The Fraud Act 2006 received its Royal Assent on 13 July 2006 and was enacted into law on 15th January 2007. It was enacted to modernise the law on deception to take account of the technological and social advances that have taken place since the original statutory provisions were passed. The Act provides for several offences of making false representations and giving false descriptions, including dishonest abuse of a position or situation.
The Varying Degrees of Dishonesty
The Act aims to provide a framework within which various forms of dishonest behaviour can be dealt with concerning two general categories of potential victims: individuals and organisations. Underlying the Act is the idea that people and organisations should only deal with each other based on honesty and integrity, but some people are dishonest and violate this basic premise because they believe they are unlikely to be caught.
The Act is intended not only to address the variability in the types of fraud that could be committed but also to establish the principle that complex frauds should be prosecuted at a level that corresponds with the seriousness and sophistication of the conduct concerned and has a tangible impact on the criminal community. To achieve this, the Act outlines various fraud offences.
Several of these offences under the Act came into force on 15th January 2007, with the remainder coming on 26th January 2007. Following the report and the Bill's progression through Parliament, legal practitioners and corporate counsel in the UK have familiarised themselves with the provisions of the Act and its implications for not only their clients' organisations but also their commercial decisions.
Key Definitions of the Fraud Act 2006
The Fraud Act 2006 defines fraud as a crime and uses many terms whose meanings are set down within the Act. For example, the meanings of the terms “representation” and “deception” are vital to the effective operation of the Act. Each of the terms underpins the shape of the law and, crucially, is used to determine whether a person intended to commit fraud and defraud another. The Act’s interpretation section provides definitions for terms used throughout the Act, rendering legal meaning and preventing ambiguity.
Fraud can be considered an act of deception to make a gain, cause a loss, or cause another to undertake an action they would not have taken, resulting in exposure to a risk of loss. This definition of fraud demonstrates two essential aspects of fraudulent behaviour: intent or state of mind and acquiring property through dishonesty. When a person acts knowing that their actions are dishonest and without a claim of right or belief in a claim of right, the outcome will be that a benefit of some kind has been obtained.
According to the Fraud Act 2006, an individual qualifies as a fraudster if they knowingly make a false representation or deliberately neglect to verify its truthfulness, despite being aware that they lack justification for such actions. Consequently, grasping the concept of "representation" is crucial for prosecutors. The relevance of these definitions serves as essential instruments in identifying fraud offences and criminalising various behaviours outlined in the Act.
These terms' broad applicability clarifies the extensive and varied definitions of what the offence of fraud entails, ensuring uniform law enforcement. This consistency not only aids in the effective prosecution of fraud cases but also poses significant challenges for individuals engaged in fraudulent schemes, making it increasingly difficult to sustain their illicit operations.
Fraud by False Representation
Under current law, a person could be charged with fraud for failing to disclose information in the cause of their committing fraud, punishable by a maximum of 7 years in prison. A person commits an offence contrary to section 2 of the Fraud Act 2006 if they are in England or Wales, and they dishonestly make a false representation and intend, by making the representation, to create a gain for themselves or another or cause loss to another, or to expose another to a risk of loss.
A representation is false if it is untrue or misleading, and the person making it knows it is, or might be, inaccurate or misleading. This burden of proof contains three elements that the prosecution must show:
- That there is an objectively misleading statement, representation, or communication.
- Establish that the accused knew of the falseness of or that they were reckless in making the misleading statement, representation, or communication.
- That the misleading statement, representation, or communication was made to make a gain for themselves or another or cause loss to another.
A statement, representation, or communication may be made in any form, including spoken or written words or by a person’s conduct in the manner of their committing the offence of fraud. Any statement, whether express or implied, also constitutes a representation provided that by such a statement, the person making it intends to communicate a message from which, relying on it, the person to whom it is communicated may understand a particular situation.
A false statement, representation, or communication will be made to make a gain, avoid a loss, or put in place a risk of loss, where this is the intended result. For an offence to be made out, there must be proof that a statement, representation, or communication has been made with the appropriate intent, usually of making a gain, causing loss, or putting a person at risk of loss.
In most cases, mere embarrassment or damage to feelings cannot be equated with 'loss' or its intended meaning, 'the making of a gain.' Perceptions may offer means of assessing the seriousness of the offence, but they do not provide a guilt framework.
Fraud by Failing to Disclose Information
The Fraud Act 2006 created three general offences of fraud: two that are usually committed when the defendant makes a false representation or dishonestly abuses a position and one that is committed when the defendant fails to disclose information. Neither the old nor the new treatment of fraud can be accounted for consideration of deceit alone. The distinctive feature of the offence of fraud by failing to disclose information is the requirement that the deception be achieved by making an omission or a partial omission.
Understanding the concept that an individual can be implicated in fraud through inaction is crucial. For this to occur, the misled individual must rely on the absence of information. Research indicates that non-disclosure poses a greater risk to electronic and online commerce than conventional retail transactions. This heightened risk may stem from the notion that withholding critical information in a written agreement is perceived as more deceptive than in a direct, face-to-face interaction.
Determining whether a duty to disclose exists is often ambiguous and can vary significantly across different cases and scenarios. There remains uncertainty regarding the applicability of this offence and whether there are grounds for appeal on this matter. Established law counsel guidelines outline the criteria for prosecuting an omission-based offence, which stipulate that two conditions must be met for a charge of dishonesty by omission to be valid.
Initially, there must be a recognised legal obligation to disclose information, distinguishing it from a mere ethical expectation. Such formal duties are typically established by legislation, which may require individuals to declare personal interests or safeguard public resources. The guidelines emphasise that individuals engaged in specific activities perceive a duty as owed, highlighting that this obligation is inherently linked to their professional roles.
Fraud by Abuse of Position
Fraud by abuse of position under the Fraud Act is at least as important as the offence of deception by false representation in respect of fraud. Vulnerability is critical in abusing a position; it is about taking advantage of a position because of its trust. Conduct amounting to breaches of fiduciary duties can involve dishonesty. There is the expectation of trust and betrayal of that trust; the difference is in the element of vulnerability.
To be prosecuted under the relevant section, the abuser's operations have to set out the parameters of an expectation of trust by the victim or public at large, which is then fraudulently violated. Identifying and managing fraud from abuse of position necessitates guarding against conflict of interest, specifically against one person or group taking advantage of a position to gain undue personal benefit and advantage.
This ranges from directors in one organisation taking advantage of their position to the limits of expense accounts and organisational travel expenses to financial executives abusing inside information. In an investigation, the main concerns will revolve around the risks to the organisation, detection, deterrence, and what should be done about the investigation itself.
The Fraud Act 2006 is designed to protect the public and is based on primary legislation. The court's interpretation of the Act will reflect the scope of legislation. A person committing fraud could face imprisonment for up to 12 months and a fine if found guilty. Abuse of position undermines a critical area of trust. To ensure confidence, governance must be a fundamental principle.
Making or Supplying Articles and Possession of Articles for Use in Fraud
Section 6 of the UK Fraud Act 2006 sets out a series of three possible related offences:
- Making articles for use in frauds.
- Supplying articles for use in frauds.
- Possessing articles for use in frauds.
The effect of this section of The Fraud Act 2006 is that it is an offence to do such acts concerning articles intended for use in connection with any fraud. The Act is structured to demonstrate how it applies to three categories of articles:
- Physical items.
- Electronic communication licences.
- Other kinds of articles.
In cases alleged to be covered by this offence, there is no need to specify any particular type of fraud, as there is for the remaining offences under the Fraud Act 2006. The offence arises when a person makes, adapts, supplies, or offers to supply any article, intending it to be used to commit or assist in committing fraud. A judge has mentioned a case in which three defendants were accused of making counterfeit documents to obtain legitimate documentation.
Another case arose from the making of a computer game program that dishonestly altered the figures in a large organisation's accounts when fed the raw data that had been used to prepare the accounts in the first place. The offence is complete when a person offers to supply an existing article. Another person doesn't need to accept the offer: supplying is complete as soon as any offer is made.
A person who allows another person to use an existing article to defraud someone would be guilty of aiding, abetting, counselling, or procuring the principal operator rather than supplying the article. Police and prosecutors are cautious in assessing who may have been primarily responsible for specific acts of fraud. If the act is done with intent and not merely to spend money, nobody else necessarily needs to be involved in discussing the matter for the individual to be guilty of conspiracy to defraud.
Fraudulent Trading
It has been suggested that a trader or a trading partnership may be deemed fraudulent based on the evidence presented. The challenge lies in establishing that all the criteria for determining fraud are inherently linked to dishonesty, establishing the necessary person's reason for fraud. When an individual or partnership is actively engaged in trade, whether through ownership or leasing of retail space, dealing in publicly accessible goods, or operating as a self-employed artisan, it is reasonable to infer that their actions may be perceived as dishonest if their overall behaviour is viewed as such by the average person.
The dishonesty standard within the broader context of fraud law is primarily designed to safeguard the interests of deceased individuals and their heirs and potentially protect other traders in credit cases. However, the ongoing issue remains that small independent retailers and traders frequently engage in fraudulent practices. These sellers often deceive the public daily when marketing consumer goods to private customers who may lack knowledge about the products or the industry.
In this environment, the organisation's identity becomes less significant, as numerous instances of misrepresentation can constitute fraudulent trading. The prevalence of such deceptive practices underscores the need for vigilance and accountability within the trading community, as the implications of dishonesty extend beyond individual transactions to impact the integrity of the market. Fraudulent trading, also based on early cases, might be considered a successor offence to obtaining by false pretences.
If the suspect is involved, inter alia, in a subsistence market, acquiring gifts of product, goods, or money in a wholly private or social transaction, they cannot have the intention to secure the price of the product. If this is the case, the trader cannot commit fraud against non-corporate traders. In the area of trading, this is important because it is a point of principle that ordinary members of the public have little defence against unscrupulous traders.
Obtaining Services Dishonestly
The offence of obtaining services dishonestly in the United Kingdom has been significantly redefined with introducing the Fraud Act 2006, which has streamlined the previous provisions under the Theft Acts. According to the Fraud Act 2006, an individual commits this offence when they dishonestly acquire services that are typically chargeable with the deliberate intention of evading payment, either in whole or in part. This legal framework emphasises the defendant's gain from the fraudulent act, highlighting the necessity of presuming dishonesty as outlined in Section 2 of the Fraud Act 2006.
Under Section 12(1) of the Fraud Act 2006, an individual who dishonestly acquires services, fully aware that these services are provided only on the condition of payment, commits an offence. In a notable case, the perpetrator attempted to board a bus using a card reported as lost. The bus driver denied a person entry until an inspector intervened, ultimately leading to the perpetrator’s conviction for travelling without a valid ticket, with the cardholder deemed to have acted dishonestly.
It is important to note that prosecution may not be pursued if the services in question were accessible to the public or a specific group without charge. A critical aspect of the offence of obtaining services dishonestly is that the services must be intended to be compensated for, regardless of whether payment has already been made. Regarding the primary offences outlined in Section 11(1) of the 2006 Act, a conviction can result in a penalty of up to five years imprisonment.
Section 13(1) of the Fraud Act 2006 grants a court the authority to issue orders to restore restitution to fraud victims. In cases where there is an abuse of trust or a significant risk of public harm, a custodial sentence may also be considered for the perpetrator of the fraud offence. The presence of fraudulent intent, whether from the convicted individual or someone under suspicion, poses a potential threat to organisations and can jeopardise public enterprises. Depending on the nature and extent of the activities involved, this offence can manifest in short-term and long-term commercial fraud.
Specific elements must be established for a successful fraud conviction: the individual must intend to avoid payment, obtain the services dishonestly, and successfully evade the costs associated with those services. Acquiring services through dishonest means can manifest in various forms, whether as part of a broader scheme to obtain property or as isolated offences. The scope of obtaining services dishonestly encompasses a variety of scenarios, including the unauthorised use of public services, tax evasion, and the consumption of utilities (gas and electricity) without payment.
Other examples include avoiding payment at petrol stations, avoiding ticket barriers at train stations, committing fraud with debit or credit cards, utilising public spaces without congestion charges, and misappropriating other services. In one notable case, a diner at a restaurant failed to return promptly to settle their bill, leading to the individual being found guilty of dishonestly utilising goods and services intended for customers.
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