Understand Your Rights. Solve Your Legal Problems
German authorities have issued international arrest warrants for the two founders of the firm at the centre of the tax scandal revealed in the 2016 Panama Papers data leak, according to German media.
The Süddeutsche Zeitung reported late on Monday that the public prosecutor’s office in Cologne had issued warrants for Jürgen Mossack (72) and his former partner Ramón Fonseca (68), co-founders of Mossack Fonseca. The two men, aged 72 and 68 respectively, are accused of aiding tax evasion and associating with criminals.
Both Mossack and Fonseca are currently living in Panama, which does not extradite passport-holding citizens. However, they will be arrested if they enter the European Union. The FBI are also reportedly investigating the pair.
The firm Mossack Fonseca, established in the 1980s, was closed in 2018 following the leak of over 11 million documents – thereafter referred to as the Panama Papers – to the Süddeutsche Zeitung, which worked with around 400 journalists from the International Consortium of Investigative Journalists to analyse the data before publishing their findings in April 2016.
Mosssack Fonseca was found to have facilitated elaborate networks of money laundering and tax evasion, enabling criminals to use shell companies to hide their assets. The scandal implicated hundreds of wealthy individuals and government officials across the world, revealing that they had hidden money offshore.
Iceland’s then-prime minister Sigmundur Gunnlaugsson was forced to resign after being implicated in the papers, as was Nawaz Sharif, the former prime minister of Pakistan. At least 150 investigations have been opened in 79 countries to examine possible money laundering or tax evasion stemming from the papers’ revelations, according to the American Center for Public Integrity.
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Though there is currently no pathway for Mossack and Fonseca to be extradited, investigators hope that Mossack, who is German-born and has family in the country, may surrender to officials on the chance of a reduced sentence and escape from US charges.
The US Department of Justice has indicted 79-year-old Houston software tycoon Robert Brockman in the biggest tax evasion case in US history, it was revealed on Thursday.
In a statement, the DOJ alleged that Brockman had hidden $2 billion in income from the Internal Revenue Service over two decades, using a family charitable trust and a network of offshore companies in Bermuda and St. Kitts and Nevis. It is claimed that Brockman used these companies to hide income from his investments in private equity funds.
The indictment further alleges that Brockman hid his involvement in the offshore entities by appointing nominees to manage them, even establishing a proprietary encrypted email system and code names such as “Permit”, “Red fish” and “Snapper” to communicate with these agents.
At a San Francisco press conference, US Attorney David Anderson said that Brockman was also charged over an alleged fraud scheme This was based, he said, on the tycoon’s buying and selling of debt securities in his own company, “breaking a promise to investors that he would not buy or sell his own company’s debt.” This debt was allegedly bought using inside information possessed by Brockman.
Prosecutors were assisted by Robert Smith, billionaire CEO of Vista Equity Partners, who avoided prosecution himself by agreeing to cooperate against Brockman.
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Brockman faces seven counts of tax evasion, six counts of failing to file reports disclosing foreign bank accounts, and a number of other counts featuring money laundering, evidence tampering and wire fraud. Appearing via teleconference at a federal court in Houston, Brockman pleaded not guilty to the charges.
“Mr. Brockman has pled not guilty, and we look forward to defending him against these charges,” wrote Brockman’s attorney, Kathryn Keneally, in an emailed statement.
Brockman is chief executive of Reynolds and Reynolds, an Ohio-based firm that produces business management software used by auto dealerships. Brockman’s net worth is estimated to be over $1 billion.
JP Morgan Chase has agreed to pay a record $920 million to the federal government and admit to wrongdoing to settle charges of market manipulation via “spoofing” trades.
In an announcement on Tuesday, the Commodity Futures Trading Commission (CFTC) said that JPMorgan – the largest bank in America – would pay $436.4 million in fines, $311.7 million in restitution and more than $172 million in disgorgement.
The settlement states that, between 2008 and 2016, traders at JPMorgan Treasury engaged in hundreds of thousands of “deceptive” trades, placing market orders and subsequently cancelling them before they could be executed.
This act, known as “spoofing”, creates the illusion of demand or a lack of demand, affecting investor sentiment and asset pricing according to the spoofer’s intended outcome. In a statement, the Securities and Exchange Commission (SEC) said that JPMorgan traders cancelled their fake orders after receiving “beneficially priced executions” for legitimate ones.
"JP Morgan Securities undermined the integrity of our markets with this scheme," said Stephanie Avakian, director of the SEC's Division of Enforcement.
The $920 million figure represents the largest spoofing settlement to date, far beyond the $67.4 million penalty the CFTC levied against Tower Research Capital in 2019 – the previous record-holder.
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"The conduct of the individuals referenced in today's resolutions is unacceptable and they are no longer with the firm," said Daniel Pinto, co-president of JPMorgan and CEO of its Corporate & Investment Bank, in a statement.
The bank’s statement also noted that the violations took place only between 2008 and 2016.
A Manhattan federal judge on Wednesday rebuked federal prosecutors for withholding exculpatory evidence prior to the dismissal of an indictment against an Iranian entrepreneur convicted of violating sanctions.
US District Judge Alison Nathan said that federal prosecutors at the Manhattan US Attorney’s Office repeatedly violated their obligations to disclose evidence in a timely manner, eroding public trust in the criminal justice system. The late evidence disclosures eventually prompted the court to vacate entrepreneur Ali Sadr Hashemi Nejad’s guilty verdict issued in March.
"The government both violated its disclosure obligations and subsequently made a misrepresentation to the court about its conduct," Nathan said on Wednesday, adding that the post-trial dismissal of the verdict does not diminish "the need for inquiry into whether the government intentionally and in bad faith withheld exculpatory evidence or intentionally misled the court."
The evidence at the centre of the judge’s remarks was an exhibit called GX 411, a report by Commerzbank to the US Treasury regarding a $30 million transaction thought to have included Iranian money. The fact that the Treasury did not take action in response to the report gave it potential value as exculpatory evidence, but federal prosecutors claimed not to have been aware that the report was in their possession, and appeared to deliberately bury it among unrelated documents sent to the defence.
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Nathan ordered that all prosecutors on the case read her decision and answer a list of questions by 16 October on what they knew about GX 411 and when they knew it.
The decision is damaging to the reputation of the Manhattan US Attorney’s Office, which has been known in the past for the high standards of its lawyers and effective prosecution of high-profile cases involving fraud and corruption.
Nathan commended the Office’s “admission of error and effort to do justice in this case by agreeing to dismiss the indictment”, adding: “Better late than never.”
The US Department of Justice (DOJ) announced on Wednesday that it was seeking to recover a further $300 million in assets allegedly connected with the international 1MDB scandal, which it has traced to an escrow account in the UK.
The $300 million was traceable to a line extended to Saudi Arabia’s PetroSaudi Oil Services by Venezuela’s state oil company Petroleos de Venezuela SA in connection with an oil-drilling venture, the DOJ said in a complaint filed in the Central District of California on Wednesday.
Both companies are currently engaged in a legal dispute over the funds in question, which the Malaysian high court has endeavoured to freeze with cooperation from British authorities.
In addition to the $300 million, the DOJ said that it was also seeking to recover four dozen promotional film posters acquired by Riza Aziz, a Hollywood producer and stepson of former Malaysian Prime Minister Najib Razak, using over $4 million in funds related to assets embezzled from 1MDB.
Set up in 2009, 1Malaysia Development Berhad was established as a Malaysian state fund intended to promote development through foreign investments and partnerships. Chaired by Najib Razak, the fund became the centre of one of the largest financial scandals in history, as the DOJ believes that over $4.5 billion was stolen from its assets.
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In July, investment bank Goldman Sachs agreed to a $3.9 billion settlement with the Malaysian government over its executives’ alleged failure to act while billions of dollars in funds overseen by the bank were stolen.
Following the filing of Wednesday’s complaint, the total value of assets being sought by the DOJ in relation to the 1MDB scandal has risen to $2.1 billion, marking the largest asset recovery action the agency has brought to date. The US has recovered or assisted Malaysia’s recovery of almost $1.1 billion in 1MDB-related assets so far.
Amy Bell, legal expert and industry advisor to Encompass Corporation, explains why the issue has caused so much trouble.
The digitalisation of key services in business has been expansive, to say the least. Every year there is a new emerging trend, a new ‘hot word’ or key term, and a new promise from technology vendors that these trends will change the way processes are run. And for the most part, they do.
Over the past decade we’ve seen mobile banking change the world of personal finance, cloud computing has permanently improved workplace efficiency and proceedings, and artificial intelligence has changed customer service, security and administrative tasks for the better.
With each new technology, concerns surrounding privacy, identity and fraud are brought into question. This means organisations are constantly facing new legal issues, and vendors, law firms, start-ups, banks and retailers are frequently presented with new rules, regulations and administrative tasks that they must adhere to in order to remain compliant.
Enter Regulatory Technology (RegTech). With the use of big data and machine learning technology, RegTech reduces the risk to a company’s compliance department by offering data on money laundering activities conducted online - activities that a traditional compliance team may not be privy to due to the increase of underground marketplaces. This assists firms with meeting their regulatory requirements.
With each new technology, concerns surrounding privacy, identity and fraud are brought into question.
In my years as a legal advisor to law firms, I have recommended, observed and implemented RegTech technology, and can vouch first-hand for its effectiveness in automating certain tasks whilst complying with the law.
However, there is one key branch of RegTech which is potentially being underutilised in the legal sector: electronic verification, which uses digital processes to authenticate identity. It does this by matching certain data to external databases (name, address and date of birth), through document verification processes or biometric checks (such as fingerprint scan and facial recognition software).
Essentially, there is wording in the UK Finance Mortgage Lenders handbook which is causing problems for law firms who provide conveyancing services, by making it unclear as to whether electronic verification technology is ‘permitted’.
Before I explain this issue in more depth, let me clarify that electronic verification (EV) is not only safe, secure, legal and extremely effective in improving and streamlining identity verification processes for property law firms, but it has even been promoted by the Fifth Anti-Money Laundering Directive (5MLD). 5MLD did not make the use of EV mandatory, but it did encourage the use of it in relation to the identity and verification processes.
However, as things stand, property law firms just don’t know if EV can be used without also obtaining original documents, due to the wording of a small section in the UK Finance Mortgage Lenders Handbook.
In the UK Finance Mortgage Lenders Handbook, sections 3.1.5 and 3.1.6 of part 1 deals with mortgage fraud prevention. More specifically, it includes a specific guide to ensure that the solicitor has a document signed by the client, which can be compared to the mortgage deed, all in order to prevent impersonation fraud.
Whilst the firms can easily comply with 3.1.5 by asking for a photograph or scan of the relevant document, the wording in 3.1.6 suggests that they need to have seen the original document, or obtained a certified copy. The particular wording which causes the issue is: “You should take a copy of it”, which is taken to mean they have to have physical possession of the document and copy it.
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From a legal perspective, this wording is confusing. It implies that EV on its own is not permitted as conveyancers must take a physical copy of a document for their own verification processes.
Many firms have been reluctant to use EV because it seems to be unnecessary duplication.
You could say that law firms should probably still be expected to take a physical copy of an important document when it comes to something as critical as taking out a mortgage (a form of loan which often equates to hundreds of thousands of pounds worth of debt) simply because it’s believed to be more secure. But this is quite simply not true. In today’s current climate, electronic verification technology is a far more robust way to detect fraud, verify identity and authenticate documents than through physical means. What’s more, EV speeds up processes and creates a more efficient end-to-end safety solution for the buyer, the seller, the lender and the law firm.
This issue is not just affecting the mortgage side of law, either. Some firms that specialise in multiple areas of law are reluctant to adopt EV technology for any of their work, simply because they are unsure whether or not it can be used for conveyancing. This leaves the firm relying on less secure methods of verification, and great risk of identity fraud.
Beyond lockdown and social distancing measures, we’re already moving to a 100% digital environment. The 21st century consumer is very much becoming accustomed to instant, online services for the purpose of their own safety, and for their general convenience. And, if these services also happen to be far more secure, efficient and cost effective than the physical processes, surely switching to an entirely digital EV process is a no-brainer? If only the UK Mortgage Lenders Handbook would allow it.
The 21st century consumer is very much becoming accustomed to instant, online services for the purpose of their own safety, and for their general convenience.
Why hasn’t there been any clarification from UK Finance or an update of the Mortgage Lenders Handbook?
I don’t know. I personally have reached out to UK Finance and sought clarification, an update, and demanded action, but didn’t get very far.
They said they couldn’t address this problem centrally and, if necessary, each solicitor should contact their relevant lender for advice. However, I have heard differently from other practitioners - that they have been told that they could verify documents using EV with a copy and not the original document.
It’s this grey area between what legal firms can and can’t do that is causing so much unnecessary confusion, and it’s baffling that this has remained an issue for so long, when it could be easily rectified with a simple update or announcement.
What makes this refusal to resolve even more confusing is the fact that the Scottish version of the Mortgage Lenders handbook does not have the same wording. Either it has been altered, or this specific wording was never included in Scotland (for some reason), but regardless, it should be that our Mortgage Lenders Handbook is adapted, altered, or even scrapped in place of a universal (Scottish) version. After all, we are a part of the UK!
Moving forward, law firms who use the UK Mortgage Lenders Handbook should seek clarification from lenders until this wording discrepancy is resolved.
Data obtained under the Freedom of Information Act (FOI) by the Parliament Street think tank’s cyber research team has revealed that 165 suspected COVID-19 scams have been reported to the Financial Conduct Authority (FCA) since the beginning of the pandemic.
Reported scams have been circulated by email, letters, phone calls, text messages and social media, and illustrate the extent to which banks and other financial services organisations have been targeted by frauds throughout the year.
One reported scam featured fraudsters pretending to work on behalf of Her Majesty’s Revenue and Customs (HMRC) and targeting company owners seeking COVID-19 relief grants to ensure their businesses’ financial stability during the pandemic. Others involved efforts to obtain passport details of financial services professionals, and a scheme to steal the login information of HSBC customers with business accounts.
“The COVID-19 pandemic has seen a rapid increase in the number of financial crime scams entering circulation,” commented Max Worrall, General Markets Sales Manager at Encompass Corporation.
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Worrall also noted that firms seeking to enforce Anti-Money Laundering (AM) measures and customer verification checks will also be left open to threats, as the processes involved require that the reviewing of personally identifiable information and documentation, which are attractive to frauds.
"It is therefore vital that companies have in place the necessary anti-financial crime systems, as well as the ability to identify and confirm that the customer is who they say they are,” he said.
The Parliament Street think tank is a leading UK research organisation that conducts analysis of major polices and produces papers on technology, fintech and economic trends.
Will the coronavirus recession prompt an upsurge of fraud cases?
The post-COVID-19 international environment is indeed peculiarly challenging for all legal professionals, public enforcement and private attorneys as well, since the area of the white-collar crime has seen a mix of traditional fraud or corruption cases, blended with new types of cyber-crimes and money laundering schemes. Social distancing and indirect communication have determined business people to contact and contract deals mostly without direct (human) contact, which has created the perfect conditions for criminals or malicious business sharks to profit from inexperienced or otherwise unsophisticated business owners that are not accustomed to performing due-diligence of their partners, or are too trustworthy in relation to advancing important amounts of money before services or goods being provided.If you add the otherwise growing cyber-fraud component of criminality in society nowadays, with more and more complex techniques and mechanisms in place to avoid detection or investigation, as well as possibilities to recover prejudices caused, you get a comprehensive outlook on an increasingly difficult field of law, where fraud cases can no longer be tackled just by traditional investigative or defence methods and in which legal professionals must be more than astute theoreticians, but also highly skilled practitioners.
Furthermore, the increasing public opinion that many high-level criminal cases (corruption or economic frauds) are politically-driven has led to a certain degradation of the general trust in law enforcement
Do you think prosecutors are prepared for any potential increase in fraud-related files?
Law enforcement in Romania, though adequately financed and highly specialised in handling criminality of all types (considering we have specialised sections of the Prosecutors’ Office or dedicated Police structures for corruption, economic criminality, cyber-crimes or money laundering), suffer from the same inertia as always when confronted with new social, economic and technical realities. Though fraud-related crime follows the same patterns as before, the fact that the methods have improved or adapted with the changing times creates delays in official responses and generate time lapses in which perpetrators indulge and build on their undue wealth or status.
Economic crime tends to surge during and following a recession; what should law enforcement do in your jurisdiction to handle this?
The general opinion in nowadays Romanian society is that people and businesses alike would feel a lot more protected by law enforcement if their response would be swifter and more decisive (considering the lengthy duration of criminal investigations and trials in Romania), while their actions to be concentrated firstly on ensuring recovery of prejudices created.
Furthermore, the increasing public opinion that many high-level criminal cases (corruption or economic frauds) are politically-driven has led to a certain degradation of the general trust in law enforcement, which can only be reverted by a more people/victim-oriented approach to cases and investigations, as opposed to the formal and procedural methodology employed nowadays, with a focus on State interests.
Businesspeople are, evidently, more flexible when reacting to crises and the first to understand that special times usually require special measures.
How has the government and local authorities in your jurisdiction reacted to criminal law cases being handled during the crisis? What cases are classed as ‘urgent’ and are still being dealt with?
Unfortunately, these last few months have seen an understandable yet counter-productive slow-down in law enforcement actions. COVID-specific restrictions have generated delays in actions and reactions of prosecutorial and police authorities, which have focussed their work on office activities and less on interventional investigations. Criminal courts of law have been more active, especially in relation to old cases or when preventive measures were in place. Travel bans and other communication restrictions have been a tough issue to tackle, leading to unwanted delays in procedures.
How should company owners respond during this time, to avoid being hit hard?
Businesspeople are, evidently, more flexible when reacting to crises and the first to understand that special times usually require special measures. The pandemic has taught them they can no longer use their direct contact with their partners to acquire or maintain a feeling of trust, but rather they have to use professionals and specialised methods for such purposes; such examples are: due-diligence of business partners to avoid becoming victims of frauds, strong compliance programs to deter (even internal) corruption practices or legal analyses of contracts and all other relevant business relationships to minimise or contain financial, commercial or legal exposures.
Come to think of it, this is actually the professional way to act in a world where intrinsic trust is no longer possible or even recommendable, especially since the traditional “shake of a hand” can easily result in, besides germs, financial instability or even business collapse.
What do you expect the outcome of the guidelines put in place to be once the pandemic crisis is more under control?
Since these new social and economical realities seem to have already become a way of life for many businesses, which plan to maintain business decisions taken during these months (employees working from home, increased digitalisation of processes, internet communication, etc.) and in the foreseeable future, things are bound to revert only gradually, but also just partially, to the old ways of doing business, which is more reason for companies to adapt to these new conditions.
In all fraud or generally criminal cases, the approach of those accused should not change dramatically in these times, since procedures are the same and incriminations have also not changed.
What does all this mean for those under investigation?
From a different perspective, the slow-down of the judicial system can prove to be very frustrating for those under investigation or trial, since the expected end-result (of a verdict of innocence) seems more distant and sometimes even not as likely due to lesser investigative proneness or activities by prosecutors and courts alike. As in all situations, there is also the reverse of the medal, meaning more and more suspects and defendants started building their defences on the increased possibility of meeting the statutes of limitations for certain crimes (especially in cases of private frauds) or on reaching amicable solutions (including Deferred Prosecution Agreements), which leads to other specific legal challenges in such situations, depending on the different side of a criminal case where one is situated.
After seeking legal advice, what should be the first step someone should take when being accused of fraud?
In all fraud or generally criminal cases, the approach of those accused should not change dramatically in these times, since procedures are the same and incriminations have also not changed. The first and foremost step to take is to seek professional legal counsel before taking any step further, meaning seeking an attorney who not only knows the law in theory but also in practice and who is flexible and adaptable in providing the best applicable legal strategy to counter either ungrounded (or illegal) accusations or which to diminish criminal responsibility by all procedural means available.
Regrettable as it is, we encounter this in practice more often than we would wish to - clients approaching us to help them in the last hour of their cases, after initial defence strategies failed because, even if these were not theoretically incorrect, they were impracticable or resulted, for lack of thorough planning and overview, in far worse business consequences. Especially for legal (or defence) strategies, theory without perspective and applicability causes imminent failure or unavoidable collapse.
ENACHE PIRTEA & ASSOCIATES
Address:
32 Pictor Ion Negulici Street
1st District, Bucharest 011943
Romania
Contact:
Phone: +40 371 471 000
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E-mail: office@enachepirtea.ro
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Mădălin Enache is a Senior Partner of the firm and heads the White-Collar & Business Crime Litigation practice, the focus of his activity being the legal defence of corporate and private clients in relation to criminal investigations and litigations in which they are involved. Starting 2006 Mădălin practices extensively and quasi-exclusively in high-level white-collar criminal cases, having successfully proven his first-class professional expertise in some of the most difficult, top-level and media-scrutinised criminal investigations and trials, with prejudices or financial impact of up to 1 billion EUR. He was also the Romanian lead-member of the international teams of attorneys involved in several well-known international investigations performed by the DOJ and the SFO in relation to corrupt or money laundering practices of certain corporations from the pharma or financial fields.
Throughout his already impressive career, Mădălin counselled, assisted and represented renowned global, international or Romanian corporate clients, as well as key figure businessmen or executives and high-profile politicians and public figures (prime-ministers, ministers, presidential councillors, PM’s, MEP’s, business tycoons, etc.) involved in a wide range of cases in front of the criminal investigation authorities or the courts of law.
Extraordinary Professionalism Applied to the requirements and needs of the clients – this is what ENACHE PIRTEA & Associates stands for and this is the main drive of the law firm that goes “the extra mile”. We have successfully created the law firm where clients can find lawyers who think business and who give them applicable leading-edge solutions, in order to ensure businesses move forward with ethics and integrity, while people are safe to enjoy a better future.
EPA was set up in 2018 through the merger of the specialised law boutique offices of two highly reputed “new wave” Business Criminal Law attorneys, Ms Simona Pirtea and Mr Mădălin Enache, both with extensive experience in white-collar criminality cases and in business crime matters of relevant importance, acquired over the last 15 years of criminal practice and during the many years of coordinating the criminal law departments in two of the top law firms in Bucharest.
Comprising a team of 14 attorneys and specialised consultants, the firm’s focal area of activity is Criminal Law (White-Collar and Business Crime), in its two main components: criminal investigation and litigation, as well as business crime consultancy and counselling (business ethics and integrity), in areas such as corruption crimes or money laundering, economic criminality or abuse of office, embezzlement of EU funds or cybercrimes, copyright or environmental criminal breaches. Furthermore, EPA has developed an important Business Law practice as well, proving that across-the-board experience in business matters (corporate, commercial, labour, civil litigation, etc.) and the trust of clients are key ingredients for successful legal projects.
The professional achievements and dedication of the firm especially in the field of white-collar and business crime have already been acknowledged by some of the most prestigious international publications (Legal500, Chambers Europe, ICLG, etc.).
Bambos Tsiattalou, the Founding Partner of Stokoe Partnership Solicitors, offers Lawyer Monthly an analysis of private criminal prosecutions, their uses and their shortcomings.
Private criminal prosecutions have recently hit the headlines, with news that Boots successfully brought a private prosecution against a prolific shoplifter after the police had refused to take action. In 2019, a fraudster received an eight-year custodial sentence after a private prosecution was brought by an engineering company. Even Dominic Cummings is the subject of a private prosecution for his notorious breach of lockdown in March, during the height of the coronavirus pandemic.
For wealthy individuals and companies who believe that they have been victims of fraud, private prosecutions may seem like an attractive option and there is a burgeoning market of “specialist” firms willing to provide a “tailor made” prosecution service, receiving large hourly rates for doing so. Many “victim clients” see private prosecutions as a means of retaining greater control over the timing and execution of prosecutions, or as a cheaper and quicker alternative to civil litigation. Sadly, most view them as an additional tool to settle scores, to damage reputations, or to force a settlement of civil proceedings. Although bringing a private prosecution with improper motives is undoubtedly unethical and a misuse of the criminal court process, malice is notoriously difficult to prove and even if established, is not an automatic bar to a prosecution.
In reality, of course, the mere commencement of a criminal prosecution can seriously damage people’s lives, whatever the eventual outcome. Careful and responsible thought should be given before embarking on such a course. Whilst the Crown Prosecution Service must be satisfied that clear evidential and public interest tests are met before bringing any public prosecution, it is a regrettable fact that private prosecutors are not legally required to apply the same high standards and this is, perhaps, what makes it so attractive to some who wish to use the system to settle scores.
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A number of right-minded interested professionals have created a body; the Private Prosecutors Association (“PPA”), which has published a voluntary “Code for Private Prosecutors” in a bid to ensure that the professional and ethical duties of private prosecutors are well-understood.
The public interest is not well served by permitting the use of overburdened criminal courts as a new playground for the lavishly funded to resolve private disputes and a proper and enforceable Code is undoubtedly a desirable first step to ensure private prosecutors understand their basic duties, foremost as Ministers of Justice with an overriding duty to the Court, and not as private client litigators acting upon the instructions of an aggrieved “victim”.
The voluntary Code is, however, just that and it may be of concern that it does not appear to have been met with universal enthusiasm, especially amongst some of the “specialist” firms. It places them in a conflicted situation of advising their clients of the strength of their case and bringing in fees.
Where the Director of Public Prosecutions learns of a private prosecution, he has the power, via the CPS, to review, take over and discontinue the prosecution at any stage: either where it is in the public interest to do so, or where the case would not meet the basic evidential standard that would be required for a public prosecution to be brought. While that is an invaluable safeguard for a defendant, it is surely wrong in principle that prosecutions which are evidentially weak and would be “weeded out” pre-charge by the CPS should be allowed, nevertheless, to enter the criminal justice system by the private backdoor, leaving defendants to fall back on an appeal to the CPS to intervene and do the right thing. Let's not forget that the public purse is taking the burden for this.
The public interest is not well served by permitting the use of overburdened criminal courts as a new playground for the lavishly funded to resolve private disputes.
Whatever may be said of the public prosecution service, the CPS does not have a direct financial interest in the cases it prosecutes in the same way the private prosecution firms do, and they do not have the same “client” relationship where an aggrieved but paying “victim” gives instructions to be acted upon.
Private prosecutors will often cite high statements of principle that suggest private prosecutions occupy an important role in our constitution. There will be occasions, inevitably, where genuine cases have slipped through the public prosecution’s net and where a private prosecution should remain a last resort, but often the private prosecutor will seek privately to prosecute as a first resort and will not have even reported the case to the police or CPS for their consideration.
Proponents of private prosecutions often argue that they save the taxpayer the costs of investigating and prosecuting crimes. Yet prosecutors often apply for and receive their costs from public funds; even if the case is one the CPS would never have brought, the defendants are acquitted and even if the case collapses pre-trial. It may be considered wrong that taxpayers should find themselves paying the bill for a prosecution which would never have been brought by the state in the first place and was brought by an individual with enough money to pay themselves.
“No win, no fee” arrangements are not permitted in criminal cases in the UK, to avoid such conflicts of interest, yet such arrangements are openly advertised online when it comes to private prosecutions. Defending against a private prosecution brought without proper disclosure being given is dangerous.
Law firm Edwin Coe LLP, acting on behalf of 371 investors, is bringing a group action worth £1.3 billion against HSBC UK for losses caused by its role in the “conception, development, and marketing of a series of Disney film investment schemes known as the Eclipse Partnerships”, which ran between 2006 and 2008.
The investors allege that HSBC’s private banking arm encouraged them to invest on the “false promise” that the scheme represented a genuine opportunity to invest in popular Disney films. The scheme saw some £2.3 billion of investment, some of which was financed by loans taken out by investors expecting their returns to cover the interest.
However, Edwin Coe claims that no active trade in film rights between Eclipse and Disney was ever made, and that the scheme proved “financially catastrophic for its unwitting investors”.
“At no point did Eclipse actually exploit, or otherwise trade in, any meaningful film rights of any value from Disney,” claimed David Greene, senior partner at Edwin Coe.
As Her Majesty’s Revenue and Customs ruled in 2019 that loans taken out by Eclipse’s investors would not be recognised as losses, investors who partnered with Eclipse subsequently faced tax liabilities on money that they did not receive.
HSBC said it would not comment on the ongoing legal issue.
