The Fraud Act 2006: A Comprehensive Guide

The Fraud Act 2006 provides a clear legal framework to prevent, detect, and address fraudulent activities. We guide you through it by unpacking what the Act covers and how to protect your business from fraud.

When it came into force, The Fraud Act 2006 consolidated and modernised the law on fraud in England and Wales, making it easier for prosecutors to bring cases of fraud to trial, and deter people from committing fraud.

It covers a wide range of fraudulent activities, including:

• Fraud by false representation
• Fraud by failing to disclose information
• Fraud by abuse of position
• Obtaining money or property by deception
• Obtaining services by deception
• False accounting

What is fraud?

The Fraud Act 2006 defines fraud as a dishonest act that is intended to gain a financial advantage or to cause a loss to another person. The Act does not require the victim of the fraud to have suffered a loss in order for a prosecution to be brought.

Here is more detail about the types of fraud covered under the Fraud Act 2006.

Fraud by false representation

Fraud by false representation occurs when a person makes a false representation to another person with the intention of causing that person to act in a way that is to the person's detriment. The false representation can be made in writing, orally, or by conduct. Examples of fraud by false representation include:

• Making a false claim on an insurance policy
• Selling a stolen item
• Obtaining a loan by providing false information about your income or credit history

Fraud by failing to disclose information

Fraud by failing to disclose information occurs when a person has a legal duty to disclose information to another person and fails to do so with the intention of causing that person to act in a way that is to the person's detriment. Examples of fraud by failing to disclose information include:

• Failing to disclose your criminal record when applying for a job
• Failing to disclose that you have a serious medical condition when applying for life insurance

Fraud by abuse of position

Fraud by abuse of position occurs when a person is in a position of trust and uses that position to make a gain for themselves or another person or to cause a loss to another person. Examples of fraud by abuse of position include:

• A company director using the company's money to pay for personal expenses
• A bank employee transferring money from a customer's account to their own account

Making or supplying articles for use in fraud

It is also an offence to make or supply articles knowing that they will be used in the commission of fraud. This offence is designed to target those who knowingly provide the tools or resources used to perpetrate fraudulent activities. Examples of making or supplying these articles include:

• False passports, driving licences, or other identification documents
• Fake branded products, such as luxury watches or handbags
• Software or hardware used to gain unauthorised access to computer systems

Obtaining money or property by deception

The Fraud Act 2006 makes it a criminal offence to trick others into giving you money or property. This can be done in a variety of ways, including making false statements, concealing information, or abusing a position of trust. Examples of obtaining money or property by deception include:

• Getting a loan by providing false information about your income or credit history
• Using someone else's identity to obtain credit cards, loans, or other financial benefits
• Sending fraudulent emails or messages to trick people into revealing personal or financial information

Obtaining services by deception

As the name suggests, this offence occurs when a person obtains services by lying about their intent or ability to pay for them. The deception can be by a false representation, a failure to disclose information, or an abuse of position. Examples of obtaining services by deception include:

• Using a stolen credit card to pay for a hotel room
• When a company director knows that their business is trading insolvently and cannot pay bills

False accounting

This offence occurs when a person makes or omits to make an entry in a book of account that is false or misleading. Examples of false accounting include:

• Falsifying a company's accounts to hide a loss
• Making a false entry in a cash book to conceal a theft

Sentencing for fraud

The maximum sentence for fraud under the Fraud Act 2006 is 10 years in prison. However, the actual sentence that a person receives will depend on the seriousness of the offence. If you are convicted of fraud, you may also be ordered to pay a fine or to make restitution to the victim of your crime.

There are a number of criteria that must be addressed by the prosecution in fraud cases. 

Proving the “Mens Rea” of the offence:
This refers to the mental element of the crime. In other words, it is the intention of the person who commits the fraud. The prosecution must prove that the defendant acted dishonestly and that they intended to gain a financial advantage or to cause a loss to another person.

Proving the causal link between the fraud and the loss:
The prosecution must also prove that the fraud caused the loss to the victim. This can sometimes be difficult to do, especially in cases where there are multiple factors that contribute to the loss.

Identifying the victim of the fraud:
In some cases, it can be difficult to identify the victim of the fraud. This is often the case when fraud is committed against a company or other organisation.

Quantifying the loss caused by the fraud:
The prosecution must also quantify the loss caused by the fraud. This can be difficult to do in cases where the loss is not easily measurable.

How to protect your company from fraud

Before implementing protective measures, it's crucial to identify the specific risks your company faces. Consider factors like the industry, the size of your business, and the nature of your operations. Here are some important points when reviewing your existing fraud protection measures.

1. Implement robust internal controls

Ensure that no single individual has complete control over financial transactions, and conduct periodic reviews of financial records and procedures to identify potential vulnerabilities. Restrict access to sensitive information and systems to authorised personnel only.

2. Employee training and awareness

Educate employees about common fraud schemes and how to recognise and report suspicious activity. Emphasise the importance of ethical behaviour and compliance with company policies.

3. Third-party risk management

Conduct thorough due diligence on suppliers, vendors, and business partners. Be sure to incorporate strong contractual terms to protect your company's interests.

4. Invest in software solutions

Implement software that can identify anomalies and potential fraudulent activities in financial data. Protect sensitive information by encrypting it both at rest and in transit.

5. Regular audits and reviews

Conduct regular internal audits to assess the effectiveness of your controls and consider engaging external auditors for an independent evaluation.

 6. Incident response plan

Develop a comprehensive plan for responding to fraud incidents and establish clear communication protocols for reporting and investigating incidents.

Want to learn more about Fraud Prevention?

We’ve created a comprehensive AML & CTF roadmap to help you navigate the compliance landscape, supported by several financial crime prevention courses in our Essentials Library.