The Fraud Act 2006 (c 35) is an Act of the Parliament of the United Kingdom which affects England and Wales and Northern Ireland. It was given royal assent on 8 November 2006, and came into effect on 15 January 2007.
The Act gives a statutory definition of the criminal offence of fraud, defining it in three classes – fraud by false representation, fraud by failing to disclose information, and fraud by abuse of position. It provides that a person found guilty of fraud was liable to a fine or imprisonment for up to twelve months on summary conviction (six months in Northern Ireland), or a fine or imprisonment for up to ten years on conviction on indictment. This Act largely replaces the laws relating to obtaining property by deception, obtaining a pecuniary advantage and other offences that were created under the Theft Act 1978. These offences attracted much criticism for their complexity and difficulty in proving at court. Much of the Theft Act 1978 has been repealed, but the offence of making off without payment, defined under section 3 has not been affected.
- “Fraud by false representation” is defined by Section 2 of the Act as a case where a person makes “any representation as to fact or law … express or implied” which they know to be untrue or misleading.
- “Fraud by failing to disclose information” is defined by Section 3 of the Act as a case where a person fails to disclose any information to a third party when they are under a legal duty to disclose such information.
- “Fraud by abuse of position” is defined by Section 4 of the Act as a case where a person occupies a position where they are expected to safeguard the financial interests of another person, and abuses that position; this includes cases where the abuse consisted of an omission rather than an overt act.
In all three classes of fraud, it requires that for an offence to have occurred, the person must have acted dishonestly, and that they had to have acted with the intent of making a gain for themselves or anyone else, or inflicting a loss (or a risk of loss) on another.
Gain and loss
A “gain” or a “loss” is defined to consist only of a gain or a loss in money or property (including intangible property), but could be temporary or permanent. A “gain” could be construed as gaining by keeping their existing possessions, not just by obtaining new ones, and loss included losses of expected acquisitions, as well as losses of already-held property.
The Act will establish two “supporting” offences, these being the possession of articles for use in frauds (Section 6) and the making or supplying of articles for use in frauds (Section 7).
Obtaining services dishonestly
Section 11 of the Act makes it a statutory offence to obtain services dishonestly; meaning that services which were to be paid for were obtained with the knowledge or intention that no payment would be made. A person found guilty of this will be liable to a fine or imprisonment for up to twelve months on summary conviction (six months in Northern Ireland), or a fine or imprisonment for up to five years on conviction on indictment.
Companies and fraudulent business
In regard to the fraudulent behavior of companies, the existing offence of participating in fraudulent business carried on by a company, provided for by the Companies Act 1985, was amended by Section 10 – bringing the maximum penalty from 10 years imprisonment to 15 years [And/or a fine] – and a new offence of participating in fraudulent business carried on by a sole trader was established by Section 9.
Section 12 of the Act provides that where an offence against the Act was committed by a body corporate, but was carried out with the “consent or connivance” of any director, manager, secretary or officer of the body – or any person purporting to be such – then that person, as well as the body itself, is liable.
An important difference between this and the Theft Act is that the Fraud Act offences do not require there to have been a victim, as was the case with the Theft Act.
Some Trading Standards services have already used the Act against bogus charity collectors and it can be used for some matters that were previously dealt with under repealed sections of the Trade Descriptions Act 1968 (e.g. car-clocking).
The Fraud Act came into force on the 15th January 2006 and replaced the eight deception offences contained within the Theft Act 1968 and 1978. Prior to the introduction of the Fraud Act 2006 the former law had been the subject of criticism. This criticism had been recognised by the Law Commission who produced a report on fraud, drawing attention to some of the difficulties contained within the law at the time. One of the major problems that had been raised within the report was that there were too many offences as opposed to only one offence. The report suggested that a single crime of fraud should be introduced which would simplify the law. The previous law was considered perplexing in places, containing overlaps which meant that prosecutors were confused as to which offence they should proceed with. In addition, the over particularisation of offences risked a defendant being faced with “the wrong charge or too many charges”.
The courts were faced with difficulty relating to interpretation such as whether a representation could be applied, whether truth of representation excluded an operative deception and whether a machine could be the subject of deception. In conjunction with this issue there was also the problem that prosecutors would often be tripped up over such aspects of the offence like the method by which a fraudster would have used as payment as these could be cash under Section 15, money order under Section 15A or cheque Section 20.
The aim of the Fraud Act 2006
Some offences contained within the Theft Act 1968 were so difficult for the courts to apply that parliamentary assistance was required and the Theft Act 1978 was brought in to replace section 16 (a)of the 1968 Act. This however did little more than exacerbate the issues of overlapping and over particularised offences that had also been present in the previous Act. The notable case of Preddydetermined that attempting to repair the law could only ever provide a temporary and less than optimal solution. If the law was to keep up with evolving technology and the changes and in turn provide an efficient solution to the act of fraud, then a longer term method was required. This long term method came in the form of the Fraud Act 2006 whose objective was to modernise and clarify the law in order to keep up with the changes in technology which related to the way that fraud was committed.
Changes made by the Fraud Act 2006
Section 1 of the Act introduced a new offence of fraud which could be committed in three ways. By way of false representation (Section 2), failing to disclose information (Section 3) and abuse of position (Section 4).
The Act made way for the replacement of fraud with a maximum of 10 years if indicted, as well as making way for two ancillary offences. The first being the possession of articles for use in fraud contained in Section 6, an either way offence and therefore more serious than that contained within section 25 of the Theft Act 1968. The second is making or supplying articles for use in fraud which is noted within Section 7.
There are a number of prominent differences between the old and the new law. Under the old law the focal point was the Defendants conduct which was used to deceive the victim which in turn cause V to do the inappropriate act. Under Section 2 of the new act there is no requirement to prove that the victim or another person believed the representation or acted on it. This means that the Defendant may be considered liable even if the victim is aware that the statement made is false, it is sufficient that the defendant intended to cause loss or to make a gain. Another main difference between the old and the new law are that in the old law, deception offences required that the defendant obtained something as a result of his deception. However, in the new act under the offence of fraud by false representation it is not a requirement that the defendant obtain anything.
Despite its attempts to rectify the failings of the previous law in this area, the Fraud Act 2006 has still been subject to some criticism. Section 3 of the Fraud Act 2006 covers the less controversial form of fraud were by the defendant is liable if they dishonestly fail to disclose information under which they are under a legal duty to disclose and in failing to do so, they make a gain. Lord Lyell has drawn attention to the failure of the Act to provide further guidance as to what defines a legal duty that in turn would trigger liability. The Law Commission has also concluded that the scope of the Act is bound by the limitations imposed by civil law. This has been confirmed by the Attorney General who stated: “The government believe that it would be undesirable to create a disparity between the criminal and the civil law, it should not be criminal to withhold under civil law”.
The advantages of the Fraud Act are that it allows jurors to easily understand complex aspects of the law, removes over particularisation of offences and the duplicating of the indictment. Whilst these are notable advantages of the fraud Act, the sheer scope of the offences promotes astonishment as stated by Professor Greene:
“if fraud were to encompasss not just stealing by deceit, but also deceptive and non-deceptive breaches of trust, conflicts of interest, non-disclosure of material facts, exploitation, taking unfair advantage, non-performance of contractual obligations, and misuse of corporate assets, it would be virtually impossible to distinguish between different offenses in terms of their nature and seriousness, and even to know whether and when one had committed a crime.”
Despite this assertion, one major advantage that the Fraud Act has made way for is the clearer expression of large scale criminal acts under one charge.
- Davies v Flackett  R.T.R. 8
- MPC v Charles  A.C. 177
- R v Preddy  AC 816
- Ray v Sempers  A.C. 370
- The Theft Act 1968 Section 15, 15A, 16A, 20, 25
- The Theft Act 1978
- The Fraud Act 2006 Section 1, 2, 3, 4, 6
Green S. P, Lying, Cheating and Stealing: A Moral Theory of White Collar Crime (OUP, 2006, 1st edition)
- Withey C, The Fraud Act 2006 – some early observations and comparisons with the former law (2007) J. Crim. L. 2007, 71(3)
- Ormerod D, The Fraud Act 2006 – criminalising lying? (2007) Crim. L.R. Mar
- Great Britain: Ministry of Justice Post -legislative Assessment of the Fraud Act 2006. Memorandum to the Justice Select Committee (Cmd 8372, 2012).
- Hansard HL, Col 1426 (July 19, 2005)
- Hansard HL, Col 1427 (July 19, 2005)
- HC Research Paper 06/31
- Law Commission, Fraud, Law Com, Report No 276, Cm 5560 (2002)