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Oleg Sobko
Doctoral student of the Financial Police
Academy Kazakhstan, Astana
Comparative analysis of
anti-fraud legislative measures
Fraud, as a form of criminal activity, has existed a
sufficiently long period of time, and historically appeared around the same
time as different forms of violent crime.
Despite the immutability of principles in the commission of these
crimes, we can observe the evolution of how it occurred. Fraud as a
manifestation of ‘intellectual’ crime shows continuous development of new
methods of theft through deception, which is necessary to compile and analyze
in order to fight it. In the globalization period of the world economy, the
growth of interdependence and conflict of laws of different states, necessitate
a comparative analysis of criminal prohibitions, criminal trends and thereby
the experience of fighting against them will increase. By the report, that has
been made by the CFE “the average organization annually loses 5% of its
revenues to fraud. Applying this percentage to the 2009 estimated Gross World
Product of $58.07 trillion would result in a projected total global fraud loss
of more than $2.9 trillion”[1]. In 2008, the total
losses of the Property crimes in the
U.S. was $16,207 000 000 $ from 16,319,180 property crimes. And total
loses from the theft crimes was 6,468 000000 $ from 12,335,400 crimes [2].
According to the Black’s law dictionary, fraud is:
- “A knowing misrepresentation of
the truth or concealment of a material fact to induce another to act to his or
her detriment”
- “A misrepresentation made
recklessly without belief in its truth to induce another person to act”
-
“A tort arising from a knowing misrepresentation, concealment of a
material fact, or reckless misrepresentation made to induce another to act to
his or her detriment”
-
“An unconscionable dealing; especially contract law, and the unfair use
of the power arising out of the parties’ relative positions and resulting in an
unconscionable bargain” [3].
In principle, these definitions are not criminal – law norms, and
increasingly these concepts reflect common signs of fraud contained in the
various sources of law.
These concepts can exist in
a narrow sense, as a specific criminal - legal norm, and in a broadest sense -
a set of criminal – law norms, both general and specific, involving the
commission of theft by deception and abuse of confidence, but describe in more
detail, fragmented and specified according to the different characteristics of
the scope of a crime, that a person has committed, and other circumstances. An
analysis of legislation of several countries with a ‘continental’ legal system,
allows us to surmise, that the concept of fraud in different states has many
similarities. As a rule, there are general norms of fraud, as well as a number
of special norms, that vary depending on the subject of committing fraud:
corruption species, fraud, using one’s position in the commercial and public
organizations and depending on its commission: using high-technology,
computers, internet and other means of communication, using forged documents,
etc. and finally depending on the industry: in the insurance industry,
internet, medicine, banking, taxes, etc. , we will briefly describe the criminal law in continental and Anglo-Saxon legal systems:
Criminal law in
the states with continental legal systems
The overall analysis allows
concluding the presence of the following basic features
of criminal law in countries with continental
legal system:
•
legal acts are usually codified
•
general character of rules - norms, that
describe the main features of a certain category of crimes with a fairly rare specialty
• absence or restriction of lawmaking by the judiciary
• impossibility of the objective imputation
– intention is a one of the most important part of norm’s structure.
In several
countries of South America, Europe, some countries in the Middle East, countries
of CIS continental law concept is accepted and …
Criminal laws in the countries of the
Anglo-Saxon legal system
Common signs include:
• reduced prevalence of normative legal acts in
the form of codes
• legislation
usually formatted by the judicial authorities, based on precedents
• establishing
legal norms for dealing with specific criminal cases (casuistic nature of
criminal law)
The countries with the Anglo - Saxon legal family include: the United States, the
United Kingdom,
New Zealand, India and others)
It
should be noted that each of these systems tends towards the
other. Namely, in some countries with the
Anglo - Saxon legal system, increasing attention is
paid to the codification of criminal law, and in countries with continental legal system, more
attention is paid to judicial lawmaking.
French anti-fraud legislative approach
France - the birthplace of the so-called
continental law system - has produced significant achievements in the field of
legal science. The most significant among them is the Criminal Code 1810. If we
consider that, besides the protection of "sacred” right of private
property, the objectives of French criminal law are: protection and promotion
of human personality, life, health, honor, dignity, integrity and security, to
safeguard the interests of the nation, state and public order, then, only after
considering these facts can we have a complete and accurate picture of the role
and importance of the criminal law.
France belongs to the system of continental law and, therefore, the
main source of criminal legislation is
a law. It is a system of sources of
criminal law, which is characterized by a
strict hierarchy, from the Declaration of
Rights of Man and Citizen (1789), French Constitution of
1958, the criminal Code of
1992 and other legislative acts.
A brief analysis of the main sources:
The Declaration of the Human Rights,
1789, establishes the fundamental principles of criminal law and its basic
principles are enshrined not only in France’s criminal law, but also reflected
in the criminal law of other countries, such as the continental and the Anglo -
Saxon system of law. It considers:
• legislative ban of socially harmful activities (item 5 -
"the law has the right to prohibit only actions that are harmful to
society")
• to avoid criminal prosecution except on the basis of the law (Article 7 - Nobody can be accused, arrested or imprisoned except in the cases stipulated by law.
•acts
of punishment are determined by law.
• humanity
of criminal penalties (Article 8 - "The
law should establish only penalties strictly
and evidently necessary").
impossibility
of retroactivity of criminal law (Article 8 - "nobody can be punished
except by virtue of the law passed and
promulgated before the offense, and legally applied").
• president of
the Republic has the right of pardon (Article 17);
• the law establishes rules concerning the definition
of crimes, torts, and punishment for them,
criminal justice, amnesty (Article 34);
• no one shall be arbitrarily deprived of his
liberty (Article 66);
• president of the Republic shall not be liable for acts
committed while performing their duties, except in cases of treason. Members of
the Government shall bear criminal responsibility for acts committed by them in
discharging their duties, if these actions at the time of the commission
constitute a crime or tort. High Court related to the
definition of crimes and torts, as well as established for them punishments
that are found in criminal law in effect at the time of these acts (Article
68). The ‘Criminal Code’ of France consists of books.The first book serves as a common part of the criminal code and contains
provisions on criminal law, criminal liability and punishment. Book Two ("On crimes and offences against the
person"), Three ("On crimes and offenses against property"),
Four ("The crimes and offenses against the nation, states and public
safety), Five (" Corruption crimes and misdemeanors " ) and Six
("Violations") represent a special part of the Criminal Code.
The seventh book of the Criminal Code contains provisions
"used in the Overseas Territories."Rules
establishing criminal liability, are not only contained in the criminal code,
but also in other codes - road, land, forests, tax, customs, the Code of Public
Health, etc. The advantage of the legal impact of these codified acts is
directed at resolving the precise scope of public relations, for example,
traffic, land use, etc.
The Code of Military Justice, which came into force on 1 January 1966 regulates the issues of criminal responsibility of military personnel.
Article 111-4 of the Criminal Code of France requires that the criminal law has a precise interpretation. That means the inadmissibility of the use of law enforcement agencies to exercise a broad interpretation of the criminal law. Article 55 of the Constitution of the French Republic states that the international treaties and agreements, that have been ratified by France, have the priority under the national law. In addition, Art. 111-5 of the Criminal Code stipulates, that criminal courts are competent to interpret the administrative, regulatory or individual acts, that do not contain criminal provisions and to assess their validity in those cases.
Fraud in
the criminal law of France
Considering the criminal law on liability for fraud in France, we should note the presence of the definition of criminal deception in the Criminal Code of France, which is not presented in the criminal law of all countries. The definition of fraud contains features of four types of deception by the Criminal Code of France. A simple trick is, for example, a simply written or oral false claim: in particular, a false promise to return the money. Thus, obtaining money or goods, the obligation of mandatory return and his subsequent failure is not grounds for bringing a person to criminal liability.Passive deception, a deception by omission, is punishable under the laws of a number of other countries, but is not punishable under the Criminal Code of France. This is due to the fact that each of the four methods deception in art. 313-1 of the Criminal Code France implies action.In our view this case, the lack of punishment for passive deception, is not a positive one. Taking the position that the inclusion of relations in the acquisition of another's real property as the object of fraud, and comparing the situation with the criminal legislation of the CIS, we can note the presence of the advantages of Article 244 of the model criminal code in comparison with the norm of fraud under the Criminal Code of France . The term "property rights" in the disposition of Article 244 of the Criminal Code of the CIS model can be considered illegal acquisition of another's real property by deception as a fraud. Art. 313-1 of the Criminal Code of France, by contrast, does not extend its action on the illegal acquisition of property. This is due to the fact that real estate cannot "be passed", while "passing" - this is one of the main features of French norms on fraud.
At the same time, the essential feature of the French model is the existence of the criminal acts similar to the fraud, that has been enshrined to the Criminal code, as well as other special norms on fraud outside the Criminal Code of France - French Commercial Code, Tax Code.
French courts pay attention during procedure of qualification of a method of deception, because the norm of law, which should be applied depends on the method of deception and in some cases it causes justification of an attacker, because each method of cheating is defined by the legislation of France through a restrictive interpretation.
anti-fraud legislative
approach
The American legal system was created on the basis of British
legislation.
Formerly
possessions of England, the first American colonies, directly borrowed the
principles of common law. Therefore, gradually, common law was extended to the
new states, as well as those, that had previously belonged to other states.
The sources of
criminal law of the U.S. have some special features:
• Typical complexity of the legal system
• entangle and
archaic structure of law
• The presence of
53 criminal legal systems. There are 50 states systems, one federal system, a
system of District of Columbia and one of Puerto Rico.
The federal criminal norms are written in the Constitution of the United
States of 1787 as well as in the Acts of Congress and some other laws.
The U.S.
Constitution contains norms of criminal law:
• Prohibition on
the use of unusual and cruel punishment
• The ban on
collecting too high fines
• Prohibition of
legislation’s retroactivity
• Ban on
deprivation of property without due to the process of law
• The concept of
“betrayal to the State" as a crime
Most of the criminal norms are
presented in Section 18 (for example, such as fines, imprisonment, death
penalty).
In 1984, a
comprehensive law on the control of crime was issued, which contained the basic
norms on the order of sentencing. And in 1994 - the law against public crime
"has increased the number of articles, that include the death penalty to
sixty”. In addition to the standards of the federals statutory sources of
criminal law there also exist the regulations issued by the President,
departments and agencies of the federal government. Particularly these acts explain
and detail the specific criminal laws that establish conditions for their use.
possession of false
papers to defraud US , false statements
on and concealment of facts in relation
to documents required, fraud and related activity in connection with activity
and documents and information, fraud and related activity in connection with
access devices, fraud and related activity in connection with computers, major
fraud against the US and the other sections (1001. - 1036)[4]
Title 18 also includes mail fraud, which
is associated with the administration of letters containing false promises and invitations
to participate in various lotteries and sweepstakes prizes. (1302
- 1303). In section 2326 a separate type of fraud perpetrated against the
elderly is allocated, committed by using mail, network, or telemarketing. Tittle 39 in section 3005 includes a crime called false representation. Thus, this rule describes the prohibition to engage in activities related to the conduct of lotteries and prizes, and conduct
other activities with
the intention of deceive.
Section 1341 includes clearly
the implementation of counterfeit goods by
mail, this being an analogue to consumer fraud. Separately, Section 1342 prohibits the use of a fictitious name
and address in transactions or other dealings.
U.S. federal law contains special
rules on the responsibility of officials, officers and
members of Congress for corruption fraud, which consists
in extracting revenues from government contracts. Par. 431 and 432 of
title 23 includes positions about the blameworthiness
of transactions made by members of Congress, and between them and
officials, officials of the United States, etc.
To illustrate more varieties of fraud in the US, we will represent the
classification of types of fraud, which is made by Federal Bureau of
Investigation:
Common Fraud Scams
Telemarketing Fraud, Nigerian Letter or “419” Fraud, Identity Theft, Advance Fee Schemes, Health
Care Fraud/Health Insurance Fraud, Redemption/Strawman/Bond Fraud
Investment-Related Scams
Letter of Credit Fraud, Prime Bank Note Fraud, Ponzi Schemes, Pyramid Schemes
Internet
Scams
Internet Auction Fraud, Non-Delivery of Merchandise, Credit Card Fraud, Investment Fraud, Business Fraud, Nigerian Letter or "419" Fraud
Fraud Target: Senior Citizens
- Health Care
Fraud/Health Insurance Fraud,
Counterfeit
Prescription Drugs, Funeral and Cemetery
Fraud, Fraudulent
"Anti-Aging" Products,
Telemarketing Fraud, Internet Fraud, Investment Schemes, Reverse Mortgage
Scams[5]
German anti-fraud legislative approach
Criminal law in
Germany is based on: the Constitution of Federal Republic of Germany of 1949,
the Criminal Code of Germany of 1871, the special federal criminal laws,
criminal laws of land, foreign criminal law.
A feature of the criminal law of Germany is that it was not fully
codified. Along with the Criminal Code, there are many tacit penal norms
contained in various laws. Therefore, we have to distinguish the Penal Code
(codified federal act) and the broader notion - "Criminal Law", which
includes the Criminal Code of Germany, and other criminal norms of various laws
that constitute so-called additional criminal law.
The Constitution
of the Federal Republic of Germany establishes a number of criminal-law
principles. Art.102 refers to the abolition of the death penalty, Art. 103 (2)
states that an offense is punishable only when it was installed punishable by
law, Art.103 (3) states that no one shall be punished for the same act, Art.
104 - on the admissibility of imprisonment only on the basis of criminal law
and court sentence. Germany is a federation. This is why for Germany, as well
as for the United States, the dualism of the criminal law is peculiar. So the
right of law-making belongs not only to Federation, but also to lands (or
states). It explains the parallel existence of federal criminal law and
criminal law of land/state.
The relation
between federal and state law is based on the principle of so-called
"competing legislation." The essence of this principle can be
expressed in the formula: The Imperial law breaks down the right of the land.
In other words, if federal lawmakers issue regulations in any area of
criminal law, all acts, that had previously been issued by the
lands will lose their legislative activity. In contrast, the area of
criminal law, which was not governed by federal law, the law of
lands is counted as the main source of criminal law. According to Section 1,
Art. 74 of the Constitution of Germany, criminal law, including the enforcement
of sentences, relates to the field of competing legislation, and can be
regulated by federal law and by law of the land. However, the competence is
‘conditional’. This means that the federal legislator intervenes in the sphere
of criminal law only when necessary to unify regulation of a subject throughout
Germany. Such a need may exist in the following cases: a) when the issue is not
quite efficiently settled by the law of the land b) when the question of
criminal law regulation of any one land would violate the interests of the
other land or the federation c) when the regulation of issue by Federal
legislation is needed to preserve "the legal or economic unity" of
Germany. German legislation on anti-fraud issues can be divided into rules of
general and special fraud.
General: Art. 263
Causing damage to property for the purpose of obtaining property benefit for
the perpetrator or others by deception.
Paragraph 265
provides liability for the illegal loan by providing false information.
Paragraph 370
provides liability for tax fraud, but in this case, the rule is provided not by
Criminal Code, but Tax Code.
There are 3 types of tax fraud by the legislation of Germany:
- incorrect or incomplete message to the authorities about the
facts of having a tax value
- leaving the authorities in ignorance (passive deception)
Non-use or violation of fiscal responsibilities of special marks
or signs (passive deception)
CIS
anti-fraud legislative approach
At the end of
1991 as a result of the difficult and inconsistent processes which have led to
disintegration of USSR, an interstate association was created - the
Commonwealth of Independent States. Among a massive of legislation of
Commonwealth the particular interest represents the model legislation.The model
law is the act of recommendatory character containing typical norms and giving
standard orientation for the legislation of particular countries. It is not
obligatory for a legislature and serves as the legislative-focusing
standard. The creation of unified
modeling certificates serves as means of unification and legislation
harmonization.
The main property
of modeling laws is that they are the original bridge between norms of the
international and internal legislation. Modeling laws directly absorb
principles, norms of international law, them to the standards of national
legislation. These acts have a recommendatory character of law and it is not
obligatory to apply them, however only by not excluding imperative norms,
recognized as voluntary self-obligations. All the legislation is based on
law-making experience of foreign countries with continental law systems, also
on traditions of criminal law of USSR criminal law school.
In the 1990’s, almost
all CIS countries have been adopted new criminal codes.
Criminal Code of the Republic of Uzbekistan dated 22 September
1994
Criminal Code of the Russian Federation dated 13 June 1996
Criminal Code of Turkmenistan on June 12, 1997
Criminal Code of the Republic of Kazakhstan dated 16 July 1997
Criminal Code of the Kyrgyz Republic on September 18, 1997
Criminal Code of Tajikistan on May 21, 1998
Criminal Code of the Republic of Belarus on July 9, 1999
Criminal Code of Azerbaijan on December 30, 1999
Criminal Code of the Republic of Moldova on June 21, 2002
Norms on fighting against fraud in the criminal law of
the CIS
This legislation contains a number
of general and special rules of fraud.
The following are:
Article 244. on Fraud
(1) Fraud, i.e. the theft of
another's property or the acquisition of rights to
another's property by deception or
abuse of trust - a crime of small gravity.
(2) The same act:
a) a group of persons by prior
agreement;
b) causing significant damage to the
victim - a crime the average
gravity.
(3) The actions referred to in the
first or second paragraph of this article
committed:
a) a large scale;
b) an organized group - a serious
crime.
Article 250. Causing damage to
property by deception, abuse
trust or modification of computer
information
(1) Causing significant damage to
property owner or other
owner of the property by fraud or
breach of trust, either by
modification of information stored
in a computer system, network or machine
media, the absence of signs of theft
or other acquisition of another's property -
a crime of small gravity.
(2) The same act committed
Article 259. Illegal Loan
Obtaining individual entrepreneur or
head of organization
loans, grants or concessional
lending conditions by providing a bank or
other lending institution false
information about the economic situation
or financial condition of an
individual entrepreneur or the organization or on
other circumstances, which are
essential to obtain credit,
Article 257. False business
False business, that is a commercial
organization without
intention to engage in business or
banking activity that has an intention
to receive loans, tax exemptions,
the extraction of other property
benefit or protection of prohibited
activities, causing major damage to
citizens, commercial organizations
or to the State - a crime of
moderate severity.
Article 263. Fictitious bankruptcy
Fictitious bankruptcy, that is
obviously a false announcement by the head
of the commercial organization, and
equally individual businessman about the
inconsistencies for the purpose of
deception of creditors for delay reception
or installments of payments due to
creditors or discounts from debts, and it is equal for non-payments of the
debts, caused a large damage, - a crime of average weight.
Article 241. Embezzlement
(1) embezzlement or misappropriation
of another's property entrusted to the perpetrator -
a crime of small gravity.
By the analysis
of CIS criminal legislation, we can come to the conclusion, that definitions of
types of fraud, that are used in considerable cases, are too general and one
norm may include too many different sort of crimes, that have been committed
under different conditions. Too huge
variety of punishments for one type of crime creates conditions for abuse.
However, there are some advantages of structure of criminal law of CIS
countries. All the norms, that are regulate relationships in sphere of criminal
justice are included in criminal code, and are not active in case they exist in
other laws, but the criminal code. This circumstance provides more simple and
lawful interpretation and the application of criminal legislation.
In conclusion, it should be noted that currently there
are many differences in the legislation of the countries with the Anglo-Saxon
and continental law systems. Differences in many cases, are fundamental, but
there is a tendency for their mutual rapprochement. In respect of global
tendencies in sphere of economic criminality, the criminal codes of the states
with continental legal system will be added with more specific norms on fraud.
In countries with Anglo-Saxon system of law the trend of further codification
of criminal law will be continued.
In the context of globalization, growth of economic
and business cooperation between the various states, it is necessary to provide
not only the safety of these relations, but also the effective cooperation
among law enforcement agencies of various states in the context of fighting
against international fraud.
Sources:
1.
Association of
Certified Fraud Examiners. 2010,
Report
to the nations on occupational fraud and abuse. Certified Fraud Examiners, http://acfe.com
2.
Black's Law Dictionary.
Harvard University Press, 1980
3.
Covacich,
Gerald L.2008. Fighting Fraud: How to Establish and Manage an Anti-Fraud
Program. Burlington: Elsevier Academic Press, 40
4.
(Federal Bureau of Investigation. 2010.White collar crime classification http://fbi.gov
5.
Association of Certified Fraud Examiners.
2010, Report to the nations on
occupational fraud and abuse. Certified Fraud Examiners, http://acfe.com
6.
U.S.
Department of Justice, Federal Bureau of Investigation, Crime in the United States, 2009, Table
31,http://www.fbi.gov
Summary: In this article are considered some aspects of fighting against fraud
and fraudulent practices, main tendencies, threats and perspectives.
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Key words: fraud, scam,
deception, anti-fraud legislation, anti-fraud measures