Should fraud be pursued as a civil matter or as a criminal offence?

In the UK, there is currently no obligation to report fraud to the authorities, or pursue it as a criminal offence.

This lack of obligation comes with exceptions; individuals or businesses who have a governing body (such as the vast majority of the legal and financial sectors) operate under much tighter regulatory frameworks.

Not having an obligation to report a crime may, at first, seem at odds with the English legal tradition and such a well-established common law system. However, there are key reasons why fraud is not always reported through the criminal courts.

Perhaps the most significant difference between pursuing fraud as a civil matter, is that the goal is to actually recover assets taken (or obtain compensation).

For fraud pursued through the criminal courts, the outcome is usually a fine and/or imprisonment. A victim might not get their money back and often won’t have as much involvement with criminal proceedings.

In short, if a client is concerned with getting their money back, pursuing fraud as a civil matter is often the best way to go. Further details as to why this is, are continued below.

1. There is no guarantee that your report of fraud will even be investigated or prosecuted

Perhaps the most significant disadvantage of reporting a crime is that there is absolutely no guarantee that a case will make it to court.

After reporting, a victim of fraud has next to no control over a criminal investigation, whereas they are essentially leading a civil matter.

There is much more uncertainty associated with handing a case over to a prosecuting authority. Most victims of fraud, rightly so, want some form of compensation, be it the recovery of assets or damages. This uncertainty is simply not welcomed when there are assets at risk.

2. It is usually much quicker to bring civil proceedings

In criminal cases, a party might wait a long time for a decision to prosecute to be made. If, as mentioned above, no proceedings are brought, recovering any lost assets can be considerably more difficult.

As in many areas of law, speed is key to a resolution in a client’s best interests. To preserve the defendant’s assets, obtaining the necessary freezing or search orders means the client has a much higher chance of recovery.

It is generally quicker to pursue fraud as a civil matter, obtain a judgment and even enforce it, than to wait for the outcome of a criminal trial; an outcome that may not include the recovery of your original assets.

3. Higher levels of control can be had during civil proceedings

In criminal proceedings, unless you (and your legal counsel) can persuade the relevant prosecutor to seek compensation for you as part of their case, you won’t get any money back.

By contrast, the client is in complete control of the civil fraud proceedings. The victim won’t generally be involved in a criminal case beyond making a statement and perhaps appearing in the witness box.

As mentioned above, civil proceedings focus primarily on reducing losses suffered. If successful, a judgment will be handed down and enforced against the defendant’s assets. This, in practical terms, is how you get your money back.

4. Publicity around a criminal investigation can be higher

Following on from the above point regarding a loss of control in criminal proceedings, publicity around the investigation could become much more difficult to manage than in a more private, civil matter.

You are much more ‘out of the loop’, as it were, during a criminal investigation or prosecution. This lack of control extends, of course, to what might be released to the media.

5. Differences in the burden of proof could lead to very different outcomes

During civil proceedings, there is the process of disclosure. This means that both the defendant and the victim must disclose documents that may support or undermine their case, such as enabling the defendant’s assets to be traced.

In addition, the standard of proof is less than compared to criminal proceedings – you have to prove that the events of your case were more likely to have occurred than not. This is called the balance of probabilities.

Although the standard of proof in fraud is on the balance of probability, it is well established that cogent evidence is required to justify a finding of fraud because without it, a dishonest explanation is usually regarded as more improbable than an innocent one.

In criminal matters, the prosecution has to prove their case beyond reasonable doubt, a higher standard, before any recovery or compensation orders can be thought about.

6. Responsibility for legal costs in civil proceedings rests with the victim

In civil proceedings, you are responsible for the costs of bringing about the case. If you are successful, an order of costs may be obtained, but this is not a guarantee and relies on you winning.

An advantage of criminal proceedings is that the decision (and therefore costs) of prosecuting will rest with the relevant authority.

7. During civil proceedings, it might be more difficult to ensure international cooperation

In criminal cases, legislation is available to English lawyers and their teams for obtaining information across borders.

The same cannot be said for international cooperation with civil proceedings, particularly in regards to obtaining key documents, compelling witnesses or tracing assets.

If there are criminal investigations going on in parallel across different jurisdictions, law enforcement bodies may cooperate more easily than approaching them with a civil matter.

Can fraud disputes be arbitrated?

In short, yes. With 65% of (reported) fraud cases in the UK happening to businesses, claims involving fraud are frequently the subjects of arbitration.

However, even a widely drafted arbitration agreement will have to yield to the courts in certain cases, such as those that are in the interest of public policy.

When seated in England, fraud arbitrations can benefit from the pro-arbitration approach of the English courts. A tribunal’s power can be increased by the courts in order to compel witnesses to give evidence, source relevant documents, and more.

The presence of criminal wrongdoings will not automatically halt an arbitration, or prevent parties from getting their assets back in this way. The fact that an arbitration could give rise to separate criminal proceedings doesn’t stop the original civil claims from being arbitrable.

In some cases, a separate criminal prosecution might occur, but this is not a given, and again, relies on the reporting of the crime and the decision of the authorities to prosecute.

If you or your business would like to know more about the topics discussed in this article, contact our team for expert legal advice. Our in-house barristers have proven experience with commercial fraud cases and a balanced international perspective; we are well placed to provide the legal assistance you might need.