Civil Fraud v Criminal Fraud FAQs

The below explains the difference between civil fraud and criminal fraud through frequently asked questions:

1. What is the difference between civil and criminal fraud?

Civil fraud is a civil action that can be brought by a defrauded person (the ‘claimant’) to recover losses caused by the fraudulent conduct of others. The remedy sought by the claimant is usually compensation – a payment of money – from the alleged fraudster(s) (the ‘defendant(s)’). A civil fraud action is pursued by the victim(s) by way of a private action in the civil courts. The decision in a civil trial will be made by a Judge.

Criminal fraud is a criminal offence which will be prosecuted by the prosecuting authorities in the criminal courts (Magistrates’ Court or Crown Court) with the sanctions likely to be a fine for the defendant(s) and/or imprisonment. The decision in a criminal trial will be made by a jury.

2. Is there a difference in the burden of proof in civil fraud and criminal fraud matters?

Firstly, what do we mean by the “burden of proof”? In a legal dispute, one party has the “burden of proof” to show that they are correct, while the other party has no such burden and is presumed to be correct. The burden of proof requires a party to produce evidence to establish the truth of facts needed to satisfy all the required legal elements of the dispute.
 
In civil proceedings the burden of proof is on the victim (i.e. the claimant) to prove “on the balance of probabilities” that the defendant committed the alleged fraud. This means that the claimant will need to convince the Judge that it is more likely than not, that the defendant committed the alleged fraud. 

In criminal proceedings the burden of proof is on the prosecution to prove “beyond reasonable doubt” that the defendant committed the alleged fraud. This is a higher standard of proof than in civil proceedings.

3. Will I get back what I have lost?

In civil proceedings a successful victim may obtain an order that the defendant repay the money/assets taken and or pay damages to the victim. It is possible very quickly to obtain judgment/reach settlement in certain circumstances, e.g. where you have very strong evidence against the defendant. There is no sanction by way of punishment for the defendant. 

In criminal proceedings, depending on the offence for which the defendant is convicted, the court in which he is convicted and the value of the fraud, a criminal Judge can impose a prison sentence of up to 10 years and/or an unlimited fine. 

If the defendant is convicted, the prosecuting authority can seek a compensation order against the defendant; this requires a convicted defendant to pay compensation to his victim(s). A compensation order can be given either as a sentence in its own right or alongside another sentence – such as a fine. The amount of compensation that a court may give is unlimited.

Compensation may be ordered for any amount that the court considers appropriate, taking into account any evidence and any representations made by:

• the prosecutor – such as how much compensation the victim is seeking and any evidence demonstrating the loss or damage that has occurred; and
• the offender – for example about their financial circumstances.

Compensation orders are appropriate in straightforward cases where the amount of compensation can be easily calculated.

Where the offender does not have enough money to pay the full amount requested by the victim, the court may reduce the amount of the compensation order which means it may not cover the full cost of any loss or damage caused, or allow additional time for the offender to pay – compensation may be paid over a period of up to 3 years in appropriate cases.

Any compensation to a victim is collected from an offender first, before any other financial orders given by the court, such as victim surcharge, a fine or costs.

4. I am a victim of fraud – should I report the matter to the police, pursue the defendant through civil courts, or both?

If your primary concern is to try and get your money back, then you need to bring civil proceedings. If your primary concern is to bring the defendant to justice by some form of punishment, then reporting the matter to the police is the best option for you. You can also do both. 

Advantages of civil proceedings over criminal proceedings

• Proceedings can be commenced and ancillary orders (e.g. freezing orders) can be obtained very quickly, without the uncertainty and potential delay associated with whether a prosecuting authority will investigate the case.
• The main thrust of civil proceedings is the recovery of, or compensation for, losses suffered by the victim. If successful, you will obtain a judgment against the defendant which can be enforced against the defendant’s assets; this is how you are financially compensated for your loss. In criminal proceedings unless you can overcome the high hurdles to persuade the prosecutor to seek a compensation order (following a conviction) there will be no financial compensation for you.
• You are in complete control of whether to bring civil proceedings and how those proceedings progress. If you report a matter to the police/prosecuting authorities there is no guarantee that the defendant will be investigated or prosecuted and you have no control over the investigation or prosecution, or any publicity in respect of the investigation or prosecution. Apart from giving a statement to the police and possibly evidence at trial, you are unlikely to be involved.
• During the civil proceedings there is the process of “disclosure” which means that the defendant (as well as the victim) must disclose documents which may support your case and may assist in tracing the defendant’s assets.
• In civil proceedings the standard of proof is less – you have to prove your case on “the balance of probabilities”. In criminal matters the prosecution has to prove their case “beyond reasonable doubt”, so before you can expect any form of recovery or retribution the criminal case must be proved to this higher criminal standard.
• A variety of court orders are available to you to assist in preserving the defendant’s assets and obtaining information from the defendant and his/her bank, for example freezing orders, search orders, Banker’s Trust orders.
• Typically, it is much quicker to bring, complete and obtain judgment in civil proceedings than it is for the authorities to investigate and prosecute a criminal matter and then, following a conviction, seek a compensation order.
• Civil trials tend to be shorter than criminal trials.
• English civil judgments can be enforced in foreign jurisdictions enabling victims to seize the assets of the defendant even if held outside England and Wales.

Advantages of criminal proceedings

• The police/SFO have wider powers of investigation than you or your lawyers, for example, entering homes and business premises to execute search warrants (without notice), accessing bank accounts, telephone records and confidential information not available to the public, as well as interviewing witnesses.
• The potential outcome of a successful criminal prosecution (i.e. fine or imprisonment) is probably of more concern to a defendant than the potential outcome of successful civil procedures (i.e. a Judgment which might be enforced against their assets if not paid). The fact that the defendant has been sent to prison may go some way to compensating you, even though you may not receive any financial compensation. 
• If there are parallel investigations on-going in different jurisdictions the law enforcement bodies in those jurisdictions may cooperate, for example, by pooling evidence which may make it easier to obtain a conviction. 
• You are not responsible for the costs, whereas in civil proceedings you are responsible for the costs (although if successful you may obtain an order for costs against the defendant). 

5. Do I have to report a suspected fraud to the police?

No, in the UK there is no legal obligation to report a fraud to the police or to any other body, unless you and/or your business are part of a regulated sector that has a duty to do so.

If you decide that you do wish to report a fraud, you can do so to the Police, or to Action Fraud. Action Fraud is the UK’s national reporting centre for fraud and cybercrime and is run by the City of London Police, working alongside the National Fraud Intelligence Bureau who are responsible for assessment of the reports and to ensure that all fraud reports reach the right place. It provides a central point of contact for information about fraud and financially motivated internet crime. 

6. Do I have to choose between the criminal and civil justice systems?

It is possible for criminal and civil fraud cases to be run at the same time, although careful consideration should be given to the timing of commencing each action. Depending on the desired outcome, often it is better to pursue the defendant via a civil claim first. This is because:-

• A criminal prosecution – even a successful one – may not result in the person who reported the fraud regaining their assets. This is because the purpose of a criminal action is to punish the offender, whereas the purpose of a civil action is to compensate the victim.
• The standard of proof in civil law cases is the “balance of probabilities” which is a lower threshold than in criminal proceedings, when an accusation must be proved “beyond reasonable doubt”.
• You maintain control. The police have their own methods of obtaining evidence which includes arrests, searches and interviews under caution. You can have no influence over those. Also, once a criminal investigation has been commenced, you may find it difficult to bring a civil claim against the defendant until the criminal proceedings are over. This is because there may be a problem with access to evidence.
• A criminal investigation will typically take much longer than civil proceedings.
• Claims concerning civil fraud are generally subject to certain limitation periods. Limitation periods impose time limits within which a party may bring a claim or give notice of a claim to the other party. If a limitation period is missed, the civil claim may be “time barred” and it will be possible for a defendant to raise this as a complete defence to the claim and, therefore, to escape liability.

The decision whether to opt for civil or criminal proceedings to pursue a defendant is rarely straightforward. It requires the application of a range of complex issues to the facts of your case. Matters are made even more difficult because this decision often needs to be made within a short period of time and without all the necessary information. To ensure the best possible outcome it is crucial that victims of fraud take professional advice from experienced lawyers on the best way to navigate the civil and criminal jurisdictions and how those jurisdictions relate to the facts at hand.

If you believe you have a claim for civil fraud, or you are being accused of fraudulent activity, and wish to discuss this further, please contact Cara White.

You will also find more information in our “Guide to Civil Fraud”.