Keenan and Riches’BUSINESS LAW

Discounting or factoring frauds

Typically the fraudsters will say they are running a
business and approach a merchant bank or other source
of finance for a loan on the strength of orders received.
To substantiate the fact that orders have been received,
false documentation is used and the fraudsters pocket
the money obtained.

Franchise frauds

In this case the fraudsters induce investors to buy fran-
chises, often with equipment or plant, in, for example,
the fast food business. They hold out prospects of large
profits from the investment. Once the payment for the
franchise has been made, the investor finds that it is
worthless and the equipment promised does not arrive.

Insurance fraud

The fraud here consists of submitting false claims as to
loss. In addition, a fraudulent insurance broker can
defraud clients and/or insurance companies by, e.g.
overcharging or submitting false applications for insur-
ance on which commission is payable.

Investment frauds

There is wide scope for frauds on investors. High returns
on money invested are promised by the fraudsters. The
original investors may even be paid ‘dividends’ from
money received from later investors so that the fraud is
promoted and its life prolonged.

Long-firm fraud

Here the fraudsters will set up in business as wholesalers
and place orders with suppliers. They pay promptly to
show their creditworthiness. Further and larger orders
are then placed. The goods are received and are sold
quickly, for whatever they will fetch, and the fraudsters
disappear.

Public sector fraud

This consists largely of bribes and other favours given by

the fraudsters to public servants in order to corrupt

them. In return, the fraudsters may, for example, get

acceptance of an uncompetitive tender for work or have

shoddy work overlooked.

H M Revenue & Customs frauds

These consist largely of falsifying relevant returns to the

relevant departments. In a not untypical case the man-

aging director of a private company defrauded HMRC of

£363,000 by filling in false tax returns, failing to deduct

tax for employees and using the company’s funds for

personal expenses. The money was eventually repaid

but he received a sentence of one year’s imprisonment

and a fine of £40,000, together with disqualification

from company management for two years (see further,

Chapter 6 ). He was also required to pay costs of

£20,000.

Stationery frauds

In this case the fraudster gets in touch with the station-

ery buyer of a large company and takes orders. At first

deliveries are made as requested. After a while, large

amounts of stationery are sent which have not been

ordered and the company is pressed for payment. The

success of this fraud depends upon the recipient company

having lax systems and upon intimidating the buyer.

Skilful pressure exerted on the buyer may well result in

his accepting and paying for grossly excessive amounts

of stationery.

Fraud: some reforms

The following reforms to the law which are designed to

make it easier to successfully prosecute fraud should be

noted.

The Fraud Act 2006

This Act, which received the Royal Assent on 8

November 2006, follows from the government’s Fraud

Review set up in October 2005. It aims to protect con-

sumers and business against fraud by giving prosecutors

powers that are more effective to cope with fraud, par-

ticularly those forms which involve modern technology.

English criminal law did not contain a specific offence

of fraud. Prosecutors have had to use offences of decep-

tion set out in the Theft Act 1968, putting forward these

charges and trying to find an offence that matches the

Part 3Business transactions

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went on to say this could be the result if the word ‘use’

was given the limited meaning adopted in this case.

Under s 1 of the Data Protection Act 1998, Brown may

now have been guilty.

It seems clear that the 1998 Act removes the narrow

distinction made by the House of Lords between pro-

cessing the data and displaying it on a screen, and the

subsequent application of that information, since s 1

defines processing to include ‘retrieval, consultation or

use’ and ‘the disclosure... or otherwise making avail-

able’ of the information.