A new report into corporate fraud is calling for businesses to use more private prosecutions to combat the issue, estimated to cost the UK £73 billion¹ annually.
Commissioned by international law firm Eversheds, accountants and business adviser PKF and the Midlands Fraud Forum, the report conducted by the University of Portsmouth, titled ‘Fraud and punishment – enhancing deterrence through more effective sanctions’, has the aim of assessing how sanctions are used against fraudsters and how this can be made easier so as to maximise deterrence.
The results highlight that an estimated 98.5% of cases go unreported to the Police and only 0.4% result in a criminal sanction.
A key theme that emerged in the study is that while there are a number of powerful legal tools in place to help businesses pursue fraudsters via civil litigation, including freezing orders and asset disclosure orders, they remain underused.
As a result, the report authors are calling for the removal of barriers to make the use of civil sanctions easier, including the introduction of triage services to identify the best course of redress. They also recommend the introduction of the following measures to help the UK better deal with the issue of corporate fraud:
• Establishing a not-for-profit organisation to specialise in investigating and imposing sanctions for fraud, to work alongside more commercial approaches;
• Enabling more private prosecution or civil suits to be pursued against fraudsters;
• Educating fraud investigators on the wide array of sanctions available;
• Establishing clearer credentials to distinguish expertise in fraud to help victims to choose firms for consultancy, investigations and legal advice; and
• Creating a sanction and preventative tool from a fraudsters’ database.
Mark Surguy, Partner at international law firm Eversheds and Chair of the Midlands Fraud Forum, said: “Responding to commercial fraud is much more complex than might be thought. The need to take into account a variety of perspectives, commercial objectives and the workings of the different parts of the legal system creates an environment in which lack of knowledge and poor decision-making merely compound the problem. The empirical evidence offered by this research only serves to highlight the need for a new and invigorated approach. Its conclusions must not be ignored and organisations should take notice in order to be prepared to successfully prevent and respond to fraudulent activity.”
David Lidell, a forensic services partner at PKF, said: “To minimise fraud, businesses need to develop a strong anti-fraud culture to create a meaningful deterrent effect. Effective use of criminal and civil sanctions forms an important part of this strategy because it demonstrates to everyone – both inside and outside the organisation - that the business is serious about tackling fraud. Removing the barriers to using civil sanctions therefore has the potential to dramatically reduce the cost of fraud across the economy, saving UK Plc tens of billions of pounds each year.”
Mark Button, Director of the Centre for Counter Fraud Studies at the University of Portsmouth said: “Attrition in the criminal justice system is a well known problem, but when we began to uncover the scale of attrition for fraud offences in this research we were shocked at the tiny proportion, which are dealt with by the criminal justice system. We were also surprised at the many alternatives to criminal prosecution which could be just as effective, but which are generally under-utilised by organisations.
"Fraud has an insidious effect on the health and wealth of businesses and industry and, in most cases, those costs end up being paid for by customers in some form or another. It is vital we do more to punish fraudsters and we hope this report helps to stimulate further action and debate.”
The report findings are supported by the largest ever survey of UK fraud prevention experts who are also calling for tougher sentences for offenders and a reform of the law so as to enable access fraudsters’ pensions funds to recover assets for victims.
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