Here at LGBT Lawyers, we recognise how distressing it can be for an individual to be a victim of fraud. Therefore, we have developed a blog detailing everything an individual needs to know about fraud legislation, internal and external fraud, fraud sentencing guidelines and the benefits of using a solicitor to resolve a fraud legal matter.
Fraud can be described as a wrongful doing or criminal deception which results in a person’s financial or personal gain.
What is the Fraud Act 2006?
The Fraud Act 2006 gives a statutory definition to the criminal offence of fraud. In England, Wales, and Northern Ireland, it is a criminal offence for an individual to commit fraud. However, despite this there were an estimated 3,863,000 fraud offences against adults in the year ending June 2019.
Brief history of the Fraud Act 2006
The Fraud Act 2006 came into effect on the 15th of January 2007. The Act replaced the eight deception offences included in the Theft Act 1968 and 1978. Previously, the legislation had been heavily criticised by the Law Commission for being complex. This was because there were too many offences included within the legislation. As a result, it led to the defendant’s facing either an incorrect charge or too many charges.
Types of fraud
The Fraud Act 2006 identifies fraud as a single offence that can be committed in three different ways. The three separate ways fraud can be committed include:
Fraud by false representation
Fraud by false representation is a serious offence and is dealt with under section 2 of the Fraud Act 2006. This type of fraud is committed when an individual dishonestly makes a false representation to make a personal gain or cause loss to another individual. Fraud by false representation is committed when an individual:
- Dishonestly makes a false representation, and she/he
- Knows that the representation is untrue or misleading, and he/she
- Willingly proceeds to make a personal gain, cause a loss to another, or expose another to a risk of loss.
Examples may include:
- Claiming for costs that were never incurred.
- Falsifying information to obtain a bank account.
- Selling false assets which do not exist.
When an individual is charged with fraud by false representation, the court is not concerned about whether a gain or loss has actually occurred. Therefore, if the defendant’s sole intention was to bring about the scenario, the charge of fraud by false representation could be applied.
Individuals convicted of fraud by false representation are at risk of heavy sentences. The maximum custodial sentence is set at 10 years and perpetrators can receive an unlimited fine.
Fraud by failing to disclose information
The offence of fraud by failing to disclose information is whereby an individual fails to disclose information they are legally obligated to disclose to make a gain for himself or cause a loss or risk to others. Fraud by failing to disclose information is committed when an individual:
- Failed to disclose information to another person
- When he was legally obligated to disclose the information
- Dishonestly intending, by that failure, to make a gain or cause a loss.
The offence is committed as soon as the individual fails to disclose the information provided. He was under the legal obligation to do so. It was done with dishonest intent.
Fraud by abuse of position
Section 4 of the Fraud Act 2006 relates fraud by abuse of position. The term position applies to roles such as company directors, business owners, business partners, employees, or a trustee of a charity. An individual commits fraud when they use the position of trust they have been placed into for financial gain, cause loss or risk to others. Examples of fraud by abuse of position:
- A person who works at a software company uses his position to clone software products to sell the products for his own financial gain.
- An employee abuses his job in order to grant contracts or discounts to friends, relatives, and associates.
- A trustee dishonestly acts outside the terms of a trust deed to produce a personal gain or loss for himself or others.
An individual can be prosecuted for fraud by failing to disclose the information even though their conduct consisted of an omission rather than Act. The offence occurs once the individual carries out the Act, they do not have to be necessarily successful.
The most severe fraud and corruption cases are often committed by the individuals who have the power to conduct a fraudulent transaction and disguise them to look legitimate.
What is the difference between external and internal fraud?
Collectively, the three sections included in the fraud act 2006 amount to around 100 different types of fraud. There are various types that originate within an organisation (internal fraud) and some which come from outside an organisation (external).
Internal fraud is where an individual defrauds their own organisation, its customers, or suppliers. This could include increasing expenses or claiming for assets that were never actually purchased.
External fraud is where an individual from outside of an organisation attempts to defraud an organisation. Most commonly, fraudsters do this by cracking organisations IT systems.
The difference between criminal and civil fraud
There are many differences between civil and criminal fraud. In short, civil fraud is pursued by the victims by way of private action to seek recovery of the sum/assets which have been lost. Furthermore, it allows victims of fraud to seek compensation for the loss and damages caused by the fraud.
Criminal fraud is considered a criminal offence that prosecuting authorities can pursue legal action against. If the authorities are unwilling to bring proceedings, an individual can start a private prosecution in the criminal courts. In the criminal courts (magistrates’ Court or Crown Court), the sanctions will most likely result in a fine or imprisonment.
A key difference between criminal and civil fraud is that in civil proceedings, the burden of proof is on the victim to prove the balance of probabilities that the perpetrator committed fraud. Contrary to this, in criminal proceedings, the burden of proof is on the prosecution to prove beyond reasonable doubt that the defendant committed fraud.
Sentencing guidelines for fraud
When the court determines the offence category for fraud, they will analyse the participant’s culpability. The level of culpability is decided by accounting for all the factors included within the case. Furthermore, this is done to determine the individual’s role and the extent to which the offence was planned and carried out.
The table below presents the categories of culpability:
Why you should use a solicitor?
Whether an individual is being prosecuted for civil or criminal fraud under the fraud act 2006, it is advised to seek a solicitor to advise on possible settlement negotiations or compensation. Furthermore, if the fraud has been committed using a credit card, a solicitor may be able to acquire compensation. Most commonly, civil fraud cases will result in settlement negotiations. Alternatively, criminal fraud may lead to a plea bargain. For more information regarding both criminal and civil fraud, please visit our LGBT Lawyers Criminal Fraud Page.