The Fraud Act 2006: An Update

By Anand Doobay, Partner in the Fraud and Regulatory Department, Peters & Peters Solicitors

Introduction

  1. It was back in 1998 that Jack Straw, the then Home Secretary, asked the Law Commission to examine the law on fraud and whether a general offence of fraud would be an improvement to the body of criminal law. A Law Commission Report, a Government Consultation Paper, the Government's response and eight years later the Fraud Act 2006 finally received Royal Assent on 8 November 2006 and came into force on 15 January 2007.

  2. The Act abolishes the deception offences in the Theft Acts 1968 and 1978, namely:

    Obtaining property by deception (section 15, TA 1968); Obtaining a money transfer by deception (section 15A, TA 1968); Obtaining pecuniary advantage by deception (section 16, TA 1968); Procuring the execution of a valuable security by deception (section 20(2), TA 1968); Obtaining services by deception (section 1, TA 1978); Evasion of liability by deception (section 2, TA 1978). 3. The principal replacement is a new dishonesty based offence of fraud (section 1) which may be committed in the following three ways:

    Fraud by False Representation (section 2); Fraud by Failing to Disclose Information (section 3); Fraud by Abuse of Position (section 4). 4. The offence is triable either way and carries maximum 10-year sentence or a fine (or both) on indictment.

  3. Each limb is a conduct offence, completed when the conduct is performed with the requisite state of mind irrespective of gain to the accused or loss to the victim. It also follows that most conduct that would have amounted to an attempt at a deception offence, constitutes a complete fraud offence.

  4. Obtaining services by deception is replaced by a new offence of obtaining services dishonestly (section 11). The Act also creates new offences of possession of (section 6), and the making or supplying of (section 7), articles for use in fraud. By virtue of section 9, the offence of fraudulent trading (section 458 of the Companies Act 1985) will now apply to sole traders, partnerships and others 'carrying on ... a business'. The common law offence of conspiracy to defraud,1 contrary to the Law Commission's recommendation, was not repealed. The principal argument for retention was that abolition might leave an unforeseen lacuna in the law.

  5. The Act also introduces a number of important procedural changes. Section 12 provides for personal liability of corporate officers who are party to the commission of an offence by their body corporate under the Act ("committed with the consent or connivance of...").

  6. Schedule 1 of the Act amends the part of the Criminal Justice Act 1993 that deals with jurisdiction to make the offences under sections 1, 6, 7, 9, 11 Group A offences for the purposes of the 1993 Act. A person may be indicted for a Group A offence in England and Wales if a "relevant event" in relation to the offence took place in England and Wales. In relation to a section 1 offence the "relevant event" is amended to include the occurrence of any gain or loss intended by the accused. This means that where, for example, a false representation is made abroad with the intention to make gain or cause loss in England or Wales, the section 2 charge will lie but only if there is an actual gain or loss within this jurisdiction.

  7. Finally, section 13 amends the scope of the privilege against self-incrimination in civil proceedings. The section is discussed in more detail below.

    An overview of the Fraud Act 2006 The new fraud offence 10. Section 1 introduces the offence of fraud which can be committed in three circumstances that are, in the Act's own terms, where a person is in breach of sections 2 to 4. However, no statutory definition of fraud is provided leaving the Act open to criticism on the grounds of generality, open-endedness and potential criminalisation of trivial disputes. It is too early to tell how far prosecutorial discretion can address these criticisms.

    Fraud by false representation 11. The broadest form of the fraud offence is in section 2. For this reason it is likely to be the most frequently invoked by the prosecution.

  8. A person commits this offence if he:

    dishonestly makes a false representation, and intends, by making the representation – to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss. 13. Section 2 provides that a "representation" means any representation as to fact or law, including a representation as to the state of mind of the person making the representation, or any other person. A representation may be express or implied and can be made in any form. The Explanatory Notes state that this form of the offence will cover the act of "phishing", that is the use of emails to encourage people to provide bank account details.

  9. A representation may also be made if it is submitted in any form to any system or device designed to receive, convey or respond to communications without human intervention. The introduction of this offence, in subsection 5, was encouraged by Re Holmes [2004] EWHC 2020 where the Court held that it was not possible to deceive a machine.

  10. A person will make a representation falsely if it is untrue or misleading and the person making it knows that it is, or might be, untrue or misleading.

  11. "Gain" and "loss" are defined in section 5 of the Act:

    (2) "Gain" and "loss"—

    (a) extend only to gain or loss in money or other property;

    (b) include any such gain or loss whether temporary or permanent;

    and "property" means any property whether real or personal (including things in action and other intangible property).

    (3) "Gain" includes a gain by keeping what one has, as well as a gain by getting what one does not have.

    (4) "Loss" includes a loss by not getting what one might get, as well as a loss by parting with what one has.

  12. To reiterate the point made in the introduction, the offence is wholly conduct- based. There is no need to prove that a victim believed any representation or acted on it. Nor is it necessary to establish that the accused made a gain or caused a loss by his representation.

  13. Even if in practice prosecutors may have to call evidence from a victim, since a jury may well expect to hear from someone who suffered as a result of the crime, the fact of the matter remains – as aptly put by Professor David Ormerod – that "this wholly inchoate offence appears to criminalise lying"!

  14. There are other practical implications especially in determining blameworthiness and punishment. To use Ormerod's example, if the accused typed an impressive high yield investment prospectus into his computer and emailed it, he seems to have committed an offence under section 2. What sentence is appropriate? The representation might have made millions of pounds from gullible investors, or been universally treated as irritating spam and deleted ((2007) Crim. L. R. p.197).

  15. The Sentencing Guidelines Council's Definitive Guideline Sentencing for fraud addresses the problem but only partially. For example, high level of profit from the offence and multiple victims are aggravating factors (para.22). There is no mitigation where no actual loss results. Where no actual loss results the Guideline directs as follows (para.20):

    "In such cases a court should use the starting point corresponding to the amount which the offender intended to obtain and adjust the assessment of seriousness to reflect the fact that no loss has resulted."

  16. Of how much use is this to a Court faced with the facts presented in the above example?

    Fraud by failing to disclose information

  17. Section 3 provides that a person commits an offence under this section if he:

    dishonestly fails to disclose to another person information which he is under a legal duty to disclose, and intends, by failing to disclose the information – (i) to make a gain for himself or another, or

    (ii) to cause loss to another or to expose another to a risk of loss.

  18. The section contains no definition as to what constitutes "legal duty" necessary to trigger the offence. However, the Law Commission's Report on Fraud commented on the concept of a "legal duty" and could be of assistance:

    "Such a duty may derive from statute (such as the provisions governing company prospectuses), from the fact that the transaction in question is one of the utmost good faith (such as a contract of insurance), from the express or implied terms of a contract, from the custom of a particular trade or market, or from the existence of a fiduciary relationship between the parties (such as that of agent and principal). For this purpose there is a legal duty to disclose information not only if the defendant's failure to disclose it gives the victim a cause of action for damages, but also if the law gives the victim a right to set aside any change in his or her legal position to which he or she may consent as a result of the non-disclosure. For example, a person in a fiduciary position has a duty to disclose material information when entering into a contract with his or her beneficiary, in the sense that a failure to make such disclosure will entitle the beneficiary to rescind the contract and to reclaim any property transferred under it." (paras. 7.28 and 7.29)

    Fraud by abuse of position

  19. Section 4 provides that the offence will be committed if a person:

    occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person, dishonestly abuses that position, and intends by means of the abuse of that position – to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss. 25. Section 4 does not define "abuse" or "position". However regarding the former concept the section states that an omission will be enough for an abuse of position to take place. An example given in the Explanatory Notes is of an "employee who fails to take up a crucial contract in order that an...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT