Fraud Review
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1 CONTENTS Page FOREWORD BY THE ATTORNEY GENERAL..................................................... 3 EXECUTIVE SUMMARY ....................................................................................... 4 CHAPTER 1 INTRODUCTION AND BACKGROUND.................................... 17 CHAPTER 2 MEASURING FRAUD................................................................ 21 CHAPTER 3 FRAUD STRATEGY .................................................................. 41 CHAPTER 4 REPORTING FRAUD ................................................................ 61 CHAPTER 5 DATA SHARING........................................................................ 93 CHAPTER 6 PREVENTING FRAUD ............................................................ 115 CHAPTER 7 INVESTIGATING FRAUD........................................................ 128 CHAPTER 8 PENALISING FRAUD.............................................................. 157 CHAPTER 9 FRAUD TRIALS....................................................................... 198 CHAPTER 10 SENTENCING FRAUD ........................................................... 224 CHAPTER 11 PLEA BARGAINING................................................................ 250 CHAPTER 12 INTERNATIONAL COMPARISONS ........................................ 273 CHAPTER 13 COSTINGS AND LEGISLATION............................................. 292 CHAPTER 14 LIST OF RECOMMENDATIONS ............................................ 310 QUESTIONS FOR CONSULTATION AND HOW TO RESPOND ..................... 322 ANNEXES.......................................................................................................... 325 BIBLIOGRAPHY................................................................................................ 368 ENDNOTES ....................................................................................................... 372 2 FOREWORD BY THE ATTORNEY GENERAL In our manifesto in 2005 the government pledged to overhaul laws on fraud and the way that fraud trials are conducted to update them for the 21st century and to make them quicker and more effective. Fraud is not a victimless crime. Work by the Home Office suggests that fraud may be second only to Class A drug trafficking as a source of harm from crime; and there is evidence that fraud funds terrorism, drugs and people trafficking. This government is pursuing a co-ordinated approach to tackling fraud. We have introduced the Fraud Bill which is currently being considered by Parliament and which will for the first time introduce an offence of fraud. We have pledged to introduce a standalone Bill as soon as parliamentary time allows to allow for non- jury trials in a limited range of serious and complex fraud cases. And we also commissioned this review of fraud which has been reporting to me and the Chief Secretary. The report we are publishing today is the culmination of nine months hard work by a multi-disciplinary team of officials. I am grateful to those departments and organisations who seconded people to work on this important subject. An interim report was published in March. The final report has built on that work and it makes a number of wide ranging recommendations which we wish to open up to wider consultation before taking final decisions. The review is clear that much fraud could be avoided if consumers, businesses, and public sector bodies took elementary precautions and, in appropriate circumstances, exercised sensible scepticism about offers that were obviously too good to be true. Prevention must be the first step we take. But, however strong preventative measures are, they will be insufficient to deal with the major problems created by fraud. The Fraud Review has therefore looked at, and made recommendations on how we measure fraud, how we record the incidence of fraud, how we use that information holistically, how we investigate fraud, and how fraudulent behaviour might appropriately be prosecuted or otherwise dealt with and punished. Some of the recommendations in the report are challenging. But only by taking a challenging approach to fraud can we hope to provide an effective response to tackle multi-billion pound crime. I hope that a wide range of people will respond to this consultation; and would wish all the recommendations to be considered on their merits and with an open mind. The consultation period will run until the end of October. LORD GOLDSMITH 3 EXECUTIVE SUMMARY 1. We are all victims of fraud. We pay higher prices in shops, higher interest rates on our mortgages, and higher premiums on our insurance policies because of fraud. Tax and benefit fraud means higher taxes. Fraud victims sometimes suffer devastating losses of pensions and life savings, ruining their lives, and honest businesses can be bankrupted by fraudsters. 2. Yet fraud should be one of the easier crimes to prevent. Fraudsters mostly extract money by exploiting carelessness, ignorance or gullibility. Elementary caution and healthy scepticism about offers that look too good to be true would prevent most people becoming victims of fraud. Business and the public sector can protect themselves against fraud by putting in proper systems and controls, but they must make sure that they are implemented and not over ridden. These precautions are not going to stop all fraud; fraudsters will always manage to deceive some people and businesses. But following them should stop most fraud and make tackling the remainder more manageable. The Fraud Review 3. The Fraud Review was established to recommend ways of reducing fraud and the harm it does to the economy and society. Previous reviews have looked at specific parts of the fraud problem (e.g. the Roskill Commission on fraud trials) but this is the first look at the totality of the problem. Although the details of fiscal and benefit fraud were outside the terms of reference, many of the recommendations are as relevant to these frauds as to fraud against business and the consumer. The Basic Questions 4. The Fraud Review was asked to consider three questions: a) What is the scale of the problem? 4 b) What is the appropriate role of Government in dealing with fraud? c) How could resources be spent to maximise value for money across the system? Scale of the Problem? 5. We cannot answer this question at the moment. There are estimates of some types of fraud (e.g. benefit fraud, credit card fraud, and insurance fraud) where victim organizations measure it. For example, fraud adds around 5% to the cost of the average insurance premium.1 But most measures of fraud have not been carried out according to a robust methodology, and measure different things, so adding them up to produce an overall total is misleading. Furthermore, many types of fraud, notably against individuals and small businesses, are not recorded and so not measured. In some cases the victim is not even aware that it is going on; other times fraud is classified as "shrinkage" or "bad debt". 6. The Review's first recommendation therefore, is that fraud should be measured on a consistent basis across the economy. A separate study into the "Nature, Extent and Economic Impact of Fraud" commissioned by the Association of Chief Police Officers, Economic Crime Portfolio (ACPO- ECP) is underway and will identify where gaps in measurement occur. The Fraud Report makes recommendations now as to how such work should be carried out in the future. Measurement is fundamental; without better information about the scale and nature of fraud it will be impossible to develop a sensible national strategy for dealing with fraud. Appropriate Role for Government? 7. The Government has two key roles: a) Protect public money from fraudsters. That means direct action to deal with fiscal, benefit and procurement fraud where the target is a public 5 body responsible for taxpayer's money, and making sure adequate systems and controls are in place to prevent internal fraud. b) Protect consumers and businesses against fraud. That means using the mechanisms of the State such as regulation, law enforcement, criminal justice etc, to prevent, deter, detect, investigate, and punish fraud. National Fraud Strategy 8. The majority of people consulted during the review felt that the government must formulate a national strategy for dealing with fraud. The strategy should take a 'holistic' approach, focusing efforts and resources where they are likely to be most effective rather than most attention grabbing, and focussing on the causes of fraud as well as dealing with the effects. The strategy will not replace existing strategies but rather to help coordinate ongoing efforts. 9. Such an approach is likely to emphasise upstream action to prevent and deter fraud, such as educating consumers and businesses on how to avoid becoming victims. Despite these efforts fraud will still happen and the strategy will have to set priorities for downstream investigations and effective ways of punishing fraudsters and obtaining justice for victims. National Fraud Strategic Authority 10. The second key recommendation is that the government should establish a National Fraud Strategic Authority to devise a national strategy for dealing with fraud and ensure that it is implemented. It would not take over any policy or operational responsibilities from existing organizations. It would ensure that their work was coordinated, duplication was eliminated, and gaps addressed. It would also have a role in settling policy conflicts, serve as a centre of expertise to organizations in both private and public