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

Lord Sharpe of Epsom Excerpts

Friday 30th June 2023 Lords Chamber

[The Parliamentary Under-Secretary of State, Home Office (Lord Sharpe of Epsom) (Con)]

My Lords, I congratulate my noble friend Lady Morgan of Cotes on securing this debate. I am grateful to her and to all noble Lords who have participated and have made some very good and thoughtful points. I also express my thanks to my noble friend and all members of the Fraud Act 2006 and Digital Fraud Committee—the noble Baroness, Lady Blake, has stolen the joke that I was going to make about the fraud squad—for its comprehensive report, Fighting Fraud: Breaking the Chain. I also thank noble Lords also for their acknowledgement of the progress that the Government have made. The report’s insightful analysis and constructive recommendations helped to shape the Government’s Fraud Strategy, which was published in May.

I have been asked a number of questions and will endeavour to cover them in the time available and, obviously, I commit to writing if I do not. This is a complex subject, so I shall do my best to be brief. I start by emphasising that the Government take the issue of fraud very seriously indeed and are dedicated to protecting the public from this devastating crime type. I have already had meetings with Anthony Browne MP, the anti-fraud champion, and I know that he is working very hard on his brief—and also, incidentally, has a very strong background in this area from his work with the British Bankers’ Association back in the day.

As most noble Lords have noted, fraud is the most frequently committed crime in the UK. Every year, billions of pounds are lost to fraudsters, including the savings of hard-working people up and down the country. As my noble friend Lady Morgan and others have noted, it is not a victimless crime. Given the scale of the challenge, tackling fraud requires a unified and co-ordinated response from government, law enforcement and the private sector. I thought that the noble Viscount, Lord Waverley, was entirely right on that. It stands to reason that a collaborative effort will allow us to protect the public and businesses better.

I would say to my noble friend Lord Sandhurst that we are acting now. The Government’s approach is split across three pillars: first, we are pursuing fraudsters and ensuring more criminals are behind bars; secondly, we are blocking fraud at source and strengthening efforts to frustrate fraudsters as they target potential victims; and, thirdly, we are empowering people so they are more likely to avoid fraud and the harm that comes with it.

Within the fraud strategy, the Government have committed to a programme of ambitious action. To start with law enforcement, we are beefing up the law enforcement response to fraud by launching a new national fraud squad with 400 new officers, deploying the UK intelligence community, UKIC, to relentlessly pursue criminals wherever they are in the world and putting more fraudsters behind bars through better investigation and prosecution processes.

If I may, I shall go into a little more detail about the national fraud squad, as the noble Lord, Lord Davies, asked me about it. This is a specialist engagement, and the noble Lord, Lord Browne, the noble Baroness, Lady Blake, the noble Viscount, Lord Waverley, and the noble Baroness, Lady Lane-Fox, also asked about it. The national fraud squad will draw together existing capabilities for fraud across national and regional policing and the NCA. It will cover proactive, intelligence-led and reactive investigations. Investment into the national fraud squad has, and will continue to, enhance these capabilities and increase resources to better tackle fraudsters targeting the UK public and private businesses. The national fraud squad will consist of investigation and intelligence teams from within the NCA, the City of London Police and regional organised crime units across England and Wales. It is being bolstered by 400-plus new officers, as I have said, and that will be by 2025; they will investigate and disrupt more fraudsters through strategic co-ordination at local, regional and national level.

The NFS will be jointly led by the City of London Police, as the national police lead, and the NCA as the operational lead for fraud. Teams in the City of London Police and the NCA will work together with UKIC to share intelligence in real time to understand the threat and take proactive enforcement action across government and the private sector against the most harmful fraudsters targeting the UK public.

The noble Baroness, Lady Lane-Fox, made some very strong points about skills. Police and investigators need to have the appropriate digital skills and capabilities, as criminals get better at exploiting them and the technology evolves—a point that was very well made. We are working with the College of Policing to review the fundamental training provided to all police officers and investigators, and the City of London Police and National Economic Crime Centre are also developing a people strategy to address recruitment and retention challenges. At this point, I should just mention the City of London Police commissioner, Angela McLaren, who was appointed in January 2022. She was previously the assistant commissioner there for fraud and cybercrime, so she is an expert and will obviously have a fairly major part to play in this work.

We will stop fraudsters from trying to make victims of us all, by banning cold calls on financial products and banning criminal access to SIM farms. The consultation on that ended only last week or the week before. Fraudsters use those to send mass messages, and we need to take down fraudulent websites more quickly. We will make sure that every part of the system is incentivised to take fraud seriously by working with the tech sector to put in place extra fraud protections, shining a light on which platforms are the safest. The Government will make it much easier to report scams by replacing Action Fraud with a state-of-the-art system, making sure that intelligence is shared quickly and that action is taken early to stop frauds. I shall come back to Action Fraud in a bit more detail in a second.

We will ensure that victims of fraud are reimbursed and supported by changing the law so that more get their money back. We will improve communications so that people know how to protect themselves from fraud and how to report it. My noble friend Lord Young of Cookham made some very powerful points about the evidence given by Revolut, and I shall come back to that as well shortly. Put simply, the strategy marks a step change in our approach to rooting out fraudsters and protecting the public from these pernicious and devastating crimes.

I shall now deal with the more specific points. First, on the subject of telecommunications, criminals abuse telecommunications networks to target people and con them out of their hard-earned money, including through scam texts and calls. We are committed to doing everything that we can to tackle this awful crime and bring the despicable criminals responsible to justice. In 2021, the Government and industry signed a telecommunications fraud charter, which is a voluntary code of action against telecommunications fraud. As a result of the charter, over 600 million scam texts have been blocked from reaching potential victims.

However, as my noble friend Lady Morgan, the noble Viscount, Lord Colville, and others noted, we recognise that there is more to do, and we will continue to work closely with industry, the regulators and consumer groups to bring in the further measures set out in the fraud strategy to close the vulnerabilities that criminals exploit. This needs to be a joint effort across sectors, as the answer to solving fraud does not lie solely with the telecoms sector. As announced in the fraud strategy, the SIM farm consultation has just closed and we will come back with more on that in due course.

Online fraud is a significant part of the problem, obviously. The scale of online fraud is alarming. As my noble friend Lord Sandhurst noted, nearly 80% of all acts of fraud have some sort of online element. We are deeply concerned by the devastating impact it can have on victims—a point very powerfully made by the noble Baroness, Lady Lane-Fox, who also highlighted the rapidly evolving nature of the technology. As noble Lords will be aware, the Online Safety Bill is designed to provide some future-proofing, but we will all need to be aware of and alive to the nature of evolving technology.

In the last year, Lloyds, Santander and TSB have published data regarding the origin of frauds that have impacted their customers. Their research suggests that approximately two-thirds of all online shopping scams now start on two Meta-owned platforms: Facebook and Instagram. The noble Viscount, Lord Colville, made some powerful points about the various types of online scams and how convincing they look. I was going through some examples of those with the Anti-Fraud Champion, Anthony Browne, the other day, and the noble Viscount is absolutely right that they are incredibly realistic. Clearly Meta needs to do a good deal more about these.

Of course, I stress that not all companies facilitate or allow for this type of thing and some are very rigorous with their protocols, but there is clearly very much more still to be done by some companies, and the Online Safety Bill will target them. As noble Lords know, the Bill has completed Committee stage in this House and the Government are committed to passing it before the end of the parliamentary term. The Bill will designate fraud as a priority offence, as others have noted, and will require in-scope companies, including social media providers, to tackle fraud on their online platforms. The Government have listened to victims’ testimonies, as well as evidence from trusted stakeholders and noble Lords, including in Committee. This informed our decision to bring fraudulent advertising into the scope of the Online Safety Bill. This means that the largest social media and search companies will need to take action to prevent fraudulent advertisements on their services.

Combined, these duties will mean that in-scope services will have to crack down on criminals abusing their platforms to defraud innocent members of the public. The Bill will be enforced by the regulator Ofcom, which, as noble Lords know, will have the power to issue very significant fines to companies that fail to tackle fraud—we are talking about fines that could equate to significant percentages of turnover, which I am quite sure will focus minds.

The Government are also bringing forward the online advertising programme to consider how advertising regulation should be modernised for the digital age. It will build on the fraudulent advertising duty in the Online Safety Bill and will look at the role of the entire advertising supply chain. We will be publishing a response to our consultation on that in due course.

Further, building on the success of a series of voluntary charters agreed with the retail banking, telecoms and accountancy sectors, we have initiated work on an online fraud charter with the tech sector. This agreement between the industry and government will deliver a number of further commitments to help raise the standards of best practice and intensify tech firms’ work to reduce fraud on their platforms. As part of the online fraud charter, we have asked firms to: introduce stringent verification checks on financial advertisers, including cross-referencing with the FCA checklist before allowing financial adverts on platforms; adopt a simple, seamless and consistent fraud reporting mechanism for users, with better follow-up action and advice provided; improve data sharing with government and other private sector partners to identify and block more frauds; and promote counterfraud education to the public to help them spot and avoid frauds, and signpost support when needed.

The Government recognise that authorised push payment fraud, where people are manipulated into making a bank transfer to a fraudster, is a growing problem; this was referred to by my noble friends Lady Morgan, Lord Young and Lord Sandhurst. We welcome the actions of the financial services industry to help prevent it. The banking industry has shown industry leadership in committing to a fraud sector charter with the Government that has delivered ambitious and innovative actions to prevent authorised fraud and protect customers. We welcome these initiatives, but more still needs to be done both to prevent fraud and to ensure that victims are not left paying for fraud through no fault of their own.

The Payment Systems Regulator is working with the payments sector on a range of measures to combat authorised push payment fraud. This includes requiring the 14 largest payment providers to publish APP fraud rates, improving data sharing and mandating reimbursement of APP scam victims by banks and other payment service providers. To the point made by my noble friend Lord Young, payment service providers are consulting on the definition of “gross negligence”, which will include a threshold and limit on claims. The providers must do more to prevent APP fraud; they are in a unique position to be able to prevent it, and the work is ongoing. This is in addition to existing initiatives such as confirmation of payee, strong customer authentication, and the industry-led banking protocol.

The Government are also investigating the possibility of legislating to enable further delays to payments in high-risk fraud scenarios, as mentioned by others. We have also committed, through the fraud strategy, to making it easier for banks to repatriate money to victims. This means returning victims’ money where possible, rather than reimbursing.

My noble friends Lord Sandhurst and Lady Morgan and the noble Baroness, Lady Blake, have recognised that the current law on corporate criminal liability does not hold organisations and their senior persons adequately to account. That is why, following the Law Commission options paper on corporate criminal liability, the Government tabled an amendment to the Economic Crime and Corporate Transparency Bill to introduce a new failure to prevent fraud offence, and I am grateful to the House for approving that. The reforms will help to protect victims and cut crime by driving a culture change towards improved fraud prevention procedures in organisations. It will also mean that organisations will be held to account if they profit from the fraudulent actions of their employees.

We debated on Tuesday the wish of some noble Lords to change the threshold for this offence. I will not go over all the arguments again, but the offence proposed by the Government has been designed to balance the fraud prevention benefits with minimising burdens on small business. I thank the noble Baroness, Lady Lane-Fox, for her interesting personal reflections on how hard the business environment currently is for small and medium-sized enterprises. A strong UK economy must be an environment that supports people to open and grow businesses. There are existing powers to prosecute small organisations and their employees if they commit fraud, and these powers are further improved by the introduction of the identification doctrine reforms. We need to keep the burdens in check, but I am sure that we will revisit these arguments soon.

On the subject of the courts, the judicial process and criminal justice system, to which the noble Baroness, Lady Blake, referred, we realise that fraud cases, and the often large volumes of complex digital material that they generate, require a significant amount of time and resource to undertake a thorough investigation and bring a prosecution to court. To ensure that prosecutors have the right tools to take on fraudsters, we will conduct a new, independent review into the challenges of investigating and prosecuting fraud. The review will consider: modernising the disclosure regime for cases with large volumes of digital material; whether fraud offences and the Fraud Act 2006 meet the challenges of modern fraud, including whether penalties still fit the crime; looking at civil orders and penalties to prevent fraudsters reoffending; and making it easier for individuals to inform on associates in criminal fraud networks.

We also recognise the impact that delays can have on victims, witnesses and defendants, and we are taking steps to reduce the overall Crown Court backlog. As well as removing limits on the total number of sitting days in the Crown Court for a second year in a row, we are recruiting around 1,000 judges to increase judicial capacity in the criminal courts with the largest caseloads. We will also recruit around 2,000 new magistrates by 2025. We are continuing with the planned construction of the City of London law courts, which are scheduled to open in 2026 and will facilitate the hearing of more economic crime cases.

I committed to come back to Action Fraud, because it is vital that victims of fraud have the confidence and trust to come forward to report instances of fraud and know that their case will be dealt with properly. Action Fraud is a key part of this. We are working alongside the City of London Police to refresh and upgrade the current Action Fraud service. We will be providing over £30 million to the City of London Police to replace Action Fraud with a more efficient new system that will provide better support services and reporting tools for victims and better intelligence to law enforcement so that it can investigate and disrupt more fraudsters. I am pleased to share that improvements are already being rolled out and more are coming, with the new service expected to be fully operational by 2024. This will further improve the support services and reporting tools for victims, provide greater intelligence, as I have said, and allow for greater prevention and disruption.

I have not really talked about victims yet, which is remiss of me. As the noble Lord, Lord Davies, pointed out, the impact on victims can be very significant indeed. It can have a devastating impact on mental health, and particularly on the elderly and most vulnerable people in our society—and that is not to forget the serious financial, as well as emotional, harm that can be caused. That is why we have taken various steps, as detailed in the fraud strategy, to improve the support that victims receive. The Action Fraud National Economic Crime Victim Care Unit provides support for victims of fraud and cybercrime whose cases are not investigated by local police. The Home Office is working with the City of London Police to deliver a nationwide rollout of these units from 2023.

We are also supporting National Trading Standards’ Scams Team in the rollout of a multi-agency approach to fraud hubs across England and Wales. These hubs aim to bring together different local agencies to enable fast information sharing to identify the needs of a vulnerable person. It is important that victims of fraud receive the support they are entitled to. We are working to improve the victim support system to ensure that everyone receives the support they need to feel safe again.

The noble Lord, Lord Davies, raised the subject of data sharing. As outlined in the Economic Crime Plan 2, published earlier this year, sharing data is a key route for the public and private sectors to identify and block frauds and economic crime. Large amounts of financial data flow through the UK every hour. The overwhelming majority of this data relates to legitimate activity, but a small proportion involves criminal activity. Currently, too much of this data sits siloed in different organisations, in different formats with unclear legal and technological gateways for sharing it. The Economic Crime and Corporate Transparency Bill and the reforms to the general data protection regulation will remove the legislative barriers to economic crime data sharing. Now is the time to capitalise on those opportunities.

Under a public/private economic crime data strategy, we will produce and implement a strategy that enhances the exploitation of available data across the ecosystem to better prevent, detect and pursue economic crime. In addition, we will work across public, private and international boundaries and improve the flow of information between regulated sector entities; improve the flows of information and intelligence between public and private organisations, including supervisors; improve the flows of information and intelligence between public organisations; and identify and address obstacles to international information sharing.

My noble friend Lord Sandhurst, the noble Viscount, Lord Waverley, and the noble Baroness, Lady Blake, talked about the international dimension to this. Of course, the fraud threat to the UK is varied, but more than a third has an international element. As part of the strategy, we aim to become the global leader in tackling fraud. We will develop stronger partnerships with international fraud threats, share best practice and advance the UK’s aim to lead a multilateral response. This engagement will culminate in the UK Government-chaired global fraud summit in 2024, at which we will look to agree an international co-ordinated action plan to dismantle fraud networks.

I am afraid I am unable to comment further at this point on the comments by the noble Baroness, Lady Neville-Jones, about the Computer Misuse Act. I heard what she said and I will of course take that back to the department and report.

In closing I again thank my noble friend Lady Morgan of Cotes for securing this debate and all those who have spoken. It seems to me that there is a broad consensus about the vital importance of this issue. Fraud is affecting far too many people and ruining far too many lives. As I have made clear, the Government are committed to stopping fraud at source and pursuing those responsible wherever they are in the world. I am afraid I cannot update the noble Baroness, Lady Blake, on her 10% comments, but I commit that my personal target is to reduce fraud to zero. I accept that that is highly unlikely, but there is no harm in aiming high.

The recently published Fraud Strategy represents a step change in our response, and I assure noble Lords that we will be assiduous in implementing its commitments as we take the fight to fraudsters, because ultimately this is about protecting the public. We must and we will do everything in our power to prevail. I hope I have answered noble Lords’ questions.