Clause 4 — Fraud by abuse of position

Part of Orders of the Day – in the House of Commons at 2:07 pm on 26th October 2006.

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Photo of Mike O'Brien Mike O'Brien Solicitor General, Law Officers' Department 2:07 pm, 26th October 2006

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

The Fraud Bill is a small Bill but it is intended to do a big job. It aims to deliver an effective legal structure for tackling the growing threat posed by fraud. Fraud affects us all. It causes long-term damage to UK businesses, wrecks ordinary lives by destroying jobs, savings and pensions, and hits the pockets of every citizen of this country. An effective framework for tackling fraud is therefore crucial to citizens as well as to the economy. The Government's strategy is threefold: first, to modernise the law;
secondly, to improve the investigation of fraud;
and thirdly, to ensure that the prosecution and court procedures are efficient and effective. The passage of the Bill will complete the first element of that strategy by ensuring that the criminal law on fraud is fit to meet the challenge posed by the sophisticated techniques deployed by today's fraudsters.

Before concluding our debates on the Bill, as I hope that we can today, it is appropriate to remind ourselves of how we reached this stage. In 1998, the Government asked the Law Commission to review this area of law. It conducted a careful review which led to a final report in July 2002. It identified two key problems. First, deception offences in the Theft Acts were too specific, which made them vulnerable to technical assaults by defence lawyers, who would argue that a particular behaviour fell just outside the definition of the offence charged, or that the defendant had been charged with the wrong kind of deception—in other words, "It's all very technical so we should find them not guilty." Secondly, deception was an essential ingredient of the offence, which required a victim to be deceived, but the increasing use of technology in commercial activity renders this approach artificial and potentially troublesome in legal terms.

The Law Commission recommended a new general offence of fraud, with two significant changes: first, to focus on dishonesty rather than deception; and secondly that proof of gain is no longer essential to prove the crime. It will be enough that the offender intends to make a gain for himself or to cause a loss to another, or to expose another to a risk of loss.

The Bill sweeps away the complex array of deception offences and establishes a general offence of fraud with three limbs. Underlying each limb are two basic requirements that the defendants' behaviour is dishonest and that they intend to make a gain or loss for another.

The first limb is fraud by false representation. The extra element is that the offender must make a false representation knowing that it is or might be false or misleading. The second limb, fraud by failing to disclose information, requires the extra element that the offender fails to disclose information that he has a legal duty to disclose. The third limb, fraud by abuse of position, requires the extra element of abusing a position of responsibility to commit fraud.

In addition to the general offence of fraud, the Bill introduces several other offences, as proposed by the Law Commission. It contains a new offence of obtaining services dishonestly. That replaces the current offence under the Theft Act 1968 of obtaining services by deception, which poses problems as it requires deception.

Clause 6 introduces an offence of possessing articles for use in or in connection with the commission or facilitation of a fraud. It draws upon the existing offence in section 25 of the Theft Act. Clause 7 introduces a higher level offence of making and supplying articles for use in fraud. Clause 9 implements a Law Commission recommendation that the existing offence of fraudulent trading in the Companies Act 1985, which currently applies only to companies, should be "extended to noncorporate traders", such as partnerships or sole traders.

Those offences will replace provisions in our law that are in daily use. It is therefore important that we get the changes right.

The Bill is the result of an extensive review process, started by the Law Commission and continued by the Government, following full public consultation on the proposals. The consultation showed that the Law Commission report was generally widely welcomed, and we were grateful for the thoughtful contributions that were made. The Government listened carefully to the views expressed and, when appropriate, made changes.

We have already discussed the one proposal that caused some controversy—conspiracy to defraud—but I shall not go over that again, except to reiterate that we will reconsider it in three years.