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Last Updated: Thursday, 24 November 2005, 00:04 GMT
Counting the cost of UK fraud
Chris Hill of Norwich Union
Norwich Union's Chris Hill is frustrated by police reluctance to prosecute
The cost of fraud to the nation rose to nearly 16bn last year, a major insurance company has calculated.

Insurer Norwich Union built its picture of UK fraud out of a variety of surveys covering different elements of the fraud problem.

But overall, it says, the damage amounts to 1.4% of the UK's entire economic output, or 650 per household.

It called on the government to set up a National Commission to devise a strategy for tackling the problem.

In particular, police forces should make fraud a priority target as the proceeds often finance other crimes such as drug smuggling and terrorism.

"Fraud is fundamentally fuelling the growth of organised crime in the UK, earning more from fraud than they do from drugs," Chris Hill, head of fraud at the Norwich Union, told BBC News.

Organised crime

The link between fraud and organised crime is revealed by the example of a drugs gang in a big English city.

The people that we are finding and identifying at the heart of these particular frauds aren't just working alongside the drug traffickers, they are the drug traffickers
Chris Hill, Norwich Union

The criminals have contrived hundreds of car accidents in which they lured members of the public to crash into the gang's cars.

"The scale of this operation is enormous," Chris Hill said.

"This gang had induced more than 400 accidents in the course of a year.

"Witnesses appear out of nowhere and they typically target women or the elderly because it's easier to get an admission of liability on the spot from them.

What follows is a claim both for themselves and frequently for fictitious passengers, for personal injury against the innocent party's insurer.

"The people that we are finding and identifying at the heart of these particular frauds aren't just working alongside the drug traffickers, they are the drug traffickers" Mr Hill said.

What is going wrong?

Norwich Union's research reveals a deep frustration at the inability - and sometimes unwillingness - of the police to take action.

The Norwich Union says it struggles to get any of its cases prosecuted, despite often providing masses of evidence, investigated by lawyers, and served up to the police as a complete case.

As a result, fraudsters are getting away with their crimes, reinventing themselves and coming back a second and third time for more.

According to the insurer, this situation is mainly because fraud is the one major crime for which the government does not set police targets.

So police forces - with the exception of the City of London force and the Metropolitan Police - simply don't devote enough money and resources to dealing with it.

Last year the Norwich Union detected 4,000 clear cut cases of fraud against itself.

But because of low take-up rates by the police it presented the authorities with only 41 of these cases - so called "super-frauds" involving significant public interest or organised crime.

Of these cases, only 18 were taken to court, although all the prosecutions were in fact successful.

But even then, fewer than half of these cases led to prison sentences.

Norwich Union says that most UK insurance firms, and many banks, now simply don't bother to report most of the frauds they discover.

Severe penalties

This lack of effective penalties is one reason, Mr Hill says, why fraudsters persist with their schemes.

The problem is the hundreds of millions of pounds that are being salted away which is being used to finance other forms of criminality
Chris Hill

The clearest problem is that if fraudsters do get caught they usually get to keep their money.

To stop fraud being low risk and high reward, the authorities must establish the principle that the fraudsters pay back their stolen money, Norwich Union argues.

"We have to get away from the idea that people can serve their time, fly off to an island in the Pacific and live the life of reilly," Mr Hill said.

"Where we get those convictions the financial debt should stay with them, and we should recover the money in a more consistent and aggressive way."

The criminal revenues being salted away can then be recycled into fresh criminality - or simply taken as profits.

The government has made recapturing the proceeds of crime a priority, and created new powers with the 2002 Proceeds of Crime Act.

The act is widely appreciated by police economic crime investigators - but its use remains patchy, as a 2004 HM Inspectorate of Constabulary report showed.

Big numbers

Another problem, Norwich Union said, is that there are simply no figures collected to show just how big a problem fraud is for the UK.

So it has tried to build its own numbers, covering fraud committed each year against individuals, companies and public sector bodies, as well as the indirect impact of the crime.

By drawing on figures already published by insurers, the banking industry, government departments and other official estimates, it calculates that the value of fraud amounted to 15.8bn in 2004.

Just over 4bn was in the private sector, and nearly 10bn was against the government - for instance benefit fraud, customs fraud and tax evasion.

The difference was made up by estimating the indirect costs of all these.

Overall, the Norwich Union says this is the equivalent of 340 per adult in the UK - or 6p in the pound on the basic rate of income tax.

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