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Call for private prosecutions to fight fraud

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Tue, 17 Jul 2012 09:32:00 BST

New research into corporate fraud is calling for businesses to use private prosecutions to combat the problem, estimated to cost the UK £73 billion a year.

researchnewsMark Button Research carried out by the University of Portsmouth’s Centre for Counter Fraud Studies, revealed an estimated 98.5 per cent of cases go unreported to the police and, of the 1.5 per cent that are reported, only 0.4 per cent result in a criminal sanction.

The research was commissioned by the Midlands Fraud Forum, international law firm Eversheds and PKF, and the  resulting report, ‘Fraud and punishment – enhancing deterrence through more effective sanctions’, measures how sanctions are used against fraudsters and how this can be made easier so as to maximise deterrence.

The results highlight a lack of resources, interest and training among police forces and the Crown Prosecution Service could be to blame for the small amount of enforcement against fraudsters.

A key theme that emerged in the study is that while there are a number of powerful legal tools in place to help businesses pursue fraudsters via civil litigation, including freezing orders and asset disclosure orders, they remain underused.

While prison sentences remain the ultimate deterrent, preliminary investigations and court cases are time-consuming and complex. Private prosecutions — when a company or individual rather than the state brings a case – are rare but can still result in jury trials.

The problem could be remedied by the creation of a not-for-profit organisation to help small and medium-sized companies (SMEs) investigate, privately prosecute or sue people who defraud them, and specialised fraud squads should be rolled out across police forces, the researchers recommended.

Dr Mark Button, Director of the Centre for Counter Fraud Studies at the University of Portsmouth said: “Attrition in the criminal justice system is a well known problem, but when we began to uncover the scale of attrition for fraud offences in this research we were shocked at the tiny proportion, which are dealt with by the criminal justice system.

“We were also surprised at the many alternatives to criminal prosecution which could be just as effective, but which are generally under-utilised by organisations.

“Fraud has an insidious effect on the health and wealth of businesses and industry and, in most cases, those costs end up being paid for by customers in some form or another. It is vital we do more to punish fraudsters and we hope this report helps to stimulate further action and debate.”

The report authors are calling for the removal of barriers to make the use of civil sanctions easier, including the introduction of triage services to identify the best course of redress. They also recommend the introduction of the following measures to help the UK better deal with the issue of corporate fraud:

  • Establishing a not-for-profit organisation to specialise in investigating and imposing sanctions for fraud, to work alongside more commercial approaches;
  • Enabling more private prosecution or civil suits to be pursued against fraudsters;
  • Educating fraud investigators on the wide array of sanctions available;
  • Establishing clearer credentials to distinguish expertise in fraud to help victims to choose firms for consultancy, investigations and legal advice; and
  • Creating a sanction and preventative tool from a fraudsters’ database. 

Mark Surguy, Partner at international law firm Eversheds and Chair of the Midlands Fraud Forum, said: “Responding to commercial fraud is much more complex than might be thought. The need to take into account a variety of perspectives, commercial objectives and the workings of the different parts of the legal system creates an environment in which lack of knowledge and poor decision-making merely compound the problem.  The empirical evidence offered by this research only serves to highlight the need for a new and invigorated approach. Its conclusions must not be ignored and organisations should take notice in order to be prepared to successfully prevent and respond to fraudulent activity.”