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Private sector fraud in New South Wales: incidence and regulation

Private sector fraud in New South Wales: incidence and regulation

Advice on legislation or legal policy issues contained in this paper is provided for use in parliamentary debate and for related parliamentary purposes. This paper is not professional legal opinion.
Briefing Paper No. 18/1997 by Rachel Simpson

The cost to the Australian economy of fraud in the private sector has reached an estimated $15-$20 billion per annum. A survey by accounting firm Ernst & Young found that 86% of companies suffered fraud related crime between 1991 and 1996. These figures indicate a more serious problem than the incidence and cost of public sector fraud, which is approximately $9 billion per annum. Public sector fraud, however, continues to receive greater attention and consequently more resources are dedicated towards its reduction. The ICAC and the Royal Commission into the NSW Police Force are two recent examples.

"Fraud" has not been defined in the courts, except to the extent that to constitute fraud, the conduct in question must be "seriously dishonest". The notions of deception and dishonesty are discussed in Parts 2.1 and 2.2 (pp.3-5). Similarly, "fraud" is not defined in the Crimes Act 1900 (NSW). Instead, the Crimes Act 1900 contains a number of groups of offences that come under the umbrella of being "fraudulent". These groups of offences are: bribery; conflict of interest; false statements and false claims; extortion; fraudulent conversion, and embezzlement (pp.6-10). Other legislation that deals with fraud is proceeds of crime legislation, which provides for the forfeiture or confiscation of tainted property as well as for pecuniary penalties in some circumstances (pp.10-11).

A common way of classifying fraud is on an industry by industry basis. While there are fraud offences occurring across all industries, the level of occurrence and the manifestation of those offences may differ across industries. As examples, the incidence of fraud in the following industries is examined in Part 4 - Fraud by Industry: insurance; banking/credit card; health care; superannuation; welfare, and computer/Internet fraud (pp.13-25).

The Commercial Crime Agency is the group within the NSW Police Force that investigates allegations of large-scale or sophisticated corporate crime (pp.28-30). However, the responsibility for regulating fraud is not that of the police alone. In fact, the NSW Police Commissioner, Mr Peter Ryan, has stressed the need for industry and law enforcement agencies to work together to combat fraud which he says has become "almost unstoppble". To this end, certain industry bodies have established anti-fraud groups. The Insurance Council of Australia is an example of an industry association which actively investigates allegations of fraud within a particular industry. Cardlink Services Limited, established by the banking industry to manage the banks' credit card operations is another example (pp.26-27).

The Victorian Major Fraud Group operates along similar lines to the Commercial Crime Agency in NSW, investigating fraud which is of a complexity which takes it beyond the capacity of existing Divisional resouces (pp.30-31). In 1987 the Serious Fraud Office was established in the United Kingdom. Although the function of the SFO is similar to that of the Australian organisations, the structure is not. The SFO is a government department , distinct from the Fraud Squad which is part of the police service. As such, it enjoys an autonomy not experienced by other agencies (pp.31-32). The Canadian and US responses to fraud enforcement are slightly different again and are also examined briefly to provide further comparison (pp.32-33).