Fighting fraud - a missed opportunity

Citation

Sarker, R.L. (2007), "Fighting fraud - a missed opportunity", Journal of Financial Crime, Vol. 14 No. 4. https://doi.org/10.1108/jfc.2007.30914daa.001

Fighting fraud - a missed opportunity

Fighting fraud – a missed opportunity

The UK's fraud fighters must be feeling pretty spring-like at the moment. London has been hailed as “the world's most competitive financial centre,”(The Daily Telegraph, 2007) eclipsing international rivals such as, New York. A fresh crop of anti-fraud initiatives, reviews and legislation has sprung up, ostensibly demonstrating how fighting fraud is a top priority in the UK. These include, amongst others, the Government's Response to the Fraud Review (Government's Response) (Attorney General's Office, 2007a), which proudly announces the imminent arrival of two new additions to the UK Government's ever-growing family of anti-fraud organizations, namely, the National Fraud Strategic Authority (NFSA), which will co-ordinate and lead fraud prevention work and the National Fraud Reporting Centre (NFRC), which will gather intelligence, and provide a one-stop shop for victims. However, a closer inspection of this latest government initiative highlights continuing complacency, rather than urgency in the fight against fraud.

According to a recent report, the cost of fraud in the UK in 2005, was estimated at £13.9 bn (Levi et al., 2007), that is, £330 a year (Attorney General's Office, 2007b) for every adult and child in the country. In monetary terms, fraud is on a par with Class A drugs. Yet, despite the devastating harm that fraud causes in the UK, “For too long tackling fraud has been a Cinderella issue: under-reported and under-resourced” (Attorney General's Office, 2007b), as Stephen Haddrill, Director General of the Association of British Insurers, points out.

The Government's Response (Attorney General's Office, 2007a), indicates how, despite frenetic legislative activity, little has changed to reverse the perception of fraud as a low priority. The Fraud Review, published on 27 July 2006, was welcomed as the first comprehensive and holistic review of fraud and anti-fraud efforts in England and Wales. The Government sought responses on 62 individual Fraud Review recommendations, as part of its three-month public-consultation process, receiving 78 responses from local authorities, government departments, the private sector, police forces and the public.

The Government's Response advocates a package of anti-fraud measures including: the creation of a new supervisory body, the NFSA to devise a national fraud strategy; a measurement unit within the NFSA to measure the extent of national fraud; a new NFRC for victims of fraud, which will provide financial intelligence to other fraud-fighting agencies; the City of London Police to become the Lead Force for tackling fraud; an examination as to the cost benefits of a financial court jurisdiction being established in the High Court; consideration being given to extending the range of non-custodial sentences available to the Crown Court following conviction for fraud; and a review to consider the development of a domestic framework for encouraging early guilty pleas.

Mike Bowron, Commissioner of the City of London Police, has argued that:

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  The work completed by the Fraud Review Team is unique... It may be another ten years until this area is revisited in the same depth... We must all... ensure that we do not miss this once in a generation chance to make a difference (City of London Police, 2007).

The Fraud Advisory Panel, however, contends that the Government's Response is a missed opportunity in that it “lacks urgency” (Fraud Advisory Panel, 2007) and continues to treat a devastating human problem as a “low priority” (Fraud Advisory Panel, 2007). There are no pledges of resources or of legislation and no firm timetable. Only a promise that Attorney-General's Programme Board will publish information as to the progress of its work by the end of 2007.

Consequently, the Fraud Advisory Panel believes that the Government's Response is “very disappointing” (Fraud Advisory Panel, 2007), particularly since it is not prepared to commit the £27 million per year that the Fraud Review suggests is required to implement the recommendations for targeted policing and other measures. This sum, it suggests, would be tremendous value for money in view of the huge cost of fraud.

Other recommendations, whilst much-needed, are not necessarily straightforward to implement, nor are they without potential undesirable consequences. For example, with regard to the accurate measurement of fraud, this is an important, but also notoriously problematic task, given the neglect of some forms of fraud, weaknesses and inconsistencies in defining fraud, the difficulty of finding robust measurement methodologies, different priorities, low reporting and documentation of fraud.

Even if a more accurate measurement of fraud is achieved, this may have the unintended consequence of at first producing the appearance of an increase in reported fraud, or alternatively:

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  ... if victims were encouraged to report all fraud that there is a very real danger of raising expectations for official action that might not be able to be met, whether by the police or by any other body... (Levi et al., 2007, p. 7).

Thus, actually damaging, rather than boosting public confidence.

With regard to the NFRC, “the overlap for regulated firms between fraud reporting and the Suspicious Activity Reports required for all offences (including fraud) by the anti-money laundering regime”(Levi et al., 2007, p. 7) requires careful consideration in order to avoid confusion and duplicate reporting. Fraud reports need to be prioritized and actioned quickly to avoid lengthy delays and uncertainty, for which adequate funding is necessary.

Another potential minefield is that of data sharing, given the reluctance amongst the public sector to share information because of fears about breaching the Data Protection Act and “... the possibility of operational constraints on sharing information with private sector in order to maintain the integrity of covert operations” (Attorney General's Office, 2007a, p. 12). The need for clear guidance is paramount, particularly given that improved data sharing between organizations is a key factor in tackling fraud.

Many of the Fraud Review's recommendations are neither new, nor innovative, such as, for example, the need for more accurate measurement of fraud, specialized training for judges, tougher penalties for fraud, greater use of administrative and civil sanctions, financial courts, and plea-bargaining. Indeed, the disappointing frequency with which such ideas have been mooted in the past but not put into practice is an indication of how fraud continues to be regarded as a “Cinderella issue”. Sufficient funding and resources need to be applied urgently to reverse this situation, rather than spring-clean it.

Rinita L. Sarker