One of the UK’s most well-known banks has once again been featured in the news for the wrong reasons. It was recently reported that the Royal Bank of Scotland (RBS) is being sued for over £140 million, for its role in a carbon trading VAT fraud. Reports suggest that the suit is based on a carousel fraud which saw traders buy and sell goods, register a VAT charge on the trade but never actually pay the VAT due. When these same goods were later sold, the VAT is reclaimed. In this particular situation, the carbon credits – pollution permits issued by the EU – were purchased in France, imported into the UK by supposedly fake organisations which then sold them on to various other businesses. It is believed that RBS traders bought the carbon credits and then sold them abroad before claiming a VAT rebate from HMRC which was not due.
It is unfortunate that another of the UK’s banks is again being implicated in a potential breach of UK law. However, this development also places a spotlight on the framework for policing fraud in the UK. Lewis Nedas is a leading commercial law firm providing advice and representation on all aspects of corporate crime. In this blog post, we provide an overview of the current legal regime governing fraudulent activities.
Where is the law?
The majority of the law governing the commission of fraud is contained with the Fraud Act 2006 (the “2006 Act”). The Act was designed to dissuade individuals from participating in fraudulent activities. In reality, it is very difficult to prescribe a single definition for the act of committing fraud. The 2006 Act reflects this fact and identifies three distinct patterns of behaviour, which it deems to be illegal:
- An individual's representing to someone that something that that is known to be false is in fact true.
This is one of the offences under the 2006 Act. It is made up of 4 components: (i) making a false representation; (ii) dishonestly; (iii) in full knowledge that the representation was or could be false or misleading; and (iv) intending to make a personal gain or for someone else, or to cause actual or the risk of loss to someone else.
- An individual who neglects to bring information to someone's attention whom they owe a duty of disclosure to.
- Being in a position of trust which merits protection, and that person failing to safeguard that position.
The acts mentioned above are in fact the key offences under the 2006 Act. In order for a charge for having committed these offences to be raised, it will have to be demonstrated that the certain actions took place:
- A party must be behaving dishonesty:
- The intention for acting in a dishonest way must be either (i) to make some kind of gain; or (ii) to cause actual or the risk of loss to someone else: and
- The 2006 Act does not require for there to be evidence that loss was actually suffered for an individual to be vulnerable to a charge. The fact that there was an opportunity for loss to have been caused will be enough to attract liability under the 2006 Act.
Who is responsible for enforcing the law?
Fraud is a specialised crime and as a result, is enforced by specialised agencies. In the UK, the job of enforcing the terms of the 2006 Act is that of the Serious Fraud Office (SFO). The SFO routinely works in partnership with a host of other regulatory agencies – this tends to be due to the fact that fraud is incredibly difficult to identify. A pooling of resources and the sharing of intelligence among regulatory bodies/ agencies tends to increase the likelihood that evidence of fraudulent activities will be uncovered where suspected.
The SFO is endowed with significant powers in order to investigate suspected instances of fraudulent activity. This includes the ability to enter business premises and conduct an exacting review of business activities, and to interview members of staff with a view to identifying a paper trail of fraudulent activity. The SFO will avail itself of the investigatory powers it has been granted to the fullest extent possible, particularly given the difficulty involved in bringing a successful prosecution for fraud: the relevant behavioural component must be identified, together with the necessary (possibility) of loss.
The regulatory framework for policing fraud in the UK has been re-enforced in recent years. Not only is the SFO actively involved in investigating suspected instances of fraud, the Joint Fraud Taskforce also provides assistance. This body – a combination of UK retail banks, government representatives and law enforcement officials – is responsible for pinpointing weaknesses in the regulatory framework, and identifying opportunities to enhance the UKs approach to policing against the commission of fraud.
The legal regime governing fraud is sophisticated, and the agencies charged with enforcing the act are endowed with a range of powers to ensure that any illegality is identified and prosecuted. Any indication that a regulatory investigation for suspected fraudulent activity is pending, should be treated with the utmost seriousness and comprehensive legal advice sought.
Who has the expertise to advise in this specialist area?
The law governing fraud is highly technical, and complicated to navigate. If you are concerned that you or your business have been implicated in fraudulent activity, then you should seek the guidance and support of specialist lawyers that have a track record of advising in this area.
Lewis Nedas is a leading city law firm advising on all aspects of corporate crime, providing a dedicated team to clients seeking assistance from commercially oriented, technically able lawyers. Our team is made up some of the leading individuals advising on the law of fraud in the UK, and are highly experienced in dealing with regulatory investigations by the SFO. We understand the approach that regulators take, and will be able to advise you on how to respond to any approach by a regulatory body with a view to protecting your interests at all times. If you would like to know more, contact our team today.
