LEGAL SERVICES
Freezing out fraud T
Daniel Purcell
here is little doubt that fraud increases during times of
economic uncertainty although there is some debate about whether a recession actually results in an increase in fraud or whether fraud is simply uncovered by closer scrutiny of an organisation’s finances which occurs during and following a recession.
Rosalind Green
The effects of the economic downturn are, of course, being felt acutely in private, public and voluntary sectors and health service bodies will be under increasing pressure to control and recover losses through fraud in such straitened times.
The changes proposed by the Health White Paper Equity and Excellence: Liberating the NHS will increase plurality amongst providers and contractors and could necessitate increased activity in preventing and detecting fraud, ensuring a clear message that the NHS is a zero tolerance zone.
This presents an opportunity to reinforce fraud prevention, detection and prosecution, as well as improved recovery of the proceeds of fraud.
One of the most effective tools for recovering losses is the freezing injunction – an order made by the high court restraining a fraudster’s assets and preventing them being put beyond the reach of the victim of fraud. Freezing orders:
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prevent the fraudster disposing of assets up to a given value- usually the value of the claim;
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prevent anyone else with knowledge of the injunction
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assisting the fraudster- critically, this includes banks;
require disclosure of the fraudster’s assets- so that the victim of fraud knows exactly where it stands on recovery action;
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prevent the perpetrator of the fraud “tipping off” other members of the fraudulent enterprise.
A key advantage of the freezing injunction is that it can be granted urgently without notice to the fraudster - meaning that the victim can get to the proceeds before the fraudster can move them.
However, courts won’t grant freezing injunctions if there has been a delay in requesting the order or the fraudster has known about the investigation, since the chance to dissipate or hide assets has already arisen through knowledge of the investigation. The key is therefore to act quickly.
In the light of the draconian nature of a freezing injunction, courts will require:
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a potential claim of high value – ordinarily, in excess of £75,000;
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a strong legal basis for a claim;
full disclosure, by the victim, of any possible defences which the fraudster could raise;
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a risk of dissipation of assets, such as an established pattern of assets being moved, or a clear pattern of dishonesty;
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an “undertaking in damages” under which the victim promises to compensate anyone who suffers loss if it later transpires that the order should not have been made.
From a tactical perspective, freezing injunctions protects assets for future recovery and send a strong message to fraudsters about the seriousness of the matter and the victim’s intention to pursue its case. This, in turn, can act as a powerful lever for settlement of a claim before trial.
Of course, the use of the civil courts and tools such as freezing injunctions can be very effective but most claims don’t need to go this far. Sometimes the mere threat of civil proceedings is sufficient to prompt settlement.
In other cases, it could be possible to avoid litigation and reduce loss by “setting off” any losses against sums owed to the fraudster.
Daniel Purcell is a partner in Capsticks’ dispute resolution department and leads the firm’s fraud response team.
Rosalind Green is a senior lawyer in Capsticks’ dispute resolution department and fraud response team.
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