Fraud Bill [Lords]

I beg to move, That the Bill be now read a Second time. The Bill will reform the criminal law on fraud and dishonestly obtaining services. It applies to England and Wales and to Northern Ireland; Scotland has different provisions. We know that fraud has a massive impact on the United Kingdom economy. It is difficult to give precise figures, because fraud is by nature secretive, but in 2000 National Economic Research Associates estimated that it cost the UK economy £14 billion. In 2004, Norwich Union suggested that the cost had risen to more than £16 billion. Despite the public perception that most fraud is a victimless crime, the reality is that it hits most of us. We all pay higher prices for security systems, banking services, credit and goods, and of course we also pay higher premiums for insurance. If the Norwich Union estimate is right, fraud is costing each household more than £650 a year. Tackling fraud and the provisions of the Bill are therefore important to everyone. The Government’s strategy for tackling fraud has three aims. The first is to get the law right, and is the reason for the Bill. The second is to improve the investigation of fraud by the police and other agencies. The third is to ensure that the courts deal expeditiously and effectively with fraudsters. The investigation of fraud is being considered by the fraud review that the Attorney-General is currently leading, and which is expected to report soon. I shall return to that later. We have also agreed to deal with the issue of trials, particularly the contentious question of non-jury trials, in another Bill. This Bill was the subject of a great deal of discussion in another place. By the end there was broad all-party support for most of its provisions, although I am sure that Opposition Members will want to test the detail in Committee. Strange as it may seem, no general offence of fraud exists today. When lawyers talk of fraud, we refer collectively to a wide and complex array of deception and theft offences. The Theft Acts and the common law, compiled somewhat haphazardly, have the task of encompassing the wide range of fraudulent conduct. In 1998, the Government asked the Law Commission to review this area of law. The commission conducted a lengthy and painstaking review, for which we thank it, producing a report in July 2002. Unsurprisingly, it concluded that the existing law on fraud was deficient and proposed changes, most of which found their way into the Bill. It identified certain key problems. First, the deception offences in the Theft Acts tend to be specific and narrow, which makes them vulnerable to technical assaults. Defence lawyers are often able to argue that a particular behaviour fell just outside the definition of the offence with which the defendant was charged, or that the defendant was charged with the wrong kind of deception and so ought to be acquitted. Defendants may indeed face the wrong charge or too many charges, and indictments may be excessively complex because of charges relating to various alternative counts. Secondly, deception is an essential ingredient of the offence. That requires a victim to be deceived. However, a shop assistant who accepts a card for payment may be indifferent about whether the cardholder has authority to use the card as long as the payment goes through. Machines and computers have generated new problems. For example, a ticket machine has no mind of its own: can it be deceived? What of problems such as internet phishing? The more we use machines to obtain goods and services, the greater such problems are likely to become. So far the old laws are coping with those developments, but the signs of stress are beginning to show. The Law Commission rightly took the view that it was unrealistic merely to plug the loopholes in the deception laws, or to try to create a new collection of specific new deception offences, as such piecemeal reform would produce even more complexity. Instead, the commission recommended a new general offence of fraud that would make the law more comprehensible to juries, would be fairer to defendants by making the law more straightforward, and would encompass fraud in its many unpredictable forms. In proposing that change, the Law Commission made two specific recommendations in relation to the law. First, the focus should be on dishonesty rather than on deception. Secondly, proof of gain should no longer be essential to proving the crime: it should be enough that the offender intends to make a gain for himself, to cause a loss to another, or to expose another to a risk of loss. The Bill creates the general offence of fraud in clause 1. It will replace provisions in our law that are in daily use in the courts. It is important that we get those changes right. That is why, in 2004, after the Law Commission's report, the Government decided to carry out a further consultation on the proposals. The consultations showed wide support for the proposal for a new general offence. Most stakeholders agreed that it would be right to focus the crime on the dishonest behaviour of the defendant, rather than the deception of the victim. Most also agreed that the Law Commission was right to reject the idea of a very broad offence of dishonesty, which risked being too uncertain. The general offence in clause 1 requires not only dishonesty and the intention of making a gain or causing a loss, but one of three other elements, which must be met before the crime can be charged. The three elements are: fraud by false representation, fraud by failure to disclose information, or fraud by abuse of position. Let me briefly describe each of them. Fraud by false representation is set out in clause 2. The extra element is that the offender makes a false representation knowing that it is, or might be, false or misleading. The types of representation covered may be of fact or law, including making a representation as to a person's state of mind. There is no restriction on whether it is written, spoken or in non-verbal communication. The representations can be implied or expressed in any form. For example, it can be done by entering a stolen chip or PIN into a machine or by internet phishing, where someone puts a letterhead on an email suggesting it has come from a bank in order to elicit a victim’s financial details. Under the second limb of the offence, fraud by failing to disclose information, the extra element is that the offender fails to disclose information that he has a legal duty to disclose. There were some differences of view on that proposal between the Law Commission and others. The commission’s report proposed covering circumstances where there was no legal duty to disclose but where one person trusted the other to disclose—where there was some kind of moral responsibility, for want of a better phrase—but in the Government's consultation, although there was widespread welcome for that limb of the general offence, the issue of going beyond a legal duty was questioned. Some—for example, the Association of Chief Police Officers fraud working group—said that it would create uncertainty in the law. I can see their point. For example, how many of the minor defects of a second-hand car would a seller be trusted to disclose? The Government listened with care to those concerns and responded by restricting the offence to legal duties only—a position supported by the Rose committee, comprising members of the senior judiciary set up to ensure that legislative proposals are as well formulated as possible and can work in practice.