R3, the insolvency trade body, has called for criminal bankruptcy to be reintroduced to help combat fraud. In the past, Criminal Bankruptcy Orders could be made against convicted fraudsters whose offences caused damages or loss worth £15,000 or more to their victims. However, criminal bankruptcy was abolished in 1988 for unknown reasons.
Now, a new paper called The Fraud Landscape: Insolvency and the fight against fraud, published in January 2015 by R3, is calling for its return. Reintroducing criminal bankruptcy would mean that all a criminal’s assets could be confiscated in order to repay their victims, rather than just the proceeds of their crime, which is the case at present. It would also be easier to recover overseas assets, like ‘the stereotypical Spanish villa’ noted in the report.
The true cost of fraud to the UK
R3 believes that giving the power of imposing Criminal Bankruptcy Orders back to the courts will help tackle the huge problem of fraud, which cost the UK economy £52 billion in 2013. However, the Serious Fraud Office has seen £17 million in budget cuts since 2008, limiting the government’s anti-fraud resources so that only the more serious cases are pursued.
As well as bringing back criminal bankruptcy, R3 is also keen to see Insolvency Practitioners make wider use of their existing powers. R3 President Giles Frampton explains: ‘Insolvency practitioners already have significant powers to investigate fraud and find redress for victims…Increasing the opportunities to use insolvency practitioners’ powers would help bring fraudsters to justice and ensure victims are properly compensated.’
The Insolvency Practitioner’s powers
When an individual or company is made bankrupt, their assets pass either to the Official Receiver or to a licensed Insolvency Practitioner (IP) who acts as Trustee. The IP will then decide whether any of the assets need to be sold to repay creditors, including victims of fraud.
As Officers of the Court, IPs have considerable powers to both recover assets and control a bankrupt’s behaviour in cases where fraud is suspected. An IP can:
- Compel a bankrupt to attend an interview
- Search and seize property linked to fraud
- Obtain a freezing order for assets
- Reverse asset transfers to third parties
- Obtain a passport confiscation order so a bankrupt can’t leave the country
- Order bankrupts to present their personal or company financial records.
IPs operate under civil law, which is different from the criminal law used by government anti-fraud agencies. This gives them several advantages when investigating fraud, such as:
- An IP can seize all the fraudster’s assets, not just those associated with crime
- An IP’s powers are recognised overseas, making it easier to realise foreign assets
- Civil law requires a lower burden of proof then criminal law, making an IP’s investigations more straightforward
- Insolvency can be concluded more quickly than criminal law proceedings, saving money and getting faster redress for victims.
Andy Gorton, Managing Director of bankruptcy advice service, Bankruptcy Clinic comments: ‘Many people don’t realise the extent of an IP’s authority when it comes to dealing with a fraudulent bankrupt estate. However, these powers are only used in a limited number of cases at the moment. If their use could be increased, then IPs could make a big contribution towards tackling fraud, disrupting criminal activities and getting more money back for victims of crime.’
Like to know more?
You can read R3’s report in full at their website.
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