The limitations on the police response to fraud: what other options are open to victims?
February 2019 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2019 Issue
It is well-known that serious and sophisticated incidents of fraud are on the rise, and corporates are increasingly likely to be the targets of such attacks. Half of the organisations surveyed in a 2018 study by PwC had been the victim of fraud or economic crime in the previous two years, with a significant portion of these incidents costing in the millions.
At the same time, police budgets have been drastically eroded. Consequently, as cases compete for funding, violent and organised crime, terrorism and sexual abuse cases will often be prioritised over economic crime. This can be particularly true where the victim is a business and perhaps assumed to have the capacity to absorb the loss or pursue a civil remedy.
A corporate victim of fraud may have as its primary focus the recovery of misappropriated assets, an objective that will often be best achieved through civil litigation. However, some businesses and organisations also want to see the perpetrator brought to justice, particularly where the fraud has been carried out by somebody within their organisation or a previously-trusted partner, or where it is important to create a deterrent effect.
Against this background, a major new report by the Police Foundation, the UK’s only independent policing think tank, published on 3 December 2018, has evidenced what many criminal lawyers have known to be the case for some time: there is a chronic shortage of the law enforcement resources necessary to investigate and prosecute allegations of fraud.
Publishing the results of a two-year research project into police responses to fraud, the researchers reported that in excess of three million reports of fraud are made annually, but only one in 13 of those are ever allocated for investigation. The study also found that investigations took significantly longer than for other offences, with the average time from reporting to charging fraud reaching 514 days (as against 50 days for theft offences, for example).
Since 2013, Action Fraud has been the central police reporting hub for fraud complaints, designed to provide a more coherent intelligence picture and a more rational system for allocating cases for investigation. In the first of these aims it may have succeeded – we now know more than ever about the number of suspected frauds but it does not, according to the Police Foundation’s report, appear to result in an efficient response.
One of the key difficulties victims find when reporting fraud is the time taken to provide any substantive response or for the case to be allocated to a police force – reducing the possibility of following up leads or acting quickly where there are short windows of opportunity to catch perpetrators. In addition, it is not easy for victims to obtain information as to the progress of their case – resulting in frustration for businesses which may wish to consider alternative options if no police action is taken.
In this climate, victims of fraud are increasingly seeking legal advice on how to report an incident of fraud in order to ensure the greatest chance of an investigation being opened.
The police should not be criticised for the shortcomings in the investigation of economic crime. They are hamstrung by budget restraints and the depleted number of officers, which necessitates the prioritisation of those crimes perceived to cause the greatest harm to society.
However, this undoubtedly gives rise to the risk that fraudsters will be spurred on by the perception that they are unlikely to be caught or punished for their wrongdoing, leading to an increase in economic crime that is damaging to business and the UK economy.
But, there are other options available to a corporate when the authorities do not have the resources or political will to investigate fraud.
Where there is a strong desire to bring the perpetrator to justice, a private prosecution may offer an alternative route to redress. The criminal legal profession has seen growing demand for advice on the merits of a private prosecution where fraud is suspected and, in recent years, teams of highly specialised lawyers, often working hand in hand with private investigators, have honed their skills to meet this demand, resulting in a number of successful prosecutions being obtained by victims of economic crime.
Acting for both individual and corporate victims of fraud in private prosecutions has proven to be an effective route to achieve justice, often allowing for an efficient and focused investigation to take place in the immediate aftermath of the crime being committed. However, there are investigative limitations to the process. For example, state bodies have certain coercive powers such as search warrants or restraint orders at their disposal, which are not ordinarily available to private prosecutors.
It is also open to the victims of fraud to pursue civil remedies against the alleged fraudsters, enabling entities to recover the proceeds of the fraud in the context of the civil courts. There are many benefits to civil proceedings, not least the high level of control available to victims throughout the process, the ability to obtain disclosure from the alleged perpetrator of the misconduct and incentives for early settlement.
On 13 December 2018, the Home Office announced a significant increase in police funding of approximately £970m. Whilst it is to be hoped that some of this money will be dedicated to fighting economic crime, it is unlikely to be sufficient to facilitate the speed and effectiveness of response sought by many victims. It is likely that victims of fraud will continue to consider the option of taking matters into their own hands by pursuing private prosecutions or civil remedies.
Hannah Laming is a partner and Christopher Gribbin is an associate at Peters & Peters. Ms Laming can be contacted on +44 (0)20 7822 7752 or by email: email@example.com. Mr Gribbin can be contacted on +44 (0)20 7822 7740 or by email: firstname.lastname@example.org.
© Financier Worldwide
Hannah Laming and Christopher Gribbin
Peters & Peters