Taking action against fraud

Criminal litigation partner Ed Smyth looks at the government’s proposals to overhaul and renew the UK’s fraud reporting and response system.

For many individuals, losing hard-earned savings through fraud can be a life-changing event. It would be unrealistic to believe that fraud can ever be wiped out, but it is imperative that incidences are kept as low as possible to reduce the impact on the general public as well as industry and the public sector.

As levels of fraud, and the cost to individuals, businesses and the economy as a whole have soared over the past few years (we examined some of those trends in a blog last week), calls have grown for a robust solution. This is one reason the details of the government’s latest Fraud Strategy, published on 3 May 2023, have already been closely analysed and will continue to be as the measures it contains become reality.

A large part of the Fraud Strategy focuses on helping victims, and empowering them to help themselves. One way of doing this is to make sure that it is as quick and easy as possible for the ordinary citizen to report a fraud and then follow the progress of the law enforcement response.

The current national fraud reporting system is Action Fraud, which was launched in a form similar to how we now know it in 2009, and in 2012 became a single hub to which police forces directed all fraud victims.

The system has developed considerably since then. Almost all fraud reports are now channelled through it, other than the most complex or high value. Consumers can report fraud online at any time, or by phone during core hours, and receive a police crime reference number. All reports are triaged and passed to the National Fraud Intelligence Bureau, part of the City of London Police (COLP), where they are analysed. Much of the reported information remains there, where it becomes a part of the country’s overall fraud intelligence. In some cases, the report is passed on to the appropriate UK police force to take further action.

It is now also possible for businesses to use Action Fraud to report a live cyberattack in progress, on a 24/7 basis. Reports of this nature are either sent to a relevant local UK police agency, or – where deemed ‘significant’ – the National Cyber Crime Unit within the National Crime Agency where cross-government support can be provided.

Despite developments such as these, and various upgrades to the underlying technology supporting Action Fraud as well as the addition of more human resources, it is safe to say that the system is at best creaking under pressure. According to the COLP, in 2022/23 just over 1 million contacts were made with Action Fraud, representing reported losses exceeding £2.3 billion. This averages out to approximately 2,700 reports, representing £6.3 million in losses, every day.

But over the past few years, as fraud incidences have soared, Action Fraud has been the subject of hundreds of complaints, as well as serious questions over its viability and effectiveness.  Those who have used the system at all recently will know that it requires a very optimistic mindset to expect any real action to be taken over a report. The Fraud Strategy states: “reviews of Action Fraud have repeatedly identified shortcomings.”

By any account the system is overdue for replacement.

At first glance, therefore, the promises set out in the Fraud Strategy are encouraging. The plan to replace and improve the service with a “state-of-the-art” system is noted at several points.

Some further detail can be found under the third pillar of the strategy (“Empower people”), where the government admits that the current process is difficult to navigate. But the detail is scant, focusing mainly on encouraging reporting, and victim support.

The level of investment in the system itself appears disappointingly low. There is mention in the Fraud Strategy of a commitment from the Home Office to spend “over £30 million across three years” on the project. As well as being slightly vague, approximately £10 million per year (plus “contributions” from the City of London Corporation) seems disproportionately small when compared with typical IT costs for complex national projects such as this, which can often run to the tens or hundreds of millions of pounds.

When attempting to deal with the level of reports currently being handled, and the financial and economic losses they represent, you might also expect that the government could reasonably justify a much larger budget. By comparison, the national Potholes Fund receives £500 million per year, and this was increased by a further £200 million for 2023/4 in the recent Spring Budget. Becoming a victim of fraud can cause immense stress as well as financial  hardship: the Fraud Strategy itself notes that Action Fraud deals with more than 300 calls a year involving someone judged to be at risk of suicide. As well as the shattering personal effects, such emotional harm has a real economic cost (time off work, mental health services and so on).

It is also unclear exactly how the government intends actually to deal with the frauds which are reported. The Fraud Strategy speaks of more than 400 specialist investigators working in a new National Fraud Squad. During a recent interview with Radio 4, Anthony Brown MP, the UK’s Anti-Fraud Champion, explained that these officers will supplement the current cohort of 120.

Although it is good news that those 400 new investigators are in addition to 475 new financial crime investigators announced in the second Economic Crime Plan, which was published at the end of March 2023 (around 200 of whom will be assigned to the National Crime Agency, and 115 to regional crime units around the country), this still means that a total of 520 fraud investigators will be tasked with combatting what has now exceeded 40% of all recorded crime, affecting 1 in every 15 adults in England and Wales.

It is hard to see how there will be any noticeable difference in consumers’ experience as a result of what has been announced in the Fraud Strategy, beyond a potentially slicker and more intuitive reporting interface.

Of course there is pressure on public finances (there almost always is), but it is hard to reconcile the proposed level of investment with the Fraud Strategy’s aspirations. It is telling that there is no clearly-defined metric against which the strategy’s success or failure can be measured. A 2021 report published by Crowe UK and the Centre for Counter Fraud Studies at University of Portsmouth estimated annual fraud losses in the UK to be a barely-comprehensible £137 billion (which for illustrative purposes is nearly three-times the annual defence budget). A truly ambitious plan would commit to reducing this figure by a significant specified percentage, something that would require long-term investment far beyond and above the uninspiring drop in the ocean that is proposed.

FURTHER INFORMATION

For further information on the issues raised in this blog post, please contact Ed Smyth or a member of our Criminal Litigation team.

ABOUT THE AUTHORS

Ed Smyth is a Partner in the Criminal Litigation team and represents individuals and corporates involved across the full spectrum of criminal and quasi-criminal matters. He has considerable experience of confiscation and asset forfeiture proceedings and of challenging the exercise of search and seizure powers. He has acted in cases involving the SFO, the NCA, HMRC, the Information Commissioner, the Electoral Commission and various professional disciplinary bodies.