HL Deb 24 January 1997 vol 577 cc943-50

12.51 p.m.

Lord Renwick

My Lords, I beg to move that this Bill be now read a second time. Telecommunications fraud is a pressing problem which requires legislative change. I was pleased to see the Bill's rapid progress through another place under the guiding hand of my honourable friend Ian Bruce. The Bill remained unamended. I am pleased to say that throughout its passage it maintained the technically sophisticated description thought up by its drafters to describe any item of what is often complicated machinery used for fraudulent purposes—"the thing".

Telecoms fraud is one of Britain's fastest growing crimes. Latest estimates suggest that it is costing the telecommunications industry and its customers—some 90 per cent. of the UK population—as much as £200 million every year. Telecoms fraud is not just a clever way for criminals to make large sums of money. It also enables fraudsters to pursue other more serious crimes such as drug dealing and money laundering behind the anonymity which telecoms fraud currently offers. Far from being a victimless crime it is adding significantly to industry costs and inhibiting technological development. Telecoms fraud affects not just the mobile phone sector but also the BTs, Mercurys and cable operators of this world, the fixed network operators, and also the many newly licensed operators.

There are many types of telecoms fraud. The first, which is unique to the mobile phone sector, is known as cloning. The perpetrators of this fraud work in highly organised groups. They use modified high-tech equipment such as scanners to capture and programme the electronic identity of legitimate mobile phones into stolen ones. Quite often this scanning technique occurs in a place where a large number of mobile phones are likely to be in use such as on a motorway, in an airport or even at the racecourse. Cloning technology is itself rapidly evolving. Cloners now have on the street devices such as the dongle, easily obtainable from magazine advertisements for around £100, which is rapidly used to re-programme and change the identity of stolen phones. These stolen phones are then sold to buyers who can make calls, often to overseas countries. However, because the stolen phones are carrying the identity of a legitimate phone the bill for the cloned calls is directed back to the legitimate owner. Mobile phone cloning is a serious problem. Last year over 8,000 analogue phones were cloned every month and almost 200,000 were reported stolen over the year.

However, cloning also leads to other related crimes. For example, it is estimated that thefts of mobile phones from parked cars, which often then become cloned, contribute to 40 per cent. of city centre car breaks-ins. Motorists have also been subject to jamming where thieves break into a car, often through the passenger window, to steal a phone while the innocent motorist is sitting in a traffic jam. Other types of fraud affect mainly the fixed network operators. Dial-through fraud is a recent import from the USA. It is committed by hacking into a customer's telephone system, the PABX. This enables international calls to be made which are then billed to the legitimate customer. Usually, business customers are the victims of this type of fraud and bills can be inflated by tens of thousands of pounds over a weekend period.

Teeing in or clip-on fraud attacks the residential customer. It involves making a connection through the junction box in the street and tampering with the operator's network. Fraudsters use features such as call diversion and three way calling to sell calls to international destinations at less than the price charged by the operator. Subscription fraud involves signing up to a phone service—business, domestic or mobile—but using a fictitious name and false identification. When the bill arrives the perpetrator disappears.

Without effective legislation the police and telecommunications industry are fighting a losing battle against the criminals. So what exactly is the problem with the current legislation? In a sense the problem lies in the rapid advancement of technology. When the Telecommunications Act 1984 was drafted the mobile phone industry had only just begun to develop and the scanners and computers which are used in mobile phone fraud simply did not exist. Consequently, the voracious appetite for telecoms fraud and widespread computer hacking were not areas which the framers of the Telecommunications Act could properly foresee. However, as the industry and technology have developed, sadly the legislation which covers this area has failed to keep up.

Put quite simply, under current legislation telecoms fraud, or the supply and possession of fraud equipment, is not an arrestable offence. As the law presently stands, even when the police and industry investigators know of individuals and groups committing telecommunications fraud—it is amazing how often they do—convictions are very difficult and costly to obtain. This Bill will amend Section 42 of the Telecommunications Act 1984 to make telecoms fraud an arrestable offence. Moreover, it will also make the supply and possession of equipment with the intention of committing fraud a criminal offence punishable by up to five years' imprisonment. This five-year penalty is the key to beating the criminals. It means that the police will have power to arrest those criminals whom they suspect are committing telecoms fraud as suspicion is not grounds for arrest when the present maximum sentence is two years.

I am pleased to say that because of the urgent necessity for this legislation it has already received strong cross-party support in another place and comes here unamended. The Bill, which is designed to be effective even when technology changes in the future, will give the proper legal backing to enable us to beat the criminal thereby protecting customers as well as one of the UK's most dynamic and innovative industries. I beg to move.

Moved, That the Bill be now read a second time.—(Lord Renwick.)

12.58 p.m.

Baroness Dean of Thornton-le-Fylde

My Lords, I fully support this Bill. I certainly do not intend to table any amendments or detain the House for long, but I wish to make a short contribution. Some may say that it is better late than never. The first mobile telephone call ever made in Britain occurred on 1st January 1986, so this industry is just over a decade old. Yet the crooks and scam merchants already know how to make a fortune out of the cheat and fraud that are taking place. Many of us, including myself, have personal experience of mobile telephones being cloned or we know of someone whose telephone has been cloned. The Bill will help to protect people who find themselves in that situation.

I declare an interest. I am chairman of ICSTIS which regulates the premium rate sector. That is one of the reasons why I take part in the debate. Although this Bill deals with this particular area of fraud and those committing fraud and their conviction, there is another side to the problem. I refer to individual consumers who receive bills for enormous amounts of money for which they are not responsible. Quite often they do not know where to go. They may go to the telecom company, but all too often the company does not have a caring ear and needs proof that the individual has not made these calls. That is very difficult.

The other area of concern is international fraud. This is not just a UK problem. It is a worldwide problem. The USA and Hong Kong have enacted legislation to try to deal with it. It is an international problem, but the fraudsters are often based in this country and benefit from international calls. The premium rate sector is subject to that problem. I am sure that noble Lords would share my concern if they had seen some of the letters that we receive from people who get these enormous bills.

Number format is another way of committing the fraud. Services are advertised. The public read about them and believe that it is a UK-based call. It is not; it is an international call which generates substantial sums of money. That is another reason for welcoming the Bill.

I do not believe that the Bill provides the full answer. There is another aspect to the matter. The network operators themselves have a responsibility to ensure that the public know that this is happening and how they can protect themselves. There are examples of members of the public receiving a telephone call from someone saying, "I am BT, Vodaphone", whatever. "I am just checking. What is your pin number?". We are concerned about people taking the pin number and using it to commit fraud.

It is essential that the public knows what is going on. Equally important are early warning systems for members of the public so that they can latch on quickly. Many people have had, as I have, their mobile phone cut off because of the cloning, but sometimes that does not happen quickly enough. It does not happen until a bill runs into many hundreds of pounds.

The Bill is welcome. It is a measure which is needed. But there is the other aspect; that is, informing the public, and that is the responsibility of the network operators. I wholeheartedly welcome the Bill and fully support it.

1.2 p.m.

Lord Haskel

My Lords, this is a sensible anti-crime Bill. On these Benches we support any sensible measure to combat crime. I thank the noble Lord, Lord Renwick, for his detailed explanation of the Bill. I share the concern of my noble friend Lady Dean for the consumer.

The crime here is telecommunications fraud, affecting both mobile and fixed networks. The noble Lord, Lord Renwick, told us all about the way it operates. He told us about the dongles, and that mobile phone fraud is committed in a variety of ways: by stealing telephones; by using equipment to trigger a mobile phone and cause it to transmit its identity. As he told us, that equipment has recently become available and is very cheap. Equipment is available also to change the identity of a stolen telephone. There is even equipment available which will detect the identity numbers of telephones nearby. All that information, as we have been told, is used to make calls on other people's telephone bills.

The noble Lord told us that the fraud is huge. The industry reports some 20,000 mobile telephones stolen each month, and some 8,000 cloning instances occurring each month. I share the concern of my noble friend Lady Dean that the telephone companies themselves must take some action. As digital systems take over from analogue, perhaps more safety devices can be built into the new mobile telephones. I agree that public awareness will help.

The fraud on fixed telephone lines is committed by hacking or by teeing-in. Some people see hacking as a prank. Telephone hacking is nothing of the kind. It is large-scale telephone fraud, committed by well organised criminal gangs which hack into other people's telephone systems, and then, as we were told, use the systems to make calls—usually international calls—over a weekend. Telephone bills are inflated by many thousands of pounds.

As we were told by the noble Lord, those crimes and that equipment were not envisaged when the 1984 Act was prepared. So we welcome this amendment which makes the supply, possession and use of that equipment a criminal offence.

I agree that in the communications industry criminal sophistication seems to keep pace with technical sophistication. We need to bear that in mind, because cloned or hacked telephone systems are frequently used in the commission of other serious crimes, as the noble Lord told us. Drug dealing, money laundering and theft are made easier by using cloned telephones. Therefore, telecommunications fraud contributes towards the wider criminal problem that we have. That is why it is especially important that legislation keeps pace with technology—a point made by my noble friend Lady Dean.

I wonder therefore why it has taken so long to develop the Bill. We certainly welcome the fact that the DTI has had confidential discussions with the telecom industry, but at the start I understand that time was wasted because those discussions seem to have been concerned with the Government trying to persuade the industry to solve the problems within the existing legislation. It was only after some time that the Government were convinced that an amendment to the Act was required. Perhaps the Minister can explain that delay?

Technology in the communications industry is moving very fast. Legislation has to move equally quickly, because if we let technology get too far ahead of legislation we are in danger of providing an opening for criminal activity, as we have in this case.

The telecommunications industry is the core of our emerging information society. It is our task to provide the legislation to protect its development from criminal activity. Indeed, that is such an important part of our new society that we do not just have to be in step with the criminal; we have to be in advance. I hope that the Government will remain alert to that.

I congratulate the Federation of Communication Services and all those in the communications industry who have contributed to the discussions of the Bill, particularly as many of those discussions were held in confidence. I congratulate also Mr. Ian Bruce in another place whose Bill it is. The Bill has our full support and confidence. We hope that it will make rapid progress.

1.7 p.m.

Baroness Miller of Hendon

My Lords, I thank my noble friend Lord Renwick for introducing the Bill in this House and for speaking so eloquently in support of this important piece of legislation, which has the Government's full and wholehearted support.

Noble Lords may recall that the proposals in this Bill are based on the recommendations of a senior industry and government study group, comprising representatives from the industry, law enforcement agencies and government. When its recommendations were announced in October 1995 they were widely welcomed by the industry, police, government and media.

The study group's legislative proposals are incorporated in this Bill and are entirely uncontroversial. There has not been a single voice raised against these proposals or the Bill since its introduction last November. Noble Lords may be aware that when the Bill was debated in another place in December, it passed all its stages there in one day.

Telecommunications, as noble Lords will know, is a major growth area which contributes very substantially to the UK economy. The mobile telephony industry, with today over 6 million customers, currently contributes about £2 billion to the UK's gross domestic product and about 40,000 jobs. By the year 2000 the industry may have more than 12 million phones involving 80,000 jobs. The telecommunications industry as a whole, including fixed network operators, has more than 28 million customers and exchange lines and generates revenues of over £13 billion.

Last year on average 15,000 mobile phones were stolen per month. Stolen phones are not only costly to replace, but put those affected at personal risk from mugging or other attack. Thefts of phones from parked cars, as my noble friend Lord Renwick told us, have contributed to 40 per cent. of car break-ins in city centres.

Phone cloning, where the calls made by a cloned phone are billed to a legitimate phone, is also a major problem. I was very concerned to hear that the noble Baroness, Lady Dean, had had that horrible experience. Last year an average of more than 8,000 analogue phones a month were cloned—an increase of over 100 per cent. over the previous year. Inevitably, the costs of cloning feed back through to customers either directly in their bills or through higher prices.

My noble friend Lord Renwick gave the House many examples of other types of telecom fraud. Criminals today resort to high technology fraud which they consider to be low risk. We are seeing new devices to defraud the industry beginning to appear on our streets. Those devices have no purpose other than to defraud the industry or its customers.

I am pleased that the industry is taking significant steps to prevent fraud such as the crime prevention scheme, which was launched by my right honourable friend the Home Secretary last year. The scheme is intended to ensure that any equipment bought or connected by operators, service providers or dealers in the industry is not stolen and that records are kept to demonstrate the precautions they have taken. Those that are found not to conform to the scheme will be prevented from continuing to operate in the industry.

But the industry needs help to fight the rising tide of fraud and my noble friend's Bill is designed to do this. The Bill rightly covers all forms of telecommunications fraud not just that suffered by mobile phone operators, and specifically does not affect those who have no intent to defraud. Therefore, the Bill only targets fraudsters.

Two new offences are created covering the possession or supply of anything capable of use in dishonestly obtaining a telecommunications service with intent to avoid payment. The existing penalties are too low to deter organised criminals who are committing large scale fraud. I am pleased that the Bill sets maximum penalties for these new offences at five years.

The noble Lord, Lord Haskel, asked why there has been such a delay. I do not agree with the noble Lord that the Government have been responsible in any way for the delay in bringing forward this legislation. Over the past two years the Government have worked closely with the industry to provide workable and effective proposals. Early discussions with the industry concentrated on a different approach which was less likely to have been effective than the proposals in this Bill. That is why we believe that the Bill should now proceed in this House and I know that the noble Lord, Lord Haskel, is pleased that the Bill passed through all its stages in another place in one day.

I was pleased to note also that the noble Lord, Lord Haskel, said that his party always support any crime prevention Bill, and, in particular, supports this one.

Lord Haskel

My Lords, I said sensible crime prevention Bills.

Baroness Miller of Hendon

My Lords, indeed, I should have said that. I made the point because we believe that everything that we have brought forward is sensible. I understand that the noble Lord does not necessarily agree with me on that although I am delighted that he supports this Bill.

I am confident that this measure will be a major deterrent to the increasing number of criminals who see telecommunications fraud as an easy, relatively risk-free profitable activity. It will hit criminals where it hurts and it will be of major benefit to the police.

The noble Baroness, Lady Dean, said that it is essential that the operators should work to make phone cloning more widely known to the general public. I agree with her in the sense that until I was asked to support this Bill on behalf of the Government I had never experienced cloning and I had not met anyone who had. However, last week at a party I discovered that cloning is absolutely rampant. Therefore, I am delighted that the Government are able to commend my noble friend's Bill to the House.

1.14 p.m.

Lord Renwick

My Lords, I am very grateful to my noble friend Lady Miller for her support for the Bill. I am only worried about what sort of parties she goes to where cloning is absolutely rampant. I think I must have misunderstood her!

I am very grateful also to the noble Baroness, Lady Dean, and the noble Lord, Lord Haskel, for their support from the other side of the House. This is non-controversial legislation and is very necessary. Your Lordships expressed concerns about keeping ahead of the criminal. I have tried to think of an area in which the criminal does not take the lead. I was thinking of that wonderful trade—the locksmith. Quite honestly, I think that in the thousands of years which have passed, there are very few locks that have ever been made that cannot be taken apart by someone who is determined to do so.

The motor manufacturers have tried to prevent people from stealing motor cars. However sophisticated the system seems to be, I have seen demonstrations by people not so far removed from the police who can break into any car in seconds. I agree absolutely with your Lordships' desire that technology should keep ahead of the criminal and I know that the industry, with which I have more than a nodding acquaintance, is desperate to keep ahead of the criminal. I feel certain that the suggestion made by the noble Baroness, Lady Dean, that there should be more publicity would be greatly welcomed by the industry, and I shall support her in that in the future.

This Bill has been given a good start. I am grateful to my honourable friend Ian Bruce who used the opportunity of the ballot to bring forward this Private Member's Bill. I ask the House to give the Bill a Second Reading.

On Question, Bill read a second time, and committed to a Committee of the Whole House.