Fraud is a major threat to citizens, businesses and the government. The National Fraud Authority has estimated that the total annual losses from all fraud against all types of victims is now at least £73bn. The Fraud Advisory Panel has released its main recommendations today on “obtaining redress and improving outcomes for the victims of fraud”. The full report is available here.

The Fraud Advisory Panel has been leading a civil justice initiative since the end of 2011 as part of the UK’s new national counter-fraud strategy “Fighting Fraud Together”. It aims to encourage fraud victims (especially individuals and smaller businesses) to make more use of the civil Courts for asset recovery purpose, particularly in relation to cases which are unlikely to attract a criminal investigation or prosecution.

The report highlights how fraud can have devastating financial, physical, emotional and psychological effects on victims and how it can cause businesses to suffer reputational damage, job losses and even total collapse.

Interesting points to note from the report (non-exhaustive list)

  • Fraud continues to be under-reported to all law enforcement agencies for a variety of reasons;
  • Public awareness of Action Fraud and its services remains limited. This has had an impact on the volume of reported fraud losses (only 5% of the fraud and internet crime reports were from organisations). However, since the end of March 2013, any person or organisation contacting the Police to report a fraud is referred to Action Fraud;
  • The biggest average losses to individuals are from investment frauds, mandate fraud and mortgage related-fraud (although such cases apparently make up less than 6% of all reports received);
  • Employee fraud, despite being a significant threat to organisations of all sizes and sectors, is under-reported to law enforcement;
  • The criminal justice system cannot cope with the volume of cases referred to it. Many frauds are never investigated and even fewer make it to Court;
  • In certain cases, there are so many individual victims that some may have to be excluded from the scope of the investigation/prosecution. However, where the same fraud has been committed against many, it may be possible for the victims to band together and collectively bring a group, multi-party or class action on the civil front;
  • Mediation, which is undersubscribed and underexplored in fraud cases, may be expedient and cost-effective in cases involving parties with a pre-existing relationship (e.g. employer/employee, business partners etc);
  • Only a small proportion of the fraud reported to Action Fraud would be amenable to civil litigation and asset recovery. Private sector fraud professionals generally seem to be interested in taking cases if the losses reach at least between £30,000 and £100,000. The factors which may influence their decision include the cost, complexity and likelihood of success of a case as well as the existence of both an identifiable fraudster and money to recover;
  • “Before the event” insurance may be valuable for litigation purpose, especially to cover legal expenses;
  • There is a growing need to explore ways in which the non-criminal route to justice might be used to greater effect both by victims and official agencies.
  • Greater transparency about costs and options would allow fraud victims to make better-informed decisions as to whether they should follow the civil justice route for their case.
  • To improve victims’ outcomes and levels of satisfaction, the national response to fraud needs to be more flexible and better co-ordinated, with a much more connected, joined-up approach from professionals in the civil and criminal justice systems.

There are many other interesting points to note from the report, including all of the Fraud Advisory Panel’s recommendations.

Opinion

The report rightly points out that the Police’s inability to investigate all instances of fraud may be acting as a disincentive for certain victim groups (particularly organisations) to report their experiences to official agencies. Disparities between the nature/level of fraud investigated by regional Police forces are also known to exist.

The report also highlights the fact that many victims have no understanding of the differences between the criminal and civil justice systems. Some of them end up dealing with matters on their own or take no action at all.

They simply remain unaware of the full range of legal options available to them on the civil front. These include for instance civil litigation, asset recovery strategies, insurance claims, dispute resolution procedures, insolvency proceedings etc. Certain strategic applications before the civil Courts such as for instance freezing, disclosure and other orders may be worth considering to maximise the chances of asset recovery.

These options can be effectively used as an alternative to, or in combination with, criminal proceedings.

It is also important for victims to understand that, in England and Wales (contrary for instance to civil law jurisdictions such as France), confiscation and other orders which may be obtained on the criminal front are not aimed at compensating victims (unlike civil asset recovery strategies and litigation). They are aimed at depriving fraudsters of the financial benefits obtained from their criminal conduct.

If in doubt, it is always worth obtaining a fraud professional’s initial advice both on the civil and criminal fronts before considering whether to write off the loss for commercial reasons. This is particularly relevant to organisations. An investigation of a fraud may indeed lead to the discovery of the existence of a wider fraud, with internal/external collusion, which may have been going on and remained undetected for years.