House of Lords firmly says more needs to be done to combat fraud

Summary of the Report’s Conclusions:

• A new cabinet-level subcommittee to tackle fraud, Chaired by the Security Minister.
• Fraud to be written into the Strategic Policing Requirement, which sets out the top priorities for the police.
• A new corporate criminal offence of ‘failure to prevent fraud’, applicable across all sectors, accompanied by significant financial penalties to try to change company behaviour regarding fraud.
• A Government-led, centrally funded consumer awareness campaign in partnership with industry to raise the country’s awareness about digital fraud.
• The urgent reintroduction of the Online Safety Bill to Parliament.
• The introduction of a delay lasting no more than several hours on certain high-risk payments to try to stop fraudsters cashing out stolen funds.

An overview of the Report

Make no mistake, this is not just another report.   This is not just another publication reviewing the state of the landscape relating to fraud.   It is much more.   It is sounding the alarm bell about the staggering position the country finds itself in with respect to fraud.   Fraud and cybercrime make up 41% of all crime in the UK but approximately 1% of policing budget is dedicated towards combatting economic crime.   The Report reveals that fraud levels are higher than pre-pandemic level and “latest data shows that losses over the past year total a staggering £4 billion”.

The Report cover to cover spans 191 pages.   It not only explains the state of play with respect to the impact of fraud, but it also details how various fraud types take place, where responsibility lies and makes its recommendations.

For anyone in the financial crime compliance or counter fraud profession, this report is a must read.  It is essentially horizon scanning on what needs to be done by businesses seen as enablers (financial services, telecommunications, social media to name a few) and how Government ought to act.   It also goes further, putting its weight behind new legislation to create a “failure to prevent fraud” type offence, in line with the failure to prevent bribery akin to the Bribery Act 2010.

The Report is broken down into six chapters:

1. Background: This sets the scene, looks at why digital fraud has increased (such as citing digitalisation and how the UK as an English language hub causes more likelihood of fraud, the business model of digital fraud, crypto assets and more).
2. The Inbound Route: This section provides an overview of fraud methodologies ranging from phishing to romance fraud and looks at the significant issue of fraudulent advertising and the need for the Online Safety Bill to be pushed through Parliament.
3. Interaction: This looks at the enablers, telecoms for example not reducing spoofing and fake texts, social engineering issues and considers the challenge of fraudulent websites.
4. Cashing out: This section is about anti-money laundering and knowing your client (AML / KYC), transaction monitoring, enforcement of the AML regime as well as areas such as money mules.
5. The Government response to fraud: This looks at the multi-agency approach by the Government to fraud, the various government bodies involved (the report states in damning words “the ‘alphabet soup’ of responsible bodies is ineffective”). In this section we find the issues of education about fraud (a subject Arun Chauhan feels needs to be on the curriculum at an early school age), consumer awareness (a topic which the Report recommends is a single Government led campaign) and the issue reimbursement.
6. The Fraud Act 2006 and the legislative framework: This section reviews the numerous relevant legislation including the positive assessment of the Fraud Act 2006. This section is helpful if you need to consider the detail around The Online Safety Bill.

Pages 156 – 166 is where you will find the key findings dealing with conclusions and recommendations. The Report can be downloaded here.

For Tenet, we are encouraged not only to see the detail and forthright views on the need to improve the way the UK deals and responds to fraud but are pleased to see the recommendation that “The Government should launch a review into the use of civil remedies to tackle fraud, including an examination of obstacles, for example, fees to commence civil proceedings, to the use of civil remedies such as asset recovery and injunction”.

This the area we already help our clients with but what seems to be missing in that recommendation is the key issue before you start expending public or private funds on civil action, you need to be eyes wide open on the issue or recovery i.e., identifiable assets.   Many cases start where there is hope or a strength of feeling that assets to enforce against will be located but for those already suffering large loss to fraud, it is always important to look at the cost / benefit analysis and risk of taking such action.

Finally, it should be noted that the Government has to respond within two months with their views on the Report’s proposals and this will be published on the House of Lords’ website. This will then be debated in the House of Lords.

Should your organisation like to understand more about the Report, its implications for your business and how to improve your approach to preventing and responding to fraud, please do not hesitate to get in touch at hello@tenetlaw.co.uk