Orders of the Day — Fraud Investigation

– in the House of Commons at 12:00 am on 12th April 1967.

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Motion made, and Question proposed, That this House do now adjourn.—[Mr. Ioan L. Evans.]

9.30 p.m.

Photo of Mr Edward Lyons Mr Edward Lyons , Bradford East

Large-scale fraud may be said to be today's fastest growing industry. It is perpetrated increasingly on a national scale with national organisation, through subsidiaries of main companies, through national advertising and, in the case of some types of fraud, through branch establishments in the country. It is interesting to note that the Fraud Squad was created after the last war because Servicemen, people without business experience, were returning home with gratuities, and a number of people were determined to devise means to pry those gratuities from them.

Today, there are no gratuities, but as society grows richer and richer more and more people have substantial savings, and even those who do not have savings often have incomes at a level which makes an oppressive instalment contract worthwhile. Even the housewife is worth attention. Where the war-time gratuities made crooks wet their lips, the crooks positively drool over the thought of this fantastic modern wealth in the hands of so many people who are commercially naïve.

There is, of course, a willingness in people to believe in get-rich-quick schemes. The modern confidence trickster is often highly educated, or may be a salesman trained in American methods. Subtlety is now used, and a growing variety of schemes have been devised: hair clinics, health clubs, pig breeding schemes, casino betting systems, insurance swindles, laundry and automatic vending frauds, instalment contracts distinctly burdensome false claims for Government subsidies, and now, in some cases, choosing one's mate by computer. There are also company frauds of great complexity, thought of and manipulated by top-class brains. The rewards of fraud can be very high—they come from those who also wish to get rich very quickly. Mr. Maurice Viner, a distinguished barrister, has formulated a new liberty of the citizen—the liberty to be "done". With an increasing population and prosperity we must accept that fraud will continue to increase.

What are the resources at present being used to deal with fraud? The City of London Fraud Squad is said to have 18 men; the Metropolitan Fraud Squad is said to have rather more. It is said that the investigation department of the Board of Trade has 17 men. It has been said that in the City of London one must defraud someone, or some people, of more than £1 million if one wishes to rate more than a sergeant. The Sunday Times has called the Fraud Squad, the Board of Trade and the Directorate of Public Prosecutions "this old triangular machine"—a machine designed in a bygone age to meet fraud that bears very little resemblance to the scale and complexity of fraud today.

In the country at large, some police forces have fraud squads, other do not. Those squads that exist tend to be small, undermanned and to be treated badly for promotion. To handle the legal end of fraud, the Director of Public Prosecutions has on his staff 40 lawyers, who handle 6,000 cases a year, many of which are not, of course, cases of fraud. That means that each lawyer deals with about five cases a day. The people working for the Director of Public Prosecutions cannot concentrate on one fraud at a time, no matter how complex it may be. They have to fit in their study and preparations with their other work.

So far as I know, none of the bodies I have mentioned employs chartered accountants and none has a solicitor specialising in company law. Police officers go to the fraud squads for a period, and then return to their units.

The police and the Board of Trade officials and those working in the Directorate of Public Prosecutions are able and conscientious and, for their numbers, achieve good results, but at present there is administrative constipation, as one newspaper said. There is a terrible burden on fraud squad officers both physical and mental. In theory they should be able to call in outside professional help. The Fraud Squad is entitled to call on a firm of accountants. Last year the Squad paid £15,000 for the services of accountants, but one does not get much advice for £15,000.

The Board of Trade calls in outside inspectors to carry out investigations. A barrister or accountant inspector has to try to fit in inquiries with his usual professional work and this causes great delay. The confidence of a detective might conceivably be impaired if he has strong feelings about social class, because he is dealing sometimes with people of a public school background operating in plush offices and flanked by accountants and lawyers.

Separate staffing of these different groups results in duplication of work. Inadequate staffing results in long delays in bringing an accused to trial. Overloading can mean a reluctance to take up less weighty frauds although such frauds may be fairly common. The effects of delay are terrible. One knows of cases where there has been five years delay from the discovery of a fraud to its prosecution. The money can have gone, the accused can have disappeared, witnesses may have died, recollections grow hazy among the remaining witnesses so that counsel may have a field day lengthily cross-examining and dilating on the contradictions of those failing memories.

If the man is innocent he has had a charge hanging over him for many years which may have had serious effects on his health, his peace of mind and his reputation. It was said in Magna Carta: To no one will we deny justice.To no one will we delay it. But in a case of fraud this often happens and there is the strain of the period of waiting. Delay may also mean that a fraud can continue to be perpetrated on the public longer than ought to happen. The Director of Public Prosecutions does not begin investigations until a case is referred to him by another agency. That might be a long time after the case first comes to light.

What is required to remedy this situation? I propose a specialised unified body with headquarters in London and branch offices in the regions. It should take over fraud from the Director of Public Prosecutions, company investigations from the Board of Trade and absorb the City and Metropolitan Fraud Squads. It should have on its staff chartered accountants and solicitors with prosecuting experience. There should be enough police officers in the new commission to produce a proper pay structure considerably higher than that for ordinary officers in the police force. There should be reasonable prospects of promotion. It should attract graduates to the police force.

The Board of Trade could second personnel to the commission for limited periods of time, as other agencies might also do. Officers could also be loaned additionally from other police forces when required. At headquarters top-class accountants should be available to the commission's branches in London and the regions. If this sounds a terribly large-scale operation, it should be remembered that in America the Securities and Exchange Commission employs more than 1,500 professional men. Specialisation should also produce more "know-how" and, therefore, speedier investigation.

The commission should deal not only with frauds of a complex commercial kind, but also with appropriate consumer frauds, and not only frauds reported to it, but should go out to discover where frauds are, and that is not as difficult as it sounds. S.E.C. seeks to nip fraud in the bud. For example, its officials scrutinise all newspapers and magazines for advertisements. In this country, it could be done with advertisements, news, trade offers and personal columns. All those could be scrutinised to see whether anything looked suspicious and worthy of investigation.

Another advantage of the commission would be that information about frauds will flow in centrally through the regional offices to headquarters. For example, if at the moment there is a complaint by a Leeds consumer to the Leeds police, the advice that he might get is "It is a civil matter". The Leeds police will not know that a similar complaint has been made by a Birmingham consumer, another by a Cardiff consumer, and so on.

But if fraud was handled regionally and nationally by one organisation then within a few weeks of a new fraud being perpetrated nationally—for example, in relation to health clinics—enough information would be flowing in centrally for the commission to be aware that there was another national fraud, and it could take action quickly. The channelling of information would be a useful result of the establishment of such a commission. It would be an advantage for it to be known that action could be taken quickly. The terrible thing about frauds in this country is that they can go on for years before there is movement to stop them.

Another advantage of the commission would be that knowledge of the various frauds would be pooled into fewer hands so that there would be greater knowledge and expertise at the centre. In a real sense, the commission would not only be a scrutineer, with teeth, of business practices but would also, for the first time in this country, fulfil the rôle of an effective consumer watchdog.

What should the powers of the commission be? In addition to the normal powers of the police and the normal powers of the prosecution department, the commission should be given power to stop advertising when it is reasonable to believe that it is directed to gulling the public into parting with their money.

Photo of Dr Horace King Dr Horace King , Southampton, Itchen

Order. I hesitate to interrupt the hon. Gentleman. I presume that all this can be done under present legislation. If he seeks the new powers by legislation, he cannot advocate this on the Adjournment.

Photo of Mr Edward Lyons Mr Edward Lyons , Bradford East

I am much obliged, Mr. Speaker.

I would advocate for the commission occasional broadcasts on radio and television telling the public about the latest type of fraud so that people would be forewarned. I submit that such broadcasts, if made in good faith, should be exempted from normal actions for defamation; in other words, they should be privileged.

The members or officers of the commission could, as weights and measures inspectors do, pose as customers and also as investors. They could, one hopes, institute codes of business conduct and codes of doorstep selling and in this way influence in a deterrent fashion switch selling and other vices.

If it simply becomes an enlarged, effective, well equipped, well manned, modern fraud squad, the commission will be well worth while. But an alternative is open to the commission, and that is to become an organisation to fight not only big-time fraud but consumer fraud so fiercely as to make British commercial life of so high a standard and of such integrity that the world will look at it in admiration. In this modern world we must look to the weapons we use to fight modern criminals operating on an ever-increasing scale. I therefore urge the setting up of such a commission with proper powers and staffing, so that we can protect the public rather better than hitherto.

9.45 p.m.

Photo of Mr George Darling Mr George Darling , Sheffield, Hillsborough

My hon. Friend the Member for Bradford, East (Mr. Edward Lyons) has drawn attention to many kinds of frauds perpetrated by what is, in fact, a minority fringe of so-called businessmen. It is worth pointing out that of the 500,000 or so companies operating in this country the number that could be described as fraudulent is relatively very small, and that the vast majority of businesses in this country are conducted perfectly honestly. We share my hon. Friend's concern about that fringe of dishonesty, which is, perhaps, likely to increase as our complex society becomes more complex and complicated, unless we take adequate steps to deal with it.

My hon. Friend said that the organisations we have today to investigate frauds and, where need be, prosecute are out of date and thoroughly inadequate. I do not accept all his criticisms of our present organisations—the Board of Trade Investigation Department, the Fraud Squad, and so on. Many of his criticisms in that respect are exaggerated, but I agree that there is a need for improvement in both organisation and methods. Since the present Government came to office we have made many improvements, and have studied how best to create a better fraud investigation system. By this Adjournment debate my hon. Friend has anticipated the announcement of the proposals we shall shortly make.

Although I was very interested and impressed by his very wide-sweeping proposals we consider that what we shall propose before long will do the job much better. I cannot tonight tell him what our proposals will be, and I think that to do so would be out of order, because a certain amount of legislation will be required. But I assure him that he has not long to wait.

I wish to deal with one or two points which I think will be in order, particularly concerning his criticisms of our present methods of doing things, and his first suggestion that something like the United States Securities Commission would do the job better here. I understand that the Commission is not so much a fraud investigating unit as a body trying to protect investors in connection with dealings in securities, and so on.

The work of that Commission was examined by the Jenkins Committee, which looked into company law, and the Committee was not persuaded that a system of control on the United States model would work as well in Great Britain as the more flexible, though perhaps theoretically less perfect, system which has grown up here. There were very good reasons for that.

The main difference between our two systems is that in the United States there is no single body like the Federation of Stock Exchanges such as we have and, as the American witnesses to the Jenkins Committee pointed out, the size of the United States, its scattered security markets, the existence of 50 different State Governments and the past history of the security business, made strong centralised control in Washington very important.

The way we deal with this matter—I am talking about the usual run of commercial frauds—is provided for in the Companies Act, 1948. Under Section 164, the Board of Trade can appoint inspectors to investigate the affairs of a company on the application of the requisite number of shareholders, etc., if the applicants have a good reason for investigation. Under Section 165 the Board of Trade must appoint inspectors if the company declares by special resolution that something is going wrong and it wants an investigation. In addition, the Board of Trade can, on its own initiative, if there are circumstances suggesting fraud, misfeasance, and so on, put inspectors into the company.

Obviously, there are weaknesses, because the Board of Trade must act on information and advice before anything can be done. There are also weaknesses in that the Board of Trade's inspectors are circumscribed in many ways. I will not go into these matters now, because they have been the subject of our inquiries to see if we can find a better way of doing things.

The investigations, as presently carried out, are necessarily private. The inspectors must make a report to the Board of Trade when the investigation is completed. When the inspectors have made their report, their functions cease. If the report discloses that a criminal offence may have been committed, the Board of Trade, under the Companies Act, has to refer the report, in England to the Director of Public Prosecutions if the Board of Trade considers that a prosecution should be undertaken by him, and in Scotland to the Lord Advocate.

Because of the way that the information has been given to the Board of Trade's inspectors, the question of taking action for a criminal prosecution must start all over again, because the witnesses who have given information to the Board of Trade under the compulsory powers of the Board of Trade's inspectors must now produce evidence voluntarily on which a criminal prosecution can be substantiated. This is another problem which we have to deal with.

My hon. Friend went on to describe a very wide-ranging commission, to which he suggested that many more lawyers and accountants should be appointed. I assure him that one of the reasons for delays in dealing with many cases which have come before the public eye—I will not name them; we all have them in mind—is a shortage of manpower in these grades. If my hon. Friend can tell me where to get these lawyers and accountants with the proper qualifications to do this work, I shall be very glad to have discussions with him.

My hon. Friend mentioned the size of the various bodies which deal with commercial fraud. There are criticisms of the amount of time taken by the Board of Trade's inspectors to complete their investigations. The subject matter of these investigations is frequently very complicated. Moreover, generally speaking, the Board of Trade appoints professional men who are in private practice to do this job—barristers-at-law and accountants. They can hardly be expected to neglect their practices, though in fact—tribute must be paid to them for this—they sometimes do.

The average time taken in completing and reporting on an investigation is about 16 months. I agree with my hon. Friend that in many cases that is too long. Some of the more complicated cases are likely to take quite a time, anyhow.

To try to speed things up, the Fraud Squad has recently been strengthened, and it is, therefore, able to deal more expeditiously with cases arising from the reports of Board of Trade inspectors. In addition, the Board of Trade, in order to carry out its functions under the appropriate Sections of the Companies Act, has a small section staffed by accountants, or officers with accountant experience. This section has been recently strengthened, too. We also have another investigation section, staffed by former police officers with investigation experience, many of them from the Fraud Squad. This section has also been extended, and now makes preliminary inquiries in cases of suspected company fraud, which is of considerable help.

We intend to go on strengthening both the administration of the legal branches concerned with fraud, but the recruitment of the appropriate people with legal or accountancy experience is very difficult indeed.

On the general proposition that my hon. Friend has put forward, frankly, out of experience, we doubt whether there would be any advantage in merging the branches of the Board of Trade concerned with commercial fraud with the activities of the Fraud Squad and the Director of Public Prosecutions, and so on. Our view is that there is more to be gained by securing much closer co-operation between these bodies, and we will be coming along with proposals very soon to deal with this co-operation and other methods of investigation.

My hon. Friend went on to talk about widening the powers of the commission that he was talking about to deal with frauds under consumer protection. We have given a great deal of consideration to this in the Board of Trade, and many of us gave a great deal of consideration to it before the change of Government. I am quite convinced, and the more that I look at the problem, at the kind of fraud with which we have to deal, misrepresentation, misleading advertising and all the rest, the more convinced I am that—and this will be my only word on this point, Mr. Speaker—the Protection of Consumers (Trade Descriptions) Bill is by far the best way, and the right way, of doing the job. I hope that we will not have long to wait now before that Bill is on the Statute Book, too.

Question put and agreed to.

Adjourned accordingly at two minutes to Ten o'clock.