The Biggest Threat to Democracy? Fraud

The focus of the Summit was firmly on the impact of corruption on democracy. In the week of the Summit, the White House issued its much-lauded United States Strategy on Countering Corruption, which included a focus on illicit finance and holding corrupt actors to account. But very little attention has been paid to the impact of fraud on democracy. When fraud is considered, the discussion is usually about the looting of overseas public funds by kleptocrats and their associates, or issues related to election fraud – or at least the perception of it.

And those are both valid issues. The insistence by Donald Trump and his supporters that the 2020 US election was fraudulent has led, in part, to the designation of the US as a 'backsliding democracy' by the International Institute for Democracy and Electoral Assistance. In the UK, claims of voter fraud have driven the announcement of planned legislation to require voters to show photo identification, a move which Liberty has criticised for potentially excluding marginalised groups from the democratic process. Conspiracy groups in other countries have also seized on the international rhetoric of election fraud as part of a movement of broader distrust in the political system.

But the organised and large-scale frauds which have exploded in scale in the last couple of years exploit the vulnerable, damage national economies and harm financial stability. More than that, however, the endemic nature of fraud threatens to undermine trust and confidence in institutions and some of the core principles of democracy, including the rule of law.

RUSI’s paper, The Silent Threat: The Impact of Fraud on UK National Security, explored the intersection between fraud and national security and argued for fraud to be treated as a risk to the UK’s national security. Fraud also has a devastating impact on our own democracy. And, as a recent article in the FT argued, the ‘civic rot’ in democracies starts at home.

Low levels of trust in the government and a lack of faith in public institutions threaten effective democracy. It is hard to imagine a time when faith in public services and public officials has been lower. This is as much the case in established democracies as in newer democracies.

This is increasingly evident when it comes to how the government protects public money – our money – from fraud. The coronavirus pandemic has brought the inadequacies in its current approach to fraud prevention into sharp focus.

The UK government’s efforts to prevent fraud in its bounceback loan schemes have been branded as ‘inadequate’ by the National Audit Office (NAO). The NAO has estimated that £5 billion has been lost through fraud connected to the schemes, although the true cost could be much higher. Separately, HMRC estimates that £5.8 billion has been lost through fraud or error related to the Coronavirus Job Retention Scheme, the Self-Employment Income Support Scheme and Eat Out to Help Out scheme.

Likewise, the Small Business Association in the US has suffered an ‘unprecedented amount of fraud’ in the COVID-related financial aid schemes that it put in place, and has been criticised for handing out money without proper checks on the recipients and allowing organised criminal groups to exploit the aid packages.

The lack of adequate controls in the provision of government grants has allowed organised criminals and opportunistic individuals to exploit the gaps and profit to the tune of billions of pounds. Despite the scale of the estimated losses from COVID-related fraud, however, the myth that fraud is a victimless crime remains.

But we are all also being bombarded by scams on a daily basis, whether through emails, text messages or social media. It is increasingly impossible to ignore the impact that fraud is having on all of us, and despite a lot of talk, there has been very little concrete action from the government to protect the public from scammers. The failure to protect citizens, including some of the most vulnerable members of society, from the crime which they are most likely to fall victim to is reducing trust and confidence in institutions.

The Integrated Review promised to ‘bolster our response to the most pressing threats the UK faces from organised criminals, including … fraud’. The UK government has promised a Fraud Action Plan next year. But will this really be enough, or will it just be a disparate list of actions that may or may not move the dial?

We need long-term and strategic thinking about how to stop the current epidemic of fraud in its tracks before trust and confidence in the institutions of our democracy are further eroded. Systemic and structural reform is required. There is a golden opportunity for the UK government to demonstrate its commitment to the principles of the Summit for Democracy during the upcoming ‘year of action’, and restore faith in some of the democratic institutions that have been corrupted by fraudsters.

The views expressed in this Commentary are the author’s, and do not represent those of RUSI or any other institution.

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