As part of London International Disputes Week recently, I attended an interesting panel discussion chaired by my colleague James Evison and co-hosted with 3VB: The Frontline against Fraud: common law, government policy and regulation – how the UK is fighting fraud.
Dishonesty can most effectively be deterred by moral or social mechanisms: we censure abuses of trust as dishonourable, and proven dishonesty leads to wide-ranging adverse social and financial consequences. British society has for many years been built on trust in this way. For instance, lying in an English court is likely to result in losing your case, even if what you lie about is minor and/or not directly relevant to the issues – and could even result in committal for contempt of court.
However, there are some for whom these deterrents do not work: criminals who do not significantly participate in mainstream social processes, or are abroad and therefore entirely outside their reach.
That is when we have to fall back on technical and regulatory measures and/or education of potential victims, unless we can find new ways of making social mechanisms effective.
Chris Hemsley, former Managing Director of the Payment Services Regulator (PSR) gave an illuminating summary of the PSR’s approach to combating fraud. Interestingly, one of the most effective mechanisms the PSR has used is not regulation, but simply collation and publication of data. If a certain bank is highlighted as carrying out a larger number of fraudulent transactions than another, it is motivated to try to reduce that number, so that it can move higher in the trust “league tables”. The same applies to social media providers. The PSR, it seems, is using those same methods of social pressure – only this time against companies whose services are used as tools of fraud, and who, unlike the fraudsters, are anxious to protect their reputation.
These methods so far seem to be more effective against banks and tech platforms than legal redress, although there has been some movement towards making banks responsible, as Catherine Gibaud KC outlined. A paying bank may be put on enquiry where there are numerous red flags, but otherwise the courts have been reluctant to find that it has a duty to vet transactions. Claims against recipient banks are even more difficult, since they owe limited duties to non-customers. Lawyers do keep trying, and unjust enrichment claims are another avenue to explore: to date there have been conflicting decisions in the High Court, and the controversy may yet be resolved in favour of fraud victims in the Court of Appeal.
Penny Dunbabin from the Home Office talked through a very wide range of initiatives the government is working on to try to make things more difficult for fraudsters. One measure which is very welcome to victims, is of course the mandatory authorised push payment (APP) fraud reimbursement scheme effective from 7 October 2024, which the PSR (while under Chris Hemsley) imposed after being granted additional powers by legislation. Notably, although the data are incomplete, there seems to have been a drop in APP fraud in 2024, according to PSR figures.
Something which I think only the government can do, and perhaps something it should focus on, is working with the governments of other countries to track down fraudsters and stolen funds, and/or close down new methods of fraud: a crucial piece of the puzzle, since it is said that 70% of fraud involves an international element. It was encouraging to hear that the UK government is partnering with Nigeria to share intelligence and conduct joint operations. It seems like more could probably be done in this direction, since victims of fraud often find their funds have been transferred abroad at a very early stage, which makes recovery much more difficult (although not impossible if the sums in question justify the legal costs).
Aside from that, the government also appears to be prioritising action against those within its reach rather than fraudsters themselves: following changes to the “identification principle”, companies are at risk of being liable for a long list of offences committed by their senior managers (ss 196-198 Economic Crime and Corporate Transparency Act 2023). The government has also introduced the new corporate offence of failure to prevent fraud (s 199 Economic Crime and Corporate Transparency Act 2023). It remains to be seen how effective these measures will be, and whether their effect in preventing fraud will be justified by the additional compliance burden imposed on business.
Sometimes what seem like small measures are the most effective – Chris Hemsley mentioned the payee name verification required by the PSR as one example. Another simple measure mentioned by several speakers is changing customer expectations as to the speed of payments that are out of the ordinary. While fraudsters are by their nature innovative and creative, so are some of those who fight back.
Deliya Meylanova