This month we are examining a significant development in the United Kingdom. The country's first-ever Fraud Act came into effect on 15 January 2007, replacing the many offences that law enforcement officials previously used to prosecute fraudulent activity.

It also heralds the abolition of the privilege against self-incrimination in relation to fraud, a privilege which had been upheld in the UK for several hundreds of years. Its abolition has removed a significant barrier to claimants obtaining information about where their money or assets have gone.

The article is of interest to anyone involved in investigations into fraudulent activity in the United Kingdom, or any company with business interests in the UK.

Next month, Singapore member Andy Yeo will be examining recent changes to anti-money laundering regulatory guidelines which were issued by the Singapore central bank—the Monetary Authority of Singapore (MAS). These AML guidelines were issued to all local and foreign financial institutions which operate under the auspices of the supervisory regime of the MAS. The article will look at the impact on the AML and compliance culture for financial institutions in Singapore.

Finally, we would like to invite all members and newsletter recipients to contribute a review of any of the following titles Information Security and Employee Behaviour; Money Laundering; Information Risk and Security; Vetting and Monitoring Employees; Fraud and Corruption; Countering Terrorist Finance; Digital Identity Management; or Estimating Risk. If you are interested in reviewing any of these books, please contact us at www.antifraudnetwork.com.

Nick Burkill

Fraud in the UK

The new year brings an exciting development in the United Kingdom for those combating fraud. The UK's first-ever Fraud Act came into force on 15 January 2007 to replace the multitude of offences that police and prosecutors have previously used to prosecute fraudulent activity. Whilst the Act concentrates on the introduction of new criminal offences, it also brings with it an important and long overdue development for those using the civil law to recover the proceeds of fraud.

Criminal Offences

The centrepiece of the Act is the creation of an offence of fraud, which can be committed in three different ways: by making a false representation, by failing to disclose information, and by abusing a position.

Fraud by false representation is made out if a person dishonestly makes a false representation, whether an implied or express representation and by either words or conduct, with the intention of causing or risking loss to another or making a gain. A representation is "false" if it is untrue or misleading and the person who makes it knows that it is or might be misleading. The provision is intended to cover tendering a credit card on the basis that this act amounts to a representation that the person is authorised to use the card for the transaction. It also covers phishing—the sending of emails purportedly from a legitimate financial institution to obtain account numbers and similar details.

Fraud by failure to disclose information is made out if a person dishonestly fails to disclose information which he is under a legal duty to disclose, with the intention of causing or risking loss to another or making a gain. The concept of "legal duty" is a broad one, covering both express statutory duties and duties arising a) out of the nature of a transaction (eg, one categorised as being of utmost good faith, such as an insurance contract); b) from the nature of a relationship, such as a fiduciary relationship; or c) from the express or implied terms of a contract. This way of committing fraud is of particular importance in the employment relationship: employees should be placed under clear obligations to disclose information to their employers.

Fraud by abuse of position applies if a person occupies a position in which he is expected to safeguard, or not act against, the financial interests of another; dishonestly abuses that position; and intends by that abuse to cause or risk loss to another or to make a gain. This way of committing fraud also applies to employees. It would make sense for employers to clarify with appropriate employees that they occupy a position of trust and have a duty to safeguard, or not act against, the financial interests of the employer.

The Act also introduces preparatory offences in relation to fraud, of possessing articles for use in frauds and making or supplying articles for use in fraud. The Act also introduces an offence of participating in a fraudulent business, designed to mirror for sole traders the same offence carried on by a company. There is, in addition, an offence of obtaining services dishonestly with intent to avoid payment.

Removal of Privilege in Civil Cases

The privilege against self-incrimination in civil cases is a right that became embodied in English law as a result of the practices of the medieval English courts, including the use of torture, to compel people to answer questions. Accordingly, for hundreds of years, people have enjoyed a right not to answer questions or comply with orders of the civil courts if the result would be to incriminate them or their spouse. Parliament recognised that the practices of the courts have changed and that this right was no longer necessary, but limited the abolition of the right to specific cases, most significantly to those involving intellectual property and offences under the Theft Act. This was a source of some frustration in the context of fraud cases: many respondents would be in danger of having their responses used in fraud prosecutions brought under the common law, not under the Theft Act, and so sought to refuse to comply with orders or provide responses to obvious questions designed to identify their dealings in the proceeds of wrongdoing. This frustration reached the House of Lords, England's highest appeal court, where it was recognised that the right was outmoded, but the full scale abolition of the right was one that Parliament needed to effect, given how deeply entrenched the right was.

The abolition of the privilege follows the pattern of previous similar abolitions in specific areas by removing the right on the one hand and then providing protection on the other. The information provided may not be used in any prosecution in fraud-related criminal proceedings, whether or not they are prosecutions under the Fraud Act.

The problem of the privilege against self-incrimination in civil fraud cases has not completely gone away, but has dramatically reduced in size. The execution of a civil search order requiring a respondent to allow the claimant's lawyers to search for and remove evidence could still involve material relating to other criminal offences such as tax evasion or the possession of child pornography. The privilege enabling a respondent to refuse to comply in such cases will remain, but in the majority of fraud cases the Fraud Act will have removed a barrier to claimants obtaining information about where their money or assets have gone.

Corruption in the UK

The UK's compliance with its international obligations under the anti-corruption conventions came into question at the end of 2006 when the Attorney-General followed the "advice" of the Prime Minister in connection with the investigation by the Serious Fraud Office of BAE Systems (formerly British Aerospace) in respect of allegations of corruption (denied by BAE Systems) relating to a sale in 1985 of Tornado and Hawk aircraft to Saudi Arabia. The Prime Minister "advised" that the investigation was contrary to the UK public interest as it risked relations with Saudi Arabia as an important ally and the investigation was brought to an end. The fact that the Saudis were also negotiating to purchase 72 Typhoon aircraft from BAE Systems was said not to be relevant. Since then, negotiations have apparently progressed satisfactorily with Saudi Arabia. A number of organisations (including the Organisation for Economic Co-operation and Development) have, however, expressed concern that the UK's commitment to act against the payment of bribes abroad by UK companies took second place to the public interest identified by the Prime Minister.

This development could play out in a number of different ways in 2007. A public interest organisation has indicated its intention to seek a judicial review of the Attorney-General's decision, and such a move would obviously keep the issue in the spotlight. Fund managers have expressed concern that the abandonment of the investigation is inconsistent with the necessary promotion of strong corporate governance standards. According to research by Transparency International, the UK only had four foreign corruption cases under investigation in 2006 and no prosecutions pending. The end of the BAE Systems investigation may cause the redeployment of detectives to additional investigations in order to reassure the financial and international community that the UK really does intend to deter its nationals from engaging in corruption abroad.

Nick Burkill is a commercial litigation and dispute resolution lawyer with a particular specialisation in the investigation of fraud and corruption and the recovery of the proceeds of fraud. He has broad experience of domestic and international disputes. Nick is also an accredited mediator, using those skills where appropriate in negotiations on behalf of clients, and a solicitor advocate. He is a frequent speaker and commentator on a broad range of issues arising from his experience. He is a member of the Civil Procedure Rule Committee, the committee responsible for the making of rules of court subject to the Lord Chancellor and led by the Master of the Rolls, the Head of Civil Justice. Contact Details: T: + 44 (0)207 826 4583 E: burkill.nick@dorsey.com