who were interested to hear from technical experts so that we could go into these problems. Unfortunately, only the noble Baroness, Lady Anelay, was able to attend that meeting, but I have done by best to demonstrate the problems. I therefore strongly urge the House to recognise the undesirability of removing this offence for the time being.
The noble Lord, Lord Goodhart, would say that this is not what he is doing, because he leaves a minimum three-year period before the repeal would come into effect. That is not a satisfactory conclusion. It is not tidy, as far as legislation is concerned, to put prospective repeals on to the statute book. I certainly do not think that it is a good way of proceeding when one of the reasons for waiting is to see what gaps, if any, the new offences throw up. Surely the right way to proceed is to review the operation of the new offence, and see whether it establishes not only that the common law offence can after all be repealed, but also what changes may need to be made to go along with that, by bringing certain other offences into statute, and so forth.
I recognise two things: first, that it is necessary to review the operation of the act. I have made that clear, and that the act will be reviewed in three years' time, as the noble Lord, Lord Goodhart, says. That is where he gets his three years from. It will be reviewed. Secondly, I propose to recognise the concerns that some noble Lords have expressed about the overuse of conspiracy to defraud by giving guidance to prosecutors when the new Act comes into effect, outlining the criteria to be considered before they use the common law offence. It will ask prosecutors to consider first whether the behaviour could be prosecuted under statute, under the Fraud Act 2006, or under some other Act as a statutory conspiracy. It will also outline the cases in which the common law charge may be appropriate and— noble Lords may think this important—will ask prosecutors to record their reasons for using the common law charge in any case for which they do so. That will have two benefits: it will ensure that the reviewing prosecutor has focused his or her mind on why the common law offence is the right one to use in that case; but it will also provide us with a record which we can then use to inform our further deliberations in three years' time.34
34 HL Debates 14 March 2006 c1113-1116
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The Attorney General sent copies of a working draft of his guidance for prosecutors on fraud prosecutions to the Opposition front-bench peers in the House of Lords. The draft guidance was summarised by the Attorney General during the third reading debate on the Bill in the House of Lords:
First, this is working guidance, which has been considered with the directors of the prosecuting authorities, who agree with its content. I propose to issue final guidance around the time of Royal Assent—obviously, I will ensure that noble Lords have it at that stage and I will place copies in the Libraries of both Houses. The guidance will then be issued to the directors of the prosecuting authorities: the Crown Prosecution Service, the Serious Fraud Office, the Revenue and Customs Prosecuting Office and what we call the Whitehall prosecutors—other government prosecutors who do not fall into any of those three offices. I intend the guidance to apply to all of them. They will probably want at least the larger offices to issue their own more detailed guidelines, but those will be based on my guidance. What, then, does the guidance say? As the noble Lord, Lord Kingsland, has noted, it sets out a little of the background. It then explains the process that we intend to follow. As I said on Report, one of the merits of the approach that I am adopting in this guidance, which is to require prosecutors to record their reasons for using the common-law offence, is that it will both focus their attention on why they are doing it and give us a record that we can look at afterwards to see whether we have got this right. The guidance will give my view, as in paragraph 9 of the draft, that common-law charges may still be appropriate in two sorts of cases, or in the types of cases set out in paragraphs 12 to 15. First, there are those that the noble Lord, Lord Kingsland, has identified as cases where that approach is desirable for sentencing purposes. I think that that is shorthand; it is rather narrow in its description. In fact, that category covers cases where the interests of justice can be served only by presenting to a court an overall picture that cannot be achieved by charging a series of substantive offences or statutory conspiracy. On earlier occasions, I have given examples of where that may be, and the guidance does that as well. The second category covers cases where, as the noble Lord rightly identified, the conduct is such that it can only be prosecuted as conspiracy to defraud. The purpose of the guidance is therefore to give that guidance.35
IV The Extent of Fraud
In 2004 13,030 defendants were proceeded against at the magistrates’ courts in England and Wales for deception offences, 967 for the common law crime of conspiracy to defraud and the remaining number for the Theft Act and Companies Act deception offences which would be repealed by the Bill.
During 2004 9,767 defendants were found guilty of deception offences, of which 521 were found guilty of conspiracy to defraud and 34 were found guilty of fraudulent trading.
35 HL Debates 29 March 2006 c782-3
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Of those sentenced for conspiracy to defraud 69% received an immediate custodial sentence while the proportion was slightly lower for fraudulent trading offenders (61%).36
In November 2005 Norwich Union published a report on fraud which noted that:
• In 2004 fraud cost the UK economy in the region of £16 billion and is growing. This is equivalent to £650 per household per annum • Fraud is not a victimless crime. It appears as such because it lacks visibility and its scale is not understood. • Constraints upon the Police translate into a perceived reticence to prosecute fraudsters, sustaining the widely held view that fraud is not a real crime in the same way as burglary or theft are considered to be. • Prosecution levels for fraud in the UK are low, and in the event of a conviction being achieved, the likelihood of strong sentencing is also low. This absence of effective deterrents to committing fraud is a significant factor in its growth, and increased exploitation by organised crime. • The National Criminal Intelligence Service (NCIS) has estimated that UK organised crime now earns as much from fraud as from drugs. The proceeds of fraud are fuelling the growth of organised crime.37
The Norwich Union report goes on to make the following comments about the Fraud Bill:
The proposed introduction of a single offence of fraud through the Fraud Bill is a valuable step forward, and Norwich Union welcomes the Government’s determination to provide this clarity.
However the Fraud Bill may not solve the current problems alone. There needs to be a commensurate rise in the prioritisation and resources given to fraud within policing and the Crown Prosecution Service, and other forms of effective deterrents including collection of restitution awards, costs and unpaid fines.
The current debate about the structure of policing in the UK should, in Norwich Union’s view, facilitate the effective working of the Fraud Bill and address the whole issue of fraud across the breadth of its impact.38
V Notable prosecutions involving serious fraud
Most prosecutions for offences involving dishonesty involve relatively small sums of money. The Serious Fraud Office investigates and prosecutes cases involving particularly serious and complex fraud. In recent years a number of unsuccessful prosecutions involving cases of serious or large-scale fraud have attracted particular media attention.
36 This updates information in the Fraud Bill Regulatory Impact Assessment. Source: Home Office statistics. 37 The Fraud Report: Shedding light on hidden crime Norwich Union November 2005 executive summary 38 ibid.
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A. SSL International: R v Cater, Sanders and George
In June 2005, a judge’s ruling which ended a fraud trial in December 2004 was published. The SFO was said to be considering an appeal. The Guardian reported:
In a highly embarrassing ruling for the SFO, Judge Stephen Clarke said it was "manifestly obvious" that the evidence presented to the Cheshire court could not support a conviction. As a result, charges against the former SSL chief executive Iain Cater, his finance director Paul Sanders and European managing director Dieno George were dismissed in December.
In his seven-page ruling, issued last December but only now reportable for legal reasons, Judge Clarke said: "The evidence in this case points overwhelmingly to the company indulging in trade loading." Trade loading is bulk selling to customers, and is often used to inflate sales figures in advance of accounting deadlines.
"Of course excessive trade loading may give an unrealistic picture of profitability. However, it has to be stressed that trade loading is not illegal and forms part of conventional trading."
Judge Clarke took less than four days to reach this conclusion, which is believed to have surprised and embarrassed the SFO. The agency has been struggling to raise its conviction rate in recent years and the inquiry into the directors of SSL, which had a market value of about £380m before the scandal broke, was among its more high-profile cases.
Lawyers for the SFO yesterday asked Judge Clarke for time to consider its options. The SFO is thought to be planning to file an application for a voluntary bill of indictment - in effect an appeal against Judge Clarke's decision - with the high court. It is thought to be the first time that the SFO has pursued such an appeal against a crown court ruling.39
Mr Cater, meanwhile, is understood to have considered bringing a claim against the SFO following a three-year investigation that has left his reputation in tatters. He is expected to consider this option more closely, should the SFO pursue an appeal.
On 8 December 2005, at the High Court, the application by the Serious Fraud Office for a Voluntary Bill of Indictment to reinstate proceedings against six defendants in the SSL Case was rejected and the SFO was ordered to pay costs to the defendants in relation to the Voluntary Bill of Indictment proceedings.40
39 “Serious Fraud Office humiliated in court: Judge rules out evidence presented against ex-directors of condom maker * Agency plans unprecedented appeal”,17 June 2005, The Guardian 40 “SSL International PL”, Serious Fraud Office press notice 8 December 2005 http://www.sfo.gov.uk/news/prout/pr_458.asp?id=458
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B. VAT frauds: R v Chandoo, Baig, Golechla, Ali and Ali:
In May 2005 two major VAT fraud trials were discontinued. Mr Justice Crane gave the reasons for the staying of proceedings relating to “Operation Venison”. It has been suggested that his ruling is likely to affect 18 other cases being prosecuted by Customs, now called HM Revenue & Customs, in what is known 'missing trader' or 'carousel' fraud. 41
THE collapse of a £100 million VAT fraud trial was the result of "muddle, incompetence and lack of frankness" within Customs and Excise, Mr Justice Crane said last Friday. Customs officers withheld evidence from their own lawyers which demonstrated that some of their main witnesses could not be relied on to tell the truth.
"If prosecuting counsel were to be kept in the dark, there must have been a preparedness to keep the defence, the judge and ultimately the jury in the dark," Mr Justice Crane added….Ruling in last week's case that there had been an abuse of process, Mr Justice Crane stayed proceedings against five Manchester- based businessmen.
They had been charged by Customs during Operation Venison, an investigation into "missing trader intra-community" fraud - or MTIC for short. It was alleged that mobile telephones had been imported, tax-free, by a false trading company and then sold on with VAT added.
The Independent reported that a similar customs case (“Operation Vitric”) had collapsed at Blackfriars Crown Court. Seven men and a woman were charged with VAT fraud on the transportation of computer chips across European border: the judge stopped the proceedings.42
A businessman accused of masterminding a VAT fraud was also acquitted at Blackfriars Crown Court in May 2005.43
C. Prudential
A major fraud prosecution involving the Prudential foundered in April 2005:
In 2001 it was alleged that the head of the PRU [Pensions Review Unit], Susan Melton, had received gifts from a contractor and that Mr Gilbert, Ms Melton, her husband and two other defendants had set up companies to do the work for less than the Prudential was charged and pocketed the extra money.
The defendants were arrested in late 2001 by the City of London Police, which was called in by the Prudential after it launched its own civil action against four of the defendants.
41 “Customs and good practice The first super-prosecutor intends to see integrity restored and his department 'punching its weight'”, 30 June 2005, Daily Telegraph 42 “The £65 million fiasco”, 24 June 2005, The Independent
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But if the mess within the Prudential was bad, the police and Crown Prosecution Service were about to make an equally poor job of the prosecution…According to Judge Higgins, the police failed to comply with their obligations to secure and review the masses of documentary evidence, in effect abrogating their responsibilities to the Pru.
The prosecution 'merely relied on what they were told by the Prudential' and 'on any document the Prudential chose to rely on' making 'no independent investigation of their own,' said the judge….Repeated requests by defence lawyers for disclosure were evaded and ignored until last year in a manner that the judge found 'so consistent, sustained, systematic and, in the end, predictable, that I am driven to the unpalatable conclusion that it was wilful'.
Only two-and-a-half years after the first arrests and a year after the prosecution claimed to have disclosed everything, did a proper attempt to review and disclose the evidence begin. It was too late.
Much of the material, including 900 boxes of documentation, had been destroyed by the Prudential following what they claimed was a 'misunderstanding'. This development the judge described as 'extraordinary'.
'We believe the delay in securing relevant evidence deprived David Gilbert of an opportunity to have a fair trial,' said Alison Hill of his solicitors, Bark & Co. 'The prosecution was a shambles.'
Destroyed material included documentation regarding the contracts at the centre of the allegations, minutes of meetings, internal correspondence and even computer analysis done by the Prudential for the police.
Despite prosecution claims that a trial was still possible and attempts by the Prudential and prosecution to blame each other for the debacle, the judge found that relevant material had been destroyed and that, as such, a fair trial would never be possible.44
The judge reportedly commented that only a "superficial investigation" had been carried out and that a huge number of relevant documents had been destroyed:
Other documents were "still being unearthed and served to the defence team piecemeal". He said: "Frankly the conduct of the prosecution authorities towards the defendants' solicitors and the court has often been contemptuous."45
D. Jubilee line fraud: R v Rayment & Others
On 22 March 2005 the Attorney-General made a written statement which explains the history of the prosecution. He said:46
Jubilee Line Fraud Case: The trial judge in the case of R v Rayment & Others at the Central Criminal Court has today, 22 March 2005, discharged the jury, ending the proceedings.
43 “Man cleared of £14m VAT fraud”, 20 May 2005, The Guardian 44 “ Pru five trial collapses as judge reveals list of errors”, 24 April 2005, Independent on Sunday 45 'Scandalous' CPS errors led to fraud trial collapse”, 21 April 2005, Daily Telegraph 46 HL Deb 22 March 2005 cWS18
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The trial dealt with an alleged fraud over contracts for the construction of London's Jubilee Line extension project. The prosecution arose from allegations that the defendants conspired to defraud London Underground by gaining access to confidential insider information, which was used against London Underground Limited's interests during the course of its dealings with tenderers and contractors on the Jubilee Line extension project. The information was relevant to the award of contracts worth tens of millions of pounds and two substantial claims for additional monies under contracts awarded in connection with the Jubilee Line extension project. The allegations also concerned corrupting public officials entrusted with safeguarding London Underground Limited's interests.
Experienced lawyers considered the evidence in detail and a decision to prosecute was taken. Charges were brought in February 2000. Lord Williams, when he was Attorney-General, granted consent in February 2000 to prosecute the corruption case on the basis that there was sufficient evidence for a realistic prospect of conviction and it was in the public interest to prosecute.
The CPS was ready for trial in 2001 but the case was split into two trials. The first trial started with a jury on 26 June 2003. The case has been affected by delays and breaks. Time has been lost due to illness, scheduled holidays, periods of paternity leave, an operation and sickness of defendants. Legal argument has also involved substantial periods where the jury were not required to hear evidence. For example, in the last seven months the jury has heard evidence on only 13 days of the 140 available.
The judge's ruling followed submissions by all parties in response to a request from the judge.
Prosecuting counsel have advised that it is their clear view that there have been such delays and interruptions to this case that a fair trial is now impossible. Counsel formed a judgment that the case ought to be stopped. The DPP and I agree with that view and, therefore, approved prosecution counsel's statement to the trial judge informing her of this view.
I agreed with the DPP last year the need for more control and robust management of large cases. The DPP has responded by developing a system, which will see a case management panel, chaired by the DPP, to consider the management of very large cases. The panel will consider issues such as the selection of charges, the number of defendants, likely number and length of trials and selection of trial advocates. It will also monitor progress of the case and key case management decisions during its life. It will be coupled with a similar process across the 42 CPS areas where chief crown prosecutors will review the most serious and lengthy cases in their areas. This will be implemented from 4 April 2005 and, I believe, offers real potential for getting a better grip on cases such as the current matter.
In addition, the DPP has recently announced a new structure to deal with the most serious and complex cases in CPS headquarters. This will involve the DPP in more direct and substantial control over such cases. I welcome this restructuring.
On 22 March the Lord Chief Justice issued a protocol for dealing with lengthy trials, which I welcomed. The protocol emphasises the need for robust and well informed case management to identify and allow the court to focus on the real
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issues in the case. The new protocol fits clearly with the criminal case management framework that I issued last July together with Lord Falconer, Baroness Scotland and the Lord Chief Justice. The protocol and framework will continue the culture change in the way in which all criminal justice practitioners operate. The public are entitled to an efficient and effective criminal justice system and cases such as the present one must never be allowed to happen again.
This decision will cause great public disquiet as it causes me considerable disquiet. Most serious allegations have not in the end been brought to a final conclusion. It is important, and in the interest of the defendants, to underline that these allegations have not been proved and that they have maintained they are not guilty.
Very considerable public money has been expended. Much time for a jury and for judge and defendants has been expended. It is important to learn what lessons we can. I have therefore asked Her Majesty's Chief Inspector of CPS, Stephen Wooler, to report to me on this case under Section 2(1)(b) of the CPS Inspectorate Act 2000. The terms of reference of this review will be drawn up shortly. The DPP has confirmed that the prosecution will provide full co-operation in this inquiry.
The final collapse, after many delays, appears to have been triggered by one of the jurors refusing to attend unless the court helped him to resolve a problem with his employer, who claimed that he owed £9,000 in pension contributions for the duration of his jury service.47 Two jurors had already been discharged, one being pregnant and the other accused of benefit fraud. Another said that the trial had forced her to cancel her wedding arrangements and miss out on promotion and pay rises at work. Other jurors’ comments were reported by the Daily Telegraph:
Miss O'Loughlin added: "It was £60m wasted and it looked as if the jury were to blame. I just want to tell the story of the trial from the jurors' perspective because we didn't ask to be put in that position."
Helen Boyask, 62, the wife of a London accountant and recently retired after working at Harrods for 30 years, said she had appealed for financial assistance after sitting on the jury for a year. "I talked to the expenses office at the Old Bailey. I was wearing a suit and they said 'You don't look as if you need the money'. It was insulting," she told The Guardian.
Both Miss O'Loughlin and Mrs Boyask said the issue was not the complexity of the trial, as they both felt they understood the issues well, but mismanagement.
What was intolerable, said Mrs Boyask, was the attempt to make a jury serve for such a long period. "If the trial goes on for such a length of time, naturally you are going to get illness, pregnancies, paternity leave -- people's wives have got to be allowed to have babies. "And you are going to get a lot of resentment as well."48
47 “No regrets: The juror accused of precipitating the collapse of the £60 m Jubilee Line fraud trial by going on strike”, 27 March 2005, Telegraph 48 “Marathon trial cost juror her wedding and a job. Two women reveal the price of doing their public duty in the Jubilee line case£, 25 March 2005, Daily Telegraph
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E. Wickes: R v Rosenthal, Sweetbaum, Llewelyn, Carson, & Battersby
The prosecution of Wickes executives, which finally collapsed in 2003, is often cited as a disastrous example:
Leslie Rosenthal, the final defendant in the Wickes fraud trial, walked free yesterday after the jury failed to arrive at a majority verdict and the Serious Fraud Office offered no evidence for a further trial.
However, in a surprise development after the judgment, Southwark Crown Court heard that Mr Rosenthal had confessed to a key plank of the prosecution's case in an interview that could not be used at the trial. His defence contradicted that earlier confession.
The revelation, by Anthony Hacking QC, marked the end of two court hearings and a seven-year investigation into the Do-It-Yourself chain estimated to have cost as much as £40m. None of the five defendants, including the former chairman Henry Sweetbaum and finance director Trefor Llewellyn, has been convicted, although all accepted that there was a fraud.
Its failure to secure a single conviction will come as a major embarrassment to the SFO and could rekindle debate about the use of juries in complex fraud trials. An SFO spokesman yesterday said: "There are some cases we prosecute with characteristics that could be more properly heard before a judge, particularly where the trials will last a long time." … The judge directed a "not guilty" verdict after the jury had to be discharged, following more than eight hours of deliberation over three days, because they could not come to a majority decision.
It was the second time Mr Rosenthal had faced trial over the alleged £22m fraud. The first time, in the original 10-month case, he was separated from his co- defendants after Mr Justice Mitting admitted evidence that was considered potentially prejudicial to his defence.
The evidence, used by his co-defendant and former finance director Terence Carson, had been given under a section two interview with the SFO. During the interview he admitted to having read a "letter of representation" to the auditors dated February 21, 1996, and signed it knowing that it included false statements.
The admission could not be used as part of the prosecution because it was extracted under duress - refusing to do a section two interview can result in three months' imprisonment. However, central to Mr Rosenthal's defence was his claim that he had not read the letter before signing it.
It also emerged that the judge might not have separated the cases if he had been trying them alone. Speaking about Mr Rosenthal's position last year, Mr Justice
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Mitting said: "I think different considerations may well apply if and when we do have trial by judge alone, because judges can compartmentalise things mentally in a way jurors cannot be counted upon to do."…49
The Financial Times commented:50
Since the cases have together consumed some 11 months of court time and are estimated to have cost a figure approaching the size of the fraud itself, the outcome must raise questions about the quality of the SFO's case and the manner of its pursuit, as well as broader issues about various niceties of the legal system and the role of juries in hearing complex fraud cases.
In fairness to the SFO, its record of convictions is pretty good, contrary to its popular image: last year, it prosecuted 13 people in eight trials and convicted 10 of them - a higher proportion than for criminal cases overall. But it often seems to find it harder to secure a conviction in the biggest, longest cases - perhaps because evidence has not been well presented, or was insufficient, or because jurors have not found it easy to follow or weigh the arguments.
F. Co-op: R v Regan
Another case which is often cited is the prosecution of Andrew Regan.
The trial of Andrew Regan was a long and costly saga that will go down as one of the Serious Fraud Office's more painful defeats.
The detailed investigation and three hearings are estimated by the SFO to have cost £1.5m. Mr Regan will also be claiming substantial legal costs. The SFO failed to prove Mr Regan's guilt in the original trial last year, when the jury could not reach a verdict.
It tried again in January, but the first effort at a retrial was stopped after only four days when one of the jurors reported being approached about the case. ..The third jury was sworn in last month for the third attempt and made subject to a jury protection order throughout the proceedings to head off any possible attempts to get to the eight women and three men. … The SFO case hinged on the testimony of Ronald Zimet, the Dutch businessman who was paid £2.4m to broker the extension agreement. The SFO gave him immunity in return for co-operating. But Mr Regan's lawyers attacked the credibility of the SFO's key witness and undermined its entire case.
The jury was told the entrepreneur, who did not give evidence, had nothing to do with the subsequent seven-figure transfers to bank accounts in Jersey. John Kelsey-Fry QC, defending, said Mr Zimet was the "ringmaster" behind the corrupt payments.
49 “Rosenthal free as jury fails to reach verdict SFO's £40m investigation unable to secure a single conviction”, 27 June 2003, Daily Telegraph 50 “Wickes case: A crime without a criminal”, 27 June 2003 Financial Times
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"It is an affront to common sense to consider Ronald Zimet anything other than the most tainted, the most unreliable witness," he told the jury. The SFO insisted yesterday it had fulfilled its responsibility to lay the facts before the court. It said: "As a result of this investigation two defendants were convicted and two acquitted. Our job is to present the evidence to the courts and this we did. It was then a matter for the jury to decide on that evidence whether they could be sure of the defendants' guilt."..….51
The Guardian explained why theft charges had been used:52
Controversially the SFO decided to strike a deal with Mr Zimet, who was living beyond the SFO's jurisdiction in Israel. Under the terms of the deal, Mr Zimet was granted immunity from prosecution on condition that he gave evidence against Mr Regan and the Co-op bosses at trial.
Mr Regan, however, was also living beyond the SFO's reach in Monaco. Because of a loophole in Britain's extradition treaty with Monaco, which does not recognise the UK offence of corruption, the SFO was faced with two options: to concede that Mr Regan might never return to Britain, or to issue an international arrest warrant for theft - a less appropriate charge than that of corruption. It chose to pursue the theft charge.
During the trial Mr Regan's counsel, John Kelsey-Fry QC, strongly and repeatedly denied the corporate raider had any involvement in corruption, but separately he added: "(Even) if the crown is right, he may have been corrupt but he is not a thief (as he is charged)." The jury was not told of the legal loophole that effectively prevented the SFO bringing a corruption charge against him.
G. Polly Peck: R v Nadir
Asil Nadir was facing 66 charges (totalling £34) million relating to the collapse of Polly Peck in 1990 and allegations of an illegal share support operation to keep the stock market value up in the months before the group went into administration. He fled the UK in 1993, to the Turkish Republic of Northern Cyprus, with which the UK had no extradition treaty.
In September [2003] , Mr Nadir had declared he was ready to come back to the UK as soon as an agreement with the Serious Fraud Office was reached to minimise the time he spends behind bars ahead of any trial. But Mr Krivinskas said the SFO had "put every obstacle in the way" of Mr Nadir's return. He said the legal team now needed time to prepare for a proper trial because "you can't take for granted" the success of the abuse of process hearing.
The SFO has consistently maintained that Mr Nadir cannot set conditions for his return and it fully intends to make him face multiple charges in court.53
51 “Drawn-out saga that ended in costly defeat for the SFO”, 7 August 2003 , Financial Times 52 “Market raider cleared in tale of bribes, spies and lies: New blow to SFO as £2.4m theft case fails at third trial”, 7 August 2003 The Guardian 53 “Fugitive Asil Nadir hires top criminal barrister for defence”, 11 November 2003, The Independent
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H. Comments on problems with fraud prosecutions
B Mahendra wrote an article in 2002 in the New Law Journal, defending the SFO after another failed trial. He said:
Life being essentially unfair, it has been the fate of the Serious Fraud Office (SFO) to be the subject of unremitting criticism, whether deserved or not. The latest incident in this line was the failure of the SFO to secure any conviction at all in the Deutsche Morgan Grenfell case in which the fraud alleged totalled £ 200 million with prosecution costs of £ 10 million.
The Deutsche case was, to say the least, a pretty odd one. It involved the unit trusts department of Morgan Grenfell investment group-later acquired by Deutsche Bank. Two of the four defendants came to be acquitted in the normal way. However, two others, including Mr Peter Young, a one-time star fund manager of the seemingly enviably successful European equities fund, fell ill. Mr Young, whose bizarre antics included turning up for hearings dressed up as a woman, was deemed mentally disordered and unfit to stand trial. The other developed leukaemia. It was generally conceded that with Mr Young hors de combat there was little realistic possibility of securing any convictions. In any event it seems harsh to criticise the SFO when key defendants are adjudged ill and not likely to effect the miraculous recovery of the kind enjoyed by Mr Ernest Saunders, former Chairman of Guinness plc.
However, criticism of the SFO goes well beyond these recent failures to secure convictions. There was a time in the 1990s, for instance, when watching the SFO at work was akin to following the England cricket team-a victory being so rare and unexpected that it was a cause for national rejoicing. Its reputation had plumbed the depths after the conspicuous failures in the Maxwell trial so much so that at the satirical end of the media the sobriquet Serious Farce Office was bestowed.54
A less generous view of the record followed in a May editorial:
The record of the SFO is not a happy one. To date, its only real successes are the first Guinness trial and the Barlow Clowes prosecution. Against them must be balanced the collapse of the second Guinness trial and the abandonment of Guinness 3; the acquittal of six of the 10 defendants in the first Blue Arrow prosecution, after a trial lasting a year and a cost estimated at £35m; the collapse of the trial of four men accused of a £60m fraud against Hill Samuel, the merchant bank; and the failure of the DPR Futures and Marconi cases. Last year, the SFO's conviction rate rose slightly, from 63 per cent in 1990 to 66 per cent, but that still compares badly with the 90 per cent rate historically produced by the Metropolitan and City Fraud Squad. Its targets of one year for an investigation and one year from investigation to trial are met only in the least complicated of cases, with more serious frauds taking anything up to seven years to come to trial. And despite the SFO's soaring costs -- up from £6.86m at its inception in 1988, to £17.7m last year, a 250 per cent rise amounting to eight times the inflation rate -- it still managed to go £3m over budget last year.
54 “Fighting serious fraud” 22 February 2002, New Law Journal p289
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Not all the blame for this poor record can attach to the SFO or its former Director, Barbara Mills. In Blue Arrow, some of the blame for the trial's inordinate length must rest with the trial judge, Mr Justice McKinnon. In Guiness 2, it was Mr Roger Seelig's conduct of his own defence which led to its unmanageability and threatened his health. And the sheer size of the recent BCCI and Maxwell scandals are very largely to blame for the burgeoning costs of fighting serious fraud.
Nevertheless, there is much which can be laid at the SFO's door. Delays of four or five years in bringing major cases to trial are inexcusable and unjust. And when the costs of investigating increasingly complex fraud are taken away, the costs of administering the SFO have still risen by 160 per cent from £5.62m at its inception to £8.95m last year. Mr Staple may seem remarkably relaxed about the SFO's ability to do the job, but it is difficult to see why.
The Serious Fraud Office needs to abandon its approach of throwing the book at defendants. The sheer size of recent prosecutions threatens their manageability. How can jurors possibly be expected to reach reasoned decisions on a multitude of charges after a trial lasting twelve months or more? The approach of Lord Goddard, the former Lord Chief Justice, has much to commend it: the prosecution should choose its best six counts and leave the others on the file. Mr Staple behaves as though such a change of approach is outside his control.
The SFO is bound by the Crown Prosecution code of practice, he says, which prevents it from charging people on the fringes of a case and from overloading the indictment. But justice often requires a number of defendants and a number of charges. "We can't be put in a strait-jacket," he adds. There is, however, a limit to the number of times an individual can be sentenced for offences arising out of the same crime.
There is no question that the SFO could abandon its current blunderbuss approach if it wanted to. Doing so, might also allow it to focus an investigation at a much earlier stage, thereby not only cutting down on the burgeoning costs of running the SFO, but also reducing delays in bringing cases to trial.
If, as he says he does, Mr Staple wishes to keep jury trial for serious fraud cases, he would be wise to turn his attention to ways of bringing these huge cases down to manageable size. His only suggestion at present is that the defence should be required to disclose its hand at an earlier stage, allowing the prosecution to refine its case, thereby reducing the overall length of the trial. This looks like little more than tipping the scales further in the prosecution's favour.
There are changes in procedures which could usefully be made to help cut the overall length of fraud cases -- better use of the special pre-trial procedures set out in the 1987 Criminal Justice Act, for example. But the onus is surely on the SFO and its new Director to set the pace in finding a solution to the problems thrown up by serious and complex fraud trials before the start of the next round of cases arising out of the most recent crop of scandals. As Mr Justice Henry said after the collapse of the second Guinness trial: "We must find a cheaper and quicker way to deal with serious fraud trials, and the likelihood is we shall need a
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radical solution rather than merely tinkering with procedures." Mr Staple should heed those words.55
Commenting after the Wickes trial, in 2003, in the Law Society’s Gazette, solicitor Anand Doobay said:
Perhaps the question the government should be addressing is not whether the right to jury trial in fraud cases should be abolished but whether the system for prosecuting these cases needs urgent reform. Unlike the Crown Prosecution Service, the SFO does not have an independent review process for deciding whether or not to proceed with a case. On the contrary, there is a great deal of media and possibly political pressure on this agency to produce results, particularly after lengthy and costly investigations.
The Wickes case required all those in court -- lawyers, judge and jury alike -- to understand fairly detailed concepts of retail trade and accountancy. Complexity of issues are concepts not confined to fraud cases but can be found in many other criminal trials, and particularly those in which detailed forensic evidence or medical issues are for determination.
Serious and complex fraud trials are by their nature lengthy. If the prosecution is to carry out its task by putting before the court the full range of the alleged criminality, then the evidence must describe the chronological scope of the activities as well as their nature. Should the proposed legislation pass, it will be interesting to see what real time is saved by presenting evidence in a way which is both fair to the accused and comprehensible to a judge, who has little experience of the economic activity involved.
In the Wickes case, having heard the verdict returned, the trial judge told the jury: 'Those who may hereafter criticise juries' appreciation of lengthy and complex fraud cases would have done well to see the care and attention that . . . you have given to this case throughout.'
Juries do not always come to the conclusion that the establishment or indeed public opinion at large would wish. However, the jury system is an established and, by and large, satisfactory institution for the trial of cases which affect reputation and liberty. Surely the onus of proof is on those who wish to abolish this tribunal to demonstrate, as they have not done so far, that there is something seriously wrong with the system.56
In 2003, the Financial Times published estimates of the cost of cases it regarded as SFO failures:57
55 “ Serious flaws at the Office”, New Law Journal, Vol 142 No 6554 p 741 56 “Jury still out on reform – the outcome of the Wickes trial highlighted how useful juries can be”, 20 February 2002, Law Society’s Gazette 57 “What high-profile SFO failures have cost the taxpayer so far”, 10 August 2003, Financial Times
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Date Case Outcome Cost £m
July 1992 Blue Arrow Convictions overturned on 40 appeal Feb 1993 Thomas Ward Acquitted 7a May 1993 Asil Nadir Jumped bail 2b Nov 1993 Roger Levitt Convicted – given 180 hours community service 4.5 Oct 1994 George Walker Acquitted 5 Jan 1996 Kevin and Ian Maxwell and Larry Trachtenberg Acquitted 20 June 2003 Leslie Rosenthal Acquitted 40c Aug 2003 Regan Acquitted 6.5d Total 125 a - Figure includes the Guinness II, III & IV trials, in which there were no convictions. The Guinness I trial, costing £20million, did see the 'Guinness Four' - Ernest Saunders, Gerald Ronson, Jack Lyons and Anthony Parnes - convicted b - Reported estimate; case never came to trial c - Figure for entire seven-year Wickes case, in which Rosenthal was the last of five defendants to walk free d - Includes Regan's estimated legal fees
VI Jurisdiction
In its May 2004 consultation paper the Government asked whether the proposed Fraud Bill should give courts within the UK "nationality jurisdiction", that is, jurisdiction over UK nationals and companies who commit frauds overseas. 58 A majority of respondents to the consultation exercise favoured giving the UK courts nationality jurisdiction but in its report on the consultation the Government said that it had decided not to do so:
53. The majority favoured taking nationality jurisdiction. As one put it, in an age of globalisation, the UK should take a certain responsibility for ensuring its nationals do not exploit people in other countries whose authorities are unable to protect them. However some of those who took this view cited types of cases which can in fact be dealt with already under the Criminal Justice Act 1993. Since the implementation of Part 1 of the 1993 Act, if any act or omission proof of which is required for conviction of a crime of deception takes place in the UK, our jurisdiction will already catch the case. The wide effect of the 1993 Act is not always appreciated: it only came into effect in 1999 and its use so far has therefore been limited.
54. So, for example, no jurisdictional problem will arise in 'phishing' cases, even though the fraudster typically operates abroad. If he targets people in the UK by
58 http://www.homeoffice.gov.uk/documents/cons-fraud-law-reform/fraud_law_reform.pdf?view=Binary
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sending them false representations in order to obtain their personal financial details, with a view to making a gain or causing them loss, then he will be committing an offence of fraud which falls within our jurisdiction under the 1993 Act. (Whether he can be successfully detected and brought to book for that offence is, of course, a different issue).
55. Some suggested that if the proposal was adopted some limitations should be imposed – for example that the jurisdiction should only be exercised:
• where the local authorities are unable or unwilling to proceed; and • where the UK authorities conclude prosecution is justified having regard to the gravity of the offence, the likelihood of a conviction, etc.
56. A few expressed outright opposition to the proposal - based both on practical difficulties (gathering evidence overseas, securing the attendance of witnesses from abroad), and on doubts based on principle (potential conflicts with the applicable local law, doubts as to the public interest in cases where is no impact on the UK, and as to whether UK nationals abroad should be subject to UK law as well as the local law). Others who supported it in principle nevertheless expressed concerns, due to the practical problems mentioned above, fears that law enforcement (already fully stretched to protect the UK from fraud) could not cope, and doubts as to whether it would prove cost-effective.
57. It is an unusual step in the criminal law to take extra-territorial jurisdiction and needs full justification. It is not clear that this is present for offences of fraud any more than for the majority of offences in our criminal law which our nationals may commit abroad. Generally our preference is for such offences to be tried abroad where the evidence and witnesses will be. On balance, therefore, and given the provisions in the Criminal Justice Act referred to above, we decided that we should not take nationality jurisdiction for fraud. The Bill will however amend the 1993 Act to ensure that that its wide jurisdictional provisions apply to the new fraud offences.59
VII Jury trial
Section 43 and other related provision of the Criminal Justice Act 2003 controversially seek to enable serious and complex fraud trials to be conducted by a judge sitting alone without a jury. Further background to the proposals for trials without juries can be found in Library Research Paper 02/73, The Criminal Justice Bill: Juries and Mode of Trial, and Standard Note SN/HA/2876, Recent developments concerning juries.
On 21 June 2005 the Law Officers made a statement saying that the Government had decided to seek affirmative resolutions to bring these provisions into force. The Government denied accusations that they were flagrantly in breach of assurances that had been given to the House during the passage of the Bill that became the 2003 Act as to how they would proceed on this matter. There had been consultation, as they had undertaken, in the form of a seminar held in January 2005 and attended by, among others:
the shadow Lord Chancellor, the noble Lord Kingsland, the noble Lord Thomas of Gresford on behalf of the Liberal Democrats, and representatives of the Bar,
59 http://www.homeoffice.gov.uk/documents/cons-fraud-law-reform/Government_response.pdf?view=Binary
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the Law Society, Justice, the Serious Fraud Office and Customs, as well as Lord Justice Thomas, Lord Justice Judge and Mr. Justice Field …60
The response from the legal profession to the implementation of the provisions in the 2003 Act has been critical. According to The Lawyer.com:
The Law Society and the Bar Council led the way in slamming the Government after the Attorney General, Lord Goldsmith announced plans for judges to try serious fraud cases without a jury.
Individuals also criticised the plans. David Farrer QC, head of chambers at 7 Bedford Row, said some judges were not up to dealing with complex fraud cases. "There are a lot of judges who have had little or no experience as practitioners of conducting trials of this kind," he said.
Many fraud lawyers argued that recent high-profile collapses, such as the Jubilee Line case, did not constitute a failure of the jury system.
This week's announcement comes before the report of Crown Prosecution Service inspector Stephen Wooler into the Jubilee Line trial. It is anticipated that the jury will not be blamed for the trial's collapse.
However, there was some support for the plans. Lawrence Graham corporate investigations head Andrew Witts said: "In my view, the criminal trial of complex fraud cases without juries is worth exploring in certain situations."61
The draft Criminal Justice Act 2003 (Commencement No.12 and Transitory Provisions) Order 2005 was considered in standing committee in the House of Commons and approved on 14 November 2005.62 The order was due to be debated in the House of Lords at the end of November but the Government withdrew the motion to approve it. Press reports suggested that the Government had done this because it was concerned that it might lose the vote on the motion.63 The provisions of the 2003 Act concerning non-jury trials in cases involving serious or complex fraud therefore remain unimplemented.
During the debate on the report stage of the Fraud Bill 2005-06 in the House of Lords the Liberal Democrat peer Lord Thomas of Gresford moved an amendment that sought to repeal the provisions in section 43 of the 2003 Act and instead introduce provisions permitting the creation of specific procedure rules for complex fraud cases.64 In opposing the amendment, which was subsequently withdrawn, the Attorney General said the Government remained committed to the policy set out in section 43 of the 2003 Act but that, rather than bring forward an order to implement it, the Government proposed to bring forward fresh primary legislation to give effect to it as soon as parliamentary time allowed.65
60 HC Deb 21 June 2005, c658 61 http://www.thelawyer.com/cgi-bin/item.cgi?id=115977&d=122&h=24&f=46 62 First Standing Committee on Delegated Legislation Monday 14 November 2005 c3-24 63 “Goldsmith fights to save plans for no-jury fraud trials” – Guardian 26 November 2005 64 HL Debates 14 March 2006 c1117-1121 65 ibid. c1130
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