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Comprehensive Strategy Formulation for Government Administrative Enforcement: The Necessity of Preventive and Deterrent Investigative Agencies – Insights from Advanced Cases in the United Kingdom

When it comes to the most advanced countries in terms of anti-fraud measures worldwide, the United Kingdom stands out. Recognizing the substantial and critical national issue posed by domestic public and private sector fraud costs, the UK government has been proactive in implementing various advanced measures to minimize these costs.

The catalyst for the pioneering initiatives of the UK government was a comprehensive research report published in 2006, spanning 377 pages. Titled the “Fraud review report,” this document described the severity of public and private sector fraud in the UK and its societal impact. It advocated for a more nuanced measurement of fraud costs along with the need for a specialized agency to prevent, deter, and prosecute fraud comprehensively. The report proposed that collaboration among government, police, and various organizations was essential, with a focus on understanding the reality of fraud and preventing fraudulent activities. Subsequently, the establishment of the National Fraud Agency (NFA), a government agency specializing in anti-fraud measures unprecedented on a global scale, was initiated. This article provides an overview of the key points outlined in the Fraud review report.

Outline of Recommendations on Fraud review report 

The essence of the recommendations outlined in the report is to measure the costs of fraud and, based on this assessment, formulate a comprehensive, cross-organizational strategy for anti-fraud efforts, involving collaboration with both domestic and international entities.

  1. Anti-Fraud Strategy Formulation:
    • Recommendation: Establish the National Fraud Strategic Authority (NFSA) within the central government. Create a Multi-Agency Co-ordination Group (MACG) to facilitate collaboration between NFSA and relevant ministries and agencies.
  2. Measurement of Fraud Costs:
    • Recommendation: Establish a Measurement Unit for fraud costs within the National Fraud Strategic Authority (NFSA).
  3. Reporting System:
    • Recommendation: Set up a National Fraud Reporting Centre (NFRC) within the National Lead (Police) Force, such as the London Police. NFRC should collaborate with domestic and international partners, receive reports on fraud from external sources, screen cases based on its criteria, allocate resources, and respond accordingly.
  4. Information Sharing:
    • Recommendation: NFRC should identify external partners capable of collecting information on fraud perpetrators and establish a collaborative framework. Pursue potential fraud through the cross-referencing of information held by various government agencies.
  5. Fraud Prevention:
    • Recommendation: Embed the National Fraud Initiative (NFI) more deeply within each government agency. The National Audit Office should play a more proactive role in designing and implementing anti-fraud measures in the public sector. NFRC should promote national anti-fraud campaigns, collaborate with the media to share instances of fraud, issue warnings, and devise effective anti-fraud measures for each fraudulent activity.
  6. Fraud Investigation:
    • Recommendation: The Home Secretary should prioritize fraud monitoring as a crucial task and include it in annual plans. Investigative authorities for fraud should plan investigations, including target-setting based on the results of fraud monitoring. Grant a certain level of investigation authority to law enforcement agencies and establish specialized units for fraud investigations.
  7. Penalties and Prosecution for Fraud:
    • Recommendation: Introduce various penalties for fraud, such as dissolution orders for companies and compensation for victims. Establish a jurisdiction for financial fraud within the High Court. Develop guidelines for sentencing decisions related to fraud. Extend the maximum imprisonment period for embezzlement and corporate crimes from 10 to 14 years.
  8. Deferred Prosecution Agreements:
    • Recommendation: Consider the introduction of deferred prosecution agreements.

It should be noted that the National Fraud Agency (NFA) disbanded in 2014, transferring its functions, including fraud risk analysis and strategic development, to the National Crime Agency. The fraud investigation function (Action Fraud) was transferred to the City of London Police, and the development of the Counter-fraud Checking Service was inherited by the Cabinet Office.

Furthermore, Fraud Loss Measurement (FLM), as proposed for fraud cost measurement, has seen advancement in methodology and implementation in the UK. While its adoption is spreading, especially in Europe and North America, there are currently no reported cases in Asia, including Japan. FLM involves statistically selecting a representative sample for a precise investigation, estimating the overall fraud amount from discovered cases, and calculating the total fraud amount. The potential areas suitable for FLM are those with a standardized and homogeneous population, such as various social security benefits, including insurance payouts and pensions. Given the anticipated increase in social security and healthcare costs in Japan, pioneering the introduction of FLM in Asia, ahead of other countries in the region, is anticipated.

Furthermore, in 2014, the National Fraud Agency (NFA) dissolved, transferring its functions — including fraud risk analysis and strategic development (Strategic development and threat analysis) — to the National Crime Agency. The investigation function for suspected fraud (Action Fraud) was transferred to the City of London Police, and responsibilities related to the e-confidence campaign were assumed by the Home Office, while the development of the Counter-fraud Checking Service (fraud monitoring service) was taken over by the Cabinet Office.

Moreover, the proposed measurement of fraud costs (Fraud Loss Measurement: FLM) has seen progress in methodology and practical implementation within the UK. Although it has gained traction primarily in Europe and North America, adoption cases in Asia, including Japan, are still scarce. FLM, in simple terms, involves statistically extracting a sufficient sample size to conduct a precise investigation. It estimates the overall amount of fraud based on the discovered number and value of fraudulent cases. Consequently, FLM is deemed suitable for areas with standardized and homogeneous payment structures, such as various social security benefits, including insurance payouts and pensions. Given the anticipated growth in social security and healthcare costs in Japan, the introduction of FLM, ahead of other Asian countries, is expected.

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