Understand Your Rights. Solve Your Legal Problems
On the back of news today that Whatsapp’s privacy protections have been questioned following the recent terrorist attack in London, Lawyer monthly has heard from Andy Lilly, Director and Co-Founder of Armour Communications, who, as a cyber security expert, explains why WhatsApp might not be as secure as you thought it was, even before The Guardian’s most recent revelations about a ‘back door'.
There’s been a lot of discussion in the media recently about the privacy of calls and messages sent via mobile phones, with some commentators advocating apps like WhatsApp as the answer. While it is true that messages, and now calls, made using WhatsApp are encrypted and therefore should be secure, in fact, there are still gaping holes.
Not least is the so called ‘back door’ revealed by The Guardian in its article ‘Whatsapp back door allows snooping on encrypted messages’ which explains how ‘WhatsApp has the ability to force the generation of new encryption keys for offline users, unbeknown to the sender and recipient of the messages’. It goes on to state that ‘The vulnerability calls into question the privacy of messages sent across the service, which is used around the world, including by people living in oppressive regimes.’ And ‘can be used by government agencies to snoop on users who believe their messages to be secure.’
This is another example of just how important it is to keep control of your own data and using a free app over which you have no control, simply isn’t good security practice. As Tim Cook summarised the situation very well when he said: ‘A few years ago, users of Internet services began to realise that when an online service is free, you’re not the customer. You’re the product!’
Even before this latest revelation, there are other security holes in Whatsapp that anyone that wants to keep their conversations private should be aware of.
Susceptible to the SS7 hack
First, the app itself. Though its media encryption uses the respected Signal protocol, WhatsApp has been shown to be susceptible (like similar applications) to attacks, for example using flaws in SS7 that allow an attacker to mimic a victim’s device. SS7 stands for Signalling System No 7 (also called the Common Channel Signalling System 7 in the US or Channel Interoffice Signalling 7 in the UK), and is the system that connects mobile phone and landline networks to each other. SS7 protocols enable phone networks to exchange information needed to process calls and text messages across disparate networks (including roaming on foreign networks), and to ensure correct billing. It also enables local number portability, prepaid payments, SMS and number translation. However, SS7 was designed nearly 40 years ago, long before phone hacking was considered a serious threat.
Whatsapp depends on the integrity of your mobile phone number to identify you, but this can be faked at the SS7 level because of the many vulnerabilities in that system (this particular issue was discovered in 2008 and made public in 2014). Hackers can then take on a victim’s WhatsApp identity and send and receive messages to other users. Of course, a hacker with access to the SS7 system can also transparently control normal voice and SMS services to and from a mobile, intercepting calls, reading SMS messages, and tracking the phone’s location.
Insecure Authentication
Apart from eavesdroppers listening in to your potentially sensitive conversations, where they may gain commercially valuable information, one of the biggest dangers is the interception of two-step verification codes. WhatsApp may be secure once provisioned, but if the verification code is intercepted during set-up the app will be compromised. This vulnerability is equally true for Telegram, Viber and any other apps that use this form of authentication, just as it is for banking and other sensitive web transactions that send codes by (insecure) SMS. For those that are likely to be targeted due to the work that they do (government, military/defence, handling commercially sensitive information like intellectual property, company secrets, financial transactions, sales deals, etc.), this is a relatively easy hack, and one that you wouldn’t know about until it was too late.
No control over who has your data
Second, the company. WhatsApp is now owned by Facebook, who have declared to their shareholders that once the number of users of WhatsApp reach 1 billion they will look to monetise. That means sharing your details with advertisers and who knows who else.
This is seen as such a serious situation by the UK Government that the Information Commissioner’s Office (ICO) has intervened and as a result Facebook has agreed to ‘pause’ its plan to share data with advertisers. However, it continues to share data for what it describes as spam fighting services.
Even when a service claims that it has no access to your encrypted data, it still has access to “metadata”, such as the date and time of calls and messages, the mobile phone numbers of the recipients or senders of each call or message, and (depending on the application), other information such as your location, native contact lists and the like – all of which a security-minded user might prefer not to have collected by a company such as Facebook.
You get what you pay for
WhatsApp may be free, but there is a price to pay. With any free app you don’t really know who has access to your information. And you certainly don’t know who will have access to it in the future as organisations are acquired and personal data becomes a lucrative asset to be traded.
You might also want to avoid a proprietary system where the vendor wants to lock in its users and so has no interest in promoting interoperability with competitor systems; fine for a social media app but not helpful if you want to link together a variety of organisations, where a standards-based solution would be much more logical.
If you would prefer that your sensitive conversations remain private you should take positive steps to ensure that they stay that way. That means using security applications that you control, so that you know exactly where your data is being held and who has access to it. When provisioning new security services be sure to follow strict security best practice. SMS for activation or authentication simply isn’t secure. Better options include multi-part activation details that can be distributed via separate channels, whether handed over personally, or sent via encrypted email, or best of all, managed from a central distribution point, which is within your organisation’s control, or managed on your behalf by a Government-certified, trusted supplier.
As with everything in life, you get what you pay for. Free apps have their place in leisure time for casual use, but when it comes to business, your intellectual property, state secrets, or commercially valuable information, you really can’t put your trust in something that you don’t control just because it is free.
The House of Lords EU Committee recently published its report on Brexit and the Crown Dependencies, calling on the UK Government to ensure that the Isle of Man, and the Bailiwicks of Jersey and Guernsey, are fully involved and engaged in the UK’s Brexit negotiations with the EU.
The report highlights that while the Crown Dependencies are not part of the EU or the UK, and their residents did not have a vote in the referendum, Brexit will have a significant impact on them and their relationship with both the UK and the EU.
The Crown Dependencies’ number one priority is to maintain the strength of their close relationship with the UK. Yet the Committee highlight the potential tensions between this priority, and the desire to maintain as much as possible of the benefits of their existing relationship with the EU.
The Committee identify areas where there these priorities could come into conflict, including:
The Committee urge the Government to ensure the Crown Dependencies are given the opportunity to participate in future trade arrangements that the UK makes with countries outside of the EU, and support Guernsey and Jersey in their efforts to ensure the UK’s World Trade Organization membership is extended to them, as is already the case for the Isle of Man.
Commenting on the report, Lord Boswell, Chairman of the House of Lords EU Committee, said: “The Bailiwicks of Jersey and Guernsey, and the Isle of Man, are not part of the UK or the EU, but they will still be significantly affected by Brexit. We are therefore calling on the UK Government to make sure their voice is heard. The UK has a constitutional responsibility to represent the Crown Dependencies in matters of international relations, so it has a duty to represent their interests in the Brexit negotiations.
“The Crown Dependencies rely on a good relationship both with the UK and the EU and in the Brexit negotiations they may face potentially conflicting priorities in seeking to keep these priorities in balance. That makes it even more important that they are fully engaged and involved by the UK Government at every stage.
“We were pleased to hear that the Chief Ministers of the Crown Dependencies are so far satisfied that the Government has engaged constructively with them on Brexit. The real test will come when negotiations begin in earnest and we call on the Government to ensure the Crown Dependencies remain fully engaged with the process.”
(Source: House of Lords)
Recently hitting the headlines was the prosecution of an ex-HBOS (Halifax Bank of Scotland) manager and five others, all but one of whom were convicted for their roles in a complex and long lasting scam involving £245m of fraudulent loans. With mischief including cash in brown envelopes, exotic holidays, luxury yachts, properties in the sun and call girls, the more lurid details of the case read like the plot for a Hollywood film.
Here Jeffrey Davidson, Managing Director and Freyda Thompson, Senior Associate at Honeycomb Forensic Accounting, provide a thorough account of the story and their thoughts on how we can learn and move on from this ordeal.
The story behind the headlines
But behind the gossip and tabloid articles, the real facts of the case are no less shocking.
The prosecution was the culmination of Operation Hornet, a Thames Valley Police investigation into the relationship between Mr Lynden Scourfield, the lead director of Impaired Assets at HBOS and Mr David Mills, a financier.
In return for lavish gifts, Scourfield referred struggling HBOS small business customers to Mills and his associates, who operated in the guise of turnaround consultants through the firm Quayside Corporate Services. Instead of assisting these bank customers, Quayside conspired with Scourfield to grant them inappropriate loans, engaged in asset stripping and charged exorbitant fees for its services, which led to the insolvency of many businesses.
The value of the fraud is estimated at £245 million. This is the sum Lloyds Banking Group wrote off due to the fraudulent loans after they took over HBOS. The total value of the loans fraudulently issued by Scourfield has been estimated to be in the region of £1 billion.
The full cost of the fraud, in both financial and personal terms, goes much wider. Among the worst hit have been those small business customers so badly let down by the bank, many of whom have lost their businesses and have had to rebuild their lives from scratch. While no value can be placed in human terms on the livelihoods ruined, we, as forensic accountants, would have no difficulty calculating the financial quantum of their losses. The jury is still out, as it were, on whether the bank will now face a string of civil suits as these victims come forward to seek compensation.
It is this human-interest side of the story, coupled with the scandalous and somewhat lurid details of how the defendants spent their ill-gotten gains, which has peaked media interest. The value and scale of the fraud is significantly less than that of financial frauds in more technical areas such as the LIBOR rate rigging, which received relatively little coverage in the popular press. However, it is the story of small family businesses falling victim to an aggressive banking fraud, and the ensuing fight for justice which has, understandably, gained widespread media attention.
The defendants were charged in 2013 with several offences, including the following:
Honeycomb was instructed to act as expert accountants for one of the defendants, Mr Jonathan Cohen, who was acquitted. Mr Cohen is a Chartered Accountant and worked for a firm that acted as auditors, accountants and tax advisers for a number of the defendants and their connected businesses.
Five of the remaining defendants were found guilty at Southwark Crown Court on 30th January 2017, while Mr Scourfield had already pleaded guilty at an earlier hearing. On 2nd February 2017, the six men were jailed for a total of over 47 years between them. Mr Mills was handed the lengthiest sentence of 15 years, the most given for any fraud related conviction in the UK being 17 years.
Policing the fraudsters
Lloyds Bank commissioned an independent investigation into the loans being made by Scourfield after a campaign by business owners who claimed they had been mistreated by HBOS. This resulted in a formal report to the Financial Conduct Authority (FCA) in 2010, who in turn referred the case to Thames Valley Police’s Economic Crime Unit, as the offence originated with HBOS’ Impaired Assets team based in Reading.
Thames Valley Police have released a statement quoting the cost of the investigation as being over £7m, requiring the time of 151 officers and taking over six years to bring to Court. It appears that no other public investigating body had the capacity to take on the case. The Police and Crime Commissioner for Thames Valley, Anthony Stansfeld, added that he would like to see a system whereby the investigating body is reimbursed either through central government or through fines or costs imposed on offenders.
This statement from Thames Valley Police highlights a lack of resources around the UK to deal with such cases of complex frauds. The decision by a public body to take on such a case seems to come down to a judgement call on the cost of case, the utilisation of resources and the chance of a successful prosecution. Even the Serious Fraud Office has an annual budget of only £45.7m, compared to the City of London Police’s (who have the largest fraud division out of all police forces in the UK) total budget of £123.8m. However, the annual cost of fraud in the UK has been estimated as £193bn and suitable resources need to be available to tackle this growing crime without being hamstrung by lack of funds. An investment in investigation and law enforcement in this area of what seems to be less than one tenth of one percent of just the financial damage to society seems insufficient.
A lesson for the banks
The type of fraud evidenced in this case, and the scale of the wrongdoing, should have been prevented by internal safeguards implemented by HBOS, or at the very least spotted earlier.
Scourfield’s dealings with Mills are said to have commenced in 2002, but only came to light in 2006 when a senior executive at HBOS became concerned over the cases under Scourfield’s management. HBOS carried out several internal investigations, some of them following complaints from customers, but did not uncover the extent of the fraud and have since been criticised for not taking customers’ complaints seriously.
An internal review carried out in 2007 of 38 customers showed that their total borrowings amounted to £375m and all 38 customers were supervised by Scourfield. The individual conducting the review later gave evidence in the trial that the loans appeared irregular, and that Scourfield was agreeing the loans without any authorisation. The situation at the bank, however, was allowed to continue.
After questioning in 2008 from MPs representing constituents whose businesses had been ruined by the Scourfield/Mills collusion, HBOS wrote to them in 2009 claiming lack of evidence that Scourfield had personally benefited from his relationship with Quayside. This was then discussed by MPs in Parliament in June 2009, using their right to parliamentary privilege, with reference to the bribes Scourfield was receiving in order to encourage the continued flow of customers to Quayside.
Based on evidence discussed during the trial, the following failures appeared to have proliferated in HBOS’ systems:
‘Red flag’ indicators are important warning signs for organisations when something is going wrong and requires further investigation. The warnings below should have been acknowledged and followed up by HBOS:
A comprehensive internal investigation by Lloyds was concluded in 2010, which led to £250m being written off from the Impaired Asset portfolio, of which £245m related to customers under the management of Scourfield.
It must be noted that this sum represents only one view of the loss to the bank, in terms of loans which, at that date, the bank considered it could not recover. It does not include fraudulent loans made over the period 2002-2010 where it did make recovery. This figure is therefore not a calculation of the loss to customers, which is likely to have been much higher.
This case demonstrates the need for vigilance, and a reinforcement of even the most basic and traditional of checks and balances in business life, including the appropriateness of working relationships and avoiding complacency over long-standing practices. Most importantly, it demonstrates the necessity of paying more than lip service to internal processes designed to prevent and protect both the bank and customers against such frauds.
Looking forward
Lloyds has now confirmed it will be commencing a review of all customer cases that may have been affected by the fraud, and would seek to provide redress “if appropriate”. There is a sense that Lloyds’ hand has been forced, as this represents a departure in its previous attitude to customers affected by the fraud, which could be characterised as dismissive at best. Media spotlight and political pressure from MPs demanding compensation for the affected customers have no doubt influenced the bank’s position.
Lloyds has said that the review will be conducted by an independent third party, who will be appointed in consultation with the FCA. The scale of any compensation Lloyds may offer has yet to be determined. A report will be made to its shareholders if it is thought that the level of compensation will impact on the results.
Not only will the bank need advice, but all the victims will too. The door will now stand fully open for civil proceedings to be brought against the defendants and/or the bank. One firm of solicitors has already released a statement that they have been instructed to investigate the potential for a civil claim by one of the lead prosecution witnesses in the criminal trial.
In additional to legal advice, customers will need expert assistance in reviewing their relationship with the bank and its management, carefully building a complete picture of the losses suffered through their fraudulent activities.
There has been no news yet whether any confiscation proceedings will be brought against the defendants in order to recover sums under the Proceeds of Crime Act 2002.
A final word for external professionals
These proceedings also bring into sharp focus the role of external professionals (such as auditors) in facilitating, knowingly or otherwise, financial crime and money laundering. Our work as expert accountants in this matter has given us insight into the risk of being caught up in criminal prosecution proceedings.
Two key areas of concern have been highlighted. Firstly, the quality of audit or advisory work undertaken, in particular the independence and objectivity of the external professional and correct disclosure of any conflicts of interest.
Secondly, money laundering reporting obligations, particularly filing a Suspicious Activity Report under POCA s330. While all of us in legal and accounting circles diligently complete our money laundering training, this case shows the importance of paying more than lip service to this crucial element of the fight against financial crime, and the need continuously to be considering when it would be appropriate to report suspicion of money laundering.
This case also shows the need for prosecutors to understand and get their cases right on complex technical issues such as auditing and money laundering, including the importance of not confusing regulatory matters to be dealt with by a professional’s regulatory body, and criminal matters.
UK PM Theresa May says the bill is a means of "taking back control,” as it would give the government and parliament powers to decide which EU laws it should remain enforced in Britain, and which ones to amend or chuck in the trash altogether. Lawyer Monthly here benefits from expert insight from Liam McMonagle, Technology lawyer and partner at Thorntons.
Introduction
The Great Repeal Bill will be one of the most important pieces of legislation in decades. The somewhat declaratory, if not aspirational, title refers to its key purpose: repeal of the European Communities Act 1972 and the legal implementation of Brexit. Actually, its most significant effect will be the opposite: it will update UK law to incorporate the body of existing European law - the acquis communautaire - as at the point we leave the EU.
The Government has presented the law reform required to implement Brexit as a two-stage process. Firstly, the acquis will be transposed into UK law so as to apply continuously from cessation of the UK’s EU membership. Secondly, and on an ongoing basis, the UK executive and legislative branches can review whether or not individual pieces of legislation should be retained, amended or repealed in accordance, we must assume, with the policy objectives of the Government of the day.
To date, the Government has been keen to talk up the “great” nature of the repealing provisions to be featured in the Bill. The transposition of EU law into the UK, by contrast, is often set out as a technical matter of legal detail.
While the Bill gives rise to a number of public law issues, the process it begins is not particularly surprising. Prior to the referendum, it had always been assumed that some kind of ‘grandfathering’ of EU law would need to take place for practical reasons. While the content and subject of the Bill has been described in a Government White Paper, no draft text has been issued and so much of the commentary on it is speculative in nature.
Existing EU Law
The current body of EU legislation is significant. Presently, this amounts to approximately 20,000 instruments, of which around 5,000 are directly applicable in the UK and all other EU member states while the remainder have bene transposed into UK law via primary or secondary legislation. Of this, the House of Commons Library estimates that approximately 13.2% of UK legislation enacted between 1993 and 2004 was derived from the EU.
EU legislation, in its various forms, makes its way into domestic law through various routes which are principally enabled through the European Communities Act 1972 (ECA). For example, section 2(1) of ECA incorporates the directly effective provisions of the EU treaties and EU regulations into UK law. EU legislation which is not directly applicable, but must be transposed into UK law, is incorporated under section 2(2) of ECA which allows ministers to enact statutory instruments to enact it. So, for example, the Working Time Directive (2003/88/EC) became the Working Time Regulations (1998). With the repeal of ECA, the basis upon which all of this is included in our law will be removed. This will also see the end of other key provisions of ECA which establish that EU law is supreme over UK law and that the Court of Justice of the European Union (CJEU) will be binding on UK courts.
There are several areas of difficulty with the transposition process:
Incorporation of EU law into the UK
There are differing views on how this part of the process is likely to work. It is generally accepted that there will need to be additional primary legislation alongside the Great Repeal Bill and concerns have been raised that Parliament simply does not have the legislative capacity to prepare, review, scrutinise and debate the volume of legislation that will be needed. The Institute for Government estimates that around 15 new major pieces of legislation will be required to enable the Brexit process to be completed. At the moment, Parliament passes around 20 bills per year so this renders it unlikely that there might be legislative capacity for anything else.
Given the practical challenges and limited capacity of Parliament to enact the volumes of legislation which will be needed, there will almost certainly be heavy reliance on secondary legislation. The Government’s White Paper anticipates that new ministerial powers will be needed for this purpose. These powers are likely to allow Ministers to make changes to reflect agreed positions in the Brexit negotiations themselves.
Legislative provisions by which Ministers are enabled to amend Acts of Parliament by secondary legislation are known as “Henry VIII” clauses. Their use is often criticised as it amounts to a transfer of legislative power from Parliament to the Government and could enable legislation to be enacted in politically or administratively sensitive areas with minimal Parliamentary scrutiny.
The Brexit Minister, David Davis, has indicated that this this would not be the Government’s intention but rather ought to be seen as a ‘technical’ exercise. Ministerial powers could be limited in time, scope or purpose as a means of addressing these concerns. The current body of EU law covers large areas of political sensitivity: discrimination law, employment protections, environmental matters and individual rights and obligations. Pressure will be brought to try and limit to extent to which significant changes in the law in any of these areas can be made by Ministers with the substantially reduced degree of Parliamentary scrutiny that is applied to secondary legislation. The House of Lords’ Delegated Powers and Regulatory Reform Committee has already suggested that more extensive Parliamentary procedures could be applied to introduce committee stage scrutiny of certain measures where significant ministerial powers are created.
Impact on Business
To date, the Government has sought to reassure the business community and the wider public that it is getting on with the Brexit process but also that any change will be gradual, rather than drastic, in nature. Over the years, there have been significant policy differences between UK Conservative Governments and the EU – such as the refusal of the Major administration to incorporate the Social Chapter in the 1990s. These arguments appear to have been parked, at least for the time being. The Prime Minister has indicated that there is no appetite to review employment protections as part of the process. However, many of those who favoured a ‘Leave’ vote in last year’s referendum expressed, at least in general terms, dissatisfaction with the tenor and content of some European legislation and it is unlikely that such concerns will lie dormant.
In the short-term, legislative activity in almost all non-Brexit related areas of Government will be limited and politically controversial changes in law may be limited given the all-consuming nature of the Brexit process and perhaps also in the interests of maintaining continuity and certainty at least until it is complete.
It will generally be open to the UK Government, and possibly the devolved administrations, to keep UK and EU law broadly aligned on a voluntary basis if they wish to. Much of the acquis will involve relatively uncontroversial and mundane areas of law where there will be limited scope for material policy differences to emerge. For example, there might be limited appetite to disrupt the broad harmonisation of trade mark law and practice even if the UK acquires the powers to do so.
The result of this process, however, will be to create a structure in which EU law will begin to diverge from UK. This, in a sense, is the whole point of Brexit - “taking back control.” It could well lead to an intense period of law reform (or lobbying to that end) once the process nears completion.
Many UK businesses will, of course continue to trade and deal with businesses and individuals throughout the EU single market and will need to ensure their ongoing compliance with the laws that regulate that market. For example, a food manufacturer wishing to make health claims about features of its products will continue to be subject to EU laws where it is selling its wares in the EU, even if (as has been argued) equivalent UK legislation takes a more permissive approach in future.
However, in the medium to long term, there could be much greater scope for legislative activism. Laws in future could be changed more radically, and more quickly, than we have become used to. This uncertainty may need to be provided for in a wider range of contracts and transactions than are currently affected by “change in law” risk. For those businesses who want to push the case for law reform in specific areas, this could become easier.
Within the UK itself, there could be scope for further divergence if areas of EU competence are transferred to devolved administrations. It will be important, therefore, for businesses to assess how their operations are affected by an increasingly divergent and multi-layered legal framework.
Lastly, it has been suggested that the law reforms brought on by the Brexit process will be “a bonanza for lawyers.” My personal view is that this is most unlikely!
One of the UK’s most experienced serious injury law firms has criticised the insurance industry for fighting against the Lord Chancellor, Liz Truss’s decision to update the ‘discount rate’ used to calculate the level of compensation paid out to victims of life changing injuries.
Thompsons Solicitors argues that insurers have known for years that the discount rate was skewed unfairly in their favour, and that the announcement by the government to lower the rate from 2.5% above inflation to minus 0.75% is wholly justified and should ‘come as no surprise’.
The discount rate was set at 2.5% in 2001 by the then Lord Chancellor meaning that lump sum compensation paid by an insurer to a person with a serious injury would be discounted by a certain fixed amount, on the assumption that the person will invest that money safely.
Through investment, the person would in theory achieve the fair and proper amount of compensation needed to provide for their loss of earnings, essential care and accommodation.
However, that discount rate, which was broadly appropriate in 2001, has been at odds with the actual return on investment figures for many years, and at least since the stock market crash of 2007-8. The Lord Chancellor had to set the rate at the figure she has reached, as the courts would overturn any other decision.
Samantha Hemsley, national head of the serious injury and clinical negligence team at Thompsons said: “What we’re talking about here is people with life changing injuries, people who need care and support for life, who were injured through no fault of their own. People who suffer life changing injuries need fairly compensating to enable them to afford to meet the costs of essential care and therapies, they are not looking to get-rich-quick or whatever nonsense the insurers seem to believe.
“We are talking about people who have suffered the most horrific injuries and seek only to afford to the costs of their care. If this compensation is not available or is insufficient to meet those costs the burden of that care and support falls upon our already stretched NHS. That cannot be right.”
“Ultimately, insurers have been benefitting from an average of £75 per motorist – which is what they now say it will cost consumers. They have been silently accumulating this windfall every year since 2008. If we use government figures which calculate there are around 45.5m drivers in the UK, that works out at over £30bn in savings for the insurance industry built up over the last decade.
“It’s high time they started paying that money to the injured people they are supposed to compensate, rather than relying on the NHS and taxpayer to fork out for treatment and care that their years of underpayment has avoided.
Gerard Stilliard, head of personal injury strategy at Thompsons added: “The insurers’ suggestion that solicitors will somehow benefit from the new discount rate is fundamentally untrue and frankly a transparent attempt to distract public attention from what is really happening here. Lawyers won’t receive any significant additional fees as a result of the correction to the discount rate that is all about benefiting the innocent victims of serious injuries. It should come as no surprise to the insurance industry, which has known for years that it was artificially lining its pockets with extra profit.
“In opposing this correction, the insurance industry is showing itself as not only greedy but heartless, and we urge the government to ignore their desperate attempts to hold on to money meant for those who need it.”
(Source: Thompsons Solicitors)
Successful entrepreneur Jo Fairley has shared her advice for small businesses faced with increased economic uncertainty as the government prepares to trigger Article 50 on Wednesday.
Her advice comes after Xero, the beautiful cloud accounting software company asked small businesses how optimistic they felt about the future of their business in relation to Brexit. Three in four (74%) UK business owners expressed confidence, but despite this optimism, economic instability was named the greatest concern for business owners (34%), followed by cash flow (24%), suggesting that this optimism is mixed with apprehension.
The serial entrepreneur and co-founder of household brand Green and Black’s, which launched during a recession, has stressed the importance of credit, good preparation and a focus on personal health as key elements of survival.
Concentrate on cash flow
The report found that chasing payments for overdue invoices still plagues a fifth of small business owners as their biggest time waster, so putting cash flow and credit in the spotlight was another safeguarding step according to Jo Fairley. “Chasing payments is a huge time-waster for small businesses, and in tough times healthy cash flow is vital in helping you stay afloat. Take steps to ensure you know your numbers, invoice promptly and be sensible about spending to keep your business in the black.”
Fail to prepare, prepare to fail
One in five small businesses (18%) said they believed leaving the EU would be positive, calling out reduced legislation, and red tape as a key benefit. Jo Fairley advised that seeking expert advice and being knowledgeable about upcoming regulation changes was vital to help steady the ship in turbulent times. “Small businesses are forced to adhere to so many policies and regulations, it can be hard to keep up,” says Fairley. “When changes happen, it’s vital to prepare as much as you can by reading up on developments and speaking to advisors. Keeping ahead of the game will make you feel more control and ensure there are no nasty surprises.”
Put your health first
The report found that four out of five (78%) of small business owners believe that physical and emotional wellbeing is directly linked to business performance, prioritising it to aid productivity. Fairley believed that putting health first was a key part of her business’ success. “Regardless of the state of your business, if you don’t look after yourself you will be unable to look after your team,” says Fairley. “Stay healthy and make sure you get enough sleep, and you will be in a much better position to deal with a bumpy road.”
Gary Turner, Xero’s UK co-founder and managing director said: “Our research has revealed a remarkable trait among small businesses to look on the bright side, particularly in the current climate when faced with so much uncertainty. Given the importance of small business health as the government triggers Article 50, it is promising to see that small business owners are feeling so confident about the future. But, as cash flow and healthy finances have never been so vital, owners must keep a sense of realism and listen to external advice and support to ensure that business continues to prosper through the next few years.”
Jo Fairley concluded: “Owning a business is invariably a rollercoaster full of ups and downs and you must learn ways of thinking your way out of difficult situations, so it’s brilliant to see such optimism from small businesses. Having a concrete plan for your business combined with a can-do attitude can help you to win regardless of what you are faced with.
“While optimism is important, consulting with experts and keeping on top of your data can enable you to make the right decisions for your business that will help you not only survive, but thrive.”
(Source: Green & Blacks)
Besides the thousands of considerations that can arise in M&A deals, intellectual property holds a key position and plays a very important role in the process. Here Rob Davey, Senior Director at CompuMark, a brand of Clarivate Analytics, explains to Lawyer Monthly why Trademarks are so important in the grand scheme of company buying.
All across the globe, consolidation has become an inevitable and unavoidable part of business in the 21st century. Whether it’s the proposal of a ‘megamerger’ within the media industry or a smaller-scale acquisition in a different sector, it’s something that we’re seeing more and more frequently with each passing day. According to a survey by Deloitte in which it spoke to 1,000 corporate executive and private equity investors, 750 of the respondents said that they think the number of mergers and acquisitions will increase in 2017 compared to last year, while 640 thought the size of these deals will also increase.
This boom in mergers and acquisitions has come about through a desire from organisations to achieve greater operational scale and increased efficiency all while bringing in more profit, and as the statistics above show, there’s no sign of this trend letting up any time soon.
Although the financial value of a company is always a crucial factor when it comes to the due diligence process of any merger and acquisition, the intellectual property it owns is equally as important, as this will account for a significant percentage of the overall value when merging companies are weighing up their assets. This is why there needs to be extreme care taken in identifying and properly assessing any and all intellectual property assets, including trademarks.
Trademarks are a hugely important asset for any business, especially in today’s highly competitive and brand-driven marketplace. They’re key to strengthening brand recognition and protecting against fraudulent and/or counterfeit operations, which is why they’re now heavily focused on during merger and acquisition due diligence processes — almost as much as patents, copyrights and other crucial intellectual property assets.
This process, known as ‘trademark validation’, is essential because a trademark only holds value if it has been properly registered and maintained. If companies choose to ignore trademark validation during the merger and acquisition process, it could lead to unforeseen revelations after the deal that could limit the scope of use.
For example, take the recent case of a major global car manufacturer, which outbid another company to purchase two luxury car manufacturers for almost a billion dollars. However, a twist in the acquisition meant that one of the luxury manufacturers was able to sell the rights to its trademark to the company that was outbid, meaning that although the purchasing company had manufacturing rights, it could not use the trademarked names. Eventually a deal was made to rectify the situation, but the purchasing company spent a lot more money than would’ve originally been necessary.
More often than not, the consequences of not carrying out a full trademark validation process can be more serious than those outlined in the case above. Depending on the circumstances, businesses can be faced with the threat of re-evaluating, re-pricing and re-structuring the merger or acquisition deal, and in some cases the deal might have to be abandoned entirely.
This is why a thorough trademark review and validation is vital for any business. Not only does it reduce the risk of surprise pay-outs or unexpected competition, but the process itself holds benefits for both parties.
For buyers, transparency around any trademark validation process allows them to gain all the information necessary to make an informed judgement on the validity and scope of the other party’s trademark assets — something that might also impact the overall value of the deal in question. It also allows the purchasing company to address strategic brand issues, such as which business-relevant categories the trademarks can be used in, which global markets they can be used in and when the registrations for those trademarks will expire. In other words, it allows the purchaser to gain a much more transparent understanding of the other company’s operations which can be of use going forward.
For companies that are selling, this process will ultimately help to achieve a smoother and more straightforward transaction. It could also help to provide clear details and information during the negotiation stages, as the seller will have a better idea of the value of all its assets.
There are several elements to the trademark validation process that must be considered if buyers and sellers are to fully reap the rewards. First, there’s the basic requirement of identifying all assets within the seller’s portfolio. They must declare ownership of all trademarks, and part of this step includes checking the chain of title to ensure each mark is filed in the correct owner’s name. It’s also important that each mark is thoroughly investigated — including determining the expiration dates and any pending applications — to ensure they are current.
The next step of proper trademark validation is to identify which jurisdiction each trademark is registered for, so that both parties can determine which jurisdictions are ‘first-to-use’ and which ones are ‘first-to-file’. Some countries may recognise common law trademark rights based on the use of a mark, while other jurisdictions give priority to the first party to file a trademark application, regardless of use.
The final part of the process — and one that’s particularly crucial to the successful running of any business — is to make sure that the goods and services classifications cover the buyer’s intended use. Domain names also need to be considered, as it’s important to know which names are owned by the seller and which are owned by external individuals, i.e. a licensee or other entity.
Trademarks are an important part of the merger and acquisition process, and can contribute to the overall value of a business. Trademark validation not only provides both sides of the deal with the necessary transparency to assess this value, but it also prevents the occurrence of any unexpected issues after the merger or acquisition has been completed.
Kroll, the global leader in risk mitigation and response solutions, together with the Ethisphere Institute, a global leader in defining and advancing the standards of ethical business practices, recently released the 2017 Anti-Bribery and Corruption Benchmarking Report (ABC Report). The theme of this year's ABC Report is "Beyond Regulatory Enforcement: The Rise of Reputational Risk." Against a backdrop of heightened regulatory and reputational concerns, more than one-third (35%) of all risk and compliance professionals surveyed expect their organization's bribery and corruption risks to increase in 2017, and more than half (57%) expect them to persist at the same levels as last year.
Respondents believe the top risks to their anti-bribery and corruption programs will come from third party violations (40%), a complex global regulatory environment (14%), and employees making improper payments (12%).
The reputational risk associated with bribery and corruption allegations is also on the minds of most respondents. Indeed, general reputational concerns went from being the least likely reason identified in last year's ABC Report for a third party to fail a company's vetting standards to being the most likely reason — a stunning change in just one year.
"It is clear the anti-bribery and corruption program can be viewed in the context of regulation, as well as more broadly as a means of protecting an organization's most valuable asset — its reputation," said Steven Bock, Managing Director and Head of Operations and Research with Kroll's Compliance practice.
In a related development, the survey data suggests senior leadership's engagement regarding anti-bribery and corruption efforts is on the rise. 51% of respondents state senior leadership at their organization is "highly engaged" with anti-bribery and corruption efforts, a 4% increase over the previous year.
"All research points toward a clear link between ethics and performance, and with more involvement from leadership, we are seeing that anti-bribery and corruption efforts are being prioritized," added Erica Salmon Byrne EVP & Executive Director of Business Ethics Leadership Alliance, Ethisphere. "Smart companies with strong compliance programs are taking note and adjusting their priorities accordingly in order to mitigate unnecessary risk and protect their company's valuable reputation for integrity."
Another strong trend that emerged in this year's ABC Report is the dependence on ongoing compliance monitoring to capture post-onboarding bribery and corruption issues. More than half (55%) of respondents report they identified legal, ethical, or compliance issues with a third party after conducting initial onboarding due diligence. In 40% of these cases, the issue that was later identified did not exist at the time of initial onboarding. The value of ongoing monitoring is reflected in the level of confidence that survey-takers have in their ABC programs. Nearly 80% of those respondents who monitor all of their third parties, regardless of risk profile, believe they are either extremely or appropriately prepared to address global bribery and corruption risks. Conversely, feelings of preparedness drop as the level of ongoing monitoring goes down.
"As compliance professionals, our respondents know the importance of monitoring when working with third parties. But this report highlights the need for an 'interval monitoring' approach to ongoing diligence, where the scope and frequency of monitoring efforts is determined based on risk," said Kroll Senior Managing Director Joseph Spinelli.
"With vague regulatory guidance, optimal frequency is subject to interpretation," adds Kroll Managing Director Robert Huff. "Firms need to determine a level of monitoring so they can react appropriately, in a timely manner, to any changes in a third party's risk profile."
The ABC Report also includes the following findings:
(Source: Kroll Associates)
Government Brexit plans are showing a lack of ambition for equality and human rights standards, Equality and Human Rights Commissions Chair, David Isaac, has warned.
Publishing a 5 point plan on how Britain’s status as a world leader on equality and human rights can be maintained and strengthened after we leave the European Union, Mr Isaac has called for the government to set out its vision for a fairer Britain once we leave the EU and demonstrate how it will take a once in a lifetime opportunity to create a shared society and heal the divisions exposed during and since the referendum campaign.
The five point plan covers:
David Isaac said: “We’ve had calls for all kinds of Brexit; A soft Brexit; a hard Brexit; and a red, white and blue Brexit. No one is talking about a fair Brexit; one that will unite the country and lead us to a shared society based on fairness and mutual respect the Prime Minister has talked about.
“At any crossroads there are important decisions to be made. We can either set out the positive requirements to maintain our traditions of respect for equality and human rights and be a country that really does work for everyone; or we can miss this golden opportunity to demonstrate how post-Brexit Britain can create a fairer and more united Britain.”
Setting out what steps the government can take to create a fairer Britain once we leave the EU the action plan published includes:
Mr Isaac continued: “Markets and trade deals are hugely important, but our vision for the future should not be narrowly economic. Both our economy and society will be stronger in a Britain where everyone is treated fairly and can achieve their potential. There is great deal of anxiety about leaving the European Union and the government should go further to unite the country by setting out a positive vision for a post-Brexit Britain. That vision must be founded on pride in our shared values of tolerance and mutual respect.”
“The plan we have launched today will, if implemented, help the government take steps to correct injustices and tackle unfairness to create a country that works for all.”
Ali Harris, Chief Executive Officer of the Equality and Diversity Forum said: “EDF supports the call for a positive vision of an inclusive, outward-looking UK after we leave the EU, and a plan to turn the vision into reality.
“Equality and human rights are essential for a modern society where we can live and work successfully together, and where we can make the best of everyone’s contributions and talents. They are at the heart of the essential freedoms and protections that we all rely on and that are valued by the public.
“The steps proposed by the Equality and Human Rights Commission are important and highlight the key areas we should discuss and debate as part of the Brexit process.”
(Source: EHRC)
While global progress on this grey area is still to come, Canadians at least, can now expect to feel safe on the ground and in the sky. The number of incidents involving recreational drones has more than tripled since 2014, prompting the Honourable Marc Garneau, Minister of Transport to recently introduce a measure to prevent the reckless use of drones that is putting the safety of Canadians at risk.
The key new rules are that recreational drone operators must mark their drone with their contact information, and may not fly:
Operators of drones for commercial, academic or research purposes are not affected by this measure. The rules that are already in place are effective and most commercial users operate their drones in a safe manner.
Any recreational operator who fails to comply with the new flying restrictions and conditions could be subject to fines of up to $3,000. Call 911 or your local law enforcement agency immediately if you witness illegal drone use.
The Honourable Marc Garneau Minister of Transport, said: "I take very seriously the increased risk to aviation safety and to people on the ground caused by drones. That is why I am proceeding with this measure which takes effect immediately—to enhance the safety of aviation and the public while we work to bring into force permanent regulations."
Chief Superintendent Eric Stubbs of the Royal Canadian Mounted Police said: "The RCMP encourages recreational drone users to be responsible when operating in public places. We encourage all drone operators to think about the safety of those around them, and follow the new regulations at all times."
"This is good news for all airlines, their passengers and crews, but also for the general public," said Jean-François Lemay, President of Air Transat. "Drones, which are constantly increasing in number, can pose a real threat to civil aviation if they are not used responsibly. We are very pleased to see that the Minister of Transport is concerned about this issue and is acting quickly." Mr. Lemay continued: "These new rules, which go into effect immediately, will prevent accidents both on the ground and in the air and pave the way for a permanent law."
"While these rules will have no direct impact on our business, we support them because they begin to establish ground rules and allow us to move forward in working with government to establish policies and regulations that keep pace with the progress being made by the industry," says Richard Buzbuzian, President, Drone Delivery Canada. "Right now those regulations are lagging behind the progress that is being made. We want to join forces and work together with government so that we are no longer operating in a regulatory, legal and ethical vacuum."
(Source: Transport Canada, Air Transat, Drone Delivery Canada)
