As fraudsters’ numbers, capacity and sophistication apparently overtake those of investigating authorities, there is every reason to believe that civil remedies will increasingly become a focus for victims of fraud.
The most recent Crime Survey of England and Wales estimated that there were 3.8 million incidents of fraud between March 2018 to March 2019, an increase of 17% from the previous year. Why, then, did prosecutions for white-collar crime fall to a five-year low, according to a recent study by Thomson Reuters? The answer is likely to lie predominantly with the shrinking resources of investigating authorities, and the increasing sophistication of perpetrators.
Things are unlikely to change in the near future. Though uncertain, whatever version of Brexit we end up with is likely to reduce – or at least make more difficult – cooperation across Europe in criminal matters. This is often crucial in the multi-jurisdictional issues sophisticated frauds entail. Moreover, new technologies and methods for committing or concealing frauds are proliferating at speed. How quickly can the criminal authorities respond if the proceeds of fraud are converted into cryptocurrency held in a wallet belonging to a foreign national offshore?
A victim of fraud will inevitably be presented with a choice as to whether they should make a complaint to the authorities and/or pursue a civil claim. The best option will depend on a myriad of factors, but as fraudsters’ numbers, capacity and sophistication apparently overtake those of investigating authorities, there is every reason to believe that civil remedies will increasingly become a focus for victims of fraud.
Advantages of civil remedies
Once a criminal complaint is made, discretion over whether – or how – to investigate is handed over in its entirety. With limited resources available, the authorities will be duty-bound to utilise them in a proportionate manner. Hence there is an increasing reality that for sophisticated frauds, the authorities will only properly investigate if it meets their criteria. The Office of National Statistics (ONS) found that in the year ending March 2019, 693,418 fraud offences were reported to the centralised National Fraud Intelligence Bureau (NFIB), amounting to only 18% of all estimated incidents of fraud. Worse still, NFIB has only passed 5.5% of those offences to the police for further investigation.
As such, one of the key reasons civil remedies might represent a preferable route is that the victim is in complete control, utilising as much or as little resources as desired or necessary. Take, for instance, a case where a fraudster needs to be identified by tracing assets siphoned into cryptocurrencies. The police may consider that an investigation into a hitherto unregulated cross-jurisdictional sector, with insufficient in-house expertise, will utilise significant resources and stymie investigations into a series of easier-to-pursue frauds. By contrast, a civil claimant can employ world-leading IT consultants in conjunction with interim court orders to lead a ground-breaking enquiry.
There is also the question of motivation. If a victim is determined to see the perpetrator given a jail sentence, then civil proceedings may not be the best answer. However, if the focus is recovery of assets, it is highly probable that civil proceedings would offer better prospects. Upon a criminal prosecution, the Crown may seek orders for the perpetrator to pay compensation, but these are often time-consuming to enforce. Moreover, where the prosecutors are likely to be primarily focused on securing a conviction rather than financial recovery for a victim, a perpetrator’s assets may have long disappeared before a conviction is obtained.
Compare this with civil proceedings, where the courts have extensive powers to grant interim relief, including orders to locate and freeze assets, as well as obtain disclosure from either the fraudster or third parties. Indeed, it has become customary to freeze assets of perpetrators prior to issuing a civil claim for fraud, with the English courts readily available to hear applications at a moment’s notice.
Getting to the finish line should be easier for civil claims. The standard of proof is the “balance of probabilities,” whilst for most criminal offences it is “beyond reasonable doubt.” This difference can be particularly important in cases of fraud, where pieces of the puzzle are invariably hard to acquire and drawing inferences may be crucial in filling the gaps.
In the case of a success, enforcing a civil judgment against a fraudster’s assets outside of the jurisdiction is also likely to be much more straightforward. Success itself may not even require a trial; the commencement of, or even threat of, a civil claim can be enough to achieve a settlement. It can be a great relief if a victim is able to circumvent prolonged, expensive and stressful proceedings.
There is also a third option that is gaining popularity: private prosecutions, by which a criminal case is prosecuted by lawyers on behalf of the victim. This affords the victim the power to maintain control of an investigation and subsequent prosecution. Whilst this can be a powerful tool, it is crucial that they are conducted by experienced and knowledgeable lawyers as there are numerous traps to be aware of. Private prosecutors take on an independent role, becoming subject to certain codes and scrutiny that override the duty to the client. The issue is particularly acute where a private prosecution and civil proceedings are run in parallel and great care needs to be taken to ensure that information, documents and the issue of privilege are properly dealt with.
The effects of Brexit on both civil and criminal cases involving cross-jurisdictional fraud are highly unpredictable. Nevertheless, should judicial and investigatory cooperation for criminal matters reduce in a significant way after the end of a transition period (it is not envisaged anything meaningful will happen in relevant areas before then) this may profoundly affect authorities’ abilities to effectively pursue fraudsters across Europe. Even a change of any nature is likely to make the processes more cumbersome and/or uncertain.
Civil remedies are not immune from the uncertainties of Brexit. Service of claims and enforcing judgments across Europe may become more difficult if the UK does not enter into a sufficiently close relationship for judicial collaboration. Nevertheless, pursuing civil claims in jurisdictions outside of the EU’s judicial collaboration is already a well-trodden path, and civil fraud lawyers should be well-prepared to handle even the worst-case Brexit scenario.
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