‘The United Kingdom Anti-Fraud Policy - A Critical Review’

Wales Fraud Forum2nd Annual Conference

Dr Nicholas Ryder

Head of Commercial Law Research Unit

nicholas.ryder@uwe.ac.uk

http://twitter.com/#!/DrNicRyder

Abstract

• Financial Crime Policies– Money Laundering– Terrorist Financing

• Fraud– The extent of fraud

• Anti-fraud strategy

• United States comparison

• Conclusion

Financial Crime Policies

• Money Laundering– Crime of the 1980s and 1990s– United Nations legislative measures– European Union initiatives– Financial Action Task Force (40

Recommendations)– United Kingdom

Financial Crime Policies

• Terrorist Financing– Financial crime of the new millennia? – September 11th 2001– United Nations Security Council Resolutions– Financial Action Task Force (9 Special

Recommendations)– European initiatives– United Kingdom

Fraud

• International profile of fraud has significantly increased

• Why?– Bank of Credit Commerce International– Enron– WorldCom– Bernard Madoff– Jerome Karivel

Fraud

• Why? (cont.)– Mortgage fraud

• Annual level in the US is $4-6bn (Ryder, 2010)• Annual level in UK is £700m (Ryder, 2011)

– Credit Crunch• Casino banking?• Illicit activity• The next project!

The extent of fraud

• Norwich Union Report (2005)– £16 billion– Equivalent to £650 per household per annum

• Association of Chief Police Officers (2007)– £15-17bn

• National Fraud Authority (2010)– £30bn

The extent of fraud

• Mortgage Fraud

– £700m

• Benefit Fraud

– £8bn

• Corporate Fraud

– £72bn

• Public Sector Fraud

– £21bn

• It costs the US $400bn (Ryder, 2010)

Anti-Fraud Strategy

• The Conservative government (1979 – 1997)– Deregulation of the banking sector (Banking

Act 1987 and Financial Services Act 1986)– Increase competition in the banking sector– Resulted in London becoming epicentre of

illegal activities in Europe– Criminal Justice Act (1987)– Serious Fraud Office

Anti-Fraud Strategy

• New Labour and a change of policy?

• Fraud Review (2006)

• The Review considered three questions:1. what is the level of fraud?

2. what is the appropriate role of the government in dealing with fraud?

3. how could government resources be spent to maximise value for money?

Anti-Fraud Strategy

• The UKs fraud policy can be divided into three parts:

1. criminalisation of fraudulent activities;

2. regulatory agencies, and

3. anti-fraud reporting requirements.

Criminalisation

• The Fraud Act 2006 introduced three possible ways of committing fraud:

1. false representation (s 2). 2. failing to disclose information to another

person where there is a legal duty to disclose the information (s 3).

3. abusing one's position (s 4).

The Regulatory Agencies

• There are several agencies that attempt to combat fraud:– The Financial Services Authority– The Office of Fair Trading– HM Revenue and Customs– The Serious Fraud Office– The Serious Organised Crime Agency– National Fraud Authority– National Fraud Intelligence Bureau

The Regulatory Agencies

• The Economic Crime Agency (May 2011)

• The National Crime Authority (June 2011)

• http://www.youtube.com/watch?v=tGi8RFmHgck

Anti-fraud reporting requirements

• Proceeds of Crime Act (2002)

• Senior Management Arrangements, Systems and Controls (FSA Hand Book)

• Home Office Guidelines

• Action Fraud

• Who reports?

• Do all financial institutions report allegations of fraud?

The Coalition Government

• 'Policing in the 21st Century‘ (Home Office, 2010)

• “We will create a single agency to take on the work of tackling serious economic crime” (Coalition Agreement, 2010, p. 9)

• Proposals based on ‘Fighting Fraud and Financial Crime’ by Jonathan Fisher QC, for Policy Exchange (2010)

The Coalition Government

• National Crime Agency

• Four divisions:1. Organised Crime Command

2. Border Policing Command

3. Economic Crime Command

4. Child Exploitation and Online Protection Centre (Home Office, 2011)

The Coalition Government

• National Crime Agency– Will there be more money?– How can it tackle an industry worth £30-

£50bn?– What does the future hold for the Serious

Fraud Office, Financial Services Authority and the Serious Organised Crime Agency?

– Comparison to the treatment of the Assets Recovery Agency

United States Comparison

• Criminalisation of fraudulent activities– Mail Fraud Statute (1872)– Bank Fraud Act (1984)– Anti-Drug Abuse Act (1988)– Violent Crime Control and Law Enforcement

Act (1994)– Financial Institutions Reform, Recovery and

Enforcement Act (1989)– Sarbanes-Oxley Act (2002)

United States Comparison

• Regulatory Agencies– Department of Justice– Federal Bureau of Investigation– US Secret Service – Postal Inspection Service– Federal Trade Commission– Securities and Exchange Commission

United States Comparison

• Reporting Obligations– The use of suspicious activity reports– FinCEN– All suspicious transactions involving fraud are

reported to FinCEN– Similar stance to that adopted for money

laundering and counter terrorist financing

Conclusion

• Impact of banking deregulation in the 1980s

• Inadequate response of the Conservative government

• Wide range of measures implemented following Fraud Review

• Coalition government and the National Crime Agency