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The Fraud Bill [HL] 6 JUNE 2006 Bill 166 of 2005-06

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The Fraud Bill [HL] 6 JUNE 2006 Bill 166 of 2005-06 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 Recent Library Research Papers include: 06/16 Unemployment by Constituency, February 2006 15.03.06 06/17 The Palestinian Parliamentary Election and the rise of Hamas 15.03.06 06/18 The Charities Bill [Bill 83 of 2005-06] 15.03.06 06/19 The Housing Corporation (Delegation) etc Bill [Bill 164 of 2005-06] 03.04.06 06/20 The Commons Bill [Bill 115 of 2005-06] 10.04.06 06/21 Unemployment by Constituency, March 2006 12.04.06 06/22 Direct taxes: rates and allowances 2006-07 20.04.06 06/23 The Northern Ireland Bill [Bill 169 of 2005-06] 21.04.06 06/24 Social Indicators [includes article: Social statistics at parliamentary 28.04.06 constituency level] 06/25 Economic Indicators [includes article: Appointments to the Monetary 02.05.06 Policy Committee of the Bank of England] 06/26 Local elections 2006 10.05.06 06/27 Unemployment by Constituency, April 2006 17.05.06 06/28 Compensation Bill [Bill 155 of 2005-06] 19.05.06 06/29 The NHS Redress Bill [HL] [Bill 137 of 2005-06] 23.05.06 06/30 The Company Law Reform Bill [HL] [Bill 190 of 2005-06] 02.06.06 Research Papers are available as PDF files: • to members of the general public on the Parliamentary web site, URL: http://www.parliament.uk • within Parliament to users of the Parliamentary Intranet, URL: http://hcl1.hclibrary.parliament.uk Library Research Papers are compiled for the benefit of Members of Parliament and their personal staff. Authors are available to discuss the contents of these papers with Members and their staff but cannot advise members of the general public. We welcome comments on our papers; these should be sent to the Research Publications Officer, Room 407, 1 Derby Gate, London, SW1A 2DG or e-mailed to [email protected] 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 RESEARCH PAPER 06/31 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.
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