Fraud in your business? Should you take the criminal or civil route to justice?

Fraud within the corporate environment has been on the increase. What might surprise some is that there is no such thing in law as a business or commercial fraud. There are however types of behaviour and circumstances that give rise to causes of action that are more commonly known as fraud.

So, when faced with the decision of reporting the fraud to the police or not, what key factors should you take into account?

• What is the difference between pursuing a fraud in the criminal or civil court?

All fraud is a criminal offence open to being pursued by the appropriate prosecuting authorities in the criminal courts against an individual, known as the defendant. The Magistrates Court and the Crown Court are where these types of cases are heard and the sanctions can be a fine and/or imprisonment. Any decision made at a criminal trial will be made by a jury. The company would have to report the fraudulent activity in order to see whether the police will investigate it further. Resources are often limited and it is not guaranteed.

The party wronged can also pursue a private court case in the civil courts to seek recovery of money or assets that have been lost as a result of the fraudulent conduct. Any decision made in the civil trial is usually made by a judge as opposed to by jury.

• Is it more difficult to prove the case in a Civil Court or a Crown Court?

In the Criminal Courts, the burden of proof is placed upon the prosecution to show “beyond reasonable doubt” that the defendant committed the alleged fraud.

In civil proceedings, the burden of proof is on the victim to prove that “on the balance of probabilities” that the defendant committed the alleged fraud. It is therefore considered easier to prove a case in the civil court and it is in the criminal court.

• What are the consequences of pursuing a claim in a Civil or Criminal Court?

The perpetrator of the fraud can be convicted in the criminal courts and face a prison sentence up to 10 years or an unlimited fine or indeed both. Any sentence is highly likely to be disclosable to a future employer.

In the civil courts, if successful, the claimant would obtain an order against the defendant to repay the money or assets taken and potentially to pay damages. The sanctions are reimbursement and potentially compensation but not punishment as in the criminal court. There is no loss of liberty.

• Is it possible to recover money that has been lost?

When convicted in the criminal courts, the defendant can face a Compensation Order which requires a convicted defendant to pay compensation to his victim. This is not guaranteed though.

In the civil court, a successful victim obtains an order that the defendant repay the money or assets taken as well as possible damages. It may therefore be possible to obtain a judgement against the individual although this does not necessarily mean that the money will be recovered. Once the judgment is secured against the defendant, the process of tracking down assets and money to repay the sums and enforce the order begins if the defendant does not pay willingly.

• What are the pros and cons of pursuing a claim through the Criminal or Civil Courts?

The first response of many is to report the matter to the police. It is important to understand that when doing so, this will not automatically begin the process of recovering what has been lost. The criminal court seeks to convict an individual for their behaviour and not recover what was taken.

Pursuing a case in the civil court can be relevantly quick in comparison to the criminal court and without waiting for any further authority (e.g. the CPS) to complete an investigation. The whole objective of any civil proceedings is the recovery of what has been lost and any compensation. To be financially compensated is therefore the sole focus where as in the criminal proceedings unless the prosecutor is persuaded to seek a Compensation Order, no such financial compensation is payable to the victim.

In civil proceedings, the format, structure and pace of the proceedings is predominantly within the court and the parties control compared to a criminal matter when the police decide the extent of the investigation and whether to prosecute. There is no guarantee that the defendant would be investigated or prosecuted and there is no control over any investigation. It is also unlikely that regular updates are given and after providing a statement, it is unlikely that there be further involvement. Resources within the police force are limited.

The civil process provides a series of tools and applications that require a defendant to produce documents to the Court and which can be useful in tracing the defendant’s money and assets. This is important for enforcement purposes and not something readily available to individual businesses in the criminal court.

With the burden of proof being less in the civil courts, there is potentially more likelihood of securing a positive outcome on liability and the main challenge is then recovery of what has been lost and the costs of pursuing the action. The costs of pursuing a criminal investigation are borne by the authority not the company.

It is also quicker to bring a civil case then it would be to investigate and have a criminal matter prosecuted. Civil court trials are much shorter than in criminal trials given the latter focuses upon issues which could lead to loss of liberty.

With all of the above being borne in mind, the police and investigative governmental authorities have wider powers to search and investigate than private individuals. They can execute search warrants without notice, locate bank accounts and telephone records and a lot more confidential information simply not available to the public is accessible to them.

Whilst the prospect of a custodial sentence and hefty fine can be a way of redress, it will not reimburse a business for the sums they had been lost nor provide any financial compensation.

• Is every fraud reportable to the police?

If you or your business are part of the regulated sector, you may have a duty to report a fraud. However, there is no legal obligation to report a fraud to the police or any other body if you are not regulated.

• Can I choose to pursue a Criminal Claim and Civil Claim?

It is possible to pursue a civil action as well as a criminal one. Potentially, both proceedings can take place at the same time although the police may request that the civil process be put on hold so as not to compromise any evidence or criminal investigation.

• Is there a right or wrong answer in deciding how to proceed?

Any decision whether to opt for civil or criminal proceedings is likely to be governed by the individual circumstances and objective. Exploring those options and understanding how the Company can best achieve its goals thereby leaving directors to act in accordance with their statutory duties is an important way forward.

For further advice and assistance please contact our Private Client Team on 01604 828282 / 01908 660966 or email info@franklins-sols.co.uk