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You are here: BAILII >> Databases >> The Law Commission >> FRAUD [2002] EWLC 276(1) (01 July 2002) URL: http://www.bailii.org/ew/other/EWLC/2002/276(1).html Cite as: [2002] EWLC 276(1) |
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THE LAW COMMISSION
Report on a reference to the Law Commission under section 3(1)(e) of the Law Commissions Act 1965
FRAUD
To the Right Honourable the Lord Irvine of Lairg, Lord High Chancellor of Great Britain
PART I
INTRODUCTION1.1 In April 1998, the then Home Secretary asked the Law Commission
As part of their programme of work on dishonesty, to examine the law on fraud, and in particular to consider whether it: is readily comprehensible to juries; is adequate for effective prosecution; is fair to potential defendants; meets the need of developing technology including electronic means of transfer; and to make recommendations to improve the law in these respects with all due expedition. In making these recommendations to consider whether a general offence of fraud would improve the criminal law.[1]1.2 The Lord Chancellor subsequently explained that
The ability to respond effectively to major fraud is of the highest priority to the Government. We recognise that, in recent years, the public has at times felt that those responsible for major crimes in the commercial sphere have managed to avoid justice. Even when fraud is detected, the present procedures are often cumbersome, and difficult to prosecute effectively.[2]1.3 Similarly, the then Solicitor-General[3] said in October 1997 of the present law of dishonesty that "the modern sorts of commercial activity, and the modern methods by which dishonest activity may be effected make one constantly worried that the unoverhauled bus may not be able to cope".[4] 1.4 The Commission had already been working on the law of fraud intermittently since the 1970s, when it began to examine the common law crime of conspiracy to defraud with a view to codification of the criminal law, and had already published several consultation papers and reports which had a bearing on the issues raised by the 1998 reference. The proposals advanced in these various publications (which are summarised in Part VI below) have been mainly directed towards two different and arguably competing objectives. One is to ensure that the scope of the criminal law of fraud is wide enough to enable fraudsters to be successfully prosecuted and appropriately sentenced, without being so wide as to impose unacceptable restrictions on personal freedom, or so vague as to infringe the principle of the rule of law. The other is to eliminate the indefensible anomaly represented by the continuing survival of conspiracy to defraud, under which it may be a crime for two people to agree to do something which, in the absence of an agreement, either of them could lawfully do. The task with which we have several times had to grapple is that of devising a statutory law of fraud which, by satisfying the first objective, would in turn make it possible to achieve the second, by abolishing conspiracy to defraud. In this report we bring those efforts to what we believe is a satisfactory conclusion. 1.5 One of the issues raised in the consultation paper that we published in response to the Home Secretary's reference[5] was the procedural difficulty that arises where the number of offences alleged to have been committed by a defendant is too large to be comprised in a manageable indictment.[6] Until recently it was normal practice to select a few counts as "specimens", and then if guilt was proved on those counts the Court would proceed to sentence on the basis that all the related counts had been proved. However, it has now been held that a defendant who is convicted only on specimen counts, and does not admit the remaining allegations, may be sentenced only in relation to the allegations on which he or she has been convicted.[7] It may therefore be impossible to impose a sentence which properly reflects the seriousness of the defendant's conduct. While this is a problem that is particularly acute in the context of fraud offences, it is arguable that it is a general problem, not confined to fraud. We have therefore decided to examine it in a separate report which we hope to publish later this year. These two reports will together make up our response to the Home Secretary's reference.
Summary of recommendations
1.6 In asking us to consider the law of fraud, the former Home Secretary was particularly interested in whether the introduction of a general fraud offence would improve the criminal law. We have now come to the conclusion that it would. We consider that it would improve the law in each of the respects raised by the former Home Secretary:(1) It should make the law more comprehensible to juries, especially in serious fraud trials. The charges which are currently employed in such trials are numerous, and none of them adequately describe or encapsulate the meaning of "fraud". The statutory offences are too specific to offer a general description of fraud; while the common law offence of conspiracy to defraud is so wide that it offers little guidance on the difference between fraudulent and lawful conduct. Thus, at present, juries are not given a straightforward definition of fraud. If they were, and if that were the key to the indictment, it should enable them to focus more closely on whether the facts of the case fit the crimes as charged.
(2) A general offence of fraud would be a useful tool in effective prosecutions. Specific offences are sometimes wrongly charged, in circumstances when another offence would have been more suitable. This can result in unjustified acquittals and costly appeals. Furthermore, it is possible that excessively broad crimes, such as conspiracy to defraud, may result in prosecutors wasting resources on those who should never have been charged at all. A generalised crime which nonetheless provides a clear definition of fraudulent behaviour may assist prosecutors to weigh up whether they have a realistic chance of securing a conviction.
(3) Introducing a single crime of fraud would dramatically simplify the law of fraud. Clear, simple law is fairer than complicated, inaccessible law. If a citizen is contemplating activities which could amount to a crime, a clear, simple law gives better guidance on whether the conduct is criminal, and fairer warning of what could happen if it is. Furthermore, when a defendant is charged with a clear, simple law, they will be better able to understand their options when pleading to the charge; and, if pleading not guilty, they will be better able to conduct their defence.
1.7 In line with these conclusions, we recommend that the eight offences of deception created by the Theft Acts 1968–96 should be repealed, and that the common law crime of conspiracy to defraud should be abolished. In their place we recommend the creation of two new statutory offences – one of fraud, and one of obtaining services dishonestly. 1.8 The offence of fraud would be committed where, with intent to make a gain or to cause loss or to expose another to the risk of loss, a person dishonestly(4) A general offence of fraud would be aimed at encompassing fraud in all its forms. It would not focus on particular ways or means of committing frauds. Thus it should be better able to keep pace with developing technology.
(1) makes a false representation,
(2) wrongfully fails to disclose information, or
1.9 The offence of obtaining services dishonestly would be committed where a person by any dishonest act obtains services in respect of which payment is required, with intent to avoid payment. Deception is not an essential element of the offence. It would therefore extend to the obtaining of services by providing false information to computers and machines, which under the present law may not amount to any offence at all.(3) secretly abuses a position of trust.
The structure of this report
1.10 In Part II we summarise the present law, and in Part III we examine its defects. In Part IV we analyse the gaps that would appear in the law if conspiracy to defraud were abolished without replacement. In Part V we examine the role of the concept of dishonesty in the criminal law. In particular we consider whether it would be acceptable for criminal liability to hinge solely or primarily on proof of dishonesty, and conclude that it would not. This means that, in order to make conspiracy to defraud dispensable, we need to formulate proposals which strike a balance between the inadequate coverage of the existing statutory offences and the "general dishonesty offence" that we have rejected. In Part VI we summarise our previous attempts to do this. 1.11 In Part VII we set out our final recommendations for a new offence of fraud, and in Part VIII our recommendations for a new offence of obtaining services dishonestly. In Part IX we recommend the abolition of the existing offences of deception and of conspiracy to defraud. In Part X we set out our recommendations in full. 1.12 Appendix A is a draft Bill which would implement our recommendations. In Appendix B we summarise our previous work on fraud. Appendix C is a list of the individuals and organisations who commented on Consultation Paper No 155 and/or our informal discussion paper.[8] We are grateful to Professor Sir John Smith CBE QC FBA, of the University of Nottingham, for acting as our consultant throughout this project.Note 1 Written Answer, Hansard (HC) 7 April 1998, vol 310, cols 176–177. [Back] Note 2 “The feasibility of a unified approach to proceedings arising out of major City fraud”, KPMG lecture, 24 June 1998. [Back] Note 3 Lord Falconer of Thoroton QC. [Back] Note 4 “Commercial fraud or sharp practice – Challenge for the law” Denning Lecture, 14 October 1997. [Back] Note 5 Consultation Paper No 155. [Back] Note 6 Ibid, paras 7.60 – 7.75. [Back]
