New powers give charities another way to recover money lost to crime

Charities that have been the victims of fraud or cybercrime should be looking at the full range of options at their disposal to recover funds through the courts.

People say they never forget that sickening feeling when they realise they have been the victim of a fraud or scam. When the victim is your charity, the harm caused can be disastrous, operationally financially and reputationally. But cybercriminals are increasingly targeting charities. The sensitive data they hold such as donor names, addresses, payment details, and financial histories, as well as other assets are highly valuable. At the same time the ability of cybercriminals to gain access to donation systems and funds is evolving rapidly.

Damage limitation

If you know or think you have been the victim of a scam, it is important to act quickly. There are some steps all charities should consider at the outset, and hopefully before funds or other assets may have been moved out of reach.

You will need to report suspected criminal activity to the police via Action Fraud, and in most cases you will need to file a Serious Incident Report with the Charity Commission. Reports may also need to be made to other regulators. For example, if the breach involves personal data, the ICO will need to be notified promptly, usually within 72 hours. You may also need to liaise with your bank and other key stakeholders, such as insurers.

Where criminality is suspected or involved it can be tempting to leave it in the hands of Action Fraud and hope the police will do the rest. Unfortunately, although reporting to Action Fraud is required, the service has shown low effectiveness and is due an overhaul, with very few cases leading to a successful prosecution. For example, in 2023, only 6% of reports filed with Action Fraud were referred to the police, and of those, just 8% resulted in a court judgment by 2024. This means that fewer than 1% of fraud reports ultimately led to convictions, highlighting the need for charities to consider all available options.

In almost all cases the wrongdoers will have committed a range of civil, as well as criminal, wrongs. This means the charity should always consider whether it can take direct action itself. The High Court is used to dealing with urgent applications for asset freezing orders and other injunctions, which can be successfully deployed to prevent further loss and provide the charity with the means to regain control of funds and other assets.

If you’re one of the lucky ones and the police do take action, they can deploy a range of investigatory powers, including freezing bank accounts, and while your charity may eventually recover some of the money you lost through this route, following a successful conviction, in practise the number of successful prosecutions is very low. The process is also out of the charity’s hands and can often be painfully slow and uncertain, with no guarantees. Although fraud cases are on the rise, police investigations are limited as a result of the vast number of complaints filed with Action Fraud and the increasingly sophisticated and complex methods criminals deploy.

Take the initiative

But charities can be proactive. Civil proceedings are often worth considering, with different and lower legal thresholds for success (on the balance of probabilities (i.e. over 50%) vs beyond a reasonable doubt) and more of a focus on asset recovery rather than punishing criminal conduct. It is also possible for a charity to bring private criminal proceedings themselves. Some animal welfare charities, for example, have brought private prosecutions for animal cruelty and others have brought prosecutions for fraud perpetrated in the guise of fundraising. Trustees have a general duty to act in the best interests of their charity and to protect and, where necessary, recover, assets belonging to the charity taking account of the risks and consequences that legal action could bring.

Working with the authorities

Until recently, the options for intervening in criminal proceedings brought by the police or other authorities were limited. That has changed, with a new power introduced by the Economic Crime and Corporate Transparency Act 2023 into the existing regime of the Proceeds of Crime Act 2002.

The new provision, catchily titled s. 303Z17A, enables victims and the true owners of assets to apply to court, seeking the release of funds that have been frozen by the authorities. The victim will need to satisfy the court that the money belongs to them and that they were deprived of it by unlawful conduct.

Importantly, an application will not need a full trial – it is a discretionary power so the court will need to be convinced that releasing the asset is the right thing to do. This will be easier to do for a one-off fraud where ownership and harm are easier to establish, rather than a criminal enterprise where there are other potential victims and funds may have been mixed.

A happy ending

In what appears to be the first reported use of the new power, Leicester Magistrates granted an application for £29,000 to be returned from a bank account to a charity called Southway Playcare. The charity had been the victim of a ‘payment diversion fraud’, in which a scam company had been set up to clone a legitimate business. This was used to fraudulently receive a payment intended to purchase a minibus for the charity to take children on day and residential visits.

The return of the money came about as a result of cooperation between the charity and the police force investigating the fraudulent transaction. The police were able to show that the charity was the rightful owner of the money sitting in the defendant’s account, and the judge used the new power to direct those funds to be released to the charity.

Similar new provisions have been enacted in relation to frozen cryptoassets, in which form cyber criminals often hold the proceeds of crime. These reforms mark a positive shift in the UK’s approach to asset recovery, offering victims, particularly charities, a more proactive and legally supported pathway to reclaim stolen funds.

Consider your options

Dealing with fraud or cybercrime can be one of the most stressful situations you will have to deal with. The Charity Commission provides detailed guidance to help charities safeguard against fraud and cybercrime (which can be found here). Charities should familiarise themselves with these resources and apply the recommended practices to reduce the risk of incidents. In each case, initial steps that should be taken include:

• Consider reporting obligations – to Action Fraud, usually to the Charity Commission and any other relevant bodies.
• Secure the evidence – you should act quickly and carefully to preserve all potential evidence. 
• Obtain early advice of the options available for preventing further harm and recovering assets.

Charities may always be seen as potential targets, but there are steps that can be taken to avoid or minimise the risk of fraud occurring, and options available after the event to help stop the criminals getting away with it.

If you have any questions around preventing fraud or taking action around a suspected cybercrime, please get in contact with Rob Oakley.

The material in this article is provided for guidance and general information only and is not intended to constitute legal or other professional advice upon which you should rely. In particular, the information should not be used as a substitute for a full and proper consultation with a suitably qualified professional. Please do contact the Bates Wells team if you require further advice or information about management training which we offer.