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Comments from ACCA
July 2004

The Association of Chartered Certified Accountants (ACCA) is pleased to comment on the above consultation paper.

ACCA supports the objectives of this exercise and welcomes the emphasis that the Government is giving to the fight against financial crime. We agree that the current law is defective in that it lacks a coherent definition of fraud and that the various definitions which do exist may be too specific and therefore unsuited to adaptation to changing circumstances. We note, however, that the proposals are only a partial resolution of the flaws in the law on fraud and that separate steps are to take place to review the current provisions on �specialised' areas such as false accounting, tax evasion and insider dealing. Until that process is completed, the law in this area will remain fragmented. It would be very helpful if, in due course, all legislation on fraud were grouped together in one statute.

From our own perspective on this issue as a professional accountancy body, we are conscious that the proposed new offences will fall to be considered by auditors with a view to making mention of them in their audit reports. The new offences will need also, if appropriate, to be reported to the authorities by our members under the Money Laundering Regulations. We therefore have an interest in ensuring that the new offences are drafted with as much clarity as possible. In this regard, we note that the new offences all depend on a number of elements being present in an individual's conduct. In particular, they are to be founded on whether the perpetrator has carried out the act concerned with the intention of making a gain (or causing or risking a loss to another party). This is likely to cause problems for all those who have responsibilities under the money laundering legislation. Although one of the tests already carried out in the context of the latter is whether a person has �reasonable grounds' for suspecting that a money laundering event has occurred, it seems clear from the proposals that the existence or otherwise of �intent' is something which is to be determined only by a court of law. It will bring new complications for prospective reporters under money laundering rules if they have to make a judgment as to whether the element of �intent' is present in any particular situation.

Our responses to specific consultation questions are set out below.

Q1 Should it be fraud for a person dishonestly to make a representation which he knows to be false or misleading or which he is aware might be false or misleading (with the intention of making a gain or causing a loss to another)?

We consider that this definition contains the essential elements of fraud and is wide enough to apply to a variety of different scenarios.

Q2 (a) Should it be fraud to wrongfully and dishonestly fail to disclose information?

We would agree that failure to disclose information, where this is required by law and where this is done consciously and intentionally and with a view to making financial gain or causing loss, should come within the definition of fraud. But, as indicated above, we believe that the test of intent could cause difficulties in certain situations.

(b) Should this offence extend to situations where there is no legal duty to disclose the information?

The proposal to extend the new offence of failing to disclose information to all situations where there is no legal duty to disclose the information would, we believe, intrude unreasonably on the fundamental commercial rule of caveat emptor.

For example, it could criminalise the situation where A contracts to buy an item from B for a particular price but fails to disclose his plan or prior agreement to sell the item on to C for a higher price. In this scenario, the deliberate withholding of the relevant information by A is to the detriment of B but it should not be construed as fraud. One party to a commercial agreement should be under no compulsion to improve the other party's bargaining position by giving up information which may or may not be generally available.

The extension of the proposed definition could also place unreasonable burdens on individuals in situations where it is not clear what information they are expected to possess and pass on. This scenario could arise, for example, in the situation where a professional adviser presents a report to clients which is based in part on input from a second adviser from another discipline. It would be unreasonable, we suggest, to put the first adviser under pressure to disclose to his clients information about matters on which he is not expert.

We consider, therefore, that the proposal covered in question 2(b) is too wide and that scenarios covered by it should remain a matter for the civil courts based on the establishment of a duty of care.

Q3 (a) Should it be fraud for a person to abuse his position secretly and dishonestly?

(b) Is secrecy an essential element of this offence?

In principle, we would agree that the conduct covered is fraudulent but the proposed offence would potentially be extremely wide-ranging.

Q4. Should "gain" and "loss" be defined for the new fraud offence in the same way as for theft?

Since important issues such as identity theft are being dealt with separately, we would agree that a material definition should be adopted with regard to the new general definition.

Q5 Do you agree that there should be a new offence of obtaining services dishonestly?

Yes.

8. Should the Bill grant our courts jurisdiction over UK nationals and UK companies who commit frauds overseas?

Giving UK courts jurisdiction over frauds committed overseas would be consistent with the approach adopted over money laundering. While there would be practical constraints overt the exercise, particularly in the absence of any de minimis threshold for prosecutions, we suggest that it would be a useful tool to hold in reserve with respect to UK nationals.

Q9 (b) Should the company law offence of fraudulent trading be extended to unincorporated businesses?

Yes. The existing Companies Act offence has no special company connotations and the important offence of trading with intent to defraud creditors can easily be applied to unincorporated firms as well as companies.

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