Businesses should expect a role in tackling fraud next year

If one word sums up a key trend in financial crime enforcement in 2024 it would be fraud, specifically consumer fraud.

In the last decade or so, enforcement was dominated by a heady and City-centric mixture of rate-rigging and financial markets investigations, and international corruption investigations – each of which probed into the boardrooms of some of the U.K.’s biggest public limited companies.

Post pandemic, however, the mood has changed, as the purse strings are tightened both in government and in homes. Enforcement agencies across the board have renewed their focus on crime that has an obvious resonance with the general public – ensuring that money stays in the hands of those who have earned it – and, as a result, they are clamping down on fraud.

Of course, there have always been investigations into fraud. This is a renewed rather than a new, focus, which has been brought about by the marked increase in fraud in recent years, to the extent that the level of fraud has been described as a pandemic.

Indeed, Office of National Statistics data shows that fraud made up over 40% of all reported crime in the first half of 2024.The renewed emphasis comes from government, particularly the previous government’s first Economic Crime Plan published in 2019, which recognised the impact of economic crime on the “U.K.’s economy, competitiveness, citizens, institutions and reputation.

The second iteration of that plan, which was published in 2023, had similar objectives, but also included a specific mandate of cutting fraud.

At the Serious Fraud Office, the shift has been most stark, with six of the seven investigations publicly launched by its director, Nick Ephgrave, since he took office in September 2023 being into fraud offenses, involving, Safe Hands Plan Ltd, Axiom Ince Ltd., AOG Technics Ltd., Signature Group, the Carlauren Group, and Timeshare Legals Ltd.

The investigation into Thales Group announced in November is both the first investigation Ephgrave has launched into a PLC and the first into international corruption.

However, despite the agency’s enthusiasm for fraud enforcement, it only has a mandate to investigate cases of serious and complex fraud, and it follows that it is not the appropriate authority to deal with the type of low-level, pernicious online fraud that is most prevalent and affects the widest section of the public.

Online fraud is where the Financial Conduct Authority can be more effective than the SFO, due to its broader regulatory remit. The FCA’s most recent financial crime plan promises action to tackle push payment fraud and investment scams.

The FCA has a program of preventative regulatory work such as publishing warnings and working with online platforms to remove unlawful promotions, and has had with a complementary uptick in enforcement against those perpetrating fraud, including those outside the regulated perimeter.

In November, four individuals were charged for fraudulently abusing their positions as directors of the Dial-A-Cab Credit Union. These charges swelled the numbers of individuals charged by the FCA for fraud offenses since April 2023 to 19.

In addition to taking action directly against perpetrators, the FCA has increased its scrutiny of gatekeepers. In August, it imposed a £15 million ($19 million) fine on PricewaterhouseCoopers LLP for failing to report its belief that London Capital & Finance PLC might be involved in fraudulent activity. This was the first time the FCA fined an audit firm.

Turning to HM Revenue & Customs, the tax authority’s investigations have always focused on fraud, or its common law cousin, cheating the revenue. While HMRC’s investigations do not involve consumer fraud as such, tax fraud nonetheless deprives all taxpayers.

The current tax gap – the difference between the amount of tax paid and the amount of tax that should be paid – is estimated at almost £40 billion, of which some is due to deliberate evasion or fraud.

HMRC can investigate and recover the proceeds of fraud using both criminal and civil processes. However, in contrast to the SFO and the FCA, the level of fraud enforcement by HMRC has declined significantly, for reasons which are unexplained.

The number of cases considered by HMRC’s Fraud Investigation Service dwindled by 40% in the five years leading up to 2023, and there has been a further slump in the types of investigations formally opened by the team in 2024.

Looking forward to 2025, enforcement of fraud is set to continue and even increase. Successive directors at the SFO have lobbied for the introduction of the “failure to prevent fraud” offense, which was introduced in the Economic Crime and Transparency Act 2023.

The new offense is designed to hold large organisations to account if they profit from fraud. The long-awaited Home Office guidance on the offense was finally published in November.

When the legislation comes into force next year on Sept.1, 2025, it has real potential to accelerate the clampdown on fraud, as the responsibility for its prevention will shift to those large companies and businesses that are within the scope of the act.

However, while the SFO will be keen to investigate potential infringements under this new offense, Ephgrave must ensure that the cases selected for investigation by the SFO remain balanced and in line with its function.

Solely pursuing fraud cases means that other important crimes may be under investigated.  Only one bribery case has been opened in the past year – into Thales Group – and it is possible that this investigation was instigated by the French enforcement authority, Parquet National Financier, which is jointly investigating. The SFO should not return to the days where the Organization for Economic Cooperation and Development criticised lacklustre bribery enforcement in the U.K.

The FCA is likely to double down on efforts to restore public confidence following swingeing criticism by the All-Party Parliamentary Group on Investment Fraud and Fairer Financial Services in a report published in November. Among the criticisms was that the FCA had done “too little too late – or nothing – to prevent and subsequently remediate and punish alleged wrongdoing.”

HMRC will likely also accelerate its enforcement activities. The new government has introduced measures to close the tax gap, some of which focuses on tackling tax evasion. An additional 5,000 compliance officers were promised in the October budget, some of whom will inevitably be deployed into the civil and criminal fraud investigation teams. It is expected that the decline in tax avoidance and criminal fraud investigations described above will be reversed.

Conclusion

In summary, the enforcement agencies each have a role to play in the fight against fraud, and there is a pressing need for them to do. Looking to 2025 and beyond, businesses will need to be prepared to play a greater part in tackling fraud, especially given the SFO, FCA and HMRC’s renewed focus on combating fraud and the coming into force of the “failure to prevent fraud” offense.

First published in Law360 on 18th December 2024.