Investment fraud convictions slump to lowest level since 2007

Short prison sentences and small fines are “practically non-existent” deterrents, experts warn

A laptop user with a bank card (PA)

Convictions for investment fraud in England and Wales have slumped to their lowest level since 2007, with just one in 700 incidents convicted in 2019.

A series of Freedom of Information (FOI) requests have found that convictions fell by 10 per cent every year since 2011, despite separate figures from Action Fraud pointing to a 48 per cent increase in cases in the last five years.

In 2019, the latest figures available, more than 3.7 million incidents of fraud occurred in England and Wales but only one in five of these cases – 743,380 – were reported to the National Fraud Intelligence Bureau (NFIB).

Of these, just 5,234 convictions were secured under the Fraud Act 2006, amounting to one in every 142 cases reported to the authorities.

This compares to around one in every 32 police recorded thefts ending in a conviction in the same year, says wealth manager Quilter, which made the FOI requests.

The same FOI also revealed that despite fraud carrying a maximum sentence of 10 years imprisonment and a fine, in 2020 the average custodial sentence secured under the act was just under 20 months and the average fine was £463.

“From dubious cryptocurrency and forex trading schemes to non-existent investment bonds, fraud lurks everywhere, particularly online and on social media,” says Debbie Barton, financial crime prevention specialist at Quilter.

“Yet instead of seeing an uptick in the number of fraud convictions to match the rapid increase in reports to Action Fraud, we’ve seen the opposite. Fraud convictions have dropped off a cliff since 2011 to reach levels not seen since the Act was first introduced.”

Investigating fraud is extremely complex, costly and time-consuming, resulting in stretched police forces being forced to prioritise other crimes, she suggests. As a result, the legal deterrent for committing fraud is “practically non-existent”.

“We need a holistic review of the UK’s fraud landscape to consider why so many fraudsters are slipping through the net, and to consider how authorities can send a strong message that they intend to get a grip on fraud once and for all,” Barton says.

Retail investors may be surprised to hear that some of the authorities we expect to be able to deal with fraudsters may not have the powers to do so.

Speaking at the recent Financial Conduct Authority (FCA) Investigations & Enforcement Summit, Mark Steward, FCA executive director of enforcement and market oversight, pointed out that “the Financial Services & Markets Act 2000 (FSMA), which sets out the FCA’s powers and remit, does not invest the FCA with any general power or authority to prosecute fraud”.

Incredibly, the FCA is only able to prosecute fraud as a private prosecutor rather than as a prosecuting authority on behalf of the state.

So where do we go from here?

“A good start to protect the public would be for the government to include further fraud typologies in the Online Safety Bill so that technology companies have a legal duty to tackle harm caused on their sites, and have to take up the slack in monitoring the online world for scams,” Barton suggests.

If the current draft of the bill is passed, the Department for Digital, Culture, Media and Sport has already acknowledged that fraud via advertising, emails or cloned websites will not be in scope because the bill focuses on harm committed through user-generated content.

“The government is working closely with industry, regulators and consumer groups to consider additional legislative and non-legislative solutions,” it continued.

Frustrations over the limits of the bill have been almost palpable at times.

“Fraud in the UK has reached epidemic levels and recent research commissioned by Cifas and RUSI has highlighted the strong link between fraud and other high harm crimes such as people and drug trafficking, and terrorist financing,” warned Mike Haley, chief executive at Cifas, the UK’s fraud prevention service, when the draft law was published.

“We need to act fast to disrupt criminal operations and ensure that online platforms are taking the appropriate steps to do so.”

The Home Office is due to publish a Fraud Action Plan after the 2021 spending review and the joint committee of MPs appointed to scrutinise the Online Safety Bill is due to report by December.

In the meantime, based on the 2019 figures alone, almost 309,170 more people will become victims of fraud with every passing month.