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The Fraud Act 2006

Updated 12/12/06 - Confirmed up to date 04/02/08

Introduction

The Fraud Act 2006 (the Act) comes into force on the 15 January 2007. It is based on the recommendations of the Law Commission report "Fraud" (Note:Law Com No 276 Cm 5560 2002) published in 2002. The Act applies in England, Wales and Northern Ireland.

The Act repeals all the deception offences in the Theft Acts of 1968 and 1978 and replaces them with a single offence of fraud (Section 1) which can be committed in three different ways by:

  • false representation (Section 2);
  • failure to disclose information when there is a legal duty to do so (Section 3);
  • abuse of position (Section 4).

The Act also creates new offences of possession (Section 6) and making or supplying articles for use in frauds (Section7).

The offence of fraudulent trading (Section 458 of the Companies Act 1985) will apply to sole traders (Section 9).

Obtaining services by deception is replaced by a new offence of obtaining services dishonestly (Section 11).

There are also other minor provisions.

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Repeals

The Act repeals the following offences in Schedule 1:

Theft Act 1968

  • Section 15 (obtaining property by deception);
  • Section 15A (obtaining a money transfer by deception);
  • Section 16 (obtaining a pecuniary advantage by deception);
  • Section 20 (2) (procuring the execution of a valuable security by deception);
  • Reference to "cheat" in Section 25 (going equipped).

Theft Act 1978

  • Section 1 (obtaining services by deception);
  • Section 2 (evasion of liability by deception).

All references to these offences in other statutes are repealed and replaced with reference to the Fraud Act 2006 or an offence "contrary to Section 1 of the Fraud Act 2006" as appropriate.

All other Theft Acts offences remain in force

Transitional provisions

Transitional provisions are set out in Schedule 2.

Under Section 3 (1) of Schedule 2 the old Theft Acts offences will continue to apply for any offences partly committed before 15 January 2007.

Section 3 (2) of Schedule 2 defines "partly committed" as when:

  • a relevant event occurred before 15 January 2007, and
  • another relevant event occurred on or after 15 January 2007.

Section 3 (3) of Schedule 2 defines a relevant event for the purposes of the Fraud Act as

"... any act, omission or other event (including any result of one or more acts or omissions) proof of which is required for conviction of the offence."

When reviewing cases in which it is uncertain when a relevant event occurred and it may have happened before, on or after 15 January 2007 prosecutors should request that police obtain as much information as possible to assist in identifying the date on which any relevant events occurred. This should be possible in the vast majority of fraud cases.

In rare cases when the uncertainty as to the date cannot be rectified it is proper practice to put alternative counts on the indictment under the 2006 Act and the previous legislation. In R v Bellman [1989] A.C. 836 the House of Lords considered whether mutually inconsistent and destructive counts can appear on an indictment. Their Lordships held that where there is prima facie evidence that a defendant has committed either crime A or crime B then both crimes may be charged and left to the jury, even though proof of crime A will establish that D cannot have committed crime B and vice versa.

Where it is clear that D has committed crime A or crime B but there is no evidence to say when the crime has been committed then neither crime can be left to the jury.

In cases where alternative counts have been placed on the indictment, prosecuting advocates should be reminded of R v Bellman.

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Jurisdiction

There is jurisdiction to prosecute all the offences in the Fraud Act if a "relevant event" occurred in England or Wales - Criminal Justice Act 1993, Part 1 (Archbold 2007, para. 2-37) and Home Office Circular 19/1999. A "relevant event" for the purposes of the Criminal Justice Act 1993 is defined in Section 2 (1) of that Act as

"any act or omission or other event (including the result of any one or more acts or omissions) proof of which is required for conviction of the offence."

In relation to an offence under Section 1 of the Fraud Act the definition of a relevant event has been extended by the insertion of subsection 1A after subsection 2 (1) of the Criminal Justice Act 1993. Subsection 1A states that in relation to an offence under Section 1 a "relevant event" includes:

  • if the fraud involved an intention to make a gain and the gain occurred, that occurrence; and
  • if the fraud involved an intention to cause a loss or to expose another to a risk of loss and the loss occurred, that loss.

This means that if, for example, a false representation is made in Scotland to a bank call centre in India resulting in a loss from a bank account in London, there will be jurisdiction to prosecute a Section 1 offence in England and Wales although the actual loss is not an essential element of a Section 1 offence.

This provision applies in addition to the provisions in Section 4 of the Criminal Justice Act 1993 which lays down the rules for determining the location of events (Archbold 2007, para. 2-40).

By virtue of Section 3 (1) of the Criminal Justice Act 1993 a person may be guilty of an offence whether or not he was in England and Wales at any material time and whether or not he was a British citizen at any such time.

For the provisions that relate to conspiracy, incitement and attempt see elsewhere in this legal guidance (Archbold 2007, para. 2-39 to 2-47).

Specimen charges/counts

Refer to Drafting the Indictment, elsewhere in this guidance.

Criminal Justice Act 2003

When reviewing fraud cases, prosecutors should bear in mind the CJA provisions on the admission of evidence of bad character and hearsay.

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The offences

Fraud contrary to Section 1 of the Fraud Act 2006

Section 1 creates a new general offence of fraud and introduces the three possible ways of committing it. The three ways, set out in Sections 2, 3 and 4 are by:

  • false representation (Section 2);
  • failure to disclose information when there is a legal duty to do so (Section 3); and
  • abuse of position (Section 4).

In each case, the Defendant's conduct must be dishonest and his intention must be to make a gain, or cause a loss or the risk of a loss to another. That is the sum total of the evidential requirements. Crucially, no gain or loss needs actually to have been made.

The maximum sentence is 10 years imprisonment.

Fraud by false representation (Section 2)

The elements of the offence

The elements of the offence are that the Defendant:

  • made
  • a false representation
  • dishonestly
  • knowing that the representation was or might be untrue or misleading
  • with intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss.

The offence is entirely offender focused. It is complete as soon as the Defendant makes a false representation, provided that it is made with the necessary dishonest intent. It differs from the deception offences in that it is immaterial whether or not any one is cognisant of the representation, deceived or any property actually gained or lost.

a) Made (a false representation)

A representation may be express or implied (Section 2 (4)). It can be stated in words or communicated by conduct. There is no limitation on the way in which the representation must be expressed. It could be written, spoken, posted on a phishing website, spoken into a dictaphone or sent by email. A representation is implied by conduct when a person uses a credit card dishonestly. By tendering the card, he is falsely representing that he has the authority to use it for that transaction. A representation can be made through body language - a nod of the head, presence in a restricted area implying the right to be there (including presence within a secure computer system) or being dressed or wearing identification that implies a certain status or right to be present. A representation can be about identity - using a false identity to open a bank account.

A representation can be by omission - for example, a Defendant who omits to mention previous convictions or County Court Judgements on an application form. That Defendant would be representing himself as being of good character or financial probity when the opposite was the case. There is a potential for the offence to be complete when the defendant fails to correct a false impression after a change in circumstances from the original representation, if the representation may be regarded as a continuing series of representations.

A representation can be made to a machine (Section 2 (5)), for example, where a person enters a number into a CHIP and PIN machine or a bank ATM. Providing false credit card details to the voice activated software on the cinema telephone line is the same as providing false credit card details to the man who works in the ticket office. Similarly, providing false credit card details to a supermarket website to obtain groceries is the same as giving false details to the assistant at the till.

It may become an issue when, under Section 2 (5), a false representation is submitted to a machine - is it, for example, when the card is pushed into the card reader, when the PIN number is typed or when "enter" is pressed. In practice, prosecutors are unlikely to receive a file unless the last stage was reached. If faced with a file where the final stage was earlier in the process prosecutors may wish to consider charging an attempt

It is of no relevance at all whether the false representation is believed or has any affect whatsoever on any recipient. However, evidence will be necessary to prove that the defendant communicated the false representation to a person or submitted it to a machine. Conduct short of that will be an attempt. In most cases the fact that the false representation was communicated will be demonstrated by its appearance on a computer screen, its effect on the recipient or the system to which it was submitted. In some cases it will not be necessary to call evidence from a victim. However, prosecutors should bear in mind that a victim who is not named on an indictment or in a TIC cannot be compensated.

b) A false representation, knowing that was, or might be untrue or misleading

Section 2 (2) defines the meaning of "false" and Section 2 (3) defines the meaning of "representation".

A representation is defined as "false" if it is untrue or misleading and the person making it knows that it is, or might be, untrue or misleading. The words "might be" do not import recklessness. Actual knowledge that the representation might be untrue is required - not awareness of a risk that it might be untrue.

Knowledge is a strict mens rea requirement. The House of Lords in Montila (Note: [2004] UKHL 50) said

"A person may have reasonable grounds to suspect that property is one thing (A) when in fact it is something different (B). But that is not so when the question is what a person knows. A person cannot know that something is A when in fact it is B. The proposition that a person knows that something is A is based on the premise that it is true that it is A. The fact that the property is A provides the starting point. Then there is the question whether the person knows that the property is A."

In practice this will not be such a heavy burden on prosecutors as might first appear. The same type of evidence as was used to prove the nature of the deception in cases of obtaining by deception will suffice here. For example, where a debit or credit card has been used fraudulently, evidence of the rightful owner and that he or she did not carry out the transaction in question.

A "representation" means any representation as to fact or law, including a representation as to the state of mind of the person making the representation or any other person (Section 2 (3)). An example of the latter might be where a defendant claims that a third party intends to carry out a certain course of action - perhaps to make a will in someone's favour. It may be difficult to prove to the necessary standard that the Defendant knew the state of mind of a third party, but easier to prove that he knew what it might be.

A couple of interesting issues that may arise and should be considered with care prior to charging:

  • Where the representation is potentially 'trade puff' misleading. Does this act potentially criminalise the street trader's banter or is there no real dishonesty involved?
  • Where the representation is at to the mileage of the car or the previous owner. Does it matter whether the representation is 'material' or minor?

c) Dishonestly

The Ghosh (Note: [1982] 1QB 1053) definition applies:

  • Was what was done dishonest by the ordinary standards of reasonable and honest people?
  • Must the Defendant have realised that what he was doing was, by those standards, dishonest?

It should be remembered that the question of 'dishonesty' is one for the jury and submissions of no case to answer should not be acceded based on the issue of dishonesty.

d) With intent to make a gain for himself or another, to cause loss to another or to expose another to risk of loss

"Gain" and "loss" are defined in Section 5 of the Act. The definition is essentially the same as in Section 34 of the Theft Act.

Gain and loss extends only to gain and loss in money or other property (Section 5 (2) (a)), whether temporary or permanent (Section 5 (2) (b)) and means any property whether real or personal including things in action and other intangible property (Section 5 (2) (b)).

"Gain" includes a gain by keeping what one has, as well as a gain by getting what one does not have (Section 5 (3)).

"Loss" includes a loss by not getting what one might get as well as a loss by parting with what one has (Section 5 (4)).

The Defendant must intend to make the gain or cause the loss by means of the false representation.

The breadth of conduct to which Section 2 applies is much wider than the old Theft Act deception offences because no gain or loss need actually be made. It is the Defendant's ultimate intention that matters. If the Defendant gets information by making a false representation, intending ultimately to make a gain or cause a loss within the meaning of Section 5 by doing so, he will have committed a Section 2 offence.

Charging practice

Overlap with theft and other offences

In many cases fraud will also be theft. Prosecutors should bear in mind:

  • Theft carries a lower minimum sentence;
  • The actus reus requirement for fraud is far less;
  • The credit/debit status of any bank accounts debited is irrelevant to the Fraud Act offences. All that is in issue is the Defendant's right to use the account;
  • It is not necessary to prove or demonstrate any consequences of fraud (though they will clearly be material to sentence, compensation and confiscation). "Preddy" type difficulties will not arise (where the property obtained had not belonged to another);
  • Fraud Act offences do not require an intent permanently to deprive;
  • A charge should describe what actually happened and reflect the true criminality; and
  • The indictment should be as simple as reasonably possible.

In some cases there will be other possible offences such as False Accounting (Section 17 Theft Act 1968), Making off Without Payment (Section 3 Theft Act 1978), Obtaining Services Dishonestly (Section 11 Fraud Act 2006), offences under the Computer Misuse Act 1990, Forgery and Counterfeiting Act 1981, the Identity Cards Act 2006, the Proceeds of Crime Act 2002 or the Financial Services and Markets Act 2000.

Prosecutors must decide which offence properly reflects the criminality concerned.

Drafting the charge

The focus of the charge is the false representation. In most cases this will be the same as the deception under the old Theft Act offences. Prosecutors must analyse what the representation was and importantly when it was made, as simply as possible, for example:

Use of cheques and cheque or credit cards

In the case of stolen documents the false representation may be that the defendant was lawfully in possession of the cheque/credit card/book and entitled to use it or that he was the person named on the cheque/credit card/book and entitled to use it.

If the defendant is using his own credit card knowing that he has exceeded his credit limit then the false representation will be that he had authority to use the card and that the card issuer would honour the transaction (R v Lambie (Note: [1982] A.C. 449 HL)) Archbold 2007, para. 21-192 to 21-193.

If the documents are forged then the false representation would be that the document was genuine and would be honoured.

If the representation was made in a letter which was discovered during the search of the suspect's property, then whether it was sent or not may be irrelevant to the fact that the representation was false, dishonest and intended to be sent.

The Public Interest

The Fraud Act creates serious offences of dishonesty. Unless the factors against prosecution outweigh those in favour a prosecution will normally take place.

  • The borderline between criminal and civil liability

The borderline between criminal and civil liability is likely to be an issue in alleged Fraud Act offences particularly those under Section 1. Prosecutors should bear in mind that the principle of caveat emptor applies and should consider whether civil proceedings or the regulatory regime that applies to advertising and other commercial activities might be more appropriate. Not every advertising puff should lead to a criminal conviction but it is also the case that fraudsters prey on the vulnerable.

Prosecutors should guard against the criminal law being used as a debt collection agency or to protect the commercial interests of companies and organisations. However, prosecutors should also remain alert to the fact that such organisations can become the focus of serious and organised criminal offending.

The criminal law should not be used to protect private confidences.

  • Arguments over Ownership of Property

The criminal law is not a suitable vehicle to regulate such disputes. Before a criminal charge can proceed the ownership of any property must be absolutely clear. If that ownership is in real dispute the criminal law should not be invoked until ownership has been established in the civil courts.

However, circumstances will arise where the issues are clear and the offences are serious. If so, prosecution may be required in the public interest. Prosecutors should ensure that the state of affairs between the parties has not changed prior to any trial. This may affect both the public interest and the evidential test.

Section 80 of the Police and Criminal Evidence Act 1984 governs the compellability of spouses and civil partners in criminal proceedings. The prosecution cannot compel a spouse or civil partner to give evidence in Fraud Act offences.

  • Loss to a third party

Where there is a domestic relationship between the victim and an offender, there may also be a loss to a third party: for example, where a child steals and uses a parent's credit card. There may be public interest in criminal proceedings for the use of the card even where there is none for the theft.

Fraud by failing to disclose information (Section 3)

The elements of the offence

The elements of the offence are that the Defendant:

  • failed to disclose information to another person when
  • he was under a legal duty to disclose that information
  • dishonestly
  • intending, by that failure, to make a gain or cause a loss.

Like Section 2 (and Section 4) this offence is entirely offender focussed. It is complete as soon as the Defendant fails to disclose information provided he was under a legal duty to do so, and that it was done with the necessary dishonest intent. It differs from the deception offences in that it is immaterial whether or not any one is deceived or any property actually gained or lost.

a) Failed to disclose information

Failure to reveal information is tantamount to fraud by conduct or omission. In some cases there will be an overlap with Section 2 offences.

There is no requirement that the failure to disclose must relate to "material" or "relevant" information, nor is there any de minimis provision. If a Defendant disclosed 90% of what he was under a legal duty to disclose but failed to disclose the (possibly unimportant) remaining 10%, the actus reus of the offence could be complete. Under such circumstances the Defendant would have to rely on the absence of dishonesty. Such cases can be prosecuted under the Act if the public interest requires it, though such cases will be unusual.

It is no defence that the Defendant was ignorant of the existence of the duty, neither is it a defence in itself to claim inadvertence or incompetence. In that respect, the offence is one of strict liability. The defence must rely on an absence of dishonesty and the burden, of course, lies with the prosecutor.

Prosecutors must be acutely aware of the public interest in such cases, bear in mind the relative standing of the parties and pay particular regard to any explanation for the failure given by the Defendant.

b) (When) he was under a legal requirement to do so

A legal duty to disclose information can arise as a result of a contract between two parties or because of the existence of a particular type of professional relationship between them; for example, a solicitor/client relationship. In its report on fraud the Law Commission (Note: Fraud. Law Commission Report No 276 Cm 5560 (2002)) made the following comments about the circumstances in which a legal duty might arise:

7.28 ... Such a duty may derive from statute (such as the provisions governing company prospectuses), from the fact that the transaction in question is one of the utmost good faith (such as a contract of insurance), from the express or implied terms of a contract, from the custom of a particular trade or market, or from the existence of a fiduciary relationship between the parties (such as that of agent and principal).

7.29 For this purpose there is a legal duty to disclose information not only if the defendant's failure to disclose it gives the victim a cause of action for damages, but also if the law gives the victim a right to set aside any change in his or her legal position to which he or she may consent as a result of the non- disclosure. For example, a person in a fiduciary position has a duty to disclose material information when entering into a contract with his or her beneficiary, in the sense that a failure to make such disclosure will entitle the beneficiary to rescind the contract and to reclaim any property transferred under it.

There are three steps to establishing a legal duty.

  1. Whether the facts as alleged are capable of creating a legal duty is a matter for the judge.
  2. Whether the relationship that would create any legal duty exists on the facts alleged is a matter for the jury directed by the judge.
  3. If the matter is not in issue the judge may direct the jury that a legal duty exists.

The Explanatory Notes (Note: Available at http://www.opsi.gov.uk/acts.htm) to the Fraud Act provide the following examples of a breach of a legal duty:

  • The failure of a solicitor to share vital information with a client in order to perpetrate a fraud upon that client.
  • A person who intentionally failed to disclose information relating to his heart condition when making an application for life insurance.

c) Dishonestly

The same meaning applies as for Section 2.

d) intending, by that failure, to make a gain or cause a loss.

The same meaning applies as for Section 2.

Charging practice

The same considerations apply as for Section 2.

Drafting the charge

The focus will be on:

  • the prosecution assertion that there was a legal duty to disclose information and
  • the precise relationship that gave rise to that duty and
  • the information that it is alleged that the Defendant failed to disclose and

Whether the facts as alleged are capable of giving rise to a legal duty will be a matter for the judge; whether on the facts alleged, the relationship giving rise to that duty existed will be a matter for the jury. For example, was there a solicitor/client relationship or an agent/ principal relationship?

It will be necessary to recite all three elements in the particulars of the charge or indictment which must be very precisely drawn.

Any gain or loss that occurred should not appear in the charge or on the indictment. The matter will, however, be relevant to sentence, compensation and confiscation.

The Public Interest

The same considerations apply as for Section 2.

Fraud by abuse of position (Section 4)

The elements of the offence

The elements of the offence are that the Defendant:

  • occupies a position in which he was expected to safeguard, or not to act against, the financial interests of another person
  • abused that position
  • dishonestly
  • intending by that abuse to make a gain/cause a loss
  • the abuse may consist of an omission rather than an act.

Like the other two Section 1 offences, Section 4 is entirely offender focused. It is complete once the Defendant carries out the act that is the abuse of his position. It is immaterial whether or not he is successful in his enterprise and whether or not any gain or loss is actually made.

As with all the Section 1 offences, though there need be no consequences to the offending, the existence and extent of those consequences will be very material to sentence, compensation and confiscation. It will still therefore be necessary to gather that evidence. In many instances it is the fact of the gain or loss that will prove the Defendant's dishonesty beyond reasonable doubt.

See the legal guidance elsewhere (compensation and confiscation) for the position where the evidence of gain or loss is not led as part of the prosecution case and is in dispute after conviction (Archbold 2007, para. 5-418)

a) (Abused) a position in which he was expected to safeguard, or not to act against, the financial interests of another person

The Law Commission explained the meaning of "position" at paragraph 7.38 (Note: Fraud. Law Commission Report No 276 Cm 5560 (2002))

"The necessary relationship will be present between trustee and beneficiary, director and company, professional person and client, agent and principal, employee and employer, or between partners. It may arise otherwise, for example within a family, or in the context of voluntary work, or in any context where the parties are not at arm's length. In nearly all cases where it arises, it will be recognised by the civil law as importing fiduciary duties, and any relationship that is so recognised will suffice. We see no reason, however, why the existence of such duties should be essential. This does not, of course, mean that it would be entirely a matter for the fact finders whether the necessary relationship exists. The question whether the particular facts alleged can properly be described as giving rise to that relationship will be an issue capable of being ruled on by the judge and, if the case goes to the jury, of being the subject of directions."

The "position" in Section 4 is a position of trust but falls short of one where there is a legal duty or an entitlement to single minded loyalty. It is something more than a moral obligation.

Examples of the type of conduct that would give rise to a charge under Section 4 are:

  • an employee of a software company who uses his position to clone software products with the intention of selling the products on his own behalf;
  • where a person is employed to care for an elderly or disabled person and has access to that person's bank account but abuses that position by removing funds for his own personal use. (This may also be theft but see the guidance on the Public Interest criteria above for the Fraud offences.)
  • an Attorney who removes money from the grantor's accounts for his own use. The Power of Attorney allows him to do so but when excessive this will be capable of being an offence under Section 4;
  • an employee who fails to take up the chance of a crucial contract in order that an associate or rival company can take it up instead;
  • an employee who abuses his position in order to grant contracts or discounts to friends, relatives and associates;
  • a waiter who sells his own bottles of wine passing them off as belonging to the restaurant; (Note: Doukas [1978] 1 All E.R. 1071)
  • a tradesman who helps an elderly person with odd jobs, gains influence over that person and removes money from their account. (This may also be theft but see the guidance on the Public Interest criteria above for the Fraud offences.)
  • the person entrusted to purchase lottery tickets on behalf of others again, this will probably be theft as well but see guidance on Public Interest criteria above.

The terms "financial interests" and "abuse" are not defined in the Act and so may be taken to have their ordinary meaning.

Note that the section refers to a person who "occupies a position in which he is expected ...". The person who no longer occupies that position when, for example, he uses information properly gained while "in post" dishonestly, does not commit an offence. He may do so if there is a contractual obligation that extends beyond his departure from the post. He will, however, be guilty of an offence if he took steps to plan his actions while "in post" and put the plan into action after leaving the post or after the relationship ceased.

For example, an employee who transferred sensitive commercial information from his office laptop to his home computer while in employment and used it after that employment had ended will commit the offence. At that stage he will no longer be "occupying a position ..." but he was when the offence was committed (transferring the information intending to make a gain or cause a loss) and so can be prosecuted.

In these circumstances prosecutors must be particularly mindful that the criminal law is not invoked by complainants for purely commercial purposes.

b) Dishonestly

The same meaning applies as for Section 2.

c) Intending by that abuse to make a gain/cause a loss.

Has the same meaning as for Section 2. The intention must be that the gain or loss should flow directly from the abuse alleged.

Charging practice

The same considerations apply as for Section 2.

Drafting the charge

The focus will be on the nature of the relationship and of the specific abuse. If there is more than one instance or variety of abuse, additional charges will be required.

The nature of the relationship and of the abusive conduct alleged must be recited in the particulars of the charge or indictment.

Any gain or loss that occurred should not appear in the charge or on the indictment. The matter will, however, be relevant to sentence, compensation and confiscation.

The Public Interest

The same considerations apply as for Section 2.

Possession of articles for use in fraud (Section 6)

The elements of the offence

The elements of the offence are that the Defendant:

  • had possession or control of
  • an article
  • for use in the course of or in connection with any fraud.

The wording draws on Section 25 of the Theft Act 1968. The draftsman's intention was to draw on the case law on Section 25.

Note: The word "cheat" in Section 25 has been repealed. Section 6 will apply in any case where "Going equipped to cheat" would previously have been charged.

The principal distinction between Section 25 and Section 6 is that Section 6 does not require the Defendant to be away from his place of abode.

a) Had possession or control

The Act does not offer a definition of "possession or control".

It is probable that the case law on possession of drugs will apply. The phrase "possession or control" suggests something looser than the absolute "possession" in the Proceeds of Crime Act 2002. Under that Act "possession" means having physical custody of criminal property.

Section 37 (3) of the Misuse of Drugs Act 1971 provides that for the purposes of that Act "the things which a person has in his possession shall be taken to include anything subject to his control which is in the custody of another".

Although the Fraud Act does not contain a similar section, the reference to "control" suggests that items in the possession of others but over which the Defendant retains control would qualify as being in the defendant's "possession".

For the law on what constitutes "possession" and "control" in drugs cases refer to Archbold 2007, para. 26-54 to 26-70.

The law on possession of indecent images will also apply particularly to the possession of software and material stored on computers for use in fraud (covered by virtue of Section 8). Prosecutors should bear in mind the judgement of the Court of Appeal in R v Porter (Note: [2006] EWCA Crim 560) where it was held that an image (and, by analogy, a document) will only be considered to be in the possession of the Defendant ( in the sense of custody or control) if it is accessible to him. In the case of a deleted image, where the Defendant could not retrieve or gain access to it he would no longer have custody or control of it. It follows that it would not be appropriate to say that a person who could not retrieve and image (or document) from a hard disk drive would be in possession of the image by reason of his possession of the hard disk drive itself.

In cases where the prosecution will rely on evidence of material stored on computers, it will be necessary to obtain expert evidence as in cases involving indecent images.

b) An article

"Article" has its ordinary meaning subject to Section 8. It is extremely wide covering anything from pen and paper to blank credit cards, credit card numbers and sophisticated computer programmes.

Section 8 provides further definition of the term "article". For the purposes of Sections 6 and 7 and the provisions listed in Section 8 (2) which include Section 1 (7) (b) of the Police and Criminal Evidence Act 1984 ("prohibited articles" for the purposes of stop and search powers) "article" includes any program or data held in electronic form.

If a successful Section 2 fraudster has succeeded in obtaining information held either as hard copy or in data form from those he has duped, he will also be guilty of a Section 6 offence in relation to that information.

c) For use in the course of or in connection with any fraud

This wording is taken directly from Section 25 of the Theft Act 1968. The proof required is that the Defendant had the article for the purpose or with the intention that it be used in the course of or in connection with an offence. A general intention that he or another will commit fraud (meaning an offence under Sections 1 4 of the Act) will suffice. In R v Ellames (Note: 60 Cr App R. 7 (CA)) the Court of Appeal said

"In our view, to establish an offence under Section 25 (1) the prosecution must prove that the Defendant was in possession of the article, and intended the article to be used in the course of or in connection with some future burglary, theft or cheat. But it is not necessary to prove that he intended it to be used in the course of or in connection with any specific burglary, theft or cheat; it is enough to prove a general intention to use it for some burglary, theft or cheat; we think that this view is supported by the use of the word "any" in Section 25 (1). Nor, in our view, is it necessary to provide that the defendant intended to use it himself; it will be enough to prove that he had it with him with the intention that it should be used by someone else."

There is no defence of "reasonable excuse". Those who are, in particular, properly in possession of or involved in the development of computer software or other items for use to test the security of computer or security systems must rely on their lack of intention that the items or programmes are "for use in the course of or in connection with any fraud". Prosecutors will be alert to such circumstances - and the possible abuses.

The penalty

The maximum penalty is five years imprisonment.

Making or supplying articles for use in frauds (Section 7)

The elements of the offence

The elements of the offence are that the Defendant:

  • makes, adapts, supplies or offers to supply any article
  • for use in the course of or in connection with fraud
  • knowing that it is designed or adapted for use in the course of or in connection with fraud (Section 7 (1) (a)) or
  • intending it to be used to commit or assist in the commission of fraud (Section 7 (1) (b).

a) An article

The extension of the term "article" in Section 8 (see guidance to Section 6) also applies to Section 7.

b) Knowing/intending use in the course of or in connection with fraud

"Knowledge" in Section 7 (1) (a) is a strict mens rea requirement. The House of Lords in Montila (Note: [2004] UKHL 50) said

"A person may have reasonable grounds to suspect that property is one thing (A) when in fact it is something different (B). But that is not so when the question is what a person knows. A person cannot know that something is A when in fact it is B. The proposition that a person knows that something is A is based on the premise that it is true that it is A. The fact that the property is A provides the starting point. Then there is the question whether the person knows that the property is A."

In practice, the use to which the article can be put is likely to provide sufficient evidence of the Defendant's state of mind. For example, articles such as

  • the kits that are attached to ATM machines to capture card details
  • forged credit cards or the equipment for making them
  • lists of credit card numbers
  • counterfeit goods presented as genuine

do not have an innocent purpose that readily springs to mind.

A person who makes an article specifically for use in fraud, for example, a software programme to create a phishing website or send phishing email, may be ambivalent about whether the person to whom it is supplied actually uses it for fraud. He will fall foul of Section 7 (1) (a) but will not have the necessary intention for Section 7 (1) (b).

The manufacturer of articles that are capable of being used in or in connection with fraud but have other innocent uses will not fall foul of this section unless he intends that it should be used in a dishonest way (Section 7 (1) (b)). The makers of credit card readers are one example. The readers have an innocent purpose they are commonly used by traders who "store up" the details of all the transactions carried out during a day and submit them all together at the end of the day. The card reader merely verifies the validity of the card at the point when it is read and stores all the necessary information about the transaction. The other, dishonest, use is by point of sale staff who use the readers to "skim" credit card details either for use or sale. The dishonest manufacturer who intended a dishonest use would be guilty of a Section 7 (1) (b) offence.

Penalty

The maximum sentence is ten years imprisonment.

Participation in fraudulent business carries out by a sole trader (Section 9)

Section 9 makes it an offence for a person knowingly to be a party to the carrying on of a fraudulent business where the business is not carried on by a company. The new offence parallels the existing offence of fraudulent trading in Section 458 of the Companies Act 1985. Archbold 2007, para 30-136 to 30-143.

Non-corporate traders covered by the new offence include sole traders, partnerships, trusts and companies registered overseas.

A defendant will commit an offence under Section 9 (2) (b) in the following ways:

  • knowingly being party to the carrying on of a company's business with intent to defraud creditors of any person or
  • for any other fraudulent purpose.

The phrase "to defraud creditors of any person" covers the situation where creditors are creditors of the business, but the business is not a legal person. The creditors could be creditors of individuals or of other related companies.

The term "fraudulent purpose" connotes an intention to go "beyond the bounds of what ordinary decent people engaged in business would regard as honest" R v Grantham; (Note: [1984] 1Q.B. 675; 79 Cr App.R.86.CA) or "involving, according to the current notions of fair trading among commercial men, real moral blame" Re Patrick & Lyon Ltd (Note: [1933] Ch. 786, Ch D, per Maugham J. at p.790)

Section 9 (3) (c) refers to Section 718 (1) of the Companies Act 1985 which exempts certain types of bodies from fraudulent trading. That exemption also applies to Section 9. The only exemption likely to concern prosecutors is that in Section 718 (2) (b)

"Any body not formed for the purpose of carrying on a business which has for its object the acquisition of gain by the body or its individual members"

i.e. a non profit making body cannot be guilty of fraudulent trading, though for example, the individual trustees of a charity can be guilty of offences.

Charging practice

Prosecutors should consider charges under this section where:

  • an individual conducts a "long firm fraud";
  • a business has continued to trade and run up debts knowing that there was no reasonable prospect of those creditors ever being paid;
  • a business is being run for a fraudulent purpose, for example, rogue "cold calling" traders who regularly submit inflated bills to customers for shoddy work (and who often target the elderly or vulnerable).

Public Interest

Unless the factors against prosecution outweigh those in favour, a prosecution will usually take place, particularly where the alleged victims are vulnerable.

Penalty

The maximum sentence is ten years imprisonment.

Increase in maximum penalty for offences contrary to Section 458 of the Companies Act 1985 (Section 10)

Section 10 of the Act increases the maximum penalty for offences contrary to Section 458 of the Companies Act 1985 to ten years imprisonment.

Obtaining services dishonestly (Section 11)

The elements of the offence

The elements of the offence are that the Defendant:

  • obtains for himself or another
  • services
  • dishonestly
  • knowing the services are made available on the basis that payment has been, is being or will be made for or in respect of them or that they might be and
  • avoids or intends to avoid payment in full or in part.

This offence replaces obtaining services by deception in Section 1 of the Theft Act 1978 which is repealed by the Act.

In many cases, the Defendant will also have committed an offence under Section 2 of the Act (Fraud by making a false representation - that payment will be made or made in full). Prosecutors must decide which offence better reflects the criminality involved. The maximum sentence for the Section 11 offence is five years imprisonment.

a) Obtains for himself or another

Section 11 differs from the offences under Section 1 in that it requires the actual obtaining of a service (by a dishonest act).

It is not possible to commit the offence by omission alone. This avoids the situation where unscrupulous service providers might feel able to pressure anyone who had been given services they had not requested.

b) Services

Services will have the same definition as in Section 1 of the 1978 Theft Act Archbold 2007, para. 21-341. The service must be provided on the basis that it will be paid for. The same restrictions will therefore apply to the obtaining of banking services under this Section as before - they must be chargeable to fall within the ambit of Section 11 (Sofroniou (Note: [2003] EWCA Crim 3681)). If the banking services obtained are free, Section 11 cannot be charged. The same restriction does not apply to Section 2 - fraud by making a false representation.

c) Dishonestly

The Ghosh test will apply.

d) Knowing the services are made available on the basis that payment has been, is being or will be made for or in respect of them or that they might be and

e) avoids or intends to avoid payment in full or in part.

This is a change from the requirements of Section 1 of the 1978 Theft Act. Under the new legislation the Defendant must intend to avoid payment for the service provided in full or in part. He must have that intention at the time that the service is obtained (Section 11 (2) (c)).

Charging practice

Section 11 will cover circumstances where the Defendant:

  • obtains chargeable data or software over the internet without paying;
  • orders a meal in a restaurant knowing he has no means to pay;
  • attaches a decoder to his TV to enable him to access chargeable satellite services without paying;
  • uses the services of a members' club without paying and without being a member.

Public Interest

Unless the factors against prosecution outweigh those in favour, a prosecution will usually take place.

Penalty

The maximum penalty is five years imprisonment.

Liability of company officers for offences by company (Section 12)

This Section repeats the effect of Section 18 of the Theft Act 1968. It provides that company officers that are party to the commission of an offence by the company will be liable to be charged with the offence as well as the company.

This could be considered a minimal change to corporate liability offences, in that these generally require evidence of an officer of the company to be behind the actions of the company as an operative hand. In those cases the charge for the individual would usually relate to aiding and abetting the principle offender, being the corporate body. This new offence appears to enable the officer of the corporate body to be charged with this offence as a principal.

Evidence (Section 13)

This section is similar to Section 31 (1) of the Theft Act 1968. A person is protected from incriminating himself or his spouse or civil partner for the purposes of offences under the Act and related offences, while nonetheless being obliged to co-operate with certain civil proceedings (for example, civil confiscation) relating to property. This section goes beyond Section 31 (1) of the Theft Act 1968 in removing privilege in relation to "related offences" as well as the offence charged. "Related offences" are defined in Section 13 (4) as conspiracy to defraud and any other offence involving any form of fraud or fraudulent conduct or purpose.

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Amendments

Schedule 1

All references in statute to the repealed offences are replaced by references to Fraud Act offences. For detailed instructions see Schedule 1 particularly in relation to:

  • PACE stop and search powers; paragraph 21 amends Section 1 (8) and replaces reference to Section 15 with a reference to Section 1 fraud. The effect is that articles made or adapted for use in fraud will be "prohibited articles" and a constable may search vehicles for them under Section 1 (2) or seize them under Section 1 (6).
  • Criminal Justice and Court Services Act 2000. Paragraph 32 amends Sections 63 and 64 (trigger offences that can lead to drug testing of young offenders on supervision or licence after release) to include offences under Section 1, 6 and 7 of the Act as trigger offences.
  • Serious and Organised Crime and Police Act 2005. Paragraph 36 amends Section 76 of SOCPA which concerns financial reporting orders. Paragraph 36 provides for a new ancillary order, available to courts at the point of sentence that will require offenders convicted of Section 1, Section 11 and organised crime lifestyle offences to make such reports of their income and assets as the court sets out in the order.
  • Section 24 A of the Theft Act 1968. Dishonestly retaining a wrongful credit. Paragraph 7 makes three amendments to Section 24A of the Theft Act 1968.
    • It deletes the existing subsections (3) and (4), which deal with the meaning of "wrongful", and replaces them with a new subsection (2A). The effect is that the existing references to offences under S15 A (which is repealed by the Fraud Act) are replaced by a reference to Section 1 of the Fraud Act.
    • The existing reference to subsection (4) in subsection (7) is renumbered as (2A).
    • Subsections (3) to (5) of Section 15B (which is repealed) are inserted as subsections (9) to (11) of Section 24A. The reference to the euro is dropped and the definition of "account" is expanded to include accounts kept with issuers of electronic money.



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