Fraud, Scams and Economic Crime

The Treasury Committee has published a report on fraud scams and economic crime. The Committee is appointed by the House of Commons to examine the expenditure, administration and policy of HM Treasury, HMRC and associated public bodies such as the Bank of England and the Financial Conduct Authority.

 

Why Was The Report Needed?

The Report was produced to follow up on two reports published in 2019 that covered different aspects of economic crime. The Report looks at the measures taken since 2019 and how effective they have been and also considers the Government’s Economic Crime Plan.

In October 2020, the Committee opened an inquiry into economic crime; that inquiry had two major strands: the development and effectiveness of anti-money laundering systems and how consumers are affected by economic crime.

 

Growth in Economic Crime

The term economic crime covers all types of financial crime. According to the National Economic Crime Centre, it includes fraud, money laundering, counterfeit currency, bribery and corruption. Since the two reports published in 2019, economic crime has continued to increase. The Crime Survey for England and Wales reports that between June 2019 and June 2021, the level of crime was 12% higher, driven by a 43% increase in fraud and computer misuse. 

The data also shows a 36% rise in fraud offences, a 34% increase in “online shopping auctions” fraud and a 51% increase in “financial investment fraud”.

Schemes to support businesses during the Covid pandemic were also subject to fraud. For example, the level of fraudulent loans under the Bounce Back Loan Scheme was £4.9 billion. The fraud and error losses in other schemes such as the Coronavirus Job Retention Scheme and the Self Employed Income Support Scheme equated to £5.8 billion overall.

Earlier this year, the joint Treasury and Cabinet Office Minister for Efficiency and Transformation resigned; in doing so, he said that fraud in Government was rampant and that there was a “complete lack of focus on the cost to society or indeed the taxpayer.”

The steps that have been taken since 2019 include:

• An extension of anti-money laundering regulation and legislation to cover crypto-asset firms, electronic money institutions, payment institutions and deposit-taking businesses.
• The Money Laundering and Terrorist Financing (Amendment) (EU Exit) Regulations 2020 were used to tighten up the rules around trusts registering with HMRC’s Trust Registration Service.
• The Financial Conduct Authority says it has introduced a more assertive regulatory policy.
• An improvement was made in the HMRC anti-money laundering supervision work.
• A new fraud compensation scheme for banks is being consulted on by the Payment Systems Regulator.
• The Home Office programme for reform of Suspicious Activity Reports has been progressed.
• A review of corporate criminal liability has been started by the Law Commission.
• BEIS has consulted on Companies House reform.

 

The Economic Crime Plan

The Plan for the period 2019 to 2022 has seven strategic priorities:

• To develop a better understanding of the threat posed by economic crime and the performance in combatting it.
• To combat economic crime by better sharing and usage of information within and between public and private sectors.
• Ensuring the justice system and the private sector have efficient powers, procedures and tools of law enforcement.
• Strengthen the capabilities of law enforcement and the private sector to detect, deter and disrupt economic crime.
• Build greater resilience by enhancing the regulatory approach and management of economic crime risk.
• Improve systems for transparency of ownership of legal entities and legal arrangements.
• To deliver an ambitious international strategy to enhance the UK’s global influence along with security and prosperity.

These seven priorities are split into 52 separate actions, of which the Minister of State at the Home Office and Security Minister states that 34 are completed, and 18 are underway. On the other hand, the Chair of the Fraud Advisory Panel is concerned that fraud does not feature enough in the Plan, only seven of the 52 actions. Other experts saw areas for improvement in the Plan and commented that losses from fraud are not going down, and in some areas, the Government response has not been swift or strong enough. 

 

Conclusions

The report concludes there is no “silver bullet” solution to tackle economic crime and fraud growth as the offences constantly evolve. The Government has to give the work a higher priority as the work being done is not enough and not urgent enough to stem the rise. 

 

Recommendations

1. The Economic Crime Plan is to be adapted as necessary and renewed for three years to push harder and act faster to reduce fraud and economic crime. The Government should also consider whether the Plan’s governance has been effective and move toward a strategy that focuses on outcomes, not processes.
2. The Government to publish an annual account of spending on economic crime with an account of how the yield from the Economic Crime Levy has been spent.
3. The Government should publish a breakdown of how additional funding allocated for fighting economic crime will be spent and how much reach crime-fighting agencies.
4. Law enforcement agencies dealing with economic crime are numerous. A recommendation is to consider a single law enforcement agency with clear responsibilities and objectives. Agencies must be adequately resourced to prioritise and tackle the scale of the problem.
5. The Government should set out the legislation being worked upon and assess the measures that may be required to be brought in through an Economic Crime Bill. They should also provide a timescale and explain why it has chosen not to bring forward such a bill at this time.
6. An amendment should be made to the Draft Online Safety Bill to include fraud offences in the list of relevant offences. Online firms should be required to be proactive rather than reactive in removing fraudulent content.
7. Consideration to be given to whether online platforms should be required to do Know Your Customer checks on their advertisers to make it harder for fraudsters to promote themselves.
8. Online companies should not be allowed to ignore legislation designed to protect consumers. Financial services advertising regulations should also apply to online companies, and the FCA should have the necessary powers to enforce the regulations effectively.
9. Consideration should be given to whether online companies should be required to contribute compensation when fraud is conducted using their platforms. Regulators and law enforcement agencies should have the powers needed to ensure they are provided with information required from online companies.
10. Urgent legislation is required to give the Payments Systems Regulator the power to make reimbursement mandatory and that the Regulator can take rapid action to protect consumers. The Regulator should supply a report to the Committee on progress by the end of the year.
11. The Treasury should be ready to bring forward any required legislation to improve data-sharing between banks.
12. A timeline should be produced to show when the Suspicious Activity Reports reform programme milestones are expected, together with an annual progress report.
13. Consideration should be given to the suspicion threshold and whether banks could be permitted to share information earlier than currently to improve the effectiveness of SARs.
14. OPBAS (the Office for Professional Body Anti-Money Laundering Supervision) is still encountering poor performance from a large proportion of the professional bodies it supervises. The forthcoming Government review should consider radical reforms, including a move away from the self-regulatory body and creating a new body independent of the FCA. The review should also look at enforcement measures.
15. HMRC to find a way to provide the assurance of independent assessment. HMRC’s role as a supervisor should be reviewed with a focus on what can be done to improve money laundering compliance.
16. The FCA to provide an annual report on numbers of de-risking decisions and on progress to ensure banks do not unfairly freeze accounts and de-risking customers.
17. The Government should ensure proper consumer protection regulation across the crypto-asset industry.
18. The FCA to work with the Government to speed up the registration of crypto-asset firms for anti-money laundering without extending the current deadline.
19. If the Economic Crime Plan is to be renewed as recommended, the Government should consider measures specifically to protect consumers from fraud and scams relating to crypto-assets.
20. Reform of Companies House is essential, and the Government should seek ways to implement as many reforms as soon as possible before embedding a full transformation. Project milestones should be supplied to the Committee, together with an annual progress report.
21. The cost of the company and Limited Liability Partnership incorporation should be significantly increased to bring them closer to international standards.
22. The Government to include a Registration of Overseas Entities Bill in the Queen’s Speech for the next Parliamentary session.

 

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[Image: West Midlands Police is licensed under CC BY 2.0]