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Partner Paul Brehony and Counsel Kate Gee discuss the House of Lords fraud report and the UK’s battle against fraud in New Law Journal.

Paul and Kate’s article was published in New Law Journal, 13 January 2023, and can be found here. 

A recent report by the House of Lords asserts that the UK’s battle against fraud is “under-resourced, under-prioritised, and its impact is widely under-estimated.” The report, “Fighting Fraud: Breaking the Chain”, was published last month by The Fraud Act 2006 and Digital Fraud Committee.

Baroness Morgan of Cotes, Chair of the Committee, concluded: “Successive governments have failed to tackle fraud with the priority it deserves. If citizens were being routinely mugged and having millions of pounds stolen from their wallets in broad daylight, every organisation involved in allowing this to happen would have no choice but to deal with it swiftly, and the perpetrators would be brought to justice in court. Because most fraud is now happening online and often involves social engineering of the victim, the exponential growth in fraud and scams has been invisible and fraudsters face little risk of being caught. This has to stop.” 

Fraud is the most commonly experienced crime in the UK: regardless of background or age, anyone aged 16 or over is more likely to be a victim than any other crime. According to the Office of National Statistics, fraud increased by 25% in the year to March 2022 compared to 2020, and now accounts for 41% of all crime against individuals in England and Wales. Meanwhile, the most recent National Crime Agency (NCA) report, the 2017 Annual Fraud Indicator, estimated that annual fraud in the UK was c. £190 billion.

In its key findings and recommendations, the House of Lords report concluded:

“If this were any other type of crime, we would deal with it swiftly and the perpetrators would be brought to justice. Because most fraud happens online, it remains invisible and fraudsters walk away without fear of repercussions. The Government must act. Creating a Cabinet sub-committee would send a message to criminals that it takes fraud seriously. Law enforcement must prioritise fraud and we must slow down payments to give banks more time to analyse suspicious transactions. But payments are the last link in the fraud chain. Until all fraud-enabling industries including tech and telecoms companies fear significant financial, legal and reputational risk through new corporate criminal offences, we will never break the chain.”

The report recommends that a new cabinet-level subcommittee be established to tackle fraud, chaired by the Security Minister. It further suggests that recent circumstances have created new opportunities for fraudsters: in particular, digital technology and the COVID-19 pandemic – both of which enabled people to move their lives online. However, not enough is being done by those responsible for new technologies to prevent exploitation by bad actors. Examples include:

• Phishing and smishing – Swifter, firmer action is needed from telecoms companies to reduce the quantity of fraudulent communications slipping through the net. Ofcom’s powers and accountability should increase accordingly.
• Online dating/romance fraud – Identity verification is a crucial first step in stamping out romance fraudsters.
• Online advertising – Regulations must go further than the Online Safety Bill and Online Advertising Programme, ensuring that the full suite of tools is used to tackle fraudulent online ads.

The report concludes that under-resourcing of law enforcement means that many fraudsters will never face justice. It notes that the criminal justice system has failed to keep pace with the threat, making the UK a “lucrative market” for organised international criminals to exploit.

Other key recommendations include:

• Fraud should be written into the Strategic Policing Requirement, which outlines the top priorities for the police.
• There should be a new corporate criminal offence of ‘failure to prevent fraud’, applicable across all sectors, accompanied by significant financial penalties to try to change company behaviour.
• A Government-led, centrally funded consumer awareness campaign should be launched in partnership with industry to raise national awareness about digital fraud.
• A delay lasting no more than several hours should be introduced for certain high-risk banking payments to try to stop fraudsters cashing out stolen funds.

So, what are the six steps to break the fraud chain?

1. The UK’s advanced payments infrastructure explains why it has become a global centre for fraud. The speed with which payments can be made must be delayed in certain circumstances, giving banks more time to review risk signals and contact the customer about proposed payments. The Payment Systems Regulator should consult on measures to achieve this.
2. Move fraud to its rightful place as a top law enforcement priority, including it within the Strategic Policing Requirement.
3. Address the myriad acronyms and alphabet soup of departments, taskforces and Ministers with responsibility for fraud, and establish a cabinet sub-committee with a clear mandate to tackle fraud, chaired by and accountable to the Security Minister.
4. Several sectors in the fraud chain have failed to prevent rampant fraud for too long. The Government must introduce a new corporate criminal offence of ‘failure to prevent fraud’ across all sectors to address this.
5. The Online Safety Bill contains important measures to prevent fraudulent content and scam advertising from appearing online and to hold tech companies accountable when they fail. It must be brought forward urgently.
6. Create clear advice for consumers that helps them to prevent fraud and report it if they become a victim. The Government should oversee the introduction of a single, centrally funded consumer awareness campaign in partnership with industry.

There can be little doubt that the Report very much puts the telecoms, financial services and ‘big tech’ sectors in its crosshairs given they are perceived as doing far too little to curb fraud.  Both the Online Safety bill and the Economic Crime bill currently going through Parliament are testaments to the Government’s commitment to meaningfully address this multi-faceted problem. Further, the recent amendments tabled to the Economic Crime Bill also proposed the incorporation of a ‘failure to prevent economic crime’ corporate offence, which, when conjoined with the Report’s recommendation to introduce a failure to prevent fraud offence suggests the introduction of these offences is inevitable as a relatively cheap and easy means of applying pressure to change corporate behaviour.

Of the £190 billion annual cost of fraud to the UK economy estimated in the NCA report, the public sector loses £40+ billion, individuals £7 billion, and the private sector £140+ billion. The combined impact of these developments to UK economy can only be positive.