John Harrison QC provides his insight on the government’s fraud strategy
The Nat West admission of money laundering offences last week throws into sharp relief the duties on corporates to comply with anti-money laundering legislation and the prevalence of fraud. The FCA prosecution was publicised on the same day last week as the FCAs analysis annual financial crime data return data (REP-CRIM) provided by the group of about 22,000 firms required by type and/or activity threshold as defined in the FCA Handbook.
The data shows that from 2017/2020 over 2300 different firms provided 5685 annual financial crime data submissions in accordance with the relatively new 2017 money laundering legislation. From the data we can see that the number of SARs sent to the National Crime Agency (NCA) has increased 22% to 480,202 in 2019/2020. Of that total figure some 24,410 were consent requests which reflected a doubling of requests since 2017/2018. Further, over the period 2017/2020 a total of 165 firms have ‘exited’ introducers for financial crime reasons. The data appears to show a high degree of compliance with the regulatory regime requiring the reporting of suspicious financial activity.
In relation to fraud the FCA data recorded the following 26 different types of fraud where the victims are split evenly between the customer and the regulated firm: expenses, cashpoint, exploiting assets and information, smishing, advance fee fraud, mandate fraud, vishing, investment fraud, pension liberation fraud, loan repayment, asset misappropriation, abuse of position, cheque fraud, insurance fraud, credit card fraud, emails and letters, mortgage fraud, debit card fraud, account takeover, malware-enabled fraud, application fraud, computer hacking, phishing, identity theft and identity fraud. The top suspected perpetrators of fraud are organised crime groups and unknown third parties.
What all this data showing regulatory compliance, and all these different types of fraud seem to highlight is the failure to prosecute fraud and money laundering and financial crime generally. Problems with the investigation and prevention of this type of criminality were highlighted in the April 2019 Fraud: Time to Choose inspection report by HMICFRS: the law enforcement response to fraud is disjointed and ineffective; roles and responsibilities are not clear, existing organisational structures do not work well and most victims do not receive good service but are confused and misled by the advice they receive. Further, there has been significant publicity this week (The Times on the 13th October) with the Victim’s Commissioner Vera Baird claiming fraud accounts for four crimes in every ten, but only 2% of police resources are committed to fighting fraud with fewer than 8000 prosecutions in 2019. The Victim’s Commissioner echoes the criticisms made within the HMICFRS report.
Whatever the reasons for the failure to investigate and prosecute fraud it is not because there are too few agencies involved. There are numerous bodies tasked with prosecuting fraud, insolvency, corporate and money laundering offences include the CPS, SFO, BEIS, HMRC, HMCE, police (local and NCA), ARA, Trading Standards and the FCA. Despite the involvement of all these agencies there remains a systemic failure to investigate and prosecute all types of financial crime. It follows that whatever the soon to be published government’s fraud strategy contains there must be a sea change to emphasise investigation, enforcement and prosecution. A financial crime levy is pointless when there is no investigation or prosecution. The data released by the FCA reveals the familiar trend – rather than investigate and prosecute fraud policy makers would rather seek to introduce publicity seeking measures or further legislation and regulation. The reality of such further regulation is that corporates and individuals will comply but compliance does not prevent fraud or other criminal behaviour. It is this criminal behaviour which appears to be rarely enforced to the detriment of both victims and the wider society.
Without investigation and prosecution the various regulatory regimes become little more than a ‘tick box’ burden on corporates and individuals where compliance is regarded as more important than acting to protect and reassure the victims of crime by effective investigation and criminal prosecution.