Proposed New Fraud Legislation in the Isle of Man

Fraud is an issue which pervades society, causing cost not only to the average consumer by driving up the price of goods/services but also to government, employers and businesses (for example by payments being made where the activities of claimants, employees or customers have been conducted fraudulently). Fraud appears in many different forms from benefit fraud, credit card fraud, insurance fraud to complex Ponzi schemes.

A recent consultation document (Consultation Document) has been launched by the Cabinet Office, which contains the draft Fraud Bill 2016 (Fraud Bill). The Fraud Bill closely follows the Fraud Act 2006 (of Parliament, which applies to England, Wales and Northern Ireland) (UK Act) except for the following technical differences:

a) the offence of participating in fraudulent business under clause 11 of the Fraud Bill has essentially been consolidated from section 9 of the UK Act (participating in fraudulent business carried on by sole trader etc.) and section 993 of the Companies Act 2006 (of Parliament) (offence of fraudulent trading) (CA 2006); and

b) conspiracy to defraud, which is set out in clause 13 of the Fraud Bill is not included in the UK Act as it is instead addressed by section 12 of the Criminal Justice Act 1987 (of Parliament).

BRIEF OVERVIEW OF THE CURRENT REGIME IN THE ISLE OF MAN

The current Manx legislation on fraud is primarily contained in the Theft Act 1981, which was largely modelled on the system that existed in England and Wales prior to the enactment of the UK Act. Deficiencies in the current system in the Isle of Man were reported by the Standing Committee of Tynwald on Public Accounts’ “Report on the handling by the Manx authorities of the case of Dr Dirk Hoehmann” (PP No 0097/13) (PAC Report), as referred to in the Consultation Document. One of the recommendations of the PAC Report was that an offence similar to that contained in section 2 of the UK Act should be brought into force in Manx legislation “as soon as practicable”. One of the objectives of the Fraud Bill is therefore to satisfy this recommendation.

BRIEF OVERVIEW OF THE FRAUD BILL

Clause 3 of the Fraud Bill provides three different scenarios where a person will be guilty of fraud, as follows:

a) fraud by false representation;
b) fraud by failing to disclose information; and
c) fraud by abuse of position.

These different manners of committing the general offence of fraud are then set out more fully in clauses 4 to 6 of the Fraud Bill inclusive.

Further offences for possession of articles for use in frauds and making or supplying articles for use in frauds are set out in clauses 8 and 9 of the Fraud Bill, respectively. Clause 12 of the Fraud Bill provides an offence where services are obtained dishonestly.

Clause 11 of the Fraud Bill provides an offence if “he or she is knowingly a party to the carrying on of a business with intent to defraud creditors or for any other fraudulent purpose”. Clause 11 of the Fraud Bill is without prejudice to sections 255 to 259 (offences antecedent to or in the course of winding up) of the Companies Act 1931 (CA 1931). It will therefore be a useful weapon to clawback monies where an Isle of Man entity has intended to defraud creditors, thus reinforcing the reputation of the Isle of Man as a creditor-friendly jurisdiction.

Clause 11(3) of the Fraud Bill provides that “fraudulent purpose” has the same meaning as in section 259 of the CA 1931, however section 259 of the CA 1931 contains no express definition of “fraudulent purpose”. The absence of an express definition for “fraudulent purpose” under the Fraud Bill creates uncertainty for those who wish to interpret this provision. An analysis of case law would need to be conducted to determine the meaning of this provision, which, in the absence of a wealth of Manx case law on this point, would likely mean recourse to English case law for guidance. That the meaning of the expression is not readily accessible on the face of the intended legislation is disappointing but perhaps not surprising.

Any definition of fraud would require the flexibility of an ever evolving concept to meet the demands of technological development and the increasing sophistication of fraudsters. It is perhaps for this reason that “fraud” (and expressions relying on it) have not been defined in the Fraud Bill and nor defined in the UK Act. Whilst there are likely to be critics of the minutiae of the Fraud Bill, as there were with the UK Act, it is submitted that the Fraud Bill, if enacted, will represent a welcome and necessary addition to Manx legislation.