What’s in a Name? Corruption and Fraud in the UK

Abstract

Background CORRUPTION AND FRAUD share similarities in that both categories of crime involve the misappropriation of funds through, broadly speaking, dishonesty. Yet unlike fraud, corruption is best thought of as involving not only the misappropriation of funds, but also the abuse of entrusted power.1 This betrayal of trust by a person in a position of power marks the special harm of corruption. As the UK’s Anti-Corruption Strategy 2017–2022 demonstrates,2 addressing corruption is an essential part of the UK government’s efforts against economic crime. At present, however, relatively little is known about the scale and types of corruption in the UK. This knowledge gap can have repercussions for resource allocation and the setting of priorities among law enforcement agencies. Given the potential overlaps between corruption and fraud, the question arises of whether current data on fraud in the UK can be used to better understand corruption, and how UK agencies and organisations draw the line between corruption and fraud. Objectives of the Paper This Occasional Paper critically assesses the information available on corruption and fraud respectively in four sectors of the UK economy that handle significant amounts of funds: the financial sector, construction; the National Health Service (NHS); and local government. Although not comprehensive in its coverage of the UK corruption and fraud landscape, this paper’s analysis highlights a range of issues related to the understanding, prevention and investigation of fraud and corruption in public and private organisations. The paper also analyses data sources that can be used to advance the current understanding of corruption and fraud. In doing so, it exposes the reasons behind the dearth of data on domestic corruption in the UK, which includes the following: • There is no consistent understanding of what ‘corruption’ means. For instance, many people view ‘corruption’ as synonymous with ‘bribery’. This view is not uncommon. Its drawback is that it does not reflect the idea of corruption as involving any special type of harm, such as abuse of entrusted power,3 that would render it qualitatively distinct from other crimes. • For many anti-fraud professionals who work on preventing criminal misappropriation of their organisations’ funds, the distinction between corruption and fraud has little practical significance. For them, the key objective is preventing crime against their organisation regardless of whether it is perpetrated by insiders or outsiders, by those who abuse their entrusted power or by those who do not. They therefore do not record or report corruption and fraud as distinct categories of crime. • There is no perfect correlation between how policymakers think of crime and legal definitions. For their part, policymakers are rightly aiming to establish the scale and types of corruption in the UK, broadly understood as abuse of entrusted power for private gain.4 But there is no offence of ‘corruption’ in English criminal law. Instead, there is a range of criminal offences. Some of those are confined to what most would consider ‘corruption’, such as offences under the Bribery Act 2010.5 Others can be applied against a broad spectrum of conduct, such as offences under the Fraud Act 2006 (for instance, fraud by abuse of position).6 The selection of a specific offence is dictated not only by the nature of the defendant’s conduct but also by the availability of evidence and the likelihood of making the case effectively in court and securing appropriate sanctions. As a result, legal definitions are an imperfect guide to the distinction between corruption and fraud, and law enforcement statistics should be treated with great caution if any estimates on the prevalence of corruption – as distinct from fraud – are to be drawn from them. To fulfil this paper’s objective of disaggregating available information on corruption and fraud in the UK, the authors undertook a review of existing literature and spoke to a number of subject-matter experts, who did not always share a common vocabulary. To limit definitional discussions to no more than was necessary, the authors have explored how each of the four focus sectors responds to the risks of ‘internal fraud’, defined for present purposes as financially motivated crime against an organisation by its employees and officers. While simple and easy to understand, this definition captures much, if not all, of corrupt conduct by employees or officers against organisations where they work. For this reason, this analysis is hoped to be a helpful starting point for better understanding corruption and fraud in the UK. Key Findings In all sectors considered, apart from construction, the risks of internal fraud are less well understood than those of external fraud. In part, this reflects the broad consensus that external fraud has greater impact on organisations. However, existing knowledge gaps make it difficult of harm, such as abuse of entrusted power,3 that would render it qualitatively distinct from other crimes. • For many anti-fraud professionals who work on preventing criminal misappropriation of their organisations’ funds, the distinction between corruption and fraud has little practical significance. For them, the key objective is preventing crime against their organisation regardless of whether it is perpetrated by insiders or outsiders, by those who abuse their entrusted power or by those who do not. They therefore do not record or report corruption and fraud as distinct categories of crime. • There is no perfect correlation between how policymakers think of crime and legal definitions. For their part, policymakers are rightly aiming to establish the scale and types of corruption in the UK, broadly understood as abuse of entrusted power for private gain.4 But there is no offence of ‘corruption’ in English criminal law. Instead, there is a range of criminal offences. Some of those are confined to what most would consider ‘corruption’, such as offences under the Bribery Act 2010.5 Others can be applied against a broad spectrum of conduct, such as offences under the Fraud Act 2006 (for instance, fraud by abuse of position).6 The selection of a specific offence is dictated not only by the nature of the defendant’s conduct but also by the availability of evidence and the likelihood of making the case effectively in court and securing appropriate sanctions. As a result, legal definitions are an imperfect guide to the distinction between corruption and fraud, and law enforcement statistics should be treated with great caution if any estimates on the prevalence of corruption – as distinct from fraud – are to be drawn from them. To fulfil this paper’s objective of disaggregating available information on corruption and fraud in the UK, the authors undertook a review of existing literature and spoke to a number of subject-matter experts, who did not always share a common vocabulary. To limit definitional discussions to no more than was necessary, the authors have explored how each of the four focus sectors responds to the risks of ‘internal fraud’, defined for present purposes as financially motivated crime against an organisation by its employees and officers. While simple and easy to understand, this definition captures much, if not all, of corrupt conduct by employees or officers against organisations where they work. For this reason, this analysis is hoped to be a helpful starting point for better understanding corruption and fraud in the UK. Key Findings In all sectors considered, apart from construction, the risks of internal fraud are less well understood than those of external fraud. In part, this reflects the broad consensus that external fraud has greater impact on organisations. However, existing knowledge gaps make it difficult to assess whether mitigation measures against internal fraud are commensurate with the risks it poses. As a first step towards addressing this, the Home Office and Cabinet Office should collect data on the scale of internal fraud (or corruption) in the UK’s public sector. This exercise can inform the prioritisation of law enforcement responses to ensure they adequately address domestic corruption in the UK. In the financial sector, the Financial Conduct Authority can play a greater role in collecting and publishing data on internal fraud that affects financial institutions. One area of concern is the involvement of insiders in fraud against their organisations by providing information to outside fraudsters. The issue is particularly salient for data-reliant organisations, including financial institutions and the NHS. In the NHS in particular, the mapping of wrongdoing by NHS insiders should be used to complement the ongoing data analytics efforts by the NHS Counter-Fraud Authority. There is also room for improvement in the resilience of local government against internal fraud. In particular, local government authorities should ensure that risks of internal fraud are addressed in their fraud and/or bribery and corruption risk assessments, and the National Anti-Fraud Network should promote best practices in that respect. Show more