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  1. 1. THE INTERNATIONAL FRAUD AND CORRUPTION REPORT A study of selected countries NHS Counter Fraud and Security Management Service July 2006 Although care has been taken to ensure this document is up-to-date and accurate, the NHS CFSMS cannot guarantee the accuracy of information sourced from other organisations and websites. © 2006 NHS Counter Fraud and Security Management Service All rights reserved
  2. 2. Contents Section Title Page number 1 Introduction 5 2 Executive summary 8 Country overviews 3 Australia 11 4 Canada 30 5 France 46 6 Germany 62 7 Ireland 79 8 United States of America 90 9 International comparisons 107 10 Conclusion 124 11 End notes 126 12 Bibliography 132 1
  3. 3. Tables Table Title Page number number Summary of predominant types of fraud in each 1 8 country 2 Cost of predominant types of fraud in Australia 12 Predominant areas of fraud in Australia’s public and 3 13 private sectors 4 Cost of predominant types of fraud in Canada 31 Fraudulent offences listed in part five of the Canadian 5 35 Criminal Code International conventions against corruption ratified by 6 39 Canada 7 Cost of predominant types of fraud in France 47 Predominant areas of fraud in France’s public and 8 47 private sectors Predominant areas of fraud in Germany’s public and 9 64 private sectors Number of fraud cases detected by the Federal Bureau 10 75 of Criminal Investigations (BKA) 11 Cost of predominant types of fraud in Ireland 80 Predominant areas of fraud in Ireland’s public and 12 81 private sectors 13 Predominant types of fraud in the USA 92 14 Estimated cost of fraud in each country 108 Types of fraud measured in each country 15 109 divided by sector Sentences imposed for fraud and fraud-related 16 120 offences 2
  4. 4. Foreword I am very pleased to contribute a Foreword to this international comparative report of counter fraud strategies and action. The report provides essential knowledge for those seeking to design effective policies in their own country or organisation. It is also representative of a growing body of thought which recognises that entirely bespoke strategies, designed purely to serve the supposedly different interests of a particular organisation, are likely to fail. The new, professional approach to counter fraud work recognises that there are fundamental common elements needed in any effective counter fraud strategy, but that best practice in implementation requires a detailed and continuing study of what is happening both across the national economy and internationally. When reading this report for the first time, I was struck by the similarities of approach that lie just beneath the necessarily different languages used to describe them. In other areas of professional life, such as the law, the commonalities between different countries have long been recognised alongside the specific historical differences. Work to counter fraud is now maturing in a similar way and the common strategic framework which is emerging allows information about the detailed work taking place in different countries and organisations to be absorbed, organised and analysed in a useful manner. I hope this report will provide a useful source of information to those who want to learn and develop what is happening in their own organisations. We should never forget that in the 21st century, it is essential to progress, develop and move forward, ever more quickly – not to do so is increasingly to fall behind. Jim Gee Chief Executive, NHS CFSMS Director of Counter Fraud Services, Department of Health 3
  5. 5. Abstract This report intends to provide a brief overview of the strategies employed by six countries across three continents to counter fraud and corruption. This will be dissected into the following sub-headings: National definition of fraud; Nature and scale of the fraud problem; Main areas of fraud (in private and public sectors); Does a national fraud strategy exist?; Legislation; Countering fraud in the private and public sectors. Information is drawn from many sources, the main source being the internet. Acknowledgements This report was written by Samantha Ankrah. Thanks are due to the dedicated team of NHS CFSMS researchers comprising Duncan McDougall, Elisha Tymms and Josephine Ofili. The report was edited by Alex Smith (NHS CFSMS). Thanks are also due to Laura Davies (NHS CFSMS), Joseph Halligan (HM Treasury and Head of the Fraud Review Team) and the Fraud Review Team for their contributions to the report. 4
  6. 6. 1 Introduction “There is no reliable data on the scale and extent of fraud. Some elements of fraud have been measured reasonably accurately. And a number of estimates of overall fraud have been made by various research organisations [. . .]. But none of these studies are considered reliable and comprehensive by anyone, including their own authors.”1 1.1 The citation above provides an indication of the current problems in measuring losses to fraud. In the UK at present, there is no legal definition of fraud as an offence in itself. Attempts to measure the cost of fraud have been made by various organisations and government departments; however, there is a lack of consistency in the methodologies applied. 1.2 In an effort to address the situation, the British government has commissioned a review into the detection, investigation and prosecution of fraud. The Fraud Review began on 11 October 2005 and addresses the following areas: the nature and scale of the fraud; the appropriate role for government in dealing with fraud; and how resources could be best spent to maximise value for money across the system. 1.3 The Fraud Review is being led by a steering group consisting of representatives from the Department for Constitutional Affairs (DCA), Home Office (HO), HM Treasury (HMT), Department for Trade and Industry (DTI), Department of Health (DH), Fraud Advisory Panel (FAP), City of London Police, Serious Fraud Office (SFO) and the Financial Services Authority (FSA). 1.4 The NHS Counter Fraud Service (NHS CFS) conducted a number of projects that contributed to the Fraud Review, the main outcome being this report. 5
  7. 7. 1.5 Many different types of fraud will be covered in this report; however, a brief description of the predominant types of fraud in the countries considered is presented here: Identity fraud: An identity fraud is generally perpetrated to facilitate other crimes, such as credit card fraud or benefit fraud. When a person’s identity is stolen, it can be used to open new accounts in the name of the victim, or to withdraw funds from existing accounts. Telemarketing The most common example of this type of fraud or consumer fraud: involves a company, of legitimate or illegitimate status, contacting a person to offer a false or fraudulent product or service. In some cases, the person is asked to provide their personal bank account details to guarantee receipt of the product or service, which is never received by the ‘customer’. Insurance fraud: This type of fraud usually involves a person making a fraudulent insurance claim. The industries it affects vary from country to country; for example, health insurance is compulsory in France, although not in the UK. Another main area of insurance fraud is that of injuries and compensation. Healthcare fraud: This type of fraud also varies from country to country, depending on how the healthcare system is financed. The main types of healthcare fraud are fraudulent billing or upcoding, unbundling, pharmaceutical fraud and prescription fraud. Benefit fraud: Benefit fraud, which is referred to as ‘social welfare fraud’ in some countries, involves a person falsely claiming benefits to which they are not entitled, having supplied fraudulent information to obtain that benefit. 6
  8. 8. 1.6 The main body of this report contains information on six countries: Australia, Canada, France, Germany, Ireland and the United States of America (USA). The areas that will be explored are as follows: • national definition of fraud – whether there is one in existence or not • nature and scale of the fraud problem • national fraud strategy – whether there is one in existence or not • legislation relating to fraud and corruption • organisations with a counter fraud remit – in both the public and private sectors. 1.7 The main body of the report also contains a chapter on international comparisons, which highlights points of interest and examples of best practice, and identifies commonalities between the proposals of the Fraud Review Team and initiatives already in place in other countries. 1.8 The objective of this report is to give the reader a current picture of fraud and counter fraud activity in the six selected countries. The majority of figures on the cost of fraud for 2005 could not be found. Therefore, in order to maintain consistency, figures for 2004 are quoted where possible throughout the report as all figures were available for this period. All estimates contained within this report should be treated with caution, given the questionable reliability and validity of the methodologies used to produce them. 7
  9. 9. 2 Executive summary 2.1 National definition of fraud The definition of criminal fraud varies slightly from country to country. However, the main common elements that constitute an offence of fraud are dishonesty, deceit, deception and intent. 2.2 Nature and scale of the fraud problem The overall cost of fraud varied from £378 billion in the USA2 to £2.3 billion in Australia. However, the cost of fraud in Germany equated to the highest percentage of gross domestic product of all the six countries. The predominant types of fraud in each country are displayed in the table below: Table 1: Summary of predominant types of fraud in each country Countries Types of fraud Australia Canada France Germany Ireland USA Benefit/welfare fraud Consumer/telemarketing fraud Financial services fraud (e.g. credit card, cheque) Healthcare fraud Insurance fraud Identity fraud is the most common type of fraud in all the countries researched; it is, however, a by-product of other types of fraud. For example, someone who takes another person’s identity to claim a benefit to which they are not entitled is using identity fraud as a tool to commit benefit fraud. 8
  10. 10. 2.3 Legislation Three out of the six countries examined have a legal definition of criminal fraud. The remaining countries have provisions for fraud-related offences although not for the offence of fraud per se. The longest maximum sentence of imprisonment imposed for a fraud offence is that of 14 years in Canada, if the subject matter of the offence is greater than £2,500. 2.4 Countering fraud in the private and public sectors Anti-fraud culture and deterrence ‘Project kNOw Fraud’ (USA) is a large consumer protection effort, whose partners are key federal government consumer protection agencies and private sector organisations. Its aim is to raise awareness amongst the public of telemarketing fraud. Prevention The Fraud Prevention Forum (Canada) comprises private sector bodies, government agencies, law enforcement agencies, and consumer and volunteer groups. Its aim is to prevent Canadians from becoming victims of fraud. The Federation of German Industry (Bundesverband der Deutschen Industrie – BDI) set up an internet portal – named Corporate Social Responsibility Germany – to serve as a facility for data-sharing between two private sector bodies and act as a preventative measure in countering corruption. Detection The Data Matching Programme Protocol (Australia), entitled Pay as You Go (PAYG), was created by the Australian government to focus on the detection of customers failing to declare or falsifying details of their income. RECOL – Reporting Economic Crime Online (Canada) – is a public sector body, incorporating an integrated partnership between federal and provincial law enforcement agencies and private sector organisations, which receives copies of economic crime complaints. 9
  11. 11. Investigation The Garda Bureau of Fraud Investigation (GBFI) of Ireland is the Garda Síochána’s dedicated fraud unit, whose remit includes the investigation of fraud on a national basis as well as collating information and fraud intelligence. Sanctions and redress The Sarbanes Oxley Act 2002 (USA) was designed to review legislative requirements to improve the accuracy of financial reporting of public companies. France has established a number of Economic and Financial Crime Centres containing civil servants with specialist knowledge or experience in economic and financial issues. France has two types of court in its legal system – judicial and administrative. The national audit function is included in its court system. 10
  12. 12. 3 Australia • Population (2004): 20.1 million3 • Gross domestic product (GDP)4 in 2004: £3.4 trillion (AUD $8.4 trillion)5 • Total cost of fraud in 2004: £2.3 billion (AUD $5.8 billion)6 • Total cost of fraud as percentage of GDP: 1.3% The Commonwealth of Australia was established as a democratic federal state in 1901. Federalism divides the Australian government into three distinct levels: federal, state and local government. Powers are distributed between the federal government (commonwealth), the six states of Australia (New South Wales, Queensland, Victoria, Western Australia, South Australia and Tasmania) and their respective local authorities. As in the United Kingdom, the Prime Minister is the leader of the party holding the majority in the House of Representatives and, alongside the cabinet ministers, is the centre of executive power. 3.1 National definition of fraud 3.1.1 In Australia, the criminal definition of fraud is ‘dishonestly obtaining a benefit by deception or other means’.7 The definition covers a number of behaviours that are deemed fraudulent: • theft • obtaining property, a financial advantage or any other benefit by deception • creating a loss, or avoiding or creating a liability by deception • providing false or misleading information to the commonwealth • making, using or possessing forged or falsified documents • bribery, corruption or abuse of office 11
  13. 13. • relevant bankruptcy offences • any offences of a like nature to those listed above. 3.2 Nature and scale of the fraud problem 3.2.1 The overall cost of fraud in Australia was estimated by KPMG in 2005 at around £2.3 billion (AUD $5.8 billion).8 However, this figure is not consistent with the estimates of different types of fraud by other organisations shown in the table below. It has proven difficult to find details of the methods used to arrive at these figures; therefore, they should be read with a degree of circumspection. 3.2.2 The costs of the predominant types of fraud in Australia are presented in the table below: Table 2: Cost of predominant types of fraud in Australia Type Cost Estimated by Date Australian Institute of Benefit/welfare fraud £2.8–5.9 billion Criminology9 2005 New South Wales Crime Identity fraud £1.5 billion Commission10 2003 Insurance Council of Insurance fraud £0.9 billion Australia (ICA)11 2003 3.2.3 As indicated above, welfare/benefit fraud is estimated to cost the commonwealth the largest sum of money. A report on identity fraud by the Australian Attorney General’s Department notes: ‘As stated by … the AIC, ‘the figures do not exist’ when it comes to considering the significance and cost of identity related fraud for the Australian government and the community.’12 This view on the lack of national statistics and costing in this area is supported by the Australian National Audit Office and the National Crime Authority. 12
  14. 14. 3.2.4 Public sector fraud takes many forms. The most common are: • individuals claiming benefits to which they are not entitled • individuals evading payments owed to the government • individuals who contract with the government to provide goods or services failing to act as they have been contracted to. 3.2.5 As government agencies such as the Australian Tax Office and Centrelink deal in such large sums of money, the potential losses to fraud are considerable. The Australian National Audit Office’s 2000 survey of fraud control arrangements in public sector agencies, for example, found that £58.2 million (AUD $145,862,000) was reported to be lost to fraud by 106 agencies in 1998– 99. There is no doubt that Australian governments have become increasingly susceptible to fraud. 3.3 Main areas of fraud (in private and public sectors) 3.3.1 The predominant areas of fraud in Australia’s public and private sectors are presented in the following table: Table 3: Predominant areas of fraud in Australia’s public and private sectors Private sector Public sector Financial services fraud Taxation evasion (e.g. credit card, cheque) Insurance fraud Welfare fraud Telemarketing fraud Healthcare fraud 3.4 Does a national fraud strategy exist? 3.4.1 The Attorney General's Department13 is responsible for coordinating fraud control policy and works closely with the Australian Federal Police on all fraud control issues. The department's national fraud control policy work includes: 13
  15. 15. • implementing the Commonwealth Fraud Control Guidelines • promoting the use of risk management techniques within commonwealth departments and agencies to minimise fraud against their programmes • promoting best practice in fraud control, including the development of fraud standards • providing advice on fraud control to the government and reporting on the extent and nature of fraud against the commonwealth. 3.4.2 The Australian government issued a fraud control policy in May 2002 in the form of regulations made under the Financial Management and Accountability Act 1997. However, this act only covers budget-funded agencies and small parliamentary departments, as other agencies – mainly those with quasi- commercial status – are covered by the Commonwealth Authorities and Companies (CAC) Act 1992. Nevertheless, there are shortfalls in the CAC Act. Firstly, its one-fit-for-all approach disregards the size of the agency. Secondly, the CAC Act’s opt-in facility means agencies that receive more than 50% of their funding from the government are under pressure from the Minister for Justice and Customs to comply. Thirdly, on a practical note, determining which agencies receive more than 50% of their funding from the government is somewhat difficult. Lastly, there is a shortage of mechanisms by which agencies can report compliance with the policy. 3.4.3 The fraud control policy was a revision of a similar policy issued in 1994. The major changes to the policy were as follows: • ‘A greater emphasis upon fraud control for outsourced functions; • elevating the fraud investigation competencies as a basis for mandatory qualification; • shifting the responsibility for fraud control away from the central coordinating agencies; • attempting to remedy the unworkable fraud reporting requirements in the 1994 policy; and • reliance upon a legislated basis for the policy.’14 14
  16. 16. 3.5 Legislation A note on Australian legislation The Australian legal system is based on English common law.15 The main criminal law powers rest with the states and territories, while commonwealth legislation is generally restricted to criminal activity against commonwealth interests, commonwealth officers or commonwealth property. At a national level, the Australian Federal Police (AFP) enforces most commonwealth criminal law. 3.5.1 Money laundering and other fraud is dealt with at both the federal and state level. In Australia’s federal criminal law system, there are nine separate jurisdictions, each of which has its own common law and legislative offences involving fraud. Commonwealth (federal) legislation 3.5.2 The Trade Practices Act 1974 gives consumers protection against fraud on the part of Australian companies. For example, Section 75AZC imposes civil penalties, with a maximum fine of 10,000 penalty units, on corporations that make false or misleading representations in trade or commerce. Section 6A establishes the Australian Competition and Consumer Commission (ACCC), whose function is to ensure compliance with the act. 3.5.3 Australia has recently legislated against spamming and ‘phishing’ – the sending of fraudulent emails to gather recipients’ personal information, often their bank details. The Spam Act 2003 makes this an offence punishable by hefty fines. Since the act’s introduction, Australia has lost its position as one of the top 10 spamming countries.16 The offence of phishing is contained in the Fraud Bill, which has continued to be debated in the UK parliament since its introduction in May 2005. 3.5.4 The Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Act 2000 is concerned with fraudulent activity perpetrated against 15
  17. 17. commonwealth entities which requires some element of dishonest or deceptive conduct. Examples include Section 134 (1): obtaining property by deception, Section 134 (2): obtaining a financial advantage by deception and Section 135 (4): conspiracy to defraud. These sections impose criminal sanctions of 10 years’ maximum imprisonment. Commonwealth (federal) fraud guidelines 3.5.5 The government has issued Fraud Control Guidelines under Regulation 19 of the Financial Management and Accountability Regulations 1997. Under guideline two, fraud is defined as ‘dishonestly obtaining a benefit by deception or other means’. These guidelines apply to all agencies covered by the Financial Management and Accountability Regulations 1997 and organisations falling under the scope of the Commonwealth Authorities and Companies Act 1997 (CAC Act) that receive at least 50% of their funding for operating costs from the government or a government agency. Agencies and organisations include departments of state or parliament, banks and commonwealth companies. State legislation 3.5.6 The Crimes Act 1958 (Vic) has the same fraud-related provisions as the Criminal Code Amendment (Theft, Fraud, Bribery and Related Offences) Act 2000, namely Section 82 (obtaining financial advantage by deception) and Section 83 (obtaining property by deception). Both these offences attract criminal sanctions – a 10-year maximum term of imprisonment. However, the Crimes Act is broader in scope, applying to individuals. 3.5.7 Australian commonwealth and state fraud legislation both contain similar provisions to the Theft Act 1968 (UK); for example, the Theft Act contains a provision concerning obtaining property or services by deception, which is strikingly similar to Sections 82 and 83 of the Crimes Act and Section 143 of the Criminal Code. 16
  18. 18. 3.5.8 The Crimes Amendment (Computer Offences) Act 2001 of New South Wales creates new offences for the commission of computer-based crime. The types of fraud that will be prevented include credit or financial institution fraud, social security fraud and rebirthing17 of stolen vehicles. 3.5.9 The only Australian state with jurisdiction to announce proposed legislation to target identity theft specifically (i.e. to make it a crime) is South Australia. 3.5.10 In regard to civil legislation, New South Wales and South Australia are the only two states in Australia that retain the common law approach to fraud regulation. This is based on the offence of larceny, which is modified and supplemented by a large number of statutory offences (which in New South Wales are contained in the Crimes Act 1900 (NSW)). 3.5.11 The six broad categories of offences classified as fraud are: • bribery • conflict of interest • false statements and false claims • extortion • fraudulent conversion (for example, of public funds or property) • embezzlement. Corruption legislation 3.5.12 The Independent Commission Against Corruption (ICAC) is a New South Wales government body which regulates the performance of public officials in order to control and penalise corruption. The Independent Commission Against Corruption Act 1988 (NSW) defines corruption in Sections 7 and 8 as ‘conduct that could involve the dishonest or partial exercise of official functions, or a breach of public trust, or the misuse of information or material acquired in the course of official functions’18. Like Australia’s criminal definition of fraud, this definition involves some element of dishonesty. 17
  19. 19. 3.5.13 There are both criminal and civil sanctions available for breaches of the act. For instance, Section 91 deals with fraud practised on witnesses called before the Commission. A breach of this section involves practising any fraud or deceit on, or knowingly making or exhibiting any false statement, representation or writing to, any person required to act as a witness before the Commission. The offence attracts a maximum fine of 200 penalty units or a maximum term of five years’ imprisonment. 3.5.14 South Australia has legislated to protect those who uncover and report corrupt conduct of public officials. The Whistleblowers Protection Act 1993 (SA) is therefore designed not only to punish corrupt conduct but also to facilitate its disclosure. Under this act, the definition of corrupt conduct extends further than it does under the Independent Commission Against Corruption Act 1988 to encompass both a dishonest act and a reckless act. This is evident in Section 10, which states that a person who makes a disclosure of false public interest information knowing it to be false or being reckless about whether it is false is guilty of an offence. This attracts a 10-year maximum term of imprisonment or, alternatively, a civil sanction by way of a Division Five fine. Investigation legislation 3.5.15 Commonwealth – as well as state and territory – authorities have legal powers for gathering evidence and compelling production of documents, as well as a wide range of special investigative techniques. These include the use of undercover police officers, electronic interception and surveillance. 3.5.16 The Proceeds of Crime Act 2002 provides for both criminal and civil-based forfeiture of proceeds. Competent authorities have a wide range of powers to identify and trace property, including the Financial Transactions Reports Act 1988. 3.5.17 The Anton Pillar Order ‘is an order made by the court to search and seize in a civil action and is used by a would-be plaintiff as a precursor to instituting proceedings. Anton Pillar applications are not public applications, as the 18
  20. 20. purpose is to conceal from the other side the intention to seize property in order to avoid any property being destroyed by that party.’19 3.6 Countering fraud in the private and public sectors Anti-fraud culture and deterrence 3.6.1 The Corporate Crime Liaison Group (CCLG) was formed in 2003 to ‘foster a spirit of cooperation between the police and the private sector’.20 Meetings are held between the CCLG and large legal accounting firms. The CCLG runs a number of roadshows, seminars and other events to create and increase fraud awareness. It has received formal recognition from the Victoria Police. Prevention 3.6.2 The fraud control policy of the commonwealth outlines the principles of fraud control and defines national standards. Although the policy relates only to commonwealth government departments and does not encompass any enforcement function, it provides a consistent set of guidelines and directions to assist departments in carrying out their responsibilities for fraud prevention, reporting of fraud information, fraud investigations case handling and training of agency fraud investigators. 3.6.3 Significant advances have been made by various state and territory government departments in developing fraud control policies. The Australian Capital Territory Government Service Fraud Prevention Unit established a fraud control policy that is in line with the ‘Public Sector Management Standards’ on fraud prevention21. The policy ‘sets out the responsibilities of managers and employees in relation to fraud control, describes the investigatory functions of the Fraud Prevention Unit and details the procedures for reporting fraud and corruption’.22 Section 9(t) of the Public Sector Management Act 1994 calls for public sector employees to report suspected fraud; alongside this, the Public Interest Disclosure Act 1994 provides protection against reprisals for people who report fraud and corruption ‘in good faith.’23 19
  21. 21. 3.6.4 The design of financial systems can be an important means of fraud prevention. The introduction of a requirement for recipients of public funds to have an account with a financial institution in which the funds can be deposited automatically has dramatically reduced the risk of lost or stolen cheques, or fraudulent claims. Automated payment also reduces clerical costs. 3.6.5 Initiatives have also been introduced to prevent fraud in the private sector. This means that private sector organisations are potentially subject to criminal or civil penalties if they fail to put effective fraud prevention systems in place. This requirement is reinforced by the Australian Standard No. AS 3806-98 ‘Compliance Programs’, which provides guidelines for public and private sector organisations on implementing effective prevention measures. Additionally, BHP Billiton – a global resources company with headquarters in Australia – published the Guide to Business Conduct in 2004, which outlines guidelines for employees on the use of company funds, reporting of expenditure, details of gross misconduct in relation to fraud, maintenance of company financial transactions, and the use of company goods/equipment. 3.6.6 The Australian Bankers’ Association (ABA) has joined with its member banks to form a partnership with the Australasian Consumer Task Force to provide information to clients on preventing ‘scams’ such as pyramid schemes, ‘amazing offer schemes’, investment scams, medical scams and internet scams – to name but a few. Detection 3.6.7 An important strategy introduced in the early 1990s to control revenue fraud involved the establishment of an extensive database by the federal government. The database sought to reduce taxation and social security fraud by identifying individuals who make claims for benefits from government funds to which they are not entitled. The Parallel Data-Matching Program (PDMP), which was introduced in 1991 by the Data-Matching Program (Assistance and Tax) Act 1990, makes use of tax file numbers and permits income records to be compared with payment records held by various benefit providing departments. 20
  22. 22. 3.6.8 The first barrier to the criminal prosecution of an alleged fraudster is the difficulty of encouraging those who have suffered loss at the hands of offenders to report their complaint to the authorities. Some, however, such as those who fall prey to bogus charitable solicitations, may never realise that they have been defrauded. Where individuals are aware that they have been defrauded, the law requires, in certain circumstances, that they bring this fact to the attention of the police. 3.6.9 Despite this requirement, there are powerful reasons why individuals may not wish to report offences of dishonesty to the authorities. In its survey of businesses in 1999, KPMG found that one third of organisations surveyed failed to report frauds to the police, many preferring to deal with the matter internally, possibly by dismissing the individual in question. An Ernst & Young study in 1998 found that, although nearly half of the organisations surveyed had a fraud-reporting policy in place, fewer than half of these said that their staff were aware of the policy. Other surveys have identified a variety of reasons for organisations’ failure to report offences: belief that the matter was not serious enough to warrant police attention, fear of consumer backlash, fear of bad publicity, inadequate proof, and a reluctance to devote time and resources to prosecuting the matter. Various inducements may be needed to enhance the reporting of fraud. These may include guarantees of anonymity where this is necessary to protect a business reputation, and assistance in reducing the personal costs and time associated with the investigation and prosecution of these offences. 3.6.10 The use of fraud-reporting ‘hot lines’ may be another way of persuading employees to report fraud to management, although in Ernst & Young’s 1998 survey24, more than 50% of respondents were opposed to the idea, with most opposition coming from company directors. 3.6.11 The Australian government’s Fraud Tip-off Line provides people with a means of reporting suspected fraud against Centrelink, Medicare, the Pharmaceuticals Benefits Scheme and the Child Support Agency. The Department of Health and 21
  23. 23. Ageing (DOHA) is responsible for the policy development of Medicare and the Medicare benefits schedule. Medicare Australia is responsible for ensuring that: • Medicare benefits are paid to eligible healthcare consumers for services provided by eligible medical practitioners • assessment and payment of Medicare benefits for a range of medical services, whether provided in or out of hospital, are based on a schedule of fees determined by DOHA in consultation with professional bodies. 3.6.12 Medicare Australia is involved in detecting and preventing fraud and abuse of the Medicare system and registering and recording details of medical practitioners. These include those eligible to have Medicare benefits paid for their services and those who are not entitled to have Medicare benefits paid for their services but able to raise valid referrals or requests for specialists’ services for Medicare benefit purposes. As of 30 June 2005, there were more than 20.5 million people registered for Medicare benefits and over 236 million services were processed in the July 2004–June 2005 period. 3.6.13 Some examples of suspected fraud against Medicare Australia programmes are listed below: • making Medicare claims for services that were not provided • using someone else’s Medicare card • using an invalid concession card • forging prescriptions for Pharmaceutical Benefits Scheme (PBS) items • making PBS claims for pharmaceutical benefits that were not provided • swapping PBS prescription items for other pharmacy items or goods • an individual taking or sending overseas PBS medicine that is not for their personal use or the use of someone travelling with them. 3.6.14 Centrelink fraud is committed when a person knowingly gives false and misleading information, or provides false statements or false identification, to obtain a payment or payments they are not entitled to, or when they fail to give Centrelink information that they are obliged to disclose. 22
  24. 24. 3.6.15 Centrelink detects fraud in a variety of ways: • Using information from the public – the public has always been a valuable source of information about alleged fraud. Members of the public contact Centrelink with information about people who they think are receiving a payment from Centrelink to which they are not entitled. All information from the public is checked and followed up if necessary. • Regular payment checks – Centrelink can regularly check whether a customer continues to be eligible for the payment they receive. • Data-matching – Centrelink can detect incorrect payments by matching its data with that of a number of other agencies, such as the Australian Taxation Office (ATO), Department of Veterans’ Affairs, Department of Immigration and Multicultural and Indigenous Affairs, Department of Corrective Services and the Registrar-General’s Office. 3.6.16 Information is provided by members of the public to Centrelink in a number of forms: • reports made to the Centrelink call centre (this is the most common way of reporting a case of suspected fraud) • reports made by employers to a Centrelink employer contact • reports made to a Centrelink customer relations unit • letters sent to Centrelink customer service centres • letters to the minister(s) or Prime Minister. 3.6.17 Through the PBS, the Australian government makes a range of necessary subsidised prescription medicines available at affordable prices to all Australian residents and those overseas visitors eligible under reciprocal healthcare agreements. 3.6.18 The Australian Transaction Reports Analysis Centre (AUSTRAC) has a dual role as both a financial intelligence unit and AML/CFT (anti-money laundering/combating the financing of terrorism) regulator. AUSTRAC was established in 1989 as an independent authority within the Australian government's Attorney General’s portfolio. AUSTRAC collects financial 23
  25. 25. transaction reports information from prescribed cash dealers, including the financial services and gaming sectors, as well as from solicitors and members of the public. 3.6.19 Australia has a comprehensive system for reporting cross-border movements of currency above £3,990 (AUD $10,000) to AUSTRAC. However, there is no corresponding system for declaration or disclosure of bearer-negotiable instruments. 3.6.20 Australia has a mandatory system for reporting all international fund transfer instructions to AUSTRAC. The reports contain the ordering customer’s name, location (i.e. full business or residential address) and account number. These reports are maintained in AUSTRAC’s database and are a useful source of intelligence. 3.6.21 Australia has a functional approach to financial sector supervision. AUSTRAC’s regulatory role includes an ongoing monitoring programme to ensure cash dealer compliance with the requirements of the Financial Transactions Reports Act 1988. The Australian Prudential Regulatory Authority is the prudential supervisor and regulator of the Australian financial services sector. The Australian Securities and Investment Commission, the financial market and conduct regulator, enforces and regulates company and financial services laws in order to protect consumers, investors and shareholders.25 Investigation 3.6.22 To be effective, public and private sector bodies that engage in the investigation of fraud are required to liaise closely with law enforcement personnel and prosecutors in order to ensure that evidence is obtained in such a way as not to prejudice its use in criminal trials or otherwise result in critical evidence being lost or damaged. Such cooperation already occurs in many agencies, such as the Australian Securities and Investment Commission (ASIC). 24
  26. 26. 3.6.23 Recently, initiatives have been taken to establish comprehensive training programmes for those involved in the investigation of fraud. Both the Victoria Police Major Fraud Group and the New South Wales Police Service’s Commercial Crime Agency have fraud investigators’ courses – conducted by tertiary educational institutions – that are now being made available to non- police investigators. This will help to ensure that all those involved in the investigation of fraud and forensic accounting, from both the public and private sector, understand each other’s role and duties and conduct investigations in a coordinated way. 3.6.24 Centrelink, for example, investigates fraud in many ways, depending on the information and the circumstances. Letters may be sent to financial institutions, employers, real estate agents and local governments to confirm current customer details. Centrelink may contact family members, friends or neighbours to confirm information that the customer has provided. Customers may be interviewed at a Centrelink customer service centre, at home or at another suitable place. Income details can be checked with a customer’s last/current employer by sending a letter directly to the employer or through the Australian Taxation Office. 3.6.25 Centrelink can use many external information sources to check whether customers are receiving the right type and amount of payment. This involves checking names and addresses, redirection information and post office box information through Australia Post, as well as contacting local councils to verify who owns property, dates of purchases and locations of properties. If an incorrect payment or a fraud of some kind is detected, the customer will be contacted and asked for an explanation. 3.6.26 Since February 2000, the Australian Bureau of Criminal Intelligence (ABCI) has been providing investigators all over Australia with stage one of a new counter fraud project – the National Fraud Desk. The project is a secure intranet website which gives up-to-date information on emerging trends and new techniques in fraud26 and will cover areas such as plastic card fraud, identity 25
  27. 27. fraud, e-commerce fraud, computer crime, tax and Goods and Services Tax fraud and proceeds of crime. 3.6.27 The Australian Government Investigations Standards (AGIS) replaced the Commonwealth Fraud Investigations Standards Package (CFISP) in September 2003. AGIS has been developed to help all Australian government agencies further enhance their investigative practices. All Australian government agencies required to comply with the Commonwealth Fraud Control Guidelines27 must also comply with the minimum standards for investigations set out in AGIS. Agencies may use AGIS as a set of best practice standards for all investigations of offences under commonwealth legislation. 3.6.28 Private organisations that become victims of fraud ‘may retain their own in- house investigators, or may engage specialised fraud investigators residing in the private sector.’28 The private investigators are able to conduct an investigation from start to finish and then hand the case over to the police for prosecution. This is particularly common in the insurance industry. 3.6.29 KPMG offers various services to assist private sector bodies in countering fraud – particularly in detecting, investigating and instigating sanctions against fraudsters. Its services include quantifying loss (insurance), interviewing suspects and witnesses, sending briefings to the police, supporting civil action, creating fraud detection strategies and searching for assets. This last service is conducted through a ‘number of methods such as using the Public Record, the victim’s own bank, surveillance, telephone records, [and/or] detection through a third party.’29 3.6.30 KPMG has created a fraud control plan, which includes a definition of fraud, a statement of attitude, and fraud control responsibilities. It also contains documented policy and procedures, such as a fraud policy (including how to report fraud), an internal audit strategy, guidelines on fraud risk assessment and pro-active fraud detection by line management, and information on internal training. 26
  28. 28. Sanctions and redress 3.6.31 Dishonest and fraudulent behaviour is dealt with using a variety of legal responses in addition to informal sanctions such as dismissing an employee who has defrauded a business, or what is known in the dispute resolution literature as ‘exciting’ a problematic situation (Hirschman 1970). Often, an organisation that has suffered loss through fraud may be unwilling to incur further time and expense in pursuing legal remedies, be they in the civil or criminal courts. 3.6.32 Some may view the benefits which follow from reporting fraud to other regulatory agencies as inadequate and take no action at all. By refraining from taking legal action, the potential benefits to an organisation – as well as to the wider community – in terms of individual and general deterrence will be lost, leaving the offender free to repeat the dishonest conduct at the same or another place of employment, and providing no signal to the rest of the community that fraudulent behaviour is unacceptable. 3.6.33 Criminal fraud has traditionally been dealt with through the legal channels of investigation, employing publicly funded police services, prosecution agencies, trial in the criminal courts (often employing juries) and punishment in the state- administered correctional system. 3.6.34 In recent times, however, many of these functions have been taken over by privately funded agencies, usually working in conjunction with their publicly funded counterparts. Financial considerations have meant that only the most serious cases involving substantial monetary losses are likely to be fully investigated and tried, with the attendant possibility of convicted offenders receiving the most severe sanction – a term of imprisonment. The legal response to fraud control has, therefore, been severely restricted, although the possibility of criminal prosecution and sanctions has always remained open. 3.6.35 Australia’s Department of Foreign Affairs and Trade (DFAT) maintains one consolidated list of individuals and entities to which the asset-freezing sanctions apply. The list is available on the DFAT’s website. It contains over 500 names. 27
  29. 29. 3.6.36 AUSTRAC’s powers include criminal sanctions for non-compliance and an injunctive power. The regulatory sanctions available in the broader Australian financial supervisory and regulatory environment include criminal, civil and administrative mechanisms. Prosecution policies 3.6.37 After a case of serious fraud has been investigated, the evidence must be presented to the relevant prosecution agency. It is at this point that serious fraud cases often flounder, as prosecutors may believe that the evidence presented to them is inadequate or that the chances of success are insufficient to justify the time and expense involved in a lengthy trial. 3.6.38 In 1992, in the case of Dietrich v the Queen ((1993) 67 ALJR 1), the High Court of Australia ruled that, unless exceptional circumstances exist, if a genuinely indigent accused person is unrepresented by counsel at a trial for a serious offence, the trial will be considered unfair and should be adjourned until legal representation is made available. 3.6.39 Few individuals are able to afford the costs associated with a long and complex criminal trial. Defendants charged with serious fraud are often able to arrange their financial circumstances in such a way as to make themselves appear indigent and thus take advantage of the Dietrich ruling. The effect may well be that a long and complex investigation will be stayed indefinitely. The federal Attorney General’s Department has stated that there are many other implications and challenges for law enforcement agencies grappling with fraud, including: • the need for better collation of data • the finite amount of law enforcement resources available • the high costs involved in investigating fraud • the limited role of law enforcement agencies in fraud prevention. 28
  30. 30. 3.6.40 Legal aid is provided to people charged with committing social security fraud and in corporate fraud cases. However, legal aid budgets are restricted and there is some concern about the quality of the representation provided: ‘The quality of representation for the impecunious (or even moderately well-off) citizen [has its] own deficits from the prosecution’s view point.’ 30 29
  31. 31. 4 Canada • Population (2004): 31.9 million31 • Gross domestic product (GDP) in 2004: £481 billion (CAD $980 billion)32 • Total cost of fraud in 2004: £10 billion (CAD $20 billion)33 • Total cost of fraud as percentage of GDP: 2.1%34 Canada is a federal state and its government is a confederation of 10 provinces and three territories. It is a parliamentary democracy. Government services are provided on three levels: federal, provincial (consisting of 10 provincial and three territorial governments) and local (consisting of municipalities, school boards, special agencies and commissions). The constitutional head of state is the Queen, who is represented in Canada by the governor general. The House of Commons is elected by direct popular vote to serve five-year terms. The Senate members are appointed by the governor general to serve until they reach 75 years of age, and are selected on the advice of the Prime Minister. 4.1 National definition of fraud 4.1.1 A fraudster is defined under Section 380 of the Canadian Criminal Code as: ‘Everyone 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 of any service’. 35 4.1.2 In regard to civil law, if an act involves misrepresentations or misleading non- disclosures, the alleged victim has common law rights to action for misrepresentation or fraud on the basis that the victim relied on the misrepresentation when deciding to purchase or sell a product or service. 30
  32. 32. 4.2 Nature and scale of the fraud problem 4.2.1 There is a lack of information available regarding an overall estimate of national fraud in Canada. However, there are a number of estimates of the cost of types of fraud in Canada, which have been calculated by specialist agencies. Table 4: Cost of predominant types of fraud in Canada Type Amount Estimated by Date £2.8 billion+ Canadian Council of Better Identity fraud 2003 (CAD $5.6 billion) Business Bureaus36 £7.6 billion Canadian Health Care Anti- Healthcare fraud 2003 (CAD $15.3 billion) Fraud Association37 £0.7 billion+ Insurance fraud Insurance Bureau of Canada38 2003 (CAD $1.4 billion) Financial £266 million Regulatory Impact Analysis 2001 services fraud (CAD $539 million) Statement39 Financial Transactions and Reports Analysis Centre of Money £1 billion+ Canada 2004–05 laundering (CAD $2 billion) (independent federal government agency) 40 Telemarketing £403 million USA Immigration and Customs 2006 fraud (CAD $817 million) Enforcement41 4.2.2 Additionally, Ernst & Young fraud investigator Don Holmes estimated that ‘white- collar crime’ costs Canadians £10 billion (CAD $20 billion) a year in increased taxes and prices for goods and services.42 However, the exact cost of goods and services tax (GST) fraud remains unknown. 4.3 Main areas of fraud (in private and public sectors) 4.3.1 Reporting Economic Crime Online (RECOL) is a fraud-reporting initiative in Canada which incorporates an integrated partnership of federal and provincial law enforcement agencies. RECOL is administered by the National White Collar Crime Centre of Canada and is supported by the Royal Canadian Mounted 31
  33. 33. Police. The number of complaints registered by RECOL provides an indication of the different types of fraud that occur in Canada43: 1. identity fraud (approximately 1,200 complaints) 2. counterfeit fraud (approximately 250 complaints) 3. investment fraud (approximately 200 complaints) 4. corruption (approximately 100 complaints) 5. health fraud (approximately 50 complaints) 6. property fraud (approximately 50 complaints) 7. ‘other’ fraud (including telemarketing fraud) (approximately 3,550 complaints). 4.4 Does a national fraud strategy exist? 4.4.1 Public Safety and Emergency Preparedness Canada (PSEPC) – a Canadian government department – has a number of key components of federal action to combat economic crime. These include: A multidisciplinary approach Federal, provincial and territorial (FPT) ministers responsible for justice combine to commit governments to fight organised crime, including economic crime, fraud and money laundering. Royal Canadian Mountain Police (RCMP) efforts to fight economic crime The RCMP has established an Economic Crime Branch which is staffed by investigators specialising in areas such as accounting, law, finance, economics, computer science and business. The branch also created the Fraud Reporting Centre RECOL (as described in paragraph 4.3.1). Strengthening legislation and enforcement for capital market fraud The federal government announced the creation of integrated market enforcement teams in 2003. These teams enforce serious capital market fraud 32
  34. 34. offences. The federal government has introduced draft Criminal Code amendments to create new offences, facilitate evidence-gathering and strengthen sentencing for capital markets fraud offences. Public education The government works with both the public and private sectors to increase public awareness of the various aspects of economic crime. Federal strategy for private sector fraud 4.4.2 The Canadian government has established various fraud strategies specific to different types of fraud and the sectors they affect. One such strategy is the federal strategy for countering ‘serious capital market fraud’, also known as ‘corporate fraud’. In Canada, enforcement of laws governing corporate and securities activities is a shared responsibility, involving the federal and provincial governments, and securities regulators. In this context, the federal government works closely with the provinces, market regulators, law enforcement and industry to ensure the integrity of Canada's financial markets. The federal government's coordinated strategy to strengthen enforcement and legislation to counter serious capital market fraud is based on the following proposals: 1. Expand resources dedicated to investigating serious cases of capital market fraud. Integrated market enforcement teams (IMETs) are to be established in key Canadian financial centres. 2. Provide additional resources to support prosecutions of capital market fraud offences under the Canadian Criminal Code. 3. Make legislative amendments to the Canadian Criminal Code that will create new offences and evidence-gathering tools, toughen sentencing and establish concurrent jurisdiction with the provinces in the prosecution of serious cases of this type of fraud. 33
  35. 35. 4.5 Legislation A note on Canadian legislation Canada has a bijural legal system – unusual in Western democracies – drawing on both English common law and French civil law. The majority of the legal system is based on English common law, except in Quebec, where there is a civil law system based on French law. 4.5.1 In Canada, the power to make criminal law is exclusively federal, but provinces can create offences as necessary for matters over which they have jurisdiction. This includes ‘property and civil rights’, which most provinces have used to regulate local commerce and deceptive trade practices. Canadian provinces have no power to enact criminal law, but may create offences dealing with ‘property and civil rights’, which includes many commercial activities. Eight of the 10 provinces have enacted offence and regulatory provisions dealing with unfair or deceptive trade practices. 4.5.2 These are minor in comparison with the Criminal Code fraud offences and punishments, but are also subject to a lower procedural standard under the Canadian Charter of Rights and Freedoms, which makes these acts easier to prosecute. They are punishable by a fine of between £1,000 and £50,000 (CAD $2,000–100,000), a prison sentence of up to three years, or both. Conduct such as inflating prices or taking advantage of particularly vulnerable consumers – not usually elements of fraud – are included in several offences. 4.5.3 One major section of the Criminal Code is Section 380, which sanctions those who defraud the public or any person of any property, money, valuable security or service. Under this section, fraud is defined as an act involving an element of ‘deceit’ or ‘falsehood’. If the value of the subject matter of the offence is greater than CAD $5,000 (£2,500), a 14-year prison sentence may be imposed. If the value is less than this, imprisonment must not exceed two years. 4.5.4 Many other fraudulent practices are prohibited by part five of the act, and are sanctioned by varying terms of imprisonment: 34
  36. 36. Table 5: Fraudulent offences listed in part five of the Canadian Criminal Code Section Type of crime Sentence (max.) Fraudulent manipulation of stock exchange 382 10 years transactions 382 (1) Insider trading 10 years Property (land) offences such as the fraudulent 385–388 Varies sale of real estate 397–402 Falsification of books and documents 5 years Fraudulently impersonating any person to gain Sections 403–405 10 years a financial advantage Sections 406–41 Forgery of trademarks and trade descriptions 2 years 4.5.5 Fraud and other federal Criminal Code offences are prosecuted by the provincial Attorney Generals, although federal offences under other statutes (Competition Act, Income Tax Act, Customs Act and Telecommunications Act) are prosecuted federally. Changes to the 1997 Criminal Code created a new federal jurisdiction to prosecute Criminal Code offences committed by criminal organisations. 4.5.6 Prosecutors in Canada must file a separate legal case for every individual who has been defrauded. By contrast, in the United States, legal authorities can amalgamate individual instances of fraud into one case. When a court imposes a sentence for breach of Sections 380, 382 and 400 of the Criminal Code, it must consider aggravating circumstances under Section 380 (1). Aggravating circumstances increase the severity of a crime and, consequently, of the penalty imposed. They include the following: • The value of the fraud committed exceeds CAD $1 million (£500,000). • The offence adversely affected or could have adversely affected the Canadian economy or investor confidence. • There was a large number of victims. • The offender took advantage of the high regard in which they were held by the community. 35
  37. 37. 4.5.7 The Employment Insurance Act 1996 is enforced by the Canada Employment Insurance Commission (CEIC) and covers, amongst other things, fraud committed by people who apply or have applied for benefits under the act. The penalty provisions of Section 38 relate to claimants who make false or misleading representations or fail to disclose relevant information about benefit claims. The sanctions available are varied; for example, the CEIC may impose a maximum penalty of a fine that amounts to not more than three times the claimant’s weekly benefit. There is no minimum penalty set. These sanctions are, therefore, punitive as well as compensatory in nature, as the maximum fine is higher than the amount that the claimant may have obtained fraudulently in benefits. 4.5.8 Sanctions may also be imposed on employers. A breach of Section 39 (1) of this act occurs if an employer, or someone acting on behalf of an employer, makes a representation that they know to be false or misleading in relation to any matter covered by the act. The scope of the act is broad, as it also provides sanctions for the non-disclosure of facts, deeming this to fall under the category of a false or misleading declaration. Again, the sanctions are punitive and deterrence- based. Under Section 39 (2) of this act, the CEIC has the authority to impose a fine for each act of not more than nine times the maximum weekly benefit that is paid at the time the penalty is imposed. 4.5.9 Interestingly, via Section 39 (3), this act offers a provision for the sanctioning of officers, directors or agents of corporations when the CEIC has established that the corporation has breached the act, regardless of whether or not a penalty has been imposed on the corporation itself. A breach here is again defined as making a false or misleading representation, which can also occur through the non-disclosure of facts. An officer, director or agent is in breach if they have directed, authorised, assented to, acquiesced in or participated in the act causing the breach. The sanction here is the same as for a breach of Section 39 (1) (see paragraph 4.5.8). 4.5.10 Under Section 41.1 (1), the CEIC may use discretion to issue a warning for breach of Section 39 instead of stipulating a penalty under Section 39 (2). This 36
  38. 38. may act as a useful alternative for decision-makers when sanctioning less serious breaches. Furthermore, a penalty cannot be imposed under Section 39 if a prosecution for the act or omission has been initiated against the employee, employer or other person. This limits the sanctions available, and its rationale may be to prevent the same breach being sanctioned twice. Corruption legislation 4.5.11 Canadian corruption legislation appears to focus much attention on the prevention and sanctioning of bribery. This is evident in the Corruption of Foreign Public Officials Act 1999, which contains three main offences. Sanctions may also be imposed for attempts to commit these offences. 4.5.12 Bribing of foreign public officials is the first of the three main offences, and is covered under Section 3 (1). This involves trying to obtain or retain an advantage in the course of business by directly or indirectly giving, or offering to give, a loan, reward, advantage or benefit to a foreign public official – including government representatives or agents of public international organisations (or to any person for the benefit of that official). The bribe must be given or offered (defined in Section 2). 4.5.13 Breaches may be committed by corporations, which can also be prosecuted under Canadian common law. The penalty is a five-year maximum term of imprisonment for individuals. Fines may also be imposed. The sanction is discretionary, as there is no maximum amount set. 4.5.14 The second main offence is laundering property and proceeds obtained from bribery of a foreign public official under Section 5. The third is possession of property and proceeds derived from bribery or laundering under Section 4. Once again, corporations may be prosecuted and judicial discretion is high when prosecuting by indictment. There is no set maximum for a fine imposed on a company. For individuals, a 10-year maximum term of imprisonment is available. If prosecuted summarily, a maximum fine of CAD $50,000 (£25,000), or a maximum of six months’ imprisonment, or both, is available. 37
  39. 39. 4.5.15 The Criminal Code contains many provisions to sanction fraudulent and corrupt behaviour. Sections 119 and 120 criminalise the bribery of officials, including judicial officers, police and public officers. This is similar to the offence contained in the Corruption of Foreign Public Officials Act (see paragraph 4.5.11), including the elements of the offence of bribery. Individuals found guilty under these sections are liable to a term of imprisonment not exceeding 14 years. 4.5.16 Section 121 deals with fraud against the government, whereby bribes are offered to or demanded by an official in order to influence any matter of business relating to the government. These include bribes used to obtain contracts with the government. Perpetrators are liable to a maximum term of five years’ imprisonment. Section 122 sanctions officials who, amongst other provisions, commit fraud or a breach of trust in connection with their duties. Fraud is not expressly defined in this section; however, it is addressed in part five of the act. A violation of this section attracts a maximum term of imprisonment of five years. 4.5.17 Municipal corruption – which involves a member of a municipal council or a person who holds office under a municipal government – is criminalised under Sections 123 and 124 of the act. If bribes are offered, demanded or accepted, an indictable offence is committed and a maximum term of imprisonment of five years is available. 4.5.18 The Criminal Code was amended in September 2004 to include protection for whistleblowers. Under Section 425.1 (1), an employer – including the director of a company – is prohibited from taking action to prevent an employee who believes an offence is being committed from providing information to another. Sanctions include termination of employment and disciplinary action. Section 425.1 (2) protects employees who have already disclosed information from retaliation on the part of their employers. Violation of Section 425 is classified as an indictable offence and carries a maximum term of imprisonment of five years. Alternatively, offenders may be punished on summary conviction. 4.5.19 The Income Tax Act 1985 also deals with bribery. Those who offer bribes to influence the decision of an officer connected with the collection or management 38
  40. 40. of public money may face a term of imprisonment not exceeding five years under Section 81. The same sanction is applicable to officers who accept bribes. Furthermore, Section 80 criminalises officers who fail to report, in writing, knowledge of fraud being committed against Her Majesty. It is an indictable offence subject to a sanction of five years’ imprisonment or a CAD $5,000 (£2,500) fine. 4.5.20 Canada has made further advances in an attempt to strengthen its legal and institutional anti-corruption regime. These developments include: • Bill C-4, which reinforces the powers and independence of the Ethics Commissioner • Bill C-24, which limits campaign contributions to CAD $5,000 (£2,500) for individuals and bans corporate donations • the Corruption of Foreign Public Officials Act, which identifies three offences – bribing a foreign public official, laundering property and proceeds, and possession of property and proceeds. 4.5.21 Canada has also participated in a global anti-corruption and counter fraud framework by ratifying a number of international conventions against corruption: Table 6: International conventions against corruption ratified by Canada Title of international convention Date ratified by Canadian government OECD44 Anti-Bribery Convention December 1998 Organisation OAS45 Inter-American Convention June 2000 Against Corruption UN Convention Against Transnational May 2002 Organised Crime UN Convention Against Corruption Signed May 2004 (not yet ratified) 39
  41. 41. 4.6 Countering fraud in the private and public sectors 4.6.1 The Canadian government has established several departments, organisations and agencies that have responsibilities related to addressing fraud and corruption. This section of the report will consider the following: • The Office of the Auditor General of Canada • Department of Justice (DoJ) • Department of the Solicitor General • The Treasury Board • The Office of the Ethics Counsellor • The Office of the Chief Electoral Officer • Elections Canada • The Information Commissioner • Provincial Ombudsmen • The Canadian Security Intelligence Agency • The Royal Canadian Mounted Police. Anti-fraud culture and deterrence 4.6.2 The federal, provincial and territorial ministers with responsibility for consumer affairs approved a Cooperative Enforcement Agreement on Consumer-Related Measures in 1998. They also announced public campaigns on telemarketing fraud and loan brokers’ ‘scams’. The Cooperative Agreement defines procedures for sharing information and consumer alerts across jurisdictions on issues such as licensing and enforcement. 4.6.3 The Deceptive Telemarketing Prevention Forum, comprising government and private sector representatives, released a poster and pamphlet entitled ‘Stop Phone Fraud – It’s a Trap’. This campaign helped to raise public awareness of telemarketing fraud, thereby doubling up as a deterrent to potential fraudsters. The campaign began in January 1999. 40
  42. 42. 4.6.4 The Fraud Prevention Forum (FPF) consists of private sector bodies, government agencies, law enforcement agencies, and consumer and volunteer groups. Its aim is to prevent Canadians from becoming victims of fraud. March was officially declared ‘Fraud Prevention Month’ in Ottawa in 2006. During this month, FPF members attempt to raise the awareness of the Canadian public in a bid to prevent fraud by distributing fraud prevention material and broadcasting public service documents. 4.6.5 FPF members include, but are not restricted to, the following bodies: • Competition Bureau Canada (Chair) • Canada Post • Canadian Bankers Association • eBay Canada • MasterCard Canada • Toronto Police Service • Ontario Provincial Police • Royal Canadian Mounted Police • United States Federal Trade Commission • Western Union. Prevention 4.6.6 The Canadian Health Care Anti-Fraud Association (CHCAA), founded in 2000, provides a voice for public and private sector healthcare organisations interested in preventing healthcare fraud. Membership is open to organisations and individuals with a responsibility for the prevention, detection, investigation or prosecution of healthcare fraud. The CHCAA’s objectives are to: • create awareness amongst the ‘Canadian public, health care consumers providers, suppliers and members of the CHCAA on combating health care fraud’46 • promote anti-fraud programmes in the Canadian healthcare system 41
  43. 43. • build partnerships (public, private, national and international) with law enforcement agencies, health regulatory bodies, consumer groups and provider associations • work for legislative and regulatory change that supports the eradication of fraud in the healthcare system • provide a response to changes in the healthcare system and changes in technologies and tools used by people who commit healthcare fraud. 4.6.7 PhoneBusters is a national anti-fraud call centre jointly operated by the Ontario Provincial Police and the Royal Canadian Mounted Police. It plays a key role in educating the public about specific fraudulent telemarketing pitches. It is the central agency in Canada that collects information on telemarketing fraud, advance fee fraud letters and identity fraud complaints. 4.6.8 PhoneBusters releases public information about preventing telemarketing fraud and identity fraud. One example is a newsletter containing details of a number of fraudulent telemarketing pitches that have been used successfully in the past, based on information collected from fraud complaints. Such pitches include: • a caller stating that a person has been automatically entered into a lottery and has won a prize • an employment advertisement offering a work-at-home opportunity to ‘be your own boss’ and earn a higher income • correspondence that asks someone to transfer a large sum of money in return for a huge fee. 4.6.9 The Canada Mortgage and Housing Corporation (CMHC), established in 1946, is committed to countering mortgage fraud in Canada. It works with its approved lenders to manage fraud prevention through its Lender Quality Assurance Framework. Once issues are identified, the CMHC works with its approved lenders to identify systematic solutions that mitigate fraud throughout their portfolios. One of the procedures employed by the CMHC to prevent mortgage fraud is to give approved lenders information about the nature of mortgage fraud and effective fraud prevention and detection initiation procedures. 42
  44. 44. Detection 4.6.10 In 1998, government consumer ministers launched Canshare, an information- sharing network for enforcement agencies. This enables alert notices to be sent to consumer protection and law enforcement agencies. This will permit faster tracking of telemarketing and other types of fraud. The Canshare campaign helped to raise public awareness of telemarketing fraud, as well as acting as a deterrent to potential fraudsters. 4.6.11 PhoneBusters and RECOL (see paragraph 4.3.1) are the two main Canada- wide fraud-reporting mechanisms. These organisations disclose reported fraud to the appropriate law enforcement authority. Their databases have recently merged, providing a single and complete picture of reported economic crime. Investigation 4.6.12 The Royal Canadian Mounted Police (RCMP) is the Canadian national police service and an agency of the Ministry of Public Safety and Emergency Preparedness Canada. Therefore, it is a national, federal, provincial and municipal policing body. The RCMP: • prevents and investigates crime • maintains order • enforces laws in matters ranging from health to the protection of government revenues • contributes to national security • ensures the safety of state officials • visits dignitaries and foreign missions • provides vital operational support services to other police and law enforcement agencies. 4.6.13 In October 2005, the Edmonton RCMP Commercial Crime Section filed 60 charges of fraud against four people under Section 380 of the Criminal Code 43
  45. 45. (see paragraph 4.5.3). The alleged perpetrators were accused of committing a major mortgage fraud to the value of CAD $3.9 million (£1.9 million). The case was investigated by the Edmonton RCMP Commercial Crime Section. 4.6.14 The Plainclothes Section of the Surrey RCMP contains an Economic Crime Investigation Unit, which is tasked with investigating numerous fraud complaints within the Surrey community. To date, cases ranging in loss value from CAD $100,000 (£50,000) to CAD $1 million (£500,000) have been investigated. 4.6.15 Project COLT, established in April 1998, is a joint United States-Canada telemarketing fraud task force. Its members include: • USA Immigration and Customs Enforcement special agents • Royal Canadian Mounted Police • Quebec Provincial Police • Montreal City Police Department • USA Federal Bureau of Investigations • US Postal Inspection Service. 4.6.16 The focus of the project is to detect and investigate organisations perpetrating fraudulent telemarketing schemes and seize the proceeds of their operations, as well as to seek redress by returning money to the victims. The schemes usually involve potential victims being contacted by fraudulent telemarketers identifying themselves as lawyers, customs officials, police officers or lottery company officials. The victims are told that they will receive a sum of money varying from thousands to millions of dollars. 4.6.17 The United Council on Welfare Fraud (UCOWF) consists of investigators, administrators, prosecutors, eligibility workers and claims writers from local, state and federal agencies in the USA and Canada. The UCOWF has been active in the recovery of taxpayers’ money lost to fraud, waste and abuse in social services programmes. Its membership currently consists of: • welfare investigators 44
  46. 46. • administrators • recovery specialists • fraud prosecutors (from 47 American states and seven Canadian provinces). Sanctions and redress 4.6.18 The USA Immigration and Customs Enforcement has initiated a number of complex criminal investigations due to the efforts of Project COLT, resulting in 26 USA grand jury indictments and 161 USA- and Canada-based arrests. To date, Project COLT has seized and returned more than CAD $14 million (£7,000) to American and Canadian victims of telemarketing fraud. 45
  47. 47. 5 France 47 • Population (2004): 61.9 million48 • Gross domestic product (GDP) in 2004: £1.2 trillion49 (€1.7 trillion) • Total cost of fraud in 2004: It has not been possible to find a satisfactory estimate. • Total cost of fraud as percentage of GDP: 2%50 France is a unitary state with administrative and political decentralisation. It is a republic and a parliamentary democracy. The French government is a semi- presidential system divided into an executive branch (cabinet), a legislative branch (parliament) and a judicial branch (Supreme Cour de Cassation). Parliament comprises two chambers: the Senate (members serve for nine years and are elected by an electoral college) and the National Assembly (deputies serve for five years and are elected by universal suffrage). The President has a degree of direct executive power, but most executive power resides in his appointee, the Prime Minister. The current government is a centre-right administration. 5.1 National definition of fraud 5.1.1 There is no legal definition of fraud under French law. However, the following activities have been defined in French law: • deceit • breach of trust • counterfeiting • forgery of means of payment • theft • violation of an automated data system 46
  48. 48. • intentional use of or attempt to use counterfeit or forged payment cards, etc. 5.2 Nature and scale of the problem 5.2.1 There does not appear to be an overall fraud cost estimate available for France. However, one source estimated the total cost of fraud in France in 2000 at £27 billion51. The predominant types of fraud for which information is available are displayed in the table below: Table 7: Cost of predominant types of fraud in France Type Amount Estimated by Date Côntrole et Traitements des Valeurs et Identity £1.4 billion Monnaies52 (Not fraud (€2 billion) (CMTS – Control and Treatments known) of the Values and Currencies) Ministère de l'Économie, des Finances Customs £140 million et de l'Industrie 2004 fraud (€199 million) (Ministry for the Economy, Finances and Industry)53 Bank card £1.9 billion (Not PricewaterhouseCoopers fraud (€2.7 billion)54 known) 5.3 Main areas of fraud (in private and public sectors) 5.3.1 The main types of fraud that occur in France are displayed in the table below: Table 8: Predominant areas of fraud in France’s public and private sectors Public sector Private sector Embezzlement (including asset Tax evasion misappropriation) Benefit fraud Insurance fraud Cyber-crime fraud (including identity fraud Electoral fraud and online bank card fraud) Counterfeit fraud 47
  49. 49. 5.3.2 France pioneered the chip and PIN concept in 1992 when all CB (Groupement des Cartes Bancaires – Grouping of Bank Cards) cards were converted into smart cards in a bid to counter fraud. As a result, France witnessed a significant fall in the level of fraud on cards issued in the country for domestic transactions – a reduction of more than 50%.55 5.3.3 Leading on from this, a study conducted by PricewaterhouseCoopers (2005)56 revealed that 43% of French private sector businesses stated that they had been a victim of one or more types of economic fraud. These included: • asset misappropriation • cyber-crime fraud • counterfeit fraud • corruption. 5.3.4 The PricewaterhouseCoopers study makes an interesting point: that, although estimates of the cost of fraud in France have been calculated, there is no way of measuring the financial impact of certain types of fraud, such as identity fraud and cyber-crime fraud. 5.4 Does a national fraud strategy exist? 5.4.1 There does not appear to be an overarching national fraud strategy yet in place in French administration. However, there are strategies that exist to counter specific areas of fraud. One such example is Programme INES (Protected Electronic National Identity), which is a state-led project created to counter identity fraud in France. Its strategy includes: • amalgamating, simplifying and making safe the procedures for passport applications • improving the management of new passport applications • delivering highly protected documents in conformity with international requirements 48
  50. 50. • offering citizens the means of proving their identity on the internet and of signing electronically, to support the development of the electronic administration. 5.5 Legislation A note on French Legislation French law is derived from the civil law tradition, rather than the common law tradition found in the United Kingdom, Australia and the United States. Therefore, great emphasis is placed on codified law as opposed to case law. These codes provide the basis of all French law. 5.5.1 French law is concerned with two main areas – public law (‘droit public’) and private law (‘droit privé’). Public law encompasses administrative law and constitutional law, while private law includes both civil and criminal law.57 5.5.2 The main codes, a selection of which will be discussed in this section of the report, are: • the Civil Code • the Commercial Code • the Penal Code • the Consumer Code • the Code of Criminal Procedure • the Intellectual Property Code • the Code of Civil Procedure. The Penal Code Fraudulent obtaining 5.5.3 Article 313-1 of the French Penal Code is similar to the provision of obtaining property by deception enshrined in English law. It sanctions individuals who deceive an individual or corporation by using a false name or fictitious capacity, by abusing a genuine capacity, or by means of an unlawful manoeuvre, thereby 49