Fraud Act 2006

The Fraud Act 2006, which was enacted on 8 November 2006, abolishes all the deception offences in the Theft Acts 1968 and 1978, including the Theft (Amendment) Act 1996.

The practical effect will be enormous, there were nearly 14,000 prosecutions for deception in 2003.

What does the Act do?

• It replaces the deception offences with three new fraud offences, which are largely concerned with the defendant's representations or misrepresentations rather than the actions or beliefs of the victim. The maximum sentence for fraud is 10 years.
• It creates very wide-reaching preliminary offences of possessing or making equipment to commit frauds.
• It introduces a new offence of fraudulent trading by a sole trader and increases the maximum sentence for fraudulent trading under s 458 of the Companies Act to 10 years.
• Obtaining services by deception is replaced by obtaining services dishonestly.

What the Act doesn't do

• The Act does not abolish conspiracy to defraud, but the Attorney General has promised to publish guidelines on the use of conspiracy to defraud.

Offences

Section 2: fraud by false representation

The elements of the offence:

• The actus reus requires proof that the accused made a false representation.
• The mens rea requires proof that the accused knew that the representation was or knew that it might be false and acted dishonestly, and with intent to gain or cause loss.

The offence can be committed by any person who makes a false representation. All the mental elements that have to be proved rest with the accused and not the victim. There is no need for the prosecution to prove a result of any kind, that the victim believed any representation, that any person acted on it or that the accused succeeded in making a gain or causing a loss by the representation. The falsity does not have to relate to a material matter.

It is possible for there to be a conviction without a victim being identified.

The offence is aimed at catching all the usual cases of mortgage, loan, investment fraud and dishonest warranties as well as dealing with modern computer-based frauds, such as internet publishing.

The actus reus requires the making of a representation. The offence is committed as soon as a false representation is made, either by speaking it or writing it down. Subsequent dealings with the representation, such as publishing or posting may merely be evidence to prove the statutory intent.

Many of the problems under the old law of deceiving machines have been resolved in the Act. A representation may be made to or by a computer or other machine. However, s 2(5), which is extremely wide, does not provide that a representation is made, only that it may be made.

The principal element of mens rea is that of dishonesty and it is intended that the Ghosh definition should apply.

Section 3: fraud by failing to disclose information

The elements of the offence:

• The actus reus requires failing to disclose information which he is under a legal duty to disclose.
• The mens rea requires acting dishonestly and an intention to make a gain or cause a loss.

This offence is much narrower than s 2, but there is considerable overlap with s 2. The offence appears to be committed at the point at which the failure to disclose under the duty arises.

The duty is a legal one, rather than a moral one. A legal duty may derive from statute, from the fact that the transaction in question is one of utmost good faith, from express or implied terms of a contract, from the custom or trade of a particular trade or market, or from the existence of a fiduciary relationship between the parties.

Once a duty has been established, it is no defence for a defendant to say that he was unaware of its existence or its extent. Such lack of knowledge is relevant to dishonesty.

Section 4: fraud by abuse of position

The elements of the offence:

• The actus reus requires abusing a position of trust.
• The mens rea requires acting dishonestly and an intention by the abuse to make a gain or cause a loss.

The Law Commission explained the meaning of 'position':

'7.38 The necessary relationship will be present between trustee and beneficiary, director and company, professional person and client, agent and principal, employee and employer, or between partners. It may arise otherwise for example within a family, or in the context of voluntary work, or in any context where the parties are not at arm's length. In nearly all cases where it arises, it will be recognised by the civil law as importing fiduciary duties, and any relationship that is so recognised will suffice.'

It is unclear whether the appropriate test is objective, what a reasonable man would expect; or the victim's beliefs and expectations.

The offence can be committed by omissions as well as positive action.

The ambit of the offence may be wider than intended, potential problems may involve family disputes over wills and other expectations.

Section 6: possessing articles for use in fraud

The elements of the offence:

• The actus reus of the offence requires having possession or control of an article which may be used in fraud.
• The mens rea is not specified, although it is unlikely that the courts will interpret this as an offence of strict liability as the section is not dealing with articles that are prohibited per se and there are no statutory defences provided as is usual in strict liability offences.

This is a wide offence. The Home Office was interested in creating an offence which could cover the possession of computer software for use in the course or connection with a fraud. One particular area of fraud that the Home Office wanted to address was the widespread use of computer software to read credit cards.

The inclusion of 'control' is designed to extend the scope of the offence. What is the position if an accused's son downloads software that allows pirated material to be downloaded and stored on his computer? The offence requires possession or control of the article that is used in the illicit manner or in connection with the fraud, not control of the illicit use of it per se. There is no requirement that the use contemplated has to be use by the person who possesses or controls the article in question. It can be used by another. What is required is that the article will be used by someone for or in connection with a fraudulent purpose.

Section 7: making, adapting and supplying articles for fraud

The elements of the offence are;

• The actus reus requires making, adapting, supplying or offering to supply an article designed or adapted for fraud.
• The mens rea requires knowing that the article is designed or adapted for use in fraud or intending it to be used to commit, or assist in the commission of fraud.

The example provided in the Explanatory Notes to the Act is: 'Where a person makes devices which when attached to electricity meters cause the meter to malfunction. The actual amount of electricity used is concealed from the provider, who thus makes a loss.'

The offence is clearly wider and will catch manufacturers of software which have no legitimate function and those who sell lacquer sprays designed to make it difficult or impossible for speed cameras to read car number plates.

Section 9: participation in fraudulent business carried on by a sole trader etc

The elements of the offence are:

• The actus reus requires carrying on a business fraudulently.
• The mens rea requires knowledge and intention to defraud creditors of any person or for any other fraudulent purpose.

This section in effect extends s 458 of the Companies Act 1985 to fraudulent business where the business is not carried on by a company.

Non-corporate traders covered by the new offence include sole traders, partnerships, trusts, companies registered overseas etc.

Section 11: obtaining services dishonestly

The elements of the offence are:

• The actus reus requires obtaining services for which payment is or will become due and failing to pay in whole or in part.
• The mens rea requires knowing that the services are to be paid for or knowing that they might have to be paid for with the dishonest intent to avoid payment in whole or in part.

The obtaining must be caused by a dishonest act, a dishonest omission will not suffice.

A fan who climbs over the wall and watches a football match without paying the entrance fee is obtaining a service which is provided on the basis that people will pay for it, and is therefore guilty of the offence, whereas the fan would not be guilty if he saw the same match from the window of a property overlooking the ground. The Home Office gave the further example of a person who attaches a decoder to his television to access channels for which he has no intention of paying.

The intention must be to avoid payment in full or in part. A false representation to obtain services where the accused intends to pay for those services will not suffice.

Section 12 of the Act mirrors s 18 of the Theft Act 1968, in that company officers who are party to the commission of an offence by their body corporate under this Act may be personally liable. The offence applies to directors, managers, the secretary or other similar officer of the company or a person who was purporting to act in any such capacity. If the affairs of a body corporate are managed by its members, the members involved in the management can be prosecuted as well.