COVID-19 EXPERT LEGAL INSIGHTS

Fraud in the time of COVID-19 - The law enforcement response

14 April 2020

The National Crime Agency (NCA) issued its Action Plan for 2020-21 earlier this month, alongside a Strategic Threat Assessment. The Annual Plan sets out the NCA’s operational priorities for the year ahead and sets out how it will lead a “whole-system response to serious and organised crime”. At the heart of this is the objective to “reduce the harm from economic crime to individuals, the UK Economy and its Institutions, tackling fraud, money laundering and cybercrime”. 
 

The Strategic Threat Assessment underlines that: fraud remains the most commonly experienced crime in the UK, with an estimated overall cost of £190 billion. It covers a wide range of activity, with individuals, businesses, charities and the public sector being targeted through a range of criminal techniques. To tackle this, the NCA has highlighted a number of specific actions for 2020-21 to include:

COVID-19

The NCA also recognises that those engaged in serious and organised crime constantly “seek to target citizens to exploit and defraud in new ways”. No more so than this current Coronavirus pandemic, that those preparing this plan some months ago could not possibly have foreseen.

Recent remarks in the media from the Director of the National Economic Crime Centre indicate that tackling fraud stemming from COVID-19 is firmly within its sights. FT.com reports Graeme Biggar’s remarks that: “criminals were adjusting and jumping on the COVID-19 bandwagon as they always do when things develop and new opportunities present themselves’”.

Indeed as more and more people work at home, this has revealed new weaknesses to expose. Home wifi may present less of a challenge to hack than office systems - with an increase in phishing activity reported. See our related blog: Fraud in the time of COVID-19.

A further indication that law enforcement authorities are taking fraud seriously, even in these unprecedented times, is that the Crown Prosecution Service highlighted “COVID-19-related offending e.g. fraud” as that which may qualify for immediate charging, even in times of limited court capacity. See our related blog: COVID 19: Distinguishing Crime.

Although other frauds “are lower priority during the COVID-19 crisis, simply because of the assumptions being made around the likely delays and backlogs in work”, the Covid-19 Interim CPS Charging Protocol recognises that for those serious fraud cases already under investigation preparation can continue and “litigation work can be conducted with defence representatives ahead of charge which will shorten the process post-charge.” There are procedural mechanisms for complex frauds to be transferred direct to the Crown Court and reference is made that in order to shorten the inevitable backlogs which will occur when the Crown Courts start sitting again a “virtual specialist fraud court could be set up to manage cases and prepare a longer listing plan”. Although there may be a place for managing complex fraud cases virtually (and the Kingsley Napley criminal team have recently been involved in a number of remote procedural hearings), jury trials themselves are unlikely to be able to be conducted virtually.

The Financial Conduct Authority, in seeking to respond effectively to the current crisis, has released a number of statements relating to various matters including scams and short selling. See our related blog: COVID 19 and the FCA: scams, short selling and more.  

The FCA’s Business Plan 2020-21 recognises that its long term strategic direction has been impacted by the Coronavirus pandemic. That said, it states that: “fraud falls within our priority of reducing the risk of financial crime”. With a focus on ensuring firms meet the FCA requirements, the plan sends a clear warning that those who seek to exploit the current crisis – for example, by engaging in market abuse, capitalising on investors’ concerns or by reneging on commitments to consumers – will face the full force of its powers. In a sign of a concerted law enforcement effort, the NCA’s Strategic Threat Assessment underlines investment fraud as one of the fraud types with the highest potential impact on individuals. See our related blog: Business Plan 2020-21 – FCA remains vigilant to potential misconduct

Transatlantic comparisons

The US is taking a similar line keeping COVID-19 fraud firmly on the agenda. The US Attorney General William Barr has taken an unequivocal stance, warning ‘the pandemic is dangerous enough without wrongdoers seeking to profit from public panic and this sort of conduct cannot be tolerated.’ US Attorneys have been told to prioritise the investigation and prosecution of coronavirus related schemes and to appoint a Coronavirus Fraud Coordinator in each judicial district. Examples abound such as the US DOJ action to take down coronavirusvaccine.com website, offering false hope to scared people. Kits were offered for distribution in exchange for $4.95 postage and packing fee payable by entering your credit card details into the site.

The US CARES Act, (CARES – Coronavirus Aid Relief and Economic Security Act), which is a vehicle for delivering a $2 trillion stimulus package, also creates post of Special Inspector General for Pandemic Relief. The Special Inspector General is charged with policing the way in which federal money is distributed and has powers of investigation, including arrest without a warrant and the ability to apply for arrest and search warrants.  

On the matter of cybercrime, the UK and US are working together warning of a rise in Covid-related cybercrime. See our related blog: US and UK cybersecurity agencies publish a joint statement warning of a rise in Covid-related cybercrime

More to come?

Other areas identified as being at risk of fraudulent activity include the large-scale programme offering financial support to businesses through the tax system, including the employee furlough scheme. 

HM Revenue and Customs has warned that job retention schemes may result in a target for organised crime, with the Chief Executive of HMRC, informing a committee of MPs that he expected it to be “targeted by fraudsters”. In what might be termed Payroll fraud, he confirmed that: “We are going to be paying out a vast sum of money in a rapid period of time…” “any scheme like this is a target for organised crime. Any scheme that pays out I’m afraid attracts criminals that want to defraud it and people that are genuinely entitled to it who inflate their claims” – as reported in the Guardian.

As the economy contracts, so businesses will sadly fail. In some, the insolvency process may reveal hitherto undiscovered frauds or discrepancies. See our related blog: Insolvency Service investigations into trading companies.

We may also see an increase in accusations of fraud around the healthcare system as funding is, quite properly, diverted towards it and spending consequently increases. See our related blog: Fraud in the time of COVID-19.

In the last few weeks we have seen an increase in the amount of COVID-19 related fraud allegations being reported. Whilst the authorities may be focused on other areas at the moment, it is inevitable that when the dust has settled some of those claims will be investigated and there is a real risk that legitimate businesses and individuals will be caught up in accusations of criminal or civil fraud. The cost and stigma of such accusations and investigations cannot be underestimated even in normal circumstances, but the negative impact of dealing with accusations of COVID-19 related fraud is likely to be even more devastating.

Further information

For further information on the issues raised in this blog post, please contact a member of our criminal team.

 

About the authors

Louise Hodges is head of the Criminal Litigation team and leads Kingsley Napley LLP’s cross practice financial services team and internal investigations team. She is particularly well known for representing individuals subject to financial regulatory and/or criminal investigations for market abuse or market misconduct including insider dealing and misleading the market, mainly dealt with by the Financial Conduct Authority (FCA) or the SFO.

Alun Milford is a partner in the Criminal Litigation team and specialises in serious or complex financial crime, proceeds of crime litigation and corporate investigations. He has particular knowledge and experience of issues surrounding corporate crime and deferred prosecution agreements. He joined Kingsley Napley from the public sector where, over a twenty-six year career as a government lawyer and public prosecutor, he worked in a wide variety of roles including General Counsel at the Serious Fraud Office, the Crown Prosecution Services’ Head of Organised Crime, its Head of Proceeds of Crime and Revenue and Customs Prosecutions Office’s Head of Asset Forfeiture Division.

 

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