A fakeautomated teller slot used to commit bank fraud upon bank patrons
Inlaw,fraud isintentionaldeception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violatecivil law (e.g., a fraud victim may sue the fraud perpetrator to thwart the fraud or recover monetary compensation) orcriminal law (e.g., a fraud perpetrator may be prosecuted and imprisoned by governmental authorities), or it may be an element of another civil or criminal wrong despite itself causing no loss of money, property, or legal right.[1] The purpose of fraud may be monetary gain or other benefits, such as obtaining a passport, travel document, or driver's licence. In cases ofmortgage fraud, the perpetrator attempts to qualify for a mortgage by way of false statements.[2]
Fraud can be defined as either acivil wrong or acriminal act. For civil fraud, a government agency or person or entity harmed by fraud may bring litigation to stop the fraud, seek monetary damages, or both. For criminal fraud, a person may be prosecuted for the fraud and potentially face fines, incarceration, or both.[3]
In common law jurisdictions, as a civil wrong, fraud is considered atort.[4][5] While the precise definitions and requirements of proof vary amongjurisdictions, the requisite elements of fraud as a tort generally are the intentional misrepresentation or concealment of an important fact upon which the victim is meant to rely, and in fact does rely, to the detriment of the victim.[6] Proving fraud in a court of law is often said to be difficult as the intention to defraud is the key element in question.[7] As such, proving fraud comes with a "greater evidentiary burden than other civil claims". This difficulty is exacerbated by the fact that some jurisdictions require the victim to prove fraud byclear and convincing evidence.[8]
In common law jurisdictions, as a criminal offence, fraud takes many different forms, some general (e.g., theft by false pretense) and some specific to particular categories of victims or misconduct (e.g.,bank fraud,insurance fraud,forgery). The elements of fraud as a crime similarly vary.[13] The requisite elements of perhaps the most general form of criminal fraud, theft by false pretense, are the intentional deception of a victim by false representation or pretense with the intent of persuading the victim to part with property and with the victim parting with property in reliance on the representation or pretense and with the perpetrator intending to keep the property from the victim.[14]
The falsification of documents, known asforgery, and counterfeiting are types of fraud involved in physical duplication or fabrication.[15] The "theft" of one's personal information or identity, like finding another's social security number and then using it as identification, is a type of fraud.[16][17] Fraud can be committed through and across many media includingmail,wire,[15]phone, and theInternet (computer crime andInternet fraud).[18]
Given the international nature of the web and the ease with which users can hide their location, obstacles to checking identity and legitimacy online, and the variety of hacker techniques available to gain access toPII have all contributed to the very rapid growth of Internet fraud.[19] In some countries, tax fraud is also prosecuted under false billing or tax forgery.[20] There have also been fraudulent "discoveries", e.g.,science, where the appetite is for prestige rather than immediate monetary gain.[21] Ahoax is a distinct concept that involves deliberate deception without the intention of gain or of materially damaging or depriving a victim.[22]
The illegal act of obtaining (or the attempt to obtain) a certain amount ofcurrency in accordance with acontract that promises the laterexchange of equatedassets, which ultimately never arrive, is a type of fraud, known as commodities fraud. Alternatively, the term can relate to the failure of registering in an exchange, the act of deliberately providing falsified information to clients, the action of executingtransactions with the sole purpose of making a profit for thepayee, and the theft ofclient funds.[24][25]
A fraudulent manufacturer's suggested retail price on a speaker
The detection of fraudulent activities on a large scale is possible with the harvesting of massive amounts of financialdata paired withpredictive analytics or forensic analytics, the use of electronic data to reconstruct or detect financial fraud. Using computer-based analytic methods in particular allows for the surfacing of errors, anomalies, inefficiencies, irregularities, and biases which often refer to fraudsters gravitating to certain dollar amounts to get past internal control thresholds.[26] These high-level tests include tests related toBenford's Law and possibly also those statistics known as descriptive statistics. High-level tests are always followed by more focused tests to look for small samples of highly irregular transactions. The familiar methods ofcorrelation andtime-series analysis can also be used to detect fraud and other irregularities.[27]
Participants of a 2010 survey by theAssociation of Certified Fraud Examiners estimated that the typical organization loses five per cent of its annual revenue to fraud, with a median loss of $160,000. Fraud committed by owners and executives was more than nine times as costly as employee fraud. The industries most commonly affected are banking, manufacturing, and government.[28]
In China, according to theCriminal Law of the People's Republic of China, theCrime of Fraud (诈骗罪) refers to the "criminal act of deceiving and obtaining public or private property".[29] According to Article 266 of the Criminal Law:[29]
Those who commit fraud involving a "relatively large amount" of public or private property shall be sentenced to fixed-term imprisonment of not more than three years, criminal detention, or injunction control with community correction, and may additionally or solely be fined.
If the amount involved is "large" or there are other serious circumstances, the offender shall be sentenced to fixed-term imprisonment of not less than three years but not more than ten years and shall also be fined.
If the amount involved is "particularly large" or there are other particularly serious circumstances, the offender shall be sentenced to fixed-term imprisonment of over ten years or life imprisonment and shall also be fined or have their property confiscated.
According to the "Interpretation on Several Issues Concerning the Specific Application of the Law in Handling Criminal Cases of Fraud" (关于办理诈骗刑事案件具体应用法律若干问题的解释) issued by theSupreme People's Court and theSupreme People's Procuratorate in 2011, for cases of fraud involving public or private property with a value ranging from 3,000 yuan to 30,000 yuan, from 30,000 yuan to 500,000 yuan, and over 500,000 yuan, they should be respectively deemed as "relatively large amount", "large amount", and "particularly large amount" as stipulated in Article 266 of the Criminal Law.[30]
In 2016, the estimated value lost through fraud in the UK was £193 billion a year.[33] In January 2018, theFinancial Times reported that the value of UK fraud hit a 15-year high of £2.11bn in 2017, according to a study. The article said that the accountancy firm BDO examined reported fraud cases worth more than £50,000 and found that the total number rose to 577 in 2017, compared with 212 in 2003. The study found that the average amount stolen in each incident rose to £3.66m, up from £1.5m in 2003.[34]
As at November 2017, fraud is the most common criminal offence in the UK according to a study by Crowe Clark Whitehill, Experian and the Centre for Counter Fraud Studies.[35] The 2017 Annual Fraud Indicator shows that fraud costs about £10,000 per family in the UK, and the UK's fraud cost exceeds the gross domestic product of 148 countries[36] such as Romania, Qatar and Hungary.[37]
According to another review by the UK anti-fraud charityFraud Advisory Panel (FAP), business fraud accounted for £144bn, while fraud against individuals was estimated at £9.7bn. The FAP has been particularly critical of the support available from the police to victims of fraud in the UK outside of London. Although victims of fraud are generally referred to the UK's national fraud and cybercrime reporting centre,Action Fraud, the FAP found that there was "little chance" that these crime reports would be followed up with any kind of substantive law enforcement action by UK authorities, according to the report.[38]
In July 2016, it was reported that fraudulent activity levels in the UK increased in the 10 years leading up to 2016 from £52 billion to £193 bn. This figure would be a conservative estimate, since as the former commissioner of theCity of London Police, Adrian Leppard, has said, only 1 in 12 such crimes are actually reported.[39] Donald Toon, director of the NCA's economic crime command, stated in July 2016: "The annual losses to the UK from fraud are estimated to be more than £190bn". Figures released in October 2015 from the Crime Survey of England and Wales found that there had been 5.1 million incidents of fraud in England and Wales in the previous year, affecting an estimated one in 12 adults and making it the most common form of crime.[40]
Also in July 2016, theOffice for National Statistics (ONS) stated: "Almost six million fraud and cyber crimes were committed last year in England and Wales and estimated there were two million computer misuse offences and 3.8 million fraud offences in the 12 months to the end of March 2016." Fraud affects one in ten people in the UK. According to the ONS, most fraud relates to bank account fraud. These figures are separate from the headline estimate that another 6.3 million crimes (distinct from fraud) were perpetrated in the UK against adults in the year to March 2016.[41]
Fraud was not included in a "Crime Harm Index" published by theOffice for National Statistics in 2016. The Chief of theNational Audit Office (NAO), Sir Anyas Morse has also said "For too long, as a low-value but high-volume crime, online fraud has been overlooked by government, law enforcement and industry. It is now the most commonly experienced crime in England and Wales and demands an urgent response."[42]
HM Treasury issued guidance tocentral government departments in January 2011 concerned with "Tackling Internal Fraud", concerned that economic pressures and potential staff redundancies at the time might lead those staff who "might be tempted" to commit fraud to make more of any opportunity which might arise, noting a possible shift in the balance between "the reward from fraud" and the risk of detection.[43] An aspect of the guidance was to equip staff to look out for "fraud indicators": clues or hints that an individual member of staff, team or area of activity might need "a closer look".[43]: Section 4.16
In 2022, the television programScam Interceptors revealed that the majority of fraud in the United Kingdom was perpetrated by industrial-scale scammingcall centres in Asia.[44]
Since 2007, fraud inEngland and Wales andNorthern Ireland has been covered by theFraud Act 2006. The Act was givenroyal assent on 8 November 2006, and came into effect on 15 January 2007.[45] The Act gives a statutory definition of the criminal offence of fraud, defining it in three classes—fraud by false representation, fraud by failing to disclose information, and fraud by abuse of position. It provides that a person found guilty of fraud is liable to a fine or imprisonment for up to six months onsummary conviction, or a fine or imprisonment for up to ten years on conviction onindictment.[46] This Act largely replaces the laws relating to obtaining property by deception, obtaining a pecuniary advantage and other offences that were created under theTheft Act 1978.[47][48]
TheSerious Fraud Office is an arm of the Government of the United Kingdom, accountable to theAttorney General for England and Wales. TheNational Fraud Authority (NFA) was, until 2014, a government agency coordinating the counter-fraud response in the UK.Cifas is a British fraud prevention service, a not-for-profit membership organization for all sectors that enables organizations to share and access fraud data using their databases. Cifas is dedicated to the prevention of fraud, including internal fraud by staff, and the identification of financial and related crime.[49]
InScots law, fraud is covered under the common law and a number of statutory offences. The main fraud offences are common law fraud, uttering, embezzlement, and statutory fraud. The Fraud Act 2006 does not apply in Scotland.[50]
Section 380(1) of theCriminal Code provides the general definition of fraud in Canada:[51]
380. (1) Every one who, by deceit, falsehood or other fraudulent means, whether or not it is a false pretence within the meaning of this Act, defrauds the public or any person, whether ascertained or not, of any property, money or valuable security or any service,
(a) is guilty of an indictable offence and liable to a term of imprisonment not exceeding fourteen years, where the subject-matter of the offence is a testamentary instrument or the value of the subject-matter of the offence exceeds five thousand dollars; or
(b) is guilty
(i) of an indictable offence and is liable to imprisonment for a term not exceeding two years, or
(ii) of an offence punishable on summary conviction, where the value of the subject-matter of the offence does not exceed five thousand dollars.
In addition to the penalties outlined above, the court can also issue a prohibition order under s. 380.2 (preventing a person from "seeking, obtaining or continuing any employment, or becoming or being a volunteer in any capacity, that involves having authority over the real property, money or valuable security of another person"). It can also make a restitution order under s. 380.3.[52] The Canadian courts have held that the offence consists of two distinct elements:[53]
A prohibited act of deceit, falsehood or other fraudulent means. In the absence of deceit or falsehood, the courts will look objectively for a "dishonest act"; and
The deprivation must be caused by the prohibited act, and deprivation must relate to property, money, valuable security, or any service.
TheSupreme Court of Canada has held that deprivation is satisfied on proof of detriment, prejudice or risk of prejudice; there does not have to be actual loss.[54] Deprivation ofconfidential information, in the nature of atrade secret or copyrighted material that has commercial value, has also been held to fall within the scope of the offence.[55]
The proof requirements for criminal fraud charges in the United States are essentially the same as the requirements for other crimes: guilt must be proved beyond areasonable doubt. Throughout the United States fraud charges can be misdemeanours or felonies depending on the amount of loss involved. High-value fraud can also trigger additional penalties. For example, in California, losses of $500,000 or more will result in an extra two, three, or five years in prison in addition to the regular penalty for the fraud.[56] The U.S. government's 2006 fraud review concluded that fraud is a significantly under-reported crime, and while various agencies and organizations were attempting to tackle the issue, greater cooperation was needed to achieve a real impact in the public sector.[57] The scale of the problem pointed to the need for a small but high-powered body to bring together the numerous counter-fraud initiatives that existed.[49]
Although elements may vary by jurisdiction and the specific allegations made by a plaintiff who files a lawsuit that alleged fraud, typical elements of a fraud case are that:[58]
The other person relies upon the misrepresentation
The other person suffers injury as a result of the act or forbearance taken in reliance upon the misrepresentation.
To establish a civil claim of fraud, most jurisdictions in the United States require that each element of a fraud claim be pleaded with particularity and be proved by apreponderance of the evidence,[59] meaning that it is more likely than not that the fraud occurred. Some jurisdictions impose a higher evidentiary standard, such asWashington State's requirement that the elements of fraud be proved with clear, cogent, and convincing evidence (very probable evidence),[60] orPennsylvania's requirement that common law fraud be proved by clear and convincing evidence.[61]
The measure of damages in fraud cases is normally computed using one of two rules:[62]
The "benefit of bargain" rule, which allows for recovery of damages in the amount of the difference between the value of the property had it been as represented and its actual value;
Out-of-pocket loss, which allows for the recovery of damages in the amount of the difference between the value of what was given and the value of what was received.
Special damages may be allowed if shown to have beenproximately caused by the defendant's fraud and the damage amounts are proved withspecificity. Some jurisdictions may permit a plaintiff in a fraud case to seekpunitive or exemplary damages.[63]
In response to securities fraud in the United States, Franklin D. Roosevelt established the Securities and Exchange Commission.
Beyond legislation directed at preventing or punishing fraud, some governmental and non-governmental organizations engage in anti-fraud efforts. Between 1911 and 1933, 47 states adopted the so-calledBlue Sky Laws status.[64] These laws were enacted and enforced at the state level and regulated the offering and sale ofsecurities to protect the public from fraud. Though the specific provisions of these laws varied among states, they all required the registration of all securities offerings and sales, as well as of every U.S.stockbroker and brokerage firm;[65] however, these Blue Sky laws were generally found to be ineffective. To increase public trust in the capital markets,Franklin D. Roosevelt established theU.S. Securities and Exchange Commission (SEC).[66] The main reason for the creation of the SEC was to regulate thestock market and preventcorporate abuses relating to the offering and sale of securities and corporate reporting. The SEC was given the power to license and regulate stock exchanges, the companies whose securities traded on them, and the brokers and dealers who conducted the trading.[67]
Rate of fraudper capita for individual countries as reported byUnited Nations Office on Drugs and Crime is shown below for the last available year.[68] Definitions of fraud and fraction of unreported fraud might differ for each country.
Apart from fraud, there are several related categories of intentionaldeceptions that may or may not include the elements of personal gain or damage to another individual:
18 U.S.C.§ 704 which criminalizes false representation of having been awarded any decoration or medal authorized by Congress for the Armed Forces of the United States
^Hazel, Robert A (2024)."Asymmetric Error Costs in Civil Law"(PDF).North Dakota Law Review.99 (2):211–252 – via University of North Dakota School of Law.
^ab"中华人民共和国刑法 – 中国人大网".The National People's Congress.Archived from the original on 5 May 2022. Retrieved23 September 2023.
^中华人民共和国最高人民法院 中华人民共和国最高人民检察院 The Supreme People's Court of the People's Republic of China and the Supreme People's Procuratorate of the People's Republic of China (1 March 2011)."最高人民法院 最高人民检察院关于办理诈骗刑事案件具体应用法律若干问题的解释 - 中华人民共和国最高人民法院公报".中华人民共和国最高人民法院公报 Gazette of the Supreme People's Court of the People's Republic of China.Archived from the original on 8 November 2023. Retrieved23 September 2023.
^"California Code, Penal Code - PEN § 186.11".California Legislative Information. California State Legislature.Archived from the original on 10 August 2017. Retrieved9 August 2017.If the pattern of related felony conduct involves the taking of, or results in the loss by another person or entity of, more than five hundred thousand dollars ($500,000), the additional term of punishment shall be two, three, or five years in the state prison.
