Analysing the new Government Fraud Strategy: does it go far enough?

As outlined in the Strategy, fraud now accounts for over 41% of all crime in the UK with the total cost of fraud estimated to run into billions of pounds per year and the Government has made the pursuit of fraudsters one of the cornerstones of its Fraud Strategy.

The Government has said that it will create a National Fraud Squad to focus on high-end fraud and organised crime. The Fraud Strategy goes on to report that the National Fraud Squad will be made up of 300 new and existing investigators that are already in post with the police and the National Crime Agency (NCA) with a further 100 to be added by January 2024 and another 100 by January 2025. There is no detail about how many of the 300 investigators were drawn from a pool of existing officers. There is also no detail about where the further 200 investigators that will be in post by 2025 will be drawn from.

It is concerning that there is such a lack of transparency about such levels of resourcing when the Fraud Strategy acknowledges that less than 1% of police resource is currently dedicated to combatting fraud. Announcing the creation of a new fraud squad that is staffed in whole or in a significant part by existing investigators does not represent a tangible improvement on resourcing and it is arguably merely just a rebranding exercise.

Commentators have long explained that there is little hope of winning the fight against economic crime unless law enforcement is properly resourced. This translates into hiring additional people, ensuring that they are adequately trained and properly resourced. All of which costs money.  Until the Government is willing to properly resource law enforcement, it is difficult to see how progress in this area can be made.

It is also unclear why the Government has decided to create a National Fraud Squad to investigate high end fraud (which is more likely to be complex in nature) rather than providing additional resources to the Serious Fraud Office (SFO) or the NCA , both of which  have a more than adequate mandate to  investigate serious and complex fraud.

The City of London Police has estimated that 70% of fraud that occurs in the UK has an international element, with an increasing number of frauds being orchestrated by bad actors that work in tandem across borders. This in turn means that the UK must adapt and develop ways of meeting this threat. An important component of its strategy will be the effectiveness of cooperation with Governments and enforcement agencies from other jurisdictions.

The Fraud Strategy outlines the Government's intention to create a new UK Intelligence Community to better understand the international threat posed by fraud and utilise global partnerships to stop fraudsters wherever they are in the world. This latest pledge by the Government means that there is likely to be increased cooperation between UK law enforcement and their international partners.

The Government has pledged to hold a global fraud summit in 2024 where it will bring together leaders from governments, law enforcement and the private sector to build international consensus on combatting fraud over a five-year period. It has also committed to creating an international public-private partnership to make "coordinated asks of global companies" aimed at securing their cooperation in tackling online fraud. It will also seek to harmonise legal frameworks and regulations across countries to prevent fraudsters from leveraging loopholes that exist due to the cross-border nature.

This increased cooperation is already reflected by arrangements such as the UK-US Data Access Agreement which came into force last year and enables UK public authorities to obtain data directly from US-based companies for the purpose of preventing, detecting, investigating and prosecuting serious crime, including fraud.  

Whilst the Government's strategy for international cooperation in combatting fraud is commendable there remains a question mark over the feasibility of its plans in the short term at least. For example, the harmonisation of laws is a long-term project that will in most cases require the involvement and agreement of legislatures within the relevant jurisdictions.

Similarly, the international public-private partnership that the Government seeks appears to be fraught with difficulty. It is not clear how the Government plans to incentivise the international private sector to comply with its "asks". It is also not guaranteed that the Governments of other nations will acquiesce to the Governments desire to take the lead on international cooperation efforts to combat fraud. 

Indeed, as with much of the Government's Fraud Strategy there appears to be a sizable gap between the Government's rhetoric and the reality of what can actually be achieved. This is compounded by the fact that the Government still appears to be unwilling to make the significant funding commitments that law enforcement need to combat fraud.

The Government has said that it will commission an independent review into the difficulties that fraud offences pose to investigators and prosecutors. The first stage of this review will consider how the disclosure regime could potentially be streamlined for cases with large volumes of digital material. This will include a consideration of disclosure regimes that are in place in other jurisdictions. The Fraud Strategy states that:

"Improving the disclosure regime will also reduce the risk of cases collapsing during trial and increase the chance of successful prosecutions."

Any improvement to an existing regime is a welcomed starting point. It is, however, in this context arrived at from the wrong angle, with the Government looking to focus the attention on the disclosure regime itself, rather than considering potential flaws with its use by  law enforcement.

The Attorney General's Guidelines on disclosure already provide guidance on how disclosure should be managed in cases that involve large volumes of material. Furthermore, several of the recent failed high-profile prosecutions have occurred not because of flaws with the application of the disclosure rules and guidelines but because law enforcement did not properly comply with its disclosure duties. There were two separate reviews into two failed prosecutions by the SFO in 2022. Both reviews found that the SFO had failed to properly manage the disclosure process, for example, because of low staffing numbers or inexperienced people being appointed to oversee the disclosure process. Consequently, the collapsed prosecutions in the cases that were reviewed were the result of operational failures and not because of problems with the disclosure regime itself.

The criminal disclosure regime is in part designed to account for the inequality of arms that is present when the state brings a criminal case against a natural or legal person. Rather than trying to streamline the current regime, the Government could arguably do better by focusing resources on the training and staffing of law enforcement agencies which in turn will increase the chances of the proper application of the current disclosure regime.

It is helpful that the Government does acknowledge that its goal of "bringing more fraudsters to court" will only be achieved if the current backlog of court cases that was created by the pandemic is addressed. The Government is in the process of recruiting 1,000 judges. It has also committed to recruiting 2000 new magistrates by 2025. The independent review will also consider whether the Fraud Act 2006 should be amended to allow for more fraud cases to be dealt with in the Magistrates' Courts.

The Fraud Strategy also outlines how the new corporate offence of Failure to Prevent Fraud which has been introduced in the Economic Crime and Corporate Transparency Bill will in its view drive a major cultural shift to encourage companies to do more to prevent fraud. We have provided our thoughts on this new offence in an earlier publication.

The Government plans to "block fraud" by implementing measures that will require "a coordinated response from government and industry". These measures include the appointment of Anthony Browne MP as an anti-fraud champion, working with tech firms to introduce a simple fraud reporting mechanism and setting voluntary targets for companies to reduce fraud.

This attempt to galvanise industry action only serves to highlight the difficulties that the Government's decision to exclude SME's from the new failure to prevent offence poses for its overall Fraud Strategy. The exclusion of SME's risks making them vulnerable to bad actors who may view them as soft targets for their fraudulent activities. The message that is communicated in the Fraud Strategy that industry "must be incentivised to act" is clearly undermined by the Government's decision to exclude SME's from potential liability under the new failure to prevent offence.

The more promising aspects of the Fraud Strategy include the Government's plan to introduce measures to prevent bad actors from using technology to commit fraud. This will include extending the ban on cold calls to cover all financial and investment products, banning sim farms to disrupt the ability of criminals to send scam texts and make scam calls and implementing the Online Safety Bill which will allow tech companies to be issued with significant fines for not taking steps to reduce online fraud.