Legal aspects of Fraud Investigation

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Mayur Joshi
Mayur Joshi
CA Mayur Joshi is award winning fraud examiner and foremost forensic accountant. He is regularly quoted in various news papers and is author of atleast 7 books on Forensic Accounting, Money Laundering and Compliance.

This article provides the global perspective of the legal aspects of fraud investigations.  Fraud investigation is a tricky business. These investigations are complex processes that involve varying levels of legal code and jurisdictions. Understanding the basic similarities and differences in individual investigations can provide a solid foundation for the work that investigators must contend within their professional duties.

Criminal Aspect of Frauds

Fraud has two clear similarities in all accounts. Fraud, under criminal law, is always defined as an intentional deception carried out by an individual for personal gain or to defame another individual. In order for a fraud investigation to be admissible in a legal proceeding, an investigator must be able to substantiate that fraud was intended. Further, fraud is always characterized as a crime and a civil violation, albeit a nonviolent crime. This is not to say, however, that the negative consequences of fraud cannot be equally as debilitating as violent crimes.

Frauds in the United Kingdom

Fraud can have some local variances. Within the United Kingdom, for example, fraud also encompasses activities that are an abuse of position, as stated in the Fraud Act of 2006. Investigators must be familiar with regional norms and abide by the laws governing the area; this is why private investigators must pass state boards for certification in the United States, rather than a national accreditation system.

Deceptive Practices

Fraud can take on many forms. The act can be initiated through a number of mediums; these include actions conducted in person as well as through the mail, wire, the Internet and phone. The misrepresentation can take on a wide variety of acts, ranging from false insurance claims, tax irregularities, counterfeiting of currency and legal documents, and embezzlement, to false advertising and countless other acts.

The crime of deceptive practices occurs when a person who has an intent to defraud uses a threat or deception for an unlawful purpose, such as to:

  • Sign a document transferring property or creating a financial obligation
  • Use his or her position as an officer or manager to receive an investment
  • Issue a false check to pay taxes, buy property, or pay for services

Although generally, the crime of deceptive practices is a misdemeanour, if the property at issue is worth $150 or several transactions within a 90-day period exceed $150, the crime becomes a felony.

Jurisdiction aspect in fraud investigation

Jurisdiction is one of the most troublesome issues found in investigations. Depending on the particular form of fraud that is being investigated, varying agencies must be informed and customs must be abided by. Instances of insurance fraud or bankruptcy fraud, for example, typically need to only deal with state laws and local agencies. Counterfeiting, however, is a federal offense which must be investigated under the guise of federal agencies. In the United States, this would include organizations such as the Federal Bureau of Investigation and the United States Secret Service.

When dealing with these multiple institutions, however, there is a tendency towards stove-piping. Stove-piping can be defined as selective collaboration, where agencies do not share all intelligence and evidence that can be useful to investigations. This typically occurs due to agency self-interest, where the investigation’s conclusion is secondary to other activities and policies. Investigators are stifled by a lack of vital information, drawing out the conclusion of the search.

With multiple institutions come multiple definitions and understanding of those definitions. Some of the keywords that the attorneys like to play around with:

CALCRIM No. 224 / CC 224, Circumstantial Evidence: Sufficiency of Evidence

Furthermore, If you can draw two or more reasonable conclusions from the circumstantial evidence, and one of those reasonable conclusions supports a finding of a special circumstance stating that an allegation is true and another reasonable conclusion supports a finding that it is not true, you must conclude that that the allegation was not /cannot be proved by the circumstantial evidence.

The technological advances globally, particularly regarding the World Wide Web, has added an even more difficult element to proper investigation. The internet has revolutionized the nature and scope of potential fraud opportunities. It has brought on an international scope from where criminals can conduct their illicit activities. Further, the abundance of private information exchanged online, combined with the ease with which users can blanket their profile or location, has incredibly increased the difficulty to investigate claims and perpetrators.

Jurisdiction and agency collaboration becomes even more problematic in the international realm. Determinations of who gets to prosecute the charlatans must be made, based on multiple perspectives of national law, and regularly a vague interpretation of international law. Political gamesmanship can hamper these investigations. Especially with crimes such as counterfeiting and identity theft, there is even the plausibility that a sovereign state is secretly sanctioning illicit activities in pursuit of covert policies.

Fraud is a burgeoning illicit enterprise. Billions of dollars are stolen from the economy every year through such activity. It is only through the tireless and unheralded work of fraud investigators that justice can be brought upon the scammers involved in this trade. It is a complex line of work, where criminal law must be interpreted and acted upon, but it a lack of substantial evidence can deem this a hard task.

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