Advance Fee Loan Fraud (Hansard, 21 April 1994)

§ Lord Henley
My Lords, it is not possible to estimate the scale of advance fee fraud. Where anybody suspects that he has come across an instance of advance fee loan fraud, he should report it to the police, as with any other sort of crime.

§ Lord Spens
My Lords, is the Minister aware that a common theme running through those advance fee 282 frauds is that they originate from overseas and that they are peddled in this country through intermediaries, foremost among which are certain UK branches of overseas banks? The Bank of England has expressed itself as not competent to supervise that problem and the Securities and Investments Board has said equally that it is incapable of regulating the problem. What is the Minister prepared to do to make sure that the law is changed so that we can get at the perpetrators and promoters of that fraud, because many thousands of small businesses and some larger businesses have suffered gravely in the past three or four years from that large-scale fraud?

§ Lord Henley
My Lords, as the noble Lord will be aware, the Bank of England has issued a letter to all banks which it authorises on the subject, warning them of the dangers of this. The second part of the noble Lord's question seems to suggest that there is a gap in the law. I assure the noble Lord that fraud of this sort is fraud and is a crime under the Theft Act. Anyone who has evidence relating to instances of such fraud should inform the police, who will take the appropriate action.

§ Lord Eatwell
My Lords, will the noble Lord confirm that nothing has been done about the position of overseas banks, referred to by the noble Lord, Lord Spens, since his noble friend Lord Caithness told the House last year that the Bank of England conducts no supervision of European banks operating or promoting advance loan schemes? Has that situation changed? If the Bank of France is capable of declaring such schemes illegal in France, why does the Bank of England not do that here?

§ Lord Henley
My Lords, as I made clear, if there is fraud of the sort referred to in the Question, that is fraud and is a criminal offence under the Theft Act. People should provide evidence of it to the police, who will take the appropriate action. As regards the first part of the noble Lord's question, the simple fact is that the Bank of England authorises certain banks which are based here. Other banks that are based elsewhere in Europe or in the EEA countries obviously will be authorised under the second banking directive, which I believe is the appropriate measure, under their own countries' arrangements. It would be a matter of going to the Bank of France in the case of a bank authorised by the French authorities.

§ Lord Eatwell
My Lords, surely the noble Lord is aware that the Bank of France has managed to make the activities even of non-French banks operating in France subject to its jurisdiction. Is he aware that the European Commission is now investigating the activities of the Bank of France so that its evident success can be generalised to other countries?

§ Lord Henley
My Lords, I do not believe that the noble Lord followed me when I said that the important point is that the activities to which the noble Lord refers are fraudulent in this country and are already covered by the criminal law of this country. If the noble Lord and other noble Lords have evidence of such activities 283 taking place, it is open to them either to inform the Bank of England, which will inform the police, or to inform the police directly.

§ Lord McIntosh of Haringey
My Lords, the Minister has failed to understand the thrust of my noble friend's point. The point is that the Bank of France has succeeded in preventing those potential frauds by a regulation system, whereas the Minister is relying on prosecution after the fraud has been committed.

§ Lord Henley
My Lords, I am not sure that the noble Lord quite follows what is involved in the fraud. A fraud is quite simply a fraud and no amount of regulation by the Bank of England or the Bank of France will stop people committing such fraudulent acts. I am saying that those are criminal activities under the Theft Act and if the noble Lord knows of people indulging in that form of advance fee loan fraud, he should notify the police.

§ Lord Spens
My Lords, that is not wholly possible because the fraudsters are nearly always outside this country. The promoters of the fraud are in this country in UK branches of overseas banks. Does the Minister agree that it is extremely difficult to make the fraud run from overseas through to the domestic UK banking arm?

§ Lord Henley
My Lords, if the promoters of the fraud are in this country, they are within the jurisdiction of the United Kingdom law. It is open to the noble Lord and other noble Lords to go to the police. These activities are fraudulent.

§ Lord Stewartby
My Lords, does my noble friend recognise that, even though it is perfectly true that the main line of attack against those who commit such frauds in this country may be in relation to the fraud itself and not in relation to the banking system, now that we have a common banking directive there is a case to investigate whether our banking supervision arrangements can in any way be used to apply to the management of such branches or banks? The Banking Act requires that the management of authorised institutions should be fit and proper. It ought to be fit and proper in each country of the Community if all the countries of the Community have to share the same regulations.

§ Lord Henley
My Lords, I fully agree with my noble friend. The Bank will look at whether those managing the banks, which it has the duty to authorise under the Banking Act, are fit and proper persons and at all other matters that are relevant. However, in the case of banks which are authorised under the second banking directive by the banks of our European partners, it is a matter for those banks to look at these matters. I hope that they will exercise exactly the same care as the Bank of England.

§ Lord Williams of Elvel
My Lords, does the Minister recognise that it is not a question of individual banks; it is a question of the Bank of England, which has responsibility under the Banking Act, which your Lordships discussed and passed, to make sure that fit and proper persons are running those banking 284 institutions which are authorised? The noble Lord, Lord Spens, asked in the original Question what measures are being taken to catch and punish the promoters of this type of fraud. Is it not right that the Bank of England should take measures to catch and punish people engaged in this type of fraud?

§ Lord Henley
My Lords, the noble Lord is correct. The Bank of England will examine these matters in relation to the banks which it authorises under the Banking Act. However, the noble Lord knows that certain things have moved on since the passing of the Banking Act. The second banking directive imposes on a member state's own home bank responsibility for authorisation of the banks from other member states. In the case of a bank based in France, it would be on the Bank of France.

§ Lord Williams of Elvel
My Lords, I am sorry to prolong this discussion but the Minister is being disingenuous. Is he aware that that directive and the subsequent passport that it issued to banks is valid throughout the European Community, or Union as it is now known? Therefore, it is for the regulatory authorities in each country to ensure that that passport remains valid. That is in the legislation.

§ Lord Henley
My Lords, no, I do not think that I can take the noble Lord any further. The point behind the second banking directive is to institute the home supervisory arrangements whereby banks will be authorised in their country of origin in Europe and that will then be passported to this country for a bank that is based in this country. It is not the duty of the Bank of England to authorise in London a bank from the Netherlands, France or wherever. I think that the noble Lord accepts that point.