The Fraud Act 2006 received
its Royal Assent on 13 July 2006 and was enacted into law on 15th January
2007. It was enacted to modernise the law on deception to take account of
the technological and social advances that have taken place since the original
statutory provisions were passed. The Act provides for several offences of
making false representations and giving false descriptions, including dishonest
abuse of a position or situation.
The Varying Degrees of
Dishonesty
The Act aims to provide a
framework within which various forms of dishonest behaviour can be dealt with concerning
two general categories of potential victims: individuals and organisations.
Underlying the Act is the idea that people and organisations should only deal
with each other based on honesty and integrity, but some people are dishonest
and violate this basic premise because they believe they are unlikely to be
caught.
The Act is intended not only
to address the variability in the types of fraud that could be committed but
also to establish the principle that complex frauds should be prosecuted at a
level that corresponds with the seriousness and sophistication of the conduct concerned
and has a tangible impact on the criminal community. To achieve this, the Act
outlines various fraud offences.
Several of these offences
under the Act came into force on 15th January 2007, with the
remainder coming on 26th January 2007. Following the report and the
Bill's progression through Parliament, legal practitioners and corporate
counsel in the UK have familiarised themselves with the provisions of the Act
and its implications for not only their clients' organisations but also their
commercial decisions.
Key Definitions of the
Fraud Act 2006
The Fraud Act 2006 defines
fraud as a crime and uses many terms whose meanings are set down within the
Act. For example, the meanings of the terms “representation” and “deception”
are vital to the effective operation of the Act. Each of the terms underpins
the shape of the law and, crucially, is used to determine whether a person
intended to commit fraud and defraud another. The Act’s interpretation section
provides definitions for terms used throughout the Act, rendering legal meaning
and preventing ambiguity.
Fraud can be considered an act
of deception to make a gain, cause a loss, or cause another to undertake an
action they would not have taken, resulting in exposure to a risk of loss. This
definition of fraud demonstrates two essential aspects of fraudulent behaviour:
intent or state of mind and acquiring property through dishonesty. When a
person acts knowing that their actions are dishonest and without a claim of
right or belief in a claim of right, the outcome will be that a benefit of some
kind has been obtained.
According to the Fraud Act
2006, an individual qualifies as a fraudster if they knowingly make a false
representation or deliberately neglect to verify its truthfulness, despite
being aware that they lack justification for such actions. Consequently,
grasping the concept of "representation" is crucial for prosecutors.
The relevance of these definitions serves as essential instruments in
identifying fraud offences and criminalising various behaviours outlined in the
Act.
These terms' broad
applicability clarifies the extensive and varied definitions of what the offence
of fraud entails, ensuring uniform law enforcement. This consistency not only
aids in the effective prosecution of fraud cases but also poses significant
challenges for individuals engaged in fraudulent schemes, making it
increasingly difficult to sustain their illicit operations.
Fraud by False
Representation
Under current law, a person
could be charged with fraud for failing to disclose information in the cause of
their committing fraud, punishable by a maximum of 7 years in prison. A person
commits an offence contrary to section 2 of the Fraud Act 2006 if they are in
England or Wales, and they dishonestly make a false representation and intend,
by making the representation, to create a gain for themselves or another or
cause loss to another, or to expose another to a risk of loss.
A representation is false if
it is untrue or misleading, and the person making it knows it is, or might be,
inaccurate or misleading. This burden of proof contains three elements that the
prosecution must show:
- That there is an objectively misleading
statement, representation, or communication.
- Establish that the accused knew of the
falseness of or that they were reckless in making the misleading
statement, representation, or communication.
- That the misleading statement,
representation, or communication was made to make a gain for themselves or
another or cause loss to another.
A statement, representation,
or communication may be made in any form, including spoken or written words or
by a person’s conduct in the manner of their committing the offence of fraud.
Any statement, whether express or implied, also constitutes a representation
provided that by such a statement, the person making it intends to communicate
a message from which, relying on it, the person to whom it is communicated may
understand a particular situation.
A false statement,
representation, or communication will be made to make a gain, avoid a loss, or
put in place a risk of loss, where this is the intended result. For an offence
to be made out, there must be proof that a statement, representation, or
communication has been made with the appropriate intent, usually of making a
gain, causing loss, or putting a person at risk of loss.
In most cases, mere
embarrassment or damage to feelings cannot be equated with 'loss' or its
intended meaning, 'the making of a gain.' Perceptions may offer means of
assessing the seriousness of the offence, but they do not provide a guilt
framework.
Fraud by Failing to
Disclose Information
The Fraud Act 2006 created
three general offences of fraud: two that are usually committed when the
defendant makes a false representation or dishonestly abuses a position and one
that is committed when the defendant fails to disclose information. Neither the
old nor the new treatment of fraud can be accounted for consideration of deceit
alone. The distinctive feature of the offence of fraud by failing to disclose
information is the requirement that the deception be achieved by making an
omission or a partial omission.
Understanding the concept that
an individual can be implicated in fraud through inaction is crucial. For this
to occur, the misled individual must rely on the absence of information.
Research indicates that non-disclosure poses a greater risk to electronic and
online commerce than conventional retail transactions. This heightened risk may
stem from the notion that withholding critical information in a written
agreement is perceived as more deceptive than in a direct, face-to-face
interaction.
Determining whether a duty to
disclose exists is often ambiguous and can vary significantly across different
cases and scenarios. There remains uncertainty regarding the applicability of
this offence and whether there are grounds for appeal on this matter. Established
law counsel guidelines outline the criteria for prosecuting an omission-based
offence, which stipulate that two conditions must be met for a charge of
dishonesty by omission to be valid.
Initially, there must be a
recognised legal obligation to disclose information, distinguishing it from a
mere ethical expectation. Such formal duties are typically established by
legislation, which may require individuals to declare personal interests or
safeguard public resources. The guidelines emphasise that individuals engaged
in specific activities perceive a duty as owed, highlighting that this
obligation is inherently linked to their professional roles.
Fraud by Abuse of
Position
Fraud by abuse of position
under the Fraud Act is at least as important as the offence of deception by
false representation in respect of fraud. Vulnerability is critical in abusing
a position; it is about taking advantage of a position because of its trust.
Conduct amounting to breaches of fiduciary duties can involve dishonesty. There
is the expectation of trust and betrayal of that trust; the difference is in
the element of vulnerability.
To be prosecuted under the
relevant section, the abuser's operations have to set out the parameters of an expectation
of trust by the victim or public at large, which is then fraudulently violated.
Identifying and managing fraud from abuse of position necessitates guarding
against conflict of interest, specifically against one person or group taking
advantage of a position to gain undue personal benefit and advantage.
This ranges from directors in
one organisation taking advantage of their position to the limits of expense
accounts and organisational travel expenses to financial executives abusing
inside information. In an investigation, the main concerns will revolve around
the risks to the organisation, detection, deterrence, and what should be done
about the investigation itself.
The Fraud Act 2006 is designed
to protect the public and is based on primary legislation. The court's
interpretation of the Act will reflect the scope of legislation. A person
committing fraud could face imprisonment for up to 12 months and a fine if
found guilty. Abuse of position undermines a critical area of trust. To ensure
confidence, governance must be a fundamental principle.
Making or Supplying
Articles and Possession of Articles for Use in Fraud
Section 6 of the UK Fraud Act
2006 sets out a series of three possible related offences:
- Making articles for use in frauds.
- Supplying articles for use in frauds.
- Possessing articles for use in frauds.
The effect of this section of
The Fraud Act 2006 is that it is an offence to do such acts concerning articles
intended for use in connection with any fraud. The Act is structured to
demonstrate how it applies to three categories of articles:
- Physical items.
- Electronic communication licences.
- Other kinds of articles.
In cases alleged to be covered
by this offence, there is no need to specify any particular type of fraud, as
there is for the remaining offences under the Fraud Act 2006. The offence
arises when a person makes, adapts, supplies, or offers to supply any article,
intending it to be used to commit or assist in committing fraud. A judge has
mentioned a case in which three defendants were accused of making counterfeit
documents to obtain legitimate documentation.
Another case arose from the
making of a computer game program that dishonestly altered the figures in a
large organisation's accounts when fed the raw data that had been used to
prepare the accounts in the first place. The offence is complete when a person
offers to supply an existing article. Another person doesn't need to accept the
offer: supplying is complete as soon as any offer is made.
A person who allows another
person to use an existing article to defraud someone would be guilty of aiding,
abetting, counselling, or procuring the principal operator rather than
supplying the article. Police and prosecutors are cautious in assessing who may
have been primarily responsible for specific acts of fraud. If the act is done
with intent and not merely to spend money, nobody else necessarily needs to be
involved in discussing the matter for the individual to be guilty of conspiracy
to defraud.
Fraudulent Trading
It has been suggested that a
trader or a trading partnership may be deemed fraudulent based on the evidence
presented. The challenge lies in establishing that all the criteria for
determining fraud are inherently linked to dishonesty, establishing the necessary
person's reason for fraud. When an individual or partnership is actively
engaged in trade, whether through ownership or leasing of retail space, dealing
in publicly accessible goods, or operating as a self-employed artisan, it is
reasonable to infer that their actions may be perceived as dishonest if their
overall behaviour is viewed as such by the average person.
The dishonesty standard within
the broader context of fraud law is primarily designed to safeguard the
interests of deceased individuals and their heirs and potentially protect other
traders in credit cases. However, the ongoing issue remains that small
independent retailers and traders frequently engage in fraudulent practices.
These sellers often deceive the public daily when marketing consumer goods to
private customers who may lack knowledge about the products or the industry.
In this environment, the
organisation's identity becomes less significant, as numerous instances of
misrepresentation can constitute fraudulent trading. The prevalence of such
deceptive practices underscores the need for vigilance and accountability within
the trading community, as the implications of dishonesty extend beyond
individual transactions to impact the integrity of the market. Fraudulent
trading, also based on early cases, might be considered a successor offence to
obtaining by false pretences.
If the suspect is involved,
inter alia, in a subsistence market, acquiring gifts of product, goods, or
money in a wholly private or social transaction, they cannot have the intention
to secure the price of the product. If this is the case, the trader cannot
commit fraud against non-corporate traders. In the area of trading, this is
important because it is a point of principle that ordinary members of the
public have little defence against unscrupulous traders.
Obtaining Services
Dishonestly
The offence of obtaining
services dishonestly in the United Kingdom has been significantly redefined
with introducing the Fraud Act 2006, which has streamlined the previous
provisions under the Theft Acts. According to the Fraud Act 2006, an individual
commits this offence when they dishonestly acquire services that are typically
chargeable with the deliberate intention of evading payment, either in whole or
in part. This legal framework emphasises the defendant's gain from the fraudulent
act, highlighting the necessity of presuming dishonesty as outlined in Section
2 of the Fraud Act 2006.
Under Section 12(1) of the Fraud
Act 2006, an individual who dishonestly acquires services, fully aware that
these services are provided only on the condition of payment, commits an
offence. In a notable case, the perpetrator attempted to board a bus using a
card reported as lost. The bus driver denied a person entry until an inspector
intervened, ultimately leading to the perpetrator’s conviction for travelling
without a valid ticket, with the cardholder deemed to have acted dishonestly.
It is important to note that
prosecution may not be pursued if the services in question were accessible to
the public or a specific group without charge. A critical aspect of the offence
of obtaining services dishonestly is that the services must be intended to be
compensated for, regardless of whether payment has already been made. Regarding
the primary offences outlined in Section 11(1) of the 2006 Act, a conviction
can result in a penalty of up to five years imprisonment.
Section 13(1) of the Fraud Act
2006 grants a court the authority to issue orders to restore restitution to
fraud victims. In cases where there is an abuse of trust or a significant risk
of public harm, a custodial sentence may also be considered for the perpetrator
of the fraud offence. The presence of fraudulent intent, whether from the
convicted individual or someone under suspicion, poses a potential threat to
organisations and can jeopardise public enterprises. Depending on the nature
and extent of the activities involved, this offence can manifest in short-term
and long-term commercial fraud.
Specific elements must be
established for a successful fraud conviction: the individual must intend to
avoid payment, obtain the services dishonestly, and successfully evade the
costs associated with those services. Acquiring services through dishonest means
can manifest in various forms, whether as part of a broader scheme to obtain
property or as isolated offences. The scope of obtaining services dishonestly
encompasses a variety of scenarios, including the unauthorised use of public
services, tax evasion, and the consumption of utilities (gas and electricity)
without payment.
Other examples include avoiding payment at petrol stations, avoiding ticket barriers at train stations, committing fraud with debit or credit cards, utilising public spaces without congestion charges, and misappropriating other services. In one notable case, a diner at a restaurant failed to return promptly to settle their bill, leading to the individual being found guilty of dishonestly utilising goods and services intended for customers.
