Fighting Fraud (Fraud Act 2006 and Digital Fraud Committee Report)

Baroness Morgan of Cotes Excerpts

Friday 30th June 2023 Lords Chamber

Moved by

[Baroness Morgan of Cotes]

That this House takes note of the Report from the Fraud Act 2006 and Digital Fraud Committee Fighting Fraud: Breaking the Chain (HL Paper 87).

[Baroness Morgan of Cotes (Con)]

My Lords, it is a great pleasure to move that this House takes note of the report from the Fraud Act 2006 and Digital Fraud Committee—the committee I had the pleasure of chairing—Fighting Fraud: Breaking the Chain, which we published last November. I declare my interests as a non-executive director of the Financial Services Compensation Scheme, chair of the Association of British Insurers, and a non-executive director of Santander UK. I am very grateful to the Senior Deputy Speaker for ensuring that this and other reports from inquiries of this House are considered by this House before we reach the Summer Recess.

I thank my fellow committee members, many of whom are in the Chamber today. It was a truly collaborative and non-political inquiry. I am especially grateful to my noble friend Lord Young of Cookham and the noble Lord, Lord Vaux—who unfortunately cannot be here today—who suggested the original subject matter for the inquiry. On behalf of committee members I thank our excellent staff, who supported us throughout the process. We thank all those who gave evidence, both written and oral, and especially those who were prepared to tell their stories of being victims of fraud and scams and to be named in the report.

Fraud is not a victimless crime; it involves a severe loss of trust. It can involve life-changing amounts of money being stolen, and it is truly devastating for those who have been victims. When we started our report, we had to consider our approach, what we were going to look at and the scope. As has already been said in the Chamber this week alone, the scale of fraud in the United Kingdom is enormous: 41% of crime in England and Wales in 2022 related to fraud. Those aged 16 or over are more likely to be a victim of fraud than any other crime.

We focused on authorised push payment fraud, where a victim has been socially engineered into transferring funds from their bank account. This fraud alone costs the United Kingdom hundreds of millions of pounds every year. As noble Lords who have looked at the report will see, we also considered the whole of the fraud chain. It is often too easy to pick out certain parts of the fraud chain, particularly the final part—cashing out. This occurs where the money is moved from one bank account to another, often a mule account, and often heads overseas extremely quickly. We wanted to look further up the fraud chain at the inbound route, which involves phishing and smishing, use of SMS messages, fraudulent advertising and the old-fashioned physical approaches where people are defrauded. We of course looked at the interaction, where number spoofing, social engineering and the use of fraudulent websites are prevalent.

Our report came up with 65 overall recommendations. I certainly do not have time to go through them all in the time available, but we identified six key steps to break the fraud chain. Unfortunately, the UK’s advance payments infrastructure is one of the key reasons why the United Kingdom has become a global centre for fraud. We recommended that the speed with which payments can be made must be delayed in certain circumstances, to allow banks more time to review risk signals and contact customers about the proposed payment.

We said that fraud needed to move

“to its rightful place as a top priority for law enforcement”,

and

“should be included within the Strategic Policing Requirement”.

Law enforcement related to fraud is significantly underresourced. Only 1% of law enforcement spend is focused on tackling economic crime; that bears no resemblance to the 41% of crime in England and Wales that I mentioned just a moment ago.

We recommended that, to address

“the mind-boggling variety of acronyms and alphabet soup of departments, taskforces and Ministers with responsibility for fraud, a cabinet sub-committee with a clear mandate to tackle fraud should be established, chaired by and accountable to the Security Minister”.

We said that:

“Several sectors involved in the fraud chain have failed to prevent rampant fraud for too long”,


and we recommended that the Government must

“introduce a new corporate criminal offence of ‘failure to prevent fraud’ across all sectors to address this”.

The Online Safety Bill, which is well known to so many of us,

“contains several important measures to prevent fraudulent content and scam advertising from appearing on online platforms”.

We recommended that tech companies must be held accountable when they fail to prevent their users becoming victims of fraud.

We also said that, to create clear advice for consumers that they could follow to help them prevent fraud and report if they become a victim, the Government

“should oversee the introduction of a single, centrally funded consumer awareness campaign in partnership with industry”.

Overall, we were very critical of what has become too much of a permissive culture around fraud in this country.

Part of the committee’s remit was to look at the efficacy of the Fraud Act 2006. We found that, overall, it is still

“a highly effective piece of legislation that has simplified the fraud landscape and it has the flexibility to adapt to future technological developments”.

So, what happened after the report was published? Too often, one of the dangers of reports is that they end up getting some attention and being welcomed, someone might do something, and then they sit on a shelf for a bit. However, I am pleased to report that, apart from just getting a response from the Government, which I will come on to in a moment, we have seen some significant progress on issues raised in our report. Perhaps our timing was just right. We deliberately wanted to write a truly comprehensive report on this issue to bring it all together in one place. It was quite long; I think my noble friend Lord Young said that it might be a bit too long and he probably had a point.

I thank my noble friend the Minister for the Government’s response. Broadly, five of our six key recommendations have been taken forward in one form or another. In fact, the change so that fraud is reflected in the national strategic policing requirement was made before the Government’s response was even published.

However, the big step forward was the publication of the Government’s Fraud Strategy in early May. The strategy was long overdue, and it would be fair to say that my noble friend the Minister himself was relieved to finally get it over the line so that we could all stop asking him when it would be published and start looking at the details.

I welcome the appointment of Anthony Browne MP as the Government’s anti-fraud champion. It is not quite what we wanted in terms of a Cabinet sub-committee, but having somebody to draw all the strands together and work with government departments and agencies is a significant improvement.

Changes will be made to Action Fraud, which I think we referred to as “Inaction Fraud” in our report. We understand that the Government are working on a broad awareness campaign. The need for a clear, consistent message for the public on how to protect themselves from fraud and scams cannot be overestimated. We understand that the Government will also take forward the ability of banks and payment service providers to slow down payments where they have evidence that the payment is going to a fraudster’s account.

Just this week, the House debated the Economic Crime and Corporate Transparency Bill. I welcome the Government’s introduction of the failure to prevent fraud offence and the reform of corporate criminal liability and the identification doctrine. These are significant steps forward and very welcome reforms. Unsurprisingly, of course, they never go quite far enough for all those who have been campaigning. I think we have further debates on this to come.

What remains outstanding? We still think, and there are still calls by bodies such as Stop Scams UK—I want to recognise its work—that there is a need for a single scams body or authority of some kind. There is an opportunity for a significant increase in international collaboration. Fraud is an international crime. The UK, unfortunately, has a world-leading place in fraud being perpetrated. Therefore, we can share our experience on how to tackle this on the world stage.

The big outstanding issue that I am sure other noble Lord will refer to is that all parts of the fraud chain are not yet being held accountable or incentivised to prevent fraud. In 2023, 78% of authorised push payment fraud cases started online, and 18% started via telecoms companies. Those figures are from UK Finance; Ofcom has found very similar figures. There is no doubt that social media platforms, technology platforms and telecoms companies are the places where customers most often encounter fraud, and they need to be incentivised to prevent that fraud and to protect their customers. I doubt that the voluntary code proposed in the fraud strategy will be sufficient and I am sure we will return to this, not least by pushing for a facilitation offence where those companies and platforms facilitate the offence of fraud.

The Online Safety Bill goes far in cracking down on fraudulent advertisements, which is very welcome, but it does not deal with fraudulent emails or the inaction of the internet service providers and telecoms companies. There is also more to do on data sharing, in terms of both sharing and permission to share data about customers but also data disclosure by the platforms and telecoms companies about the amount of fraud perpetrated via their services. Only by being clear and transparent about that level of fraud will law enforcement and other agencies know exactly where to tackle it.

This is a matter of direct relevance to everyone in this country, both individuals and businesses. As I said at the start, it can be life-changing and devastating. As the Bank of England said to us in evidence, it directly affects consumer confidence. There is a huge opportunity to crack down. The Government have taken some important steps; I like to think that our report played a part in that. We will watch how they proceed. I beg to move.

--- Later in debate ---

[Baroness Morgan of Cotes (Con)]

My Lords, I rise very briefly at the end of what has been a fantastic debate to thank all noble Lords who have taken part. The breadth of this debate has captured the significant spread of issues in our report and more broadly, and has demonstrated why we were right to look at the whole of the fraud chain and why we will not get on top of this problem unless we tackle all elements of that chain. The noble Lord, Lord Browne, rightly threw down the challenge of whether the 10% reduction is significant enough, and he has just heard from my noble friend the Minister that we would all like to go a lot further and faster. He was also right to highlight the lack of overall data in relation to fraud that we found as a committee. There is an opportunity there for any researchers listening to do a lot more in this space for the next inquiry that comes along.

It is a great pleasure to welcome the noble Baroness, Lady Lane-Fox, back to her place, and I look forward to her future contributions in debate. I cannot do justice to all the issues raised, but my noble friend the Minister captured many of them. My noble friend Lord Young used the phrase “breaking the spell”, and there is no doubt that victims, particularly victims of APP frauds, are under a spell and are being socially engineered. As the noble Baroness, Lady Blake, said, often they are blamed for having fallen under that spell through no fault of their own, because there was not sufficient preventive action to stop those fraudulent messages and attempts reaching them in the first place.

My noble friend Lord Sandhurst said that too many institutions have failed to tackle this issue or take it seriously for too long. I think that this report, the Government’s action and the changes made to legislation, both here and in the House of Commons, show that this is changing. Noble Lords have heard from the passion in this debate that committee members, hereafter to be known as the fraud squad, have taken these issues very seriously and will not let them rest. I thank all noble Lords for an excellent debate.

Motion agreed.