Financial Fraud and Economic Crime

Valerie Vaz Excerpts

Wednesday 11th September 2024 Westminster Hall

[Mr Luke Charters (York Outer) (Lab)]

I beg to move,

That this House has considered the impact of financial fraud and economic crime.

It is an honour to serve with you in the Chair, Ms Vaz. I thank the House for allowing me to secure this debate. I also welcome the Minister to their place, and I thank the shadow Minister, the hon. Member for Hamble Valley (Paul Holmes), and the Liberal Democrat spokesperson, the hon. Member for Dorking and Horley (Chris Coghlan), for attending.

I must start by declaring an interest. In my previous role before entering this place, I was head of fraud and compliance for a fintech firm, responsible for screening billions of dollars of transactions a year. When it comes to dealing with financial criminals, unfortunately I have seen it all. From the use of artificial intelligence—

[Valerie Vaz (in the Chair)]

Order. Apparently, there is an acoustic problem for everybody sitting in the front row. Could the hon. Gentleman move to the back as the mics are not working?

[Jim Shannon (Strangford) (DUP)]

Always best to be a Back Bencher, Ms Vaz!

[Mr Charters]

May I continue, Ms Vaz?

[Valerie Vaz (in the Chair)]

I am really sorry, but Hansard may not have picked up the earlier part of your speech, so could I ask you to start again, please? Thank you very much. You are doing a grand job for your first attempt.

[Mr Charters]

With apologies to right hon. and hon. Members who will be hearing the same thing, I will start again.

It is an honour to serve with you in the Chair, Ms Vaz. I thank the House for allowing me to secure this debate. I also welcome the Minister, and I thank the shadow Minister, the hon. Member for Hamble Valley, and the Liberal Democrat spokesperson, the hon. Member for Dorking and Horley, for attending.

I start by declaring an interest. In my previous role before entering this place, I was head of fraud and compliance for a fintech firm, responsible for screening billions of dollars of transactions a year. When it comes to dealing with financial criminals, unfortunately I have seen it all. From the use of artificial intelligence avatars to bypass biometric screening, to sophisticated shell companies and complex layering, to spearfishing and parasitically targeting legitimate companies to advanced cloning techniques, I cannot overemphasise the danger that fraud and financial crime now pose or the complex layers that exist behind it.

Fraud places an emotional burden on victims. It ruins lives. We all know that as MPs from our surgeries. I will touch on a case that I heard about recently. The criminal aspect of fraud is not just about hobbyists in basements; we are increasingly talking about nation states who in some cases are working alongside advanced organised crime groups that are taking the mantle. They are often experienced professionals who work to circumvent the systems we use. Criminals are smart and frequently shift their modus operandi to get around our systems.

Although the responsibility to be smarter and take that proverbial step ahead falls to Government and firms, the situation is more complex than that. The risks are real, and if scams continue to increase exponentially we will have a dangerous environment for businesses. We will have more constituents telling more stories about how they have fallen victim to fraud, and the national cost could become so undesirable that we may well become the worst developed country globally per capita when it comes to fraud rates. If we do not act, there is a risk that fraud and economic crime could suffocate growth.

We currently suffer from relatively weak national co-ordination in tackling fraud and economic crime, which is made more complex by the fact that the perpetrator is often not in the same geographical location as the victim. This can cause local police forces to deprioritise fraud reports, but if we can fix that, we may be able to fix the foundations. Although the online fraud charter introduced by the last Government was a positive step, it is non-statutory and voluntary. Nothing in the charter addresses the issue of compensating consumers who have been defrauded by content originating online. There are no penalties for non-compliance, and that must be thought through, but we can turn the page.

While this Government are in their early stages, I believe it is time to smell the coffee and grasp the nettle —whichever analogy hon. Members prefer—so that we can become a world leader in anti-fraud and protecting consumers and businesses, and become a country where companies want to do business and will not be ripped off. The prize is that our fintech, regtech and financial services sector will want to become ever more internationally competitive if we truly get to the heart of fraud and economic crime.

Before I go any further on how we can make some fixes, I will quantify the challenges that we face. Fraud accounts for more than 40% of crime in the UK but receives only 1% of police resources. That statistic is chilling, but wait until we hear the cost of payments fraud to the UK economy: it is roughly £1.2 billion. There is also a cost to individuals. I have a constituent who attended an advice surgery just this weekend and told me that they had lost life savings, to the tune of a five-figure sum. Fraud often hurts the most vulnerable, either those on low incomes or those with lower tech proficiency, who are also more likely to fall victim.

However, more than three quarters of authorised push payment fraud originates online. Research from Innovate Finance on fintech illustrates the challenge posed by online purchase scams. It found that Facebook Marketplace represented a staggering 51% of all fraud cases for the firm in question. After I secured this debate, a main UK bank got in touch with me outlining similar statistics in which a huge part of the fraud that it encountered originated from Facebook Marketplace, so we must get better at stopping fraud at the source. There are some positives to consider: tackling payment fraud could contribute £6 billion to the UK’s GDP over five years, which would really strengthen our economy.

A smorgasbord of issues are causing our downfall, so I will outline seven positive steps to begin to tackle fraud and economic crime. They come from meetings that I have had with trade bodies, consumer groups, banks and payment providers and from many industry reports. We can become a world leader in anti-fraud and economic crime. Little investment is needed from the Government, but a new regulatory apparatus and new levels of co-ordination are needed. I stand as a firm friend to the Minister and the Government in making that change happen, so I will outline some positive suggestions for tackling fraud.

Recommendation 1 is that the new Government should set an anti-fraud target. In June 2023, the previous Government published their fraud strategy, saying that they would cut fraud by 10% on 2019 levels by December 2024. They achieved that, but the target was not ambitious enough and, importantly, excluded businesses, so the Government should commit to a fraud target that is genuinely ambitious and do so in collaboration with business. I do not want to pick an arbitrary number, because it is about focusing on action rather than aims, so one option is to set a target that we should have a lower fraud rate per capita than international peers—for example, an ambitious target that the per capita rate of fraud should be lower in the UK in five years’ time than that in France, Germany and other countries.

Recommendation 2 is for the creation of a new national anti-fraud centre. We need a strong new anti-fraud centre to face the complex interdisciplinary challenges that fraud poses. Action Fraud has skilled individuals, but regrettably it is no longer fit for purpose. That is my view, and often the view of industry. We need to reform it, and that means a review of its shortfalls, as well as the ways in which we can build on some of its successes in receiving reports. During my career, I came across a case in which a UK business was scammed out of more than £200,000. It submitted dozens of pages of detail to Action Fraud, and did not even get a call back from the police.

We should look to Australia and create a national anti-fraud centre to drive forward the Government’s fraud strategy with a clear vision and clear accountability. It could be part of the Serious Fraud Office or the National Crime Agency, or it could be its own entity, but it should be able to bring charges. The Australian Labour Government launched a cutting-edge national anti-scam centre in 2023. They rightly recognised the scale of the challenge, and took it on directly. The first action was to tackle investment scams, before disrupting criminal gangs who were advertising non-existent jobs. It is time to refresh the ecosystem that will fight fraud for decades to come, with a strong new national anti-fraud centre at the heart of Government. That would join up the SFO, the Financial Conduct Authority, Action Fraud, the NCA, the Met police, the National Fraud Intelligence Bureau and local police forces, and it would do that with a central leadership, because our institutions are currently too fragmented to properly deal with fraud.

Recommendation 3 is that this Government should replicate the previous Government’s appointment of an anti-fraud champion in Parliament. The appointment of an anti-fraud champion would ensure better co-ordination across Departments and could be a precursor to a new national anti-fraud centre.

Recommendation 4 is that we should support data sharing between sectors. We have to create a framework to enable data sharing between social media companies and payment participants. If information can be shared between the two, there is an opportunity to stop transactions at the source. Because of GDPR, there is no clear mechanism for data collaboration, but if we can find a way to create a precedent, that would provide regulatory certainty.

Recommendation 5 is to create a new framework that requires banks to share payment data. If we are to make progress, we need to find a way for banks to work collaboratively on payment data sharing. I regularly meet banks and industry leaders who are receptive to that recommendation.

[Mr Charters]

It is brilliant to have Members such as my hon. Friend, with his experience at Pay.UK, in this place, and I completely agree about the renewal of the payments architecture. If it had risk analysis and artificial intelligence monitoring at its heart, we could detect payments fraud at the very centre, which could save banks billions of pounds in compensation and be a better result for consumers.

Industry innovations such as “money mule insights” prove that the latest data analytics allow for much more sophisticated ways of targeting of criminals via data sharing between payment providers. Lloyds Bank got in touch with me this week to highlight that its mule-hunting team had identified a 44% increase in money mules over the past year. Data sharing between banks is critical in targeting money mules. At present, banks file suspicious activity reports, but they are often unable to share suspicious payment transaction data with each other. If they did, there would be an opportunity to harness suspicious payment data to detect and block fraudulent and criminal transactions in real time. I now believe that we have an unmatched opportunity to rebuild fraud and economic crime analysis with the renewal of faster payments and a new payments architecture. In conclusion on this recommendation, much greater payments data sharing is crucial if we want to stop fraudulent transactions from being processed.

Let me turn to recommendation 6, on the obligations on social media companies. The Government could introduce a shared responsibility and liability for social media and telecommunications firms to tackle fraud origination and incentivise them to invest to prevent fraud. A new anti-fraud centre could govern regulatory powers over social media companies and impose penalties or issue guidance to reduce fraud. That would tackle the things we heard about earlier, such as fraud originating from Facebook Marketplace.

I turn to my final recommendation: to expand the Financial Conduct Authority’s powers over the Post Office, which is the biggest cash provider in the country, through its everyday banking service, and has always played an integral role in providing access to cash for the nation. That should continue. As banks close their branches, the importance of the Post Office is growing. However, following the Horizon scandal, its reputation has been damaged. The Horizon system is still fundamentally being used today for the everyday banking service, which processes billions in cash deposits and withdrawals each and every month. To give banks and consumers confidence in the Post Office, the FCA should gain direct regulatory oversight of the everyday banking service. That is critical for resilience and managing financial crime risks. I can confirm that I am in the process of writing to the FCA’s CEO to encourage them to provide an update on their work on money laundering via the Post Office.

In conclusion, those are seven recommendations that I would like to implement. I think they would have a huge impact on our ability to better target fraud and economic crime. I will write to the Government outlining the recommendations, which are the culmination of meetings across industry, and I stand willing to work closely with them on implementing them, should they be interested in doing so. I look forward to hearing from colleagues across the House in the debate and to working constructively with Government and other hon. Members to tackle fraud. It is crucial we do that for financial credibility, for our constituents and for our country.

[Valerie Vaz (in the Chair)]

I thank the hon. Member for his assistance. I expect to take the first of the Opposition spokespersons at 5.08 pm. They will have five minutes each and the Minister will have 10 minutes. If hon. Members wish to speak, they should bob.

--- Later in debate ---

[Mrs Sureena Brackenridge (Wolverhampton North East) (Lab)]

I commend my hon. Friend the Member for York Outer (Mr Charters) for securing this important debate and for shining a light on an issue that has been neglected for far too long.

A growing concern facing my constituents in Wolverhampton North East is the rise of fraud, particularly scams perpetrated from overseas. We often hear calls for more arrests and prosecutions of the criminals, and I fully support that. However, we also need to acknowledge that a significant and increasing number of these fraudsters are not operating from within the UK. Instead they are part of international fraud rings based in hotspots such as India, the Philippines, South Africa, Brazil and parts of eastern Europe.

With advanced technology we have machines capable of making thousands of calls or sending thousands of texts per minute. The criminals can easily target people here in Britain. Our country unfortunately is a prime target for such activity. We do much of our shopping and banking online, and the widespread use of the English language makes it easier for fraudsters abroad to deceive and manipulate their victims here.

The real question is what we do about this. I suggest that when we negotiate trade deals with countries where such criminal activity is prominent, we push for stronger co-operation in fighting fraud. Let us make fraud prevention part of the agreements, giving the countries a real incentive to work with us to tackle the issue. Without such action, fraud will continue to grow, impacting more and more families in places like Wolverhampton North East. It is time we took strong, global, co-ordinated action to protect our residents from the scourge of international fraud.

[Valerie Vaz (in the Chair)]

I call the spokesperson for the Lib Dems, Chris Coghlan.

--- Later in debate ---

[Chris Coghlan]

I thank the hon. Gentleman for his intervention and I agree that there should be more emphasis on that area. I also thought that the hon. Member for York Outer made a really interesting point about the lack of FCA regulation of the Post Office, and I agree that that appears to be a gap in our existing regulatory framework.

We heard some really moving personal accounts about the cost of these online scams in the speech made by the hon. Member for Southend West and Leigh (David Burton-Sampson). We are also calling for the naming and shaming of the banks that have the worst records on preventing fraud and reimbursing victims. They should be held accountable. Financial institutions have a duty to protect their customers and we need to call them out when they do not.

The hon. Member for Strangford (Jim Shannon) talked about the power of social media scams, and we are also calling for a public awareness campaign. We need to empower everyone to spot, avoid and report fraud and scams. But let me be clear: the onus should not be on individuals to prevent fraud. Victims should never be blamed for falling prey to sophisticated scams. This issue is about building a society that protects citizens and not one that burdens them with responsibilities that should lie with institutions.

As we have heard, the numbers involved are staggering, both in terms of the billions of pounds that have been lost to fraud and the sheer volume of crime that is now online. Despite those facts, however, the previous Government’s response was lacklustre. I was moved by the hon. Member for York Outer’s point that 40% of crime is fraud, including online fraud, yet only 1% of police resources is dedicated to tackling fraud. The previous Government treated fraud with such little seriousness that they did not include it in crime statistics. Will the Minister commit to including fraud in crime statistics to demonstrate the new Government’s seriousness about this issue?

The Government must also recognise that economic crime poses a significant threat to our democracy. For too long, the previous Government allowed oligarchs to treat the UK as their personal playground, so that they could funnel dirty money into our economy and undermine our values. The Liberal Democrats are calling on the Government to begin seizing frozen Russian assets and to use the proceeds to support Ukraine; to close loopholes in economic crime legislation, which allow associates of authoritarian regimes, such as Putin’s cronies, to funnel corrupt funds into our country; and to properly resource the NCA to ensure that it has the tools to tackle complex financial crimes. We are also calling for an audit of UK-based assets owned by officials from countries with troubling human rights records, such as China and Iran, to ensure that we are not enabling regimes that abuse their own citizens.

As a former counter-terrorism officer, I know how important cross-border co-operation is. The hon. Member for Wolverhampton North East (Mrs Brackenridge) really brought out the importance of such co-operation when she made the point that the people conducting these scams are not necessarily all in the same geographical location.

I also know the damage that Brexit caused to our cross-border co-operation on serious and online crime. Will the Minister commit to improving co-operation with our European allies and with other countries more widely on financial fraud and economic crime?

I look forward to hearing the Minister’s response to the debate. It was a pleasure to serve with you in the Chair for this debate, Ms Vaz, and I again thank the hon. Member for York Outer for securing it.

[Valerie Vaz (in the Chair)]

I call the shadow Minister, who was appointed this morning, to speak.

--- Later in debate ---

[Mr Charters]

Thank you for chairing the debate, Ms Vaz. I am delighted that the House has been able to consider today’s motion. It is a matter of real importance and one that it is clear the Government will take seriously. I am grateful to the Minister for attending the debate, and to the shadow Minister and the Lib Dem Front Bencher for engaging, too. I am grateful to the Minister for considering my seven recommendations. The Members who have contributed are powerful advocates for their constituents. Many have experienced constituents coming to their surgeries and sharing harrowing stories of being scammed. I hope to work with some of the Members present on these issues over the months and years ahead.

I outlined in my maiden speech that under this Government there should be

“no safe harbour for fraudsters, no compromise in our pursuit of their schemes and”

—importantly—

“no escape from justice.”—[Official Report, 17 July 2024; Vol. 752, c. 124.]

More than that, I am encouraged by the Minister’s words and know that this Government take fraud seriously. By the end of this Parliament, I hope we can look back and see that we have made huge steps forward. We can become a world leader in tackling fraud once and for all.

[Valerie Vaz (in the Chair)]

I thank the audio technician for sorting the problem out earlier.

Question put and agreed to.

Resolved,

That this House has considered the impact of financial fraud and economic crime.