Civil Fraud v Criminal Fraud | What's the difference?
Many individuals, businesses and organisations will either become the victim of fraud or accused of fraud.
A common question that arises is: should I report a fraud to the police or other law enforcement agencies such as the SFO, or should I pursue a civil action for fraud against the perpetrators?
In this article, Hamraj Kang, our Senior Partner, discusses both options.
Do I Have To Report A Fraud To The Police?
Generally speaking, there is no legal obligation for an individual or an organisation to report a fraud to the police or any other law enforcement agency such as the SFO or HMRC.
There are different considerations for those who work in a regulated sector.
The Different Court Process
Civil Court
A civil action for fraud is a private action brought by an individual or organisation (the claimant) against another individual or organisation (the defendant).
The action is brought in a civil court, usually the High Court. The claimant is responsible for the costs of bringing the claim, although such costs may be recoverable from the defendant if the claim is successful.
The purpose of a civil fraud action is to seek the recovery of the misappropriated assets/money as well as the payment of damages/compensation to the claimant who is the victim of the fraud.
A civil claim is heard by a High Court Judge and there is no jury.
Criminal Court
If the victim of a fraud reports the matter to a law enforcement agency and there is sufficient evidence to prosecute the alleged perpetrator (the defendant), it becomes the responsibility of the prosecuting authority to bring the case to court. The victim of fraud is not required to pay the costs of the prosecution.
If, for any reason, the prosecuting authority decides not to bring a prosecution, it is open to the victim to bring a private criminal prosecution in the criminal court. In this instance, the victim will be responsible for paying the costs of bringing the prosecution but such costs are usually recoverable if the prosecution is successful.
A criminal prosecution will be heard in the Magistrates’ Court or Crown Court. In a Crown Court the trial will be conducted by a judge and jury, with the jury making the final decision on guilt or innocence at the conclusion of the trial.
The purpose of a criminal trial is to secure a conviction which leads to a criminal sanction such as a financial penalty and/or a custodial sentence. In addition, confiscation/proceeds of crime or POCA proceedings will also usually follow in the Crown Court.
What Has To Be Proved?
Civil Proceedings
As the victim/claimant bringing the civil claim against the defendant, the burden is on the claimant to prove on a ‘balance of probabilities’ that the defendant committed the fraud.
Criminal Proceedings
As the prosecuting authority (CPS, SFO, HMRC, FCA) is bringing the prosecution, the burden is on the prosecution to prove ‘beyond reasonable doubt’ that the defendant committed the fraud. There is no burden on the defendant to prove anything.
Can Assets Be Frozen?
Civil Proceedings
There is provision for the claimant to make an ex parte application to a High Court judge for a Freezing Order. The freezing order will freeze all assets including property, bank accounts, moveable chattels such as cars and intangible assets such as shares.
The application for a freezing order can be made even before the civil proceedings have commenced.
The freezing order will require the defendant to make detailed financial disclosure to the claimant and may also include ancillary provisions requiring the defendant to deliver up certain assets or make payment to the claimant immediately.
In addition, a Receivership Order can also be obtained to appoint a receiver to manage and control the frozen assets until the conclusion of the court proceedings.
The defendant has the right to challenge both the freezing order and the receivership order.
Failure to abide by the terms of the freezing order can be treated as contempt of court and punishable by a custodial sentence.
Criminal Proceedings
The prosecuting authority has the power to apply to the Crown Court for a Restraint Order which effectively freezes the defendant’s assets.
The application for a Restraint Order is made ex parte which means that the defendant is not present at the hearing.
The Restraint Order will usually contain a provision requiring the defendant to provide full financial disclosure to the prosecuting authority.
The prosecuting authority also has the power to appoint a receiver to manage the defendant’s assets and any income flowing from such assets.
The defendant has the right to challenge both the Restraint Order and the appointment of a receiver.
Failure to abide by the terms of a Restraint Order can be treated as contempt of court and punishable by a custodial sentence.
Who Investigates the Fraud?
Civil Proceedings
The claimant will need to gather evidence on which to base a civil claim in fraud.
The onus is on the claimant/victim of the fraud to conduct an investigation before commencing civil fraud proceedings.
The cost of such an investigation will be bourne by the claimant. An investigation can involve a multi-disciplinary team of experts such as foreign lawyers, private investigators and cyber experts.
Criminal Proceedings
Once the matter has been reported by the victim to the prosecuting authority, it becomes responsible for conducting the criminal investigation and the victim plays no active part in the investigation.
The prosecuting authority has considerable powers compared to a private individual or organisation, such as; the power of forced entry onto premises to exercise its functions of search and seizure, to arrest suspects, access bank accounts and telephone records and, additionally, some prosecuting authorities (such as the SFO) have the power to compel witnesses to attend interviews.
Will I Recover My Money and Assets?
Civil Fraud Proceedings
The purpose of the civil fraud proceedings is not to punish the defendant but for the claimant to recover his misappropriated assets together with any additional damages/compensation.
The High Court can order the defendant to return all misappropriated assets and monies as well as pay damages/compensation to the claimant.
Criminal Fraud Proceedings
The purpose of criminal fraud proceedings is to punish the defendant. The Crown Court Judge can sentence the convicted defendant to imprisonment and an unlimited fine depending on the nature and scale of the fraud allegations.
The main purpose of the criminal proceedings is not to recover the misappropriated assets for the victim, although the Crown Court can make a Compensation Order ordering a convicted defendant to pay compensation to the victim.
A Compensation Order is not always made in criminal proceedings. Much more common is a Confiscation Order against a convicted defendant which removes assets from the defendant and places them in the hands of the State.
Criminal or Civil Fraud Proceedings?
A victim of fraud may wish to consider some of the following factors when deciding whether to purse civil or criminal fraud proceedings.
Control
In civil proceedings the claimant/victim retains control of the initial investigation as well as the subsequent court case and proceeds according to his own pace.
In criminal proceedings, once the victim has reported the fraud to the authorities, the victim has no control over whether the prosecuting authority will launch an investigation. If an investigation is commenced, it will be undertaken under the control and guidance of the prosecuting authority with minimal input from the victim.
Speed
In a civil matter, the victim can launch his own fraud investigation immediately. There is also a range of civil law reliefs available to a victim of fraud including freezing orders, receivership orders and Norwich Pharmacal Orders which can provide quick and effective results.
A victim will be dependent on the speed and resources available to a prosecuting authority in criminal proceedings. Invariably, a prosecuting authority will not be able to act as quickly as a private individual or organisation in commencing a full-scale investigation and freezing assets.
Powers
Although a private individual or organisation do have the option of exercising the reliefs outlined above in civil proceedings, the criminal prosecuting authority invariably has much wider powers which include the power to:
- Arrest suspects
- Interview suspects under caution
- Impose bail conditions or object to bail
- Force entry into premises for search and seizure purposes
- Compel a witness to attend a formal interview
- Access bank accounts, telephone and computer records
- Liaise with foreign law enforcement agencies and bring a parallel criminal investigation or court case in an overseas territory
Disclosure
There is a strict disclosure regime in civil proceedings which means both the claimant and the defendant must disclose documents and material to one another irrespective of whether the information assists or harms their own case. This can be valuable in assisting a victim to trace funds and assets in the control of a defendant.
The criminal process places limited disclosure obligations on the defendant which includes a requirement to serve a Defence Case Statement in response to the prosecution’s case. The criminal restraint order does usually contain a requirement for the defendant to make full financial disclosure.
Standard of Proof
The standard of proof is lower in a civil court (‘balance of probabilities’) than in a criminal court (‘beyond reasonable doubt’).
Overall Length of Proceedings
Generally speaking, a civil fraud investigation and trial will conclude quicker and take less time overall than a criminal fraud investigation and trial.
This is because if the claimant has a strong case, steps can be taken to freeze the opponent’s assets and apply for an early civil judgement against the defendant.
Even if a case proceeds to a fully contested trial, civil trials take less court time than criminal trials. Combined with the fact that a civil investigation will take less time than a criminal investigation, the overall result is that criminal fraud proceedings take significantly longer to conclude than civil fraud proceedings.
Costs
Criminal proceedings are significantly cheaper than a civil fraud action as the prosecuting authority will assume the cost and responsibility of investigating and prosecuting the case on the victim’s behalf.
The victim has virtually no costs liability in criminal proceedings, whereas in civil proceedings, all the costs are met by the claimant from the outset to include investigation costs, interim relief costs and the costs of the High Court litigation. If successful in the final judgment, the claimant is able to apply to recover these costs in the usual way in civil proceedings.
Recovery of Assets and Money
If the victim’s primary aim is to recover the misappropriated assets and funds, the most viable route to pursue is civil proceedings.
Civil proceedings are specifically designed for this purpose and allow the claimant to make use of interim reliefs to locate, freeze and safeguard misappropriated assets worldwide.
In addition, a judgment obtained in England & Wales is enforceable in foreign jurisdictions thereby providing the claimant with the comfort that no asset of the defendant will be out of reach.
Can I Pursue Both Criminal and Civil Proceedings?
The answer is yes.
Quite often, a victim will pursue a civil action to quickly and effectively safeguard the return of the misappropriated assets. This is then followed by a report to a prosecuting authority.
It is important to note that even in instances where all misappropriated assets have been recovered by the victim, the defendant has still committed a reportable criminal offence.
There is no prohibition on a criminal complaint being made by a victim against a defendant and for it to be followed by civil fraud proceedings instigated by the victim.
Our Approach
In our experience there is no one answer that fits all scenarios.
Each case will need to be considered on its merits. The factual and legal complexity of each case needs to be considered by expert lawyers in order to provide the victim of fraud with a full bespoke range of options specifically tailored to the needs of that particular client.
We appreciate that no two clients are the same and no two cases are the same. Each client places differing weight on a variety of factors and we appreciate that to many clients issues of publicity and reputation management will be equally or more important than the recovery of misappropriated assets and funds.
We work with clients to ascertain their goals and desired outcome and then set to work to make that a reality.
A Reputation Built on Trust and Expertise
Since 1997, we have been here to assist our clients, both established and new, and to provide positive solutions to whatever civil or criminal fraud issues that may arise.
Our team of civil lawyers is available to assist you either pursue or defend civil fraud actions including those involving complex factual issues and multi-jurisdictional legal issues.
Our team of criminal solicitors has a proven track record of defending the most complicated and high-profile fraud allegations. The team has represented corporate and individual clients in many of the leading criminal investigations over the last two decades.
Our aim is to instil a sense of calm in our clients, provide forthright and frank advice, and above all, provide our clients with practical solutions.
How Can I Contact You?
Hamraj Kang leads an award-winning team of solicitors nationally reputed for its excellence in fraud investigations of every nature.
If we can be of assistance, our Team is available via telephone 0333 370 4333 and by email info@kangssolicitors.co.uk.
We provide initial no obligation discussion at our three offices in London, Birmingham and Manchester.
Alternatively, discussions can be held virtually through live conferencing or telephone.
