Section 2 of the Fraud Act 2006 sets out the framework of the classic fraud offence. The offence usually consists of some sort of dishonest statement made to gain something or so that someone else makes a loss. This offence is one that will often apply to an offence committed in business. The four necessary elements that must be proved in order to result in a conviction are:
- A representation must be made
- The representation must be known to be false
- The representation must be dishonestly made
- The person making the representation must intend to gain something, or intend that the person receiving it loses something
Section 2 is not a different offence to section 1 but merely one of the 3 ways that the offence of fraud can be committed under the Fraud Act 2006.
What is a Representation?
- ‘Representation’ means any representation as to fact or law, including a representation as to the state of mind of-
- The person making the representation, or
- Any other person
- A representation may be express or implied
- For the purposes of this section a representation may be regarded as made if it (or anything implying it) is submitted in any form to any system or device designed to receive, convey or respond to communications (with or without human intervention)
A representation may not necessarily have been made for a fraud to exist. Simply handing over a cheque, for example, is not a promise that there is money in the account at the time of presentation. A stolen credit card, however, is considered a representation of entitlement to use it.
Dishonesty of the Maker at the Time of Making It
The law says that the jury must be sure about whether the defendant has been dishonest by satisfying both stages of the legal dishonesty test (sometimes called the Ghosh test).
The first stage of the test is that according to the standards of reasonable and honest people what was done must have been dishonest.
The second stage of the test is that the defendant himself must have realised that what he was doing was by (the standards of reasonable and honest people) dishonest.
The second part of this test means that even if someone does something which they believe to be justified (an example a judge once famously used is that of Robin Hood robbing from the rich to give to the poor), if they must have known that ordinary people would find it dishonest, then dishonesty is proven. In other words, it is the knowledge of the fact that the public view a type of action as dishonest, not agreement with that view, which proves dishonesty.
The Intention to Cause Personal Gain or Loss of Another
The key requirement here is the intention. To give an example, if a former manager of a supermarket believes that the food sold is of a low standard and therefore people should avoid that store for the benefit of their health, so decides to make public allegations of rat infestation at the premises, he cannot be guilty of making a fraudulent misrepresentation. He has made a statement, it is false, and he knows it is so it is probably dishonest, but he appears not to have done it to cause loss to the supermarket or personal gain, rather for some sort of misplaced view of public protection. On the other hand, if he expressly wants that store to lose money and be closed down and that is why he makes the false allegations, he could well be guilty of a fraud by false representation.
It is also important to note that the intention to expose another to a risk of loss is enough – the loss does not have to take place or be a certainty.
Common forms of fraudulent activity covered by Fraud of False Representation
As stated above, any behaviour involving dishonestly making a false statement or indication in the course of any dealings for personal gain or so that someone else suffers loss falls into this category. This of course covers a very wide range of activities; from allegations of collecting money for non-existent charities at one end of the spectrum to major complex conspiracies at the other. However, some common large scale operations are listed below.
- False information about the viability of a company on the balance sheet before a sale
- ‘Boiler room’ frauds
- ‘Ponzi style’ frauds (A notable recent example is the Bernard Madoff case, in which the total loss was estimated to be 18 billion USD.)
- So-called ‘419 scams’ and ‘phishing’, usually internet based
- Any kind of company set up to provide a service that the directors have no intention of carrying out
- Factoring frauds and other business finance related offences
- Mortgage fraud – value of property, owner of property, interests in property (for more info click button on the left hand toolbar)
- Cheque frauds
- False accounting (The actual accounts document offences are covered by the Theft Act 1968, but the Fraud Act covers all the remaining factual background of a false accounting conspiracy).
This list is by no means exhaustive, but could be useful to show the types of case that one should expect a good fraud solicitor to have some experience or knowledge of.
Written by Athena Forensics. Computer Forensic and Mobile Phone Forensic Investigation and Expert Witness Services Throughout the UK www.athenaforensics.co.uk
0845 882 7386