This article was first published by Law360 on January 31, 2023.
The Committee’s report and the Government’s response form part of the ongoing public debate about how to address the current fraud epidemic in England and Wales, in particular how to fix the acknowledged chronic under-reporting, under-investigation, under-prosecution and under-prioritisation of fraud cases. Fraud now accounts for over 40% of all offences committed in England and Wales, but only 2% of police resources,3 while the number of prosecutions for fraud represents only 0.75% of fraud cases reported.4
This article analyses certain key aspects of the Government’s response to the Committee’s report, including its recommendation that a new strict liability criminal offence of ‘failure to prevent fraud’ be introduced.
Anyone hoping to see a concrete plan to tackle the epidemic will be disappointed, particularly those hoping for consensus and action on the reform of corporate criminal liability in the UK. Whilst the Government recognises in its response that the current law on corporate criminal liability “does not adequately hold organisations and their senior persons to account,” no timeframe is given for the Government to conclude its consideration of the Law Commission’s Options Paper on Corporate Criminal Liability,5 published in June 2022, which set out the case for strengthening the law on corporate criminal liability, including the possible creation of an offence of failure to prevent fraud.
The Committee’s Recommendations and the Government’s Responses
Dedicated Economic Crime Courts
The Committee heard evidence regarding the creation of the City of London Law Courts, due to open in 2026, which will focus on high-level fraud, cyber and economic crime.6 The Committee recommends rolling out similar fraud-focused courts around the country, across a broad geographical area, with a two-fold objective: first, to ensure that the judges overseeing complex economic crime cases possess the requisite tailored skill set; and second, to assist in the reduction of the significant court backlog.
The Government firmly rejects this recommendation, citing the current low number of judges as the root cause of the court capacity issues. To resolve this, a recruitment drive for up to 1,100 judges is planned for this year. The Government’s response, however, contains no detail as to how many, if any, of the proposed new judges within this anticipated drive will be focused on hearing fraud cases.
Action Fraud Reform
The current failings of Action Fraud, the national fraud reporting centre, account for the considerable bulk of the Committee’s recommendations – despite repeated acknowledgment of Action Fraud’s planned replacement in 2024. Specifically, the Committee urges the Government to address Action Fraud’s insufficient advertising efforts, inadequate reporting mechanisms, low staffing levels, and lack of focus on victims.
Perhaps unsurprisingly, the Government relies heavily on Action Fraud’s upcoming replacement in its response to these recommendations. To support the Action Fraud upgrade, £30million will be provided to the City of London Police over the next three years. However, the 2024 deadline is clearly not soon enough for the Committee, who want to see immediate change.
Review of disclosure guidelines
The Committee’s inquiry heard from numerous witnesses that significant time and resources are absorbed by effective disclosure of unused material during the prosecution of fraud cases, a task that is proving increasingly burdensome in a digital world where an estimated 61% of fraud is committed online.7 This is particularly pertinent in cases involving quantities of digital material on a scale not envisaged when the current legislation was drafted in 1996. On this basis, the Committee recommends that the Attorney General should review the current disclosure guidelines and consider whether there is merit in introducing specific guidance on disclosure in fraud cases involving large amounts of digital material.
The Government’s response notes the Attorney General’s conclusion, in its May 2022 review, that the disclosure guidelines are functional and effective, but that future work may be needed in complex crime.8 Beyond this, the Government’s only further comment is that it continues “…to work closely with operational partners to consider how further improvements can be made. The forthcoming fraud strategy will detail our aim to ensure the disclosure regime meets the needs of complex fraud cases.” This demonstrates a recurrent theme throughout the Government’s responses, whereby it acknowledges the inadequacy of the current system and alludes to a vague process of considering possible improvement opportunities. Such promises are often bolstered by reference to the upcoming Fraud Strategy, which was originally due to be published by the Joint Fraud Taskforce by the end of 2022. With no sign of the strategy’s publication so far in 2023, however, the Government does not seem poised to deliver these elusive improvements in the near future.
Failure to Prevent Fraud
Perhaps the most frustrating, though least surprising, of all the Government’s responses regards the Committee’s recommendation that a strict liability offence of failure to prevent fraud be introduced. The proposed offence would be modelled on the equivalent corporate ‘failure to prevent’ offences covering bribery, in Section 7 of the Bribery Act 2010, and the facilitation of tax evasion, in Part 3 of the Criminal Finances Act 2017.
Having acknowledged that, “the current law on Corporate Criminal Liability does not adequately hold organisations and their senior persons to account for offences committed by the corporation and their associated persons,” the Government’s response effectively lays bare the lack of consensus and action over the past six years since it first issued a call for evidence on reforming corporate criminal liability:9
“We are working in collaboration with colleagues across Government to consider the Law Commission’s paper and determine a case for strengthening the law on corporate criminal liability, including the creation of an offence for failure to prevent fraud.”
Those with an interest in this area of reform will no doubt recall that the proposed expansion of the ‘failure to prevent’ model to include economic crime generally (not just fraud offences) was included as a pledge in the 2015 Conservative Party manifesto: “We are also making it a crime if companies fail to put in place measures to stop economic crime, such as tax evasion, in their organisations and making sure that the penalties are large enough to punish and deter.”10 Since then, and despite various different Conservative governments being in office, the proposal has stalled.
The most significant recent appearance of the proposal came in the Law Commission’s June 2022 paper summarising potential reform of corporate criminal liability. The proposal also found favour with various prominent Parliamentary committees in 2022, including in ‘Fighting Fraud: Breaking the Chain’, a report published by the House of Lords Fraud Act 2006 and Digital Fraud Committee in November 2022.11 Additionally, the UK Serious Fraud Office (SFO) and Crown Prosecution Service (CPS) have both repeatedly expressed their desire to see the expansion of the ‘failure to prevent’ model, with Lisa Osofsky, the current Director of the SFO, informing the Committee that it is “top of her wish list.”12
As enforcement bodies, the SFO and CPS would no doubt welcome the introduction of a new strict liability offence of failing to prevent fraud on the basis that it may eliminate some of the current difficulties presented by the application of the ‘identification doctrine’ when prosecuting allegations of fraud. This principle provides that in order for a corporate entity to be found guilty of fraud, the mens rea (mental aspect) of the offence must be properly attributed to an individual capable of being regarded as the company’s “directing mind and will”, with the requisite “status and authority.” By contrast, the failure to prevent model would render the company itself strictly liable without the need to identify a culpable individual as “directing mind and will,” unless the company is able to establish that it had in place such fraud prevention procedures as were reasonable in the circumstances.
Beyond aiding prosecutions, a more profound effect of the offence would be its function as an incentive to companies to enhance their anti-fraud compliance measures and work to prevent fraudulent conduct occurring in the first instance. As a case in point, the implementation of the failure to prevent bribery offence under section 7 of the Bribery Act has resulted in significant positive steps to improve corporate compliance programmes.13
The calls for reform (of some kind) of corporate criminal liability in England and Wales have been long, loud and clear. Consensus as to what those reforms should look like and when they should take effect, however, has been anything but.
As recently as November 2022, Dame Margaret Hodge put forward an amendment to the Economic Crime and Corporate Transparency Act 2022 inserting the failure to prevent fraud offence. However, the amendment did not survive Parliamentary debate and so it seems that the indefinite process of consideration and vacillation will continue.
The most compelling proof that the Government could offer to demonstrate its commitment to tackling the fraud crisis would come in the form of clearly defined legislative reform with an accompanying timetable for implementation. In the absence of that, it is difficult to believe that change will materialise any time soon.
This blog post was co-authored by Paralegal Katy O’Connor.
1 Fraud and the Justice System: Government Response to the Committee’s Fourth Report of Session 2022–23, January 2023, https://committees.parliament.uk/publications/33421/documents/181645/default/
2 Fraud and the Justice System: Fourth Report of Session 2022–23, October 2022, https://committees.parliament.uk/publications/30328/documents/175363/default/
3 Fraud and the Justice System: Fourth Report of Session 2022–23, at para 74
4 Fraud and the Justice System: Fourth Report of Session 2022–23, at para 88
5 Corporate Criminal Liability: an options paper, Law Commission, June 2022, https://s3-eu-west-2.amazonaws.com/lawcom-prod-storage-11jsxou24uy7q/uploads/2022/06/Corporate-Criminal-Liability-Options-Paper_LC.pdf
7 Nature of fraud and computer misuse in England and Wales: year ending March 2022, Office for National Statistics, September 2022, https://www.ons.gov.uk/peoplepopulationandcommunity/crimeandjustice/articles/natureoffraudandcomputermisuseinenglandandwales/yearendingmarch2022
8 Annual Review of Disclosure, Attorney General’s Office, May 2022, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1078195/Annual_Disclosure_Review_Publication_Copy.pdf
10 Conservative Party Manifesto 2015, at page 11, https://www.theresavilliers.co.uk/sites/www.theresavilliers.co.uk/files/conservativemanifesto2015.pdf
11 Fighting Fraud: Breaking the Chain, https://publications.parliament.uk/pa/ld5803/ldselect/ldfraudact/87/87.pdf
12 Fraud and the Justice System: Fourth Report of Session 2022–23, at para 142
13 Fraud and the Justice System: Fourth Report of Session 2022–23, at para 140