THE Government has revised dramatically the cost of fraud to the British economy to ?40 billion a year, more than double the figure it gave two months ago.

However, the AttorneyGeneral?s deputy has admitted that the true amount was probably higher, and one leading law firm claims that it could be ?72 billion. Mike O?Brien, the Solicitor-General, said that ?40 billion was a conservative figure and that fraud had reached ?unparalleled levels of sophistication?.

He said that industry and the Government had little grasp of the real extent of the problem but that terrorist attempts to raise funds, through people-smuggling and drug trafficking, was a major driving force. ?It remains very difficult to find out how well or how badly we?re doing in our fight against fraud,? he told an international conference on economic crime.

Police say that as little as 1 per cent of all fraud is reported as crime and insist it is best tackled by seizing cash from organised gangs. They also claim that economic migration has made checking identities more difficult. The Opposition said that the Government?s attempts to tackle fraud were ineffective. Dominic Grieve, the Shadow Attorney-General, told the conference, at the University of Cambridge, that sums seized under the Proceeds of Crime Act 2003 amounted to peanuts. ?This Act was floated originally as a huge weapon to crack international crime. Although it is early days, the Act is being used to pick up ?30,000 in a shoe box from local drug dealers in Moss Side.?

Pressure on the Government to tackle fraud has resulted in a new Bill that will make it easier for police to prosecute people using computers to commit financial crime. Lord Goldsmith, the AttorneyGeneral, has also suggested setting up one-stop anti-fraud shops run by the police in conjunction with the Office of Fair Trading and credit card companies. These would deal with all types of fraud, provide intelligence for investigators and issue warnings to potential victims.

A fraud review published in July ? in which Lord Goldsmith made his suggestions ? estimated the cost of fraud at ?16 billion a year, up ?2 billion on 2005. The report also revealed that credit card fraud cost ?439 million a year, cheque fraud ?40 million, insurance embezzlement ?1.5 billion and telecom fraud ?866 million. Economic crime cost Revenue & Customs a further ?11.5 billion a year. Trading and marketing scams account for ?1 billion, and the public sector loses up to ?14 billion.

The figures are being monitored by the Metropolitan Police economic and specialist unit, which shuts down about 150 fraudulent websites a month. The unit liaises with money-transfer companies and tackles Nigerian scams linked to Britain. In one raid in Lagos, police seized ?150 million of fake cheques and counterfeit BA tickets and identity papers.

Detective Chief Superintendent Nigel Mawer, who heads the unit, said that 1 per cent of the money transferred by Western Union was fraudulent, and that Companies House lost ?50 million a year in company identity theft.

A fraud-alert website set up by the force gets about 15,000 e-mails a month, of which nearly 1,000 relate to phishing ? the stealing of bank account details on the internet.

Police recently identified more than 50 websites offering high-quality fake passports, wage-slips and driving licences but many of the internet sites were based overseas.

The Association of Chief Police Officers said that identity checks by police were being made more difficult by economic migration and the accession of new countries to the European Union.

Ian Johnston, the association?s head of business crime, said that identity fraud linked to phone banking, internet shopping and transport systems had created such a problem that it could ?slowly destroy the very fabric of our economy?. The association, he said, was broadly supportive of identity cards but it felt their lifespan was limited because ?any card that can be manufactured can be counterfeited?.

He called for tougher sentences for identity fraud.

• An illegal immigrant who admitted stealing more than ?1 million in public funds was jailed for seven and a half years. John Kaduwanema, 27, from Uganda, secured a job as a finance manager for Birmingham City Council?s social care and health finance department.