Orders of the Day — Telecommunications (Fraud) Bill

– in the House of Commons at 2:02 pm on 13th December 1996.

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Order for Second Reading read.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset 2:05 pm, 13th December 1996

I beg to move, That the Bill be now read a Second time.

I declare a pecuniary interest as an adviser to the Telecommunications Managers Association, but I must make it clear that the TMA has not in any way been involved in promoting or drafting the Bill.

This is an interesting day to introduce the Bill because my mobile phone, if I may mention that terrible beast, has been going mad all the way to Westminster with people asking me whether a prison ship is to be based in my constituency. I shall certainly congratulate the Home Office if it brings 200 new jobs and 500 new prison places to a bay near me. To judge from the Bills that we have discussed this morning, the 500 extra places may be needed. However, I hope that hon. Members agree that the purpose of increasing penalties and the ability of the police to catch offenders is to stop crimes being committed in the first place.

My Bill has a long history. It has been acknowledged for many years that the Telecommunications Act 1984 has two small, but fundamental, flaws. Section 42 deals with dishonestly obtaining a telecommunications service, but does not outlaw equipment used for that purpose. The example most readily understoodßžthere are many other more complicated ones that we will not want to discuss todayßžinvolves changing the electronic serial number of a mobile phone. That can happen to people whose phones are stolen, but it can also happen to anyone who owns one. Once the number is changed, people can dial calls and have them charged to someone else's bill. There are many ways to ensure that someone else pays for calls. Under section 42, the police have to prove that someone has been dishonestly obtaining a service. People who are good at the fraud can ensure that there is no evidence of that, by charging calls to someone else's bill.

Clause 1 provides that a person will be guilty of an offence if he has in his custody or control anything that he intends to use to obtain a service dishonestly, or which he intends dishonestly to allow others to use. The possession of equipment that has no sensible purpose other than the commission of fraud will mean that an offence has automatically been committed.

The second flaw of the 1984 Act is that it provided for only a two-year maximum penalty on indictment. There have already been frauds of more than £2 million on the telecommunications system. Such massive fraud requires sufficiently high penalties. My Bill would increase the penalty to five years and ensure that police have additional automatic powers to enter premises if they have a reasonable suspicion that such crime is being committed. They would be able to enter in hot pursuit, rather than have to find a magistrate, get a warrant and return to catch somebody red-handed. The Bill would therefore be extremely helpful to the police in tackling the crime.

The Government have for many years acknowledged that there is a problem, but they have said to the industry, "Go away and try to solve it with the existing legislation." After some years and a lot of discussion, it has been agreed between the Government and the industry that the only answer is presented by the Bill.

For some time, the joint industry and Government study group has examined the problem. I congratulate the Department of Trade and Industry on including the industry in its confidential discussions and on helping to develop the Bill. I should particularly like to praise the work of the Federation of Communication Services and, if she does not blush too much, Jacqui Brookes, who has worked tirelessly for years to find a solution. She has kept us all pointing in the same direction. Hundreds of people have been involved in the process, and it would take too long to mention them all, but I congratulate them and all the sponsors of the Bill. This is an all-party measure that has attracted a great deal of support on both sides of the House. I therefore believe that we can proceed confidently with it.

I intend to ask the House's leave to take the Bill through all its stages now. We have tried to do the best job that we can to give maximum publicity to the Bill's intentions. Many hon. Members will have seen consumer programmes and other features on television which demonstrate that everyone wants the Bill to go through. I have not received one letter, message, e-mail, telephone call or any other communication against the Bill.

Given that we have ensured that the maximum number of people are aware of the intentions behind the Bill, I believe that it would be safe for it to complete all its stages todayßžif that was the House's will. The urgency of the matter requires that that should happen.

Photo of Geoff Hoon Geoff Hoon , Ashfield 2:11 pm, 13th December 1996

I congratulate the hon. Member for South Dorset (Mr. Bruce) on the Bill. The Labour party welcomes it and will co-operate in its passage. We support any sensible anti-crime measure, and we are pleased that the hon. Gentleman has taken the opportunity to introduce a Bill on telecommunications fraud.

I agree with the hon. Gentleman that it would be sensible to complete the Bill's stages, if that is possible, before the Government are forced to call a general election. The Government will lose their parliamentary majority on Monday, following the success of our candidate, Jeffrey Ennis, at the Barnsley, East by-election, so I understand why the Government and the hon. Gentleman might be anxious for the Bill to complete all its stages now, with the House's leave. It is clear that, from Monday, the Government will have some difficulty ensuring the passage of their legislation.

Why is it necessary to have the Bill now? Owing to a loophole in existing legislation, the possession of equipment used to perpetrate telephone fraud is not an arrestable offence. It is yet another exampleßžwe see many of themßžof technology moving more rapidly than legislation. The Telecommunications Act 1984 was drafted when the mobile phone industry had only just begun to develop. The scanners now used in mobile telephony frauds did not even exist.

Photo of Mr John McWilliam Mr John McWilliam , Blaydon

I moved an amendment to the Bill that became the 1984 Act to ban scanning radios, but the Government opposed it.

Photo of Geoff Hoon Geoff Hoon , Ashfield

That demonstrates my hon. Friend's foresight and how he was ahead of the technology. Perhaps the Government were lagging behind. That is not a particularly new piece of information for hon. Members who debate technology in the House.

It is appropriate that we should attempt to tighten our legislation. Efforts have already been made in that respect in the United States and Hong Kong. I am told that, in China, anyone convicted of cloning a mobile telephone may face the death penalty. I sincerely hope that the DTI does not communicate that information to the current Home Secretary.

There is a temptation sometimes, and in some quarters, to see hacking as a prank perpetrated by clever students at the expense of a bungling bureaucracy. The reality of telephone fraud is that it is perpetrated by highly organised criminal gangs using sophisticated high-tech equipment. Once upon a time, such equipment was expensive, but it can now be bought on the high street for as little as £100, allowing mobile telephones to be reprogrammed.

The extent of the crime involved is, perhaps inevitably, difficult to calculate, but the industry suggests that at least 8,000 analogue telephones were cloned every week of last year. Certainly about 20,000 were reported stolen. Phone hacking is costing the country hundreds of millions of pounds a year. Estimates are necessarily unreliable, but a figure of £200 million a year has been mentioned.

The electronic sophistication of telephone equipment has given rise to sophistication in equal measure among those who are trying to abuse equipment for criminal purposes. A wide variety of techniques are employed. I do not propose to go through them in detail, but it is important to note that they do not apply simply to mobile telephony. These days, sophisticated fixed-wire systems offer facilities such as voice mail and 0800 numbers that can be used effectively only if authorised members of staff can call in and change the settings on their telephone systems. Some of those facilities can be abused by outsiders, who change the settings.

Telephone hackers gain access to an office telephone system, and sell access numbers to third parties who then sell them on to others who want to use the opportunity to make expensive international calls. That means that, in effect, businesses are subsidising the costs of crime. Indeed, larger businesses, which may already have substantial international telephone traffic, may not become aware for a long time of the fact that their systems are being abused.

As everyone recognises, a particular problem for mobile telephony is that the latest equipment apparently allows criminals the mobile telephone numbers of hundreds of pieces of equipment being used within a 1 km sq area. Those numbers are then sold on, often to those who have perpetrated crimes by stealing mobile phones. I am told that they are hired out for £5 for 15 minutes in pubs and clubs, thereby allowing people to run up bills of hundreds of poundsßžbills that are then passed back to the victims of the original theft.

It is important to make a further point in the context of efforts to control crime. We are not concerned only with eliminating the cost to the country of defrauding telephone systems. It needs to be borne in mind that stolen clone telephones are frequently used in the commission of other offences, notably drug dealing and money laundering. It is estimated that thefts of mobile phones from parked cars contribute about 40 per cent. of city centre car break-ins. It is part of a wider criminal problem that we need to identify.

I congratulate the hon. Member for South Dorset. He is making a valuable contribution to a campaign throughout the country to stop crimeßža campaign that has the full support of the Labour party.

Photo of Ian Taylor Ian Taylor , Esher 2:18 pm, 13th December 1996

I warmly welcome the initiative of my hon. Friend the Member for South Dorset (Mr. Bruce) in introducing this Bill and clearly explaining its purposes. I also welcome the contribution by the hon. Member for Ashfield (Mr. Hoon) in support of the Bill. It is good to have cross-party amity on a Friday. I am sure that that will continue right through Christmas and beyond. My only caution to the hon. Gentleman in getting excited about the Bill is that it has to go through another place. I hope that he will use his constructive influence there before he gets involved in any other changes that he wants to propose for the other House. We would like the Bill to go through all its stages in both Houses as soon as possible. It is a sensible addition to the armoury of those attempting to fight fraud in the rapidly changing telecommunications era.

The "loophole"ßžas the hon. Member for Ashfield described itßžwas not left open by lack of foresight but by the difficulty of foreseeing technological change. The Telecommunications Act 1984 was passed in 1984, and the first mobile telephone call by Vodaphone was made on 1 January 1986. There are now 6 million mobile telephone users in the United Kingdom, and, by 2000, the figure is predicted to rise to between 12 and 15 million users. It is a remarkable success story, and the growth was based on private sector initiative and sensible management of the radio spectrumßžfor which I pay tribute to the Radiocommunications Agency.

Photo of Stephen Timms Stephen Timms , Newham North East

The Minister mentioned the Bill's importance for the mobile telephone industry. Will he confirm that the cable communications industry also awaits the powers that the Bill will provide it to combat fraud?

Photo of Ian Taylor Ian Taylor , Esher

I entirely endorse the hon. Gentleman's comments. The Billßžalthough initially identified as an urgent necessity by the mobile communications industryßždeals with telecommunications fraud in its broadest sense, whether such fraud is by cable or by other, fixed-link operators.

Overall revenue for all telecommunications operators in the UK is about £13 billion, and there are 28 million-plus customers. The hon. Member for Ashfield said that each week 20,000 mobile telephones are stolen. Thefts put customers at personal risk from mugging and cost themßžnot least in insuranceßžto replace. Telephone thefts from parked cars have contributed to 40 per cent. of car break-ins in city centres, and therefore lead to much of the casual crime that so upsets our constituents.

Telephone cloning is a major problem. We estimate that, last year, an average of 8,000 analogue telephones were cloned each month, which is a 100 per cent. increase on the previous year. The costs of cloning inevitably and ultimately feed back in higher charges to customers, although deals are often done to ensure that customers are isolated from any excessive bills that may suddenly crop up in their account.

Criminals now resort to high-technology fraud, which they consider to be low-risk. New devices to defraud the industry are appearing on our streets, and new names are being coined, such as "grabbers", "tumblers", "dangles" and "magic phones". The terms now form part of our lexicon, with which we were unfamiliar when drafting the Telecommunications Act 1984, and the new devices present serious difficulties for those who are attempting to eradicate fraud.

"Grabbers" can trigger a mobile telephone and cause it to transmit its identity, which is then used to create a clone. Cloners are also using "dongles", which are about the size of a matchbox and can be used rapidly to reprogramme and change the identity of a stolen telephone. We have heard of so-called "magic phones", in the far east, which grab the identity numbers of nearby telephones and use them to make cloned calls. The identities are subsequently discarded.

Such developments mean that we must introduce new legislation to combat them. As we move into the era of digital telephones, cloning will probably be more difficult. Sadly, however, we should never underestimate the skill of those employed in criminal activities, and we must prepare, so far as possible, to anticipate new difficulties. I compliment the industry on taking significant action to prevent fraud, such as its crime prevention schemeßžwhich it introduced at its own initiativeßžand its urging telephone owners to protect their equipment, not least by marking it.

My hon. Friend's Bill is designed to ensure that we can win the battle against criminals, whoßžas hon. Members who have spoken in this debate have saidßžmake use of free telephone calls, which they sometimes sell widely as packages. Criminals encourage dealers to obtain commissions for new connections that should not be made, and they provide anonymity to drug dealers and to money launderers.

As I said, the Bill rightly covers all fonns of telecommunications fraud, not just that suffered by mobile phone operators. I am thinking of activities such as dial-through fraud, where hackers get into a PABX system in order to make international calls, which is clearly a great expense for honest phone owners.

The Bill specifically does not affect those who have no intent to defraudßžit targets only the fraudsters. It creates two new offences covering the possession or supply of anything capable of use in dishonestly obtaining a telecommunications service with intent to avoid payment. In the Government's view, the existing penalties are too low to deter organised criminals who are committing large-scale fraud. I am therefore pleased that the Bill sets the maximum penalties for these new offences at five years rather than the current arrangements, in much more loosely defined circumstances, which provide for two.

I am confident that the Bill will be a major deterrent to the increasing number of criminals who regard telecommunications fraud as an easy, relatively risk-free and highly profitable activity. It will hit the criminals where it hurts and be of major benefit to the police.

In this newly advancing industry, it is important to reassure members of the publicßžI think that the Bill will help to do just that. In many aspects of the developing information society, we are endeavouring to ensure that, as technology advances, people have the confidence and reassurance that they can use it as a practical addition to their scope for communication but also in such a way that they are not left vulnerable to new crimes or, indeed, costs.

I have consulted many people in the industry about these matters. Indeed, we were hoping to develop further action plans when we found that my hon. Friend the Member for South Dorset was lucky enough to draw a top position in the private Members' ballot and had the initiative to introduce the Bill. His drafting skill means that we have no objections to it.

Of course, the Bill needs to be set against the wider background of the development of the information society. Telecommunications themselves have been dramatically transformed since our liberalisation measures in 1984. There are now 150 licensed telecommunications operators; the real cost of a package of telecommunication calls has fallen by 40 per cent.; and there have obviously been quality improvements and new systems such as call divert and call monitoring, which can themselves however make systems vulnerable to criminal activity. Nevertheless, so long as we can reassure the consumer that we are taking action in that respect, there is no doubt that these call improvements and enhancements are of great benefit to the great British public.

We have also established our position internationally, not only with mobiles, where the GSN code has become the worldwide standard thanks to the research and development that took place in this country, but in terms of the fall in the cost of international telecommunications. I hope to be able to announce a series of licences for international telecommunications which will open the UK market to much more competition, thereby reducing the cost of international communications and attracting inward investment, which will be welcomed by all hon. Members.

The fact is often neglected that the telecommunications infrastructureßžand thus the ability to get high-quality reliable services at an increasingly competitive costßžis one of the principal features in attracting inward investment into this country. Often it ranks only second, third or fourth in the list of priorities.

The Government's initiatives have enabled us to develop and deliver one of the most effective telecommunications systems anywhere in the world and to attract a huge amount of inward investment, not least from north America. That in turn has stimulated industrial production, the development of technology and an improvement in the quality of services.

The telecommunications revolution is itself the backbone of the information society, leading to convergence and not only increasing the ability of the telecommunications networks to interface but enabling even mobile telephony to integrate back into computing systems. We also have the ability to monitor a series of laptop computers using mobile telephony rather than fixed links telephony.

In the expansion of these technologies and the ability ultimately to allow even broadcast signals to come up on a laptop computerßžand certainly on a personal computerßžas on to a television set, we need to ensure that at each stage we are one step ahead of the criminal. The Bill will help us in that process.

Question put and agreed to.

Bill accordingly read a Second time.

Bill committed to a Committee of the whole House.ßž[Mr. I. Bruce.]

Bill immediately considered in Committee; reported, without amendment.

Motion made, and Question, That the Bill be now read the Third time, put forthwith pursuant to Standing Order No. 75 (Third Reading), and agreed to.

Bill accordingly read the Third time, and passed, without amendment.