Fraud has increased almost four-fold in the last three years: figures from the Fraud Advisory Panel show this was £54 billion in 2013 and is now approximately £194bn. It is vital that there be greater focus on recovering these sums for victims as opposed to punishing the perpetrators of fraud.
The UK's confiscation laws are failing victims because there is no coherent overall strategy, enforceable through statute and measurable against good performance data. Agencies that investigate financial crimes do not always obtain restraint orders or freeze assets at the outset of a matter, with the result that by the time the investigation is complete the benefits of the crime have been dissipated or put out of reach.
The Law Commission must not miss this opportunity to reform the proceeds of crime and confiscation laws. If positive steps are not put in place now, the costs incurred by the Home Affairs Committee in its recent review of the effectiveness of the law in this area will be wasted while the amount lost to fraud will only grow.
Any reform project should focus on six areas in particular:
Measures of success
Lawmakers should define more precise objectives and measures of success for the confiscation order regime. These do not currently exist in one place.
Restraint orders and freezing assets
There should be a focus on obtaining restraint orders to freeze assets as early as possible in an investigation which involves a financial crime or benefit. Disclosure orders should be utilised more often; and the relevant investigation and prosecution agencies should be under an obligation to consider whether a restraint order is appropriate at various pre-identified moments of an investigation.
In its 2013 Confiscation Orders report, the National Audit Office (NAO) recommended shifting focus to the use of restraint orders to facilitate asset recovery. In recent years we have seen a declining trend in the use of restraint, and the NAO's 2016 progress report on confiscation orders highlighted a 36% reduction in restraint orders issued between 2010/11 and 2014/15. Such reduction does not make sense where fraud has increased four-fold since 2013.
The criteria under which a court can order restraint have recently been amended by the 2015 Serious Crime Act (SCA) to where there is "reasonable grounds to suspect that an alleged offender has benefited from criminal conduct". Hopefully this will encourage a greater use of restraint orders, and therefore improve the effectiveness of confiscation orders and confiscation orders; ultimately allowing victims of fraud to recover misappropriated funds.
Restraint orders are appealing for a number of reasons, and law enforcement should focus on obtaining restraint orders as quickly as possible:
- Broad powers: a restraint order can be made against the fraudster or the person under investigation, and any other person holding realisable property. A single restraint order may apply to several connected individuals and companies;
- Speed: it is not necessary for the investigation to have progressed as far as arrest or charge;
- 'Without notice' application: the subject of the restraint order will be unaware of the application until they are served with a copy of the restraint order, by which time it will already be in force. The subject will not have the opportunity to challenge the making of the order and is not informed of the application until the restraint order has been made. An order can be challenged by the subject once they are on notice of the order.
A new obligation on agencies involved in the confiscation regime to submit data on all confiscation-related matters to the National Crime Agency (NCA). The NCA should be required to release an annual report on the effectiveness and success of the agencies involved in the confiscation regime.
Central Confiscation Database
A Central Confiscation Database should be created to increase intelligence-sharing with financial institutions. Furthermore, an obligation should be imposed on financial institutions operating in the UK to ascertain from this database whether they operate accounts for individuals subject to the confiscation regime and report the connection.
Outsourcing asset recovery to the private sector
Part 5 of the 2002 Proceeds of Crime Act permits enforcement authorities to recover the proceeds of crime through civil remedies where it is believed that the property or cash was obtained through unlawful conduct. This can be outsourced to the private sector to free up resources. A specialist civil 'confiscation court' should be created, where the judiciary will have the expertise and resources to efficiently deal with enforcement and confiscation proceedings.
The Code of Practice for Victims of Crime should be amended to inform victims of their right to pursue civil proceedings to recover their losses. Potentially, Actual Fraud could also be required to notify victims of their asset recovery options, which would include civil recovery.
Further benefits of reform
Reforming the law in this way would have considerable social benefits, beyond the obvious financial benefits for victims. Restoring funds to those who are victims of financial crime will improve faith in the justice system and reassure the public that enforcement agencies, in tandem with civil fraud solicitors, have recovery of victims' assets at the forefront of their objectives.
Further, an effective reformed confiscation regime will act as a deterrent to drive financial crime out of the UK. There will also be economic benefits to a reform of the confiscation regime. The current enforcement agencies do not have sufficient resources to prioritise enforcement. Outsourcing aspects of the enforcement procedures to civil fraud solicitors will remove some of the burden from the public bodies which are already stretched. This, in turn, could result in a cost-saving for public bodies as victims could enter into conditional fee agreements or damages-based agreements with private solicitors who can assist in the recovery of assets.
As things stand, victims of fraud should still contact civil fraud lawyers if they want to maximise their changes of successfully recovering their assets through civil means. The victim can then take control of the investigation and focus on asset recovery through disclosure orders, search and seize orders and freezing orders. Such orders require no input from the police or other government agencies, and can be obtained within hours of the fraud happening if necessary. Speed is of the essence in financial frauds.
Further, consideration should be given to identifying a threshold from which actual recovery will be deemed a success - for example, recoveries which are equal to or exceed 65% of the amount ordered to be paid in the confiscation order.