Understand Your Rights. Solve Your Legal Problems
Dennis Miralis has acted in some of Australia’s most complex fraud matters involving global financial institutions and has advised multinational banks and corporations on the practice and procedure of investigations focusing on fraud and money laundering. He speaks with Lawyer Monthly on changes occurring in Australia to prevent economic fraud, especially with the rise of Bitcoin.
Have there been any recent regulatory changes or interesting developments in your jurisdiction in white collar crime ?
Australia is experiencing an active period of legislative reform covering white collar crime, which is likely to continue into the next 12-18 months as a number of important pieces of proposed legislation are debated and introduced by the Federal Government.
Broadly speaking, the changes cover a wide spectrum of white collar crime activity and include changes to: foreign bribery laws; the introduction of deferred prosecution agreements; whistleblower protection in the private sector; increased powers of the corporate regulator ASIC to investigate and prosecute breaches of the corporations law; an increase in the available penalties applicable to white collar/corporate crime, and changes to the anti money laundering laws to regulate bitcoin exchanges. Many of these reforms have been on the horizon for some time. The focus of the regulatory and legal changes is to address some of the perceived challenges involved in the detection and prosecution of white collar crimes. These changes therefore will seek to make it easier to allow white collar crimes to be identified, detected and investigated and ultimately successfully prosecuted.
Additionally, in late 2017, the Federal Government announced a Royal Commission into Banks which will be given significant powers to examine alleged bank misconduct in the banking, superannuation and financial services industry. These changes will better align Australia’s domestic laws with international developments that have already taken place across the Europe and in the USA in the past few years.
Can you outline the key fraud and white collar crime trends in Australia?
The key white collar crime and fraud trend appears to be a shift towards an increase in criminal penalties and providing the regulators and law enforcement with more powers to investigate and prosecute white collar crime. This has been accompanied by the recognition of the harm that such offences create to Australia’s economy, and a recognition that the penalties for white collar crime have to date, not adequately reflected the objective seriousness of such offending. We are also likely to continue to see heightened activity by ASIC against banks who may have had failed to properly comply with their obligations to regarding issuing credit and for breaches of Australia’s AML regime along with increased powers in the areas of exchange of information and the ability to freeze assets.
Additionally, the Australian Federal Police are being provided with more resources and training to investigate international fraud matters including bribery of foreign officials. The new proposed bribery laws have been drafted to broaden the offence of bribery of a foreign public official by creating a new strict liability offence for failing to prevent foreign bribery.
The amendments to Australia’s AML laws will ensure that “bitcoin exchanges” will be regulated and will impose reporting and record-keeping obligations on digital currency exchange providers, and require them to enrol and register on the Digital Currency Exchange Register maintained by Australian Transaction Reports and Analysis Centre (AUSTRAC) and to comply with protocols to identify and mitigate the risks of money laundering and terrorism financing. A Bill to establish an Australian Home Affairs portfolio was introduced into the Australian Parliament on 7 December 2017, which is likely to lead to centralisation of federal agencies working more collaboratively to investigate sophisticated white collar crimes, including those with an international dimension. As Australia’s key intelligence agencies and law enforcement agencies will now come under this new portfolio, there will be a significant increase in the investigative capacities to detect serious international financial crime with an Australian nexus.
The introduction of new whistleblower laws will assist in the identification of white collar crimes and will expand the scope of whistleblower protection beyond the Corporations Act including protections to a broader class of persons, including former employees, contractors and relatives. The legislation will also increase the kinds of disclosures that are protected under the Corporations Act to include disclosures of conduct which constitutes misconduct or an improper state of affairs or circumstances. The combination of all of these changes occurring in parallel demonstrates a paradigm shift that will align Australia with changes seen across the UK and the USA.
What complications or difficulties arise from international cross-border fraud & white collar crime?
From a defence perspective, one of the main complications in the investigation of cross border fraud and white collar crime is the need to acquire a detailed understanding of the laws governing fraud offences, data exchange, extradition, mutual assistance and the right to silence, across multiple jurisdictions, which often can have very different laws covering these areas and sometimes different legal system altogether. The above areas of law will generally play a significant role in how a cross border investigation will be conducted and ultimately, if there is an indictment and a trial, where and how the criminal trial will be undertaken. The focus remains on ensuring that a client’s right to a fair trial(s) is not prejudiced because of any irregularities in the area of data exchange, mutual assistance and potential breaches of fundamental human rights, such as the right to silence, across each jurisdiction where criminal and regulatory exposure exists. Having access to up to date local knowledge concerning which Government lawyers will be taking on the case, profiling the appetite of the particular prosecution team to try and resolve the matter through a negotiated plea/settlement/DPA and making the key forensic decisions very early on about your client’s potential value to the Prosecution are some additional challenges that arise in cross border investigations. It is advisable to work collaboratively with experienced lawyers in all the jurisdictions where your client may be facing criminal and regulatory exposure to navigate some of these challenges.
In an ideal world what would you like to see implemented or changed in the area of international white collar crime?
As the internationalisation of white collar crime continues apace, unprecedented cooperation between regulators and law enforcement bodies will exponentially increase in the areas of tax fraud, cyber fraud, foreign bribery, bitcoin investigations and money laundering. The legal mechanism which will give effect to this cooperation will include mutual assistance, Memorandums Of Understanding, and informal contact between financial regulators and law enforcement with their partner agencies across the globe. These developments are necessary to properly deal with the complexities of a globalised world where the nature of de regulated markets and the fluidity of capital through the internet has eroded the concept of national crime. Often, however, much of what is occurring in this space is not sufficiently subjected to the necessary regulatory and or judicial oversight required. Given that these developments have the capacity to interfere with the protection of fundamental rights I would like to see a clearer framework developed that strikes the right balance between the need for appropriate powers to be provided to Governments and the protection of important rights, such as the right to an a fair trial and the right to silence. More work needs to be done at an international level in the area of harmonisation of data exchange between jurisdictions, determinations concerning where someone will be tried in circumstances where multiple trials are possible and agreements about extradition across states when multiple indictments have been found. I believe these are areas which will ultimately need to be dealt with by the courts if sensible international standards through bilateral or multilateral agreements cannot be implemented.
Dennis Miralis
Partner
Nyman Gibson Miralis
Criminal Defence Lawyers
Level 9, 299 Elizabeth Street, Sydney NSW 2000
PO BOX 21147, World Square NSW 2002
DX 11543 SYDNEY DOWNTOWN
p +61 2 9264 8884 f 9264 9797 m 0414 933 168
Dennis Miralis is a leading Australian criminal defence lawyer and adviser who specialises in complex white collar crime, including national and international criminal investigations and prosecutions, with a focus on money laundering, tax evasion, bribery, corruption, cybercrime and regulatory offences. Dennis has expertise in advising and representing commercial institutions and individuals being investigated by the Australian Federal Police, the Australian Securities Investment Commission, the Australian Transactions Reports and Analysis Centre Financial Reporting Centre, the Australian Tax Office , the Australian Criminal Intelligence Commission , the Commonwealth and State Director of Public Prosecutions, as well some of the largest law enforcement and financial regulators world-wide, including the US Department of Justice, the Securities Exchange Commission, the Federal Bureau of Investigation and the UK Serious Economic Fraud Unit.
SFO specialist journalist Dominic Carman here discusses with Lawyer Monthly the SFO's dire need for new leadership. Discussing the current handover of authority within the organisation, Dominic also touches on the prospects of criticism surrounding the SFO in the near future.
Alongside the bankers, lawyers and wealthy business men, no one from the Serious Fraud Office attended the infamous Presidents Club dinner at the Dorchester Hotel. When David Green, the SFO Director, has his farewell dinner in a few weeks’ time it will undoubtedly be a much more decorous affair. Having told journalists only that he intends to go fishing when he steps down in April, Green has not commented on reports that he has been invited to join the London office of a prominent and extremely profitable US litigation firm, described as one of the most prestigious and selective law firms in the world.
Once appointed, the new SFO Director seems very likely to continue to pursue a similar strategy to Green. That is because the man most likely to be given the job has been his right hand man for the past six years: Alun Milford became General Counsel at the SFO in April 2012 when Green first took up his seat in the Director’s chair.
At first blush, his CV provides a perfect background for the role. After qualifying at a City law firm, Milford joined the Crown Prosecution Service (CPS) in 1992 and became a solicitor-advocate seven years later. In 2004 he joined the Attorney General’s Office before moving to the Revenue and Customs Prosecutions Office in 2007, where he established and led its asset forfeiture division. After returning to the CPS in 2009, he was appointed as head of its organised crime division after its merger with the Revenue and Customs Prosecutions Office.
Some clue as to Milford’s approach to his potential new role as Director can be seen in a speech he delivered in 2016 to an audience of compliance professionals at the European Compliance and Ethics Institute, Prague. He told the audience: ‘Famously, we are a unique part of the UK’s law enforcement community in that we have powers both to investigate and to prosecute cases of top end financial crime. We were set up simply to investigate and to prosecute cases involving serious or complex fraud, bribery and money laundering. We are a law enforcement agency, not a regulator, and we define our relationship with industry accordingly.’
He continued: ‘Our Director also set out the criteria he would take into account when deciding which cases we should accept for investigation: the impact of the case on UK financial plc in general and the City of London in particular; the scale of losses, actual or potential; the extent of the gain, actual or potential; whether we were dealing with a new kind of fraud or whether there was some other public interest reason for taking the case on. That simply accounts for the start of the process. What about results? Not all cases go our way. But over the last two years we have seen convictions for fraud arising from LIBOR fixing.’
He went on to highlight ‘Whilst we cannot, and would never want to, guarantee convictions, we are able to investigate and then to prosecute to conviction genuinely difficult top end financial crime cases.’ And the he set out the criteria for prosecution: ‘First, is there sufficient evidence for a realistic prospect of conviction? Secondly, if so – and only if so – is a prosecution required in the public interest?’
Milford’s phrase ‘not all cases go our way’ was prophetic: the LIBOR trials have resulted in 19 traders being charged with respect to LIBOR and EURIBOR manipulation. But of these, there has been one guilty plea, eight acquittals and only four convictions. After two postponements, the remaining six defendants will be tried for EURIBOR manipulation just as the new Director starts in April: former Deutsche Bank traders Christian Bittar and Achim Kramer and former Barclays traders Colin Bermingham, Carlo Palombo, Philippe Moryoussef and Sisse Bohart, who were originally charged by the SFO in November 2015.
Meanwhile two British former traders at Rabobank had their convictions overturned by a US appeals court last July. Of the four UK convictions, at least two are subject to appeal. The truth is that the LIBOR trials have ended up as ‘a debacle’ – a phrase used by Lord Justice Gross in a recent Court of Appeal hearing by one of the convicted traders, Alex Pabon.
Gross LJ was referring to the conduct and qualifications of Saul Haydon Rowe, who proclaimed himself as an expert witness when giving evidence on behalf of the SFO at four separate Libor trials. As a result of his evidence, four traders were convicted and sent to prison. But in another recent appeal hearing, it emerged that Rowe was definitely not the expert he pretended to be, or the SFO believed him to be - because the agency manifestly failed to check their facts or to carry out proper due diligence before paying him £400,000 for his services.
Milford was integral to the process of selecting Rowe as much as Green. Although the LIBOR debacle has yet to reach its denoument, the full judgment of the Court of Appeal in the case of Alex Pabon seems destined to be heavily critical of the SFO’s top brass and their protracted, costly and poorly managed investigation into LIBOR manipulation. It is inconceivable that Green will escape censure as a result. It is also inconceivable that the clear favourite to replace him, an SFO insider who also endorsed Rowe as a key expert witness for the LIBOR prosecutions, should succeed Green as Director.
Given the justified criticism that is going to be unleashed against it in the coming weeks and months, the SFO needs fresh blood at the top.
The total value of fraud has risen 538% to £2.11bn in the last 15 years and is up 6.5% from £1.99bn in 2016, according to new research from BDO LLP.
When it comes to type of fraud, BDO’s FraudTrack report found 550 cases of UK fraud were tax-related and the reported value of these cases ranged from £58k to £21m. The most interesting cases included a businessman who stole more than £1.6m in tax whilst pretending to his family and friends to be a spy, and a self-appointed Essex tax adviser, who instructed his clients on how to fraudulently claim £1.5m in tax repayments.
London and the South East remains the biggest hotspot for fraud in the UK in 2017 with the number of cases up by almost 30% to 176, and the total value increasing by 76.9% to £1.63bn. One of the biggest frauds in this area included a family of VAT scammers who stole £45m from taxpayers and lavished it on a fleet of luxury cars, race horses, gambling trips to Las Vegas and mansions around the world. The findings also highlighted a number of instances where celebrities have either been victims of fraud. One of the biggest celebrity-related frauds was a £100m tax scam in which 730 celebrities, including comedians, sports stars and relatives of politicians, were conned into believing they were investing in cutting-edge research and development reforestation projects in Brazil and China.
Dawn Register, Tax Dispute Resolution Partner at BDO, commented: “Recent HMRC statistics revealed that in 2017 their specialist tax fraud investigations have led to over 750 individuals being convicted and they have charged suspects in over 1,000 new cases of tax fraud. HMRC clearly wants to investigate and convict tax fraudsters using their full range of powers. This is both to act as a deterrent for others and to penalise those who contribute to the tax shortfall in the UK. Anyone thinking that they will never get caught is living a deluded life. The information and resources available to HMRC are robust as never before.”
(Source: BDO LLP)
The European Commission has recently published a series of recommendations for Member States on how to better work together towards better direct tax and VAT collection for national budgets. It’s calling on Member States to continue working together for more efficient tax collection and to better fight tax fraud and avoidance.
In particular, the results show that investment in digital and IT systems, as well as investment in human resources, will be crucial if EU countries want to improve their public finances. The reports highlight the overall positive impact of the EU-wide cooperation between tax administrations on tax collection, but also show that Member States have to deploy more resources to improve tax collection - an issue which, for VAT alone, can lead to losses for national budgets of up to €150bn a year.
The Commission has in 2017 already put forward far-reaching reforms of the VAT system to create a definitive VAT system and to create a single European VAT area that is simpler and fraud-proof. Cooperation between countries to recover lost taxes should also be improved, the reports say, and countries should make better use of new data that is being collected as part of the major reforms on information exchange – an accomplishment which should give the fight against tax avoidance a major boost in the EU.
The Commission will now take these findings forward with Member States to see how they can be addressed.
(Source: EU Commission)
With ongoing controversy surrounding the SFO's conduct in the Libor trials - particularly around the use of an expert witness that turned out to be texting individuals outside the court to clarify basic points - below noted legal commentator Dominic Carman delves deep into the matter.
The Court of Appeal have raised serious concerns about the Serious Fraud Office, in particular its prosecution of Libor and the use of a self-proclaimed ‘expert witness’ Saul Haydon Rowe in every case. Ultimately, some convictions may be quashed, while most of those already tried have already been acquitted.
In an earlier article, the Telegraph explained the background.
“Ex-Barclays bankers Alex Pabon and Jay Merchant as well as Tom Hayes, the first trader to be convicted of rigging Libor, have urged Justice Committee chair Robert Neill to investigate the SFO over its use of expert witness Saul Haydon Rowe."
However, Bob Neill MP could not accede to this request for two reasons.
First, he could not investigate the SFO’s ‘“selection, retention and oversight" of an expert’ because that decision would have resided with the SFO’s Director, David Green QC, or at least been approved by him. As Neill revealed in October 2016, he knows Green very well.
During the televised Justice Committee parliamentary session, Neill addressed Green with a genial smile: 'You and I know each other well and have known each other for many years.' Such familiarity would automatically preclude Neill from chairing any independent investigation into the SFO.
Second, and more significantly, the Justice Committee cannot do what the letter asks because it has no mandate to examine individual cases, or group of interconnected cases like the Libor trials.
The Telegraph article questioned Rowe’s conduct and expertise in greater detail.
"It is unclear the extent to which the SFO adequately investigated Rowe's qualifications, expertise and fitness to identify as an expert witness in a complicated, high-profile criminal trial," read the letter, which was sent to Mr Neill on November 10.
Around 100 of Mr Rowe's emails and texts were disclosed by the SFO during the retrial of former Barclays traders Ryan Reich and Stylianos Contogoulas, with both acquitted of conspiracy to defraud. The messages show he was "not an expert" and ignored directions not to talk to anyone about his evidence, the letter argues.
The move comes months after reports were sent to the Metropolitan Police over Mr Rowe's credibility as a witness by some Libor traders. The Criminal Cases Review Commission (CCRC) is also deciding whether to refer Mr Hayes' case back to the Court of Appeal in light of the questions now surrounding Mr Rowe."
During the April re-trial of Reich and Contogoulas, Rowe wilted. Under cross-examination by Adrian Darbishire QC, he acknowledged that he had previously texted friends in the original trial asking for their help while giving evidence in explaining some technical terms and checking that he was answering basic questions correctly.
Despite this admission, Rowe denied misleading the SFO about his expertise. In summing up, Judge Anthony Leonard told the jurors that they had to determine whether Rowe had “sufficient expertise” to testify and if they were not convinced then they should “disregard it.” Delivered with great speed, the unanimous not guilty verdict was a defining moment.
Back in April 2012, Green had made his first appearance in front of the Justice Committee, as reported by the Guardian:
‘He accepts his agency will be judged largely on the performance of its ongoing investigation into allegations of Libor interest rate-fixing. Green said he was confident the Libor case would avoid the errors of the "Tchenguiz fiasco".’
The SFO’s investigation of the Tchenguiz brothers resulted in compensation payments of several million pounds and a public apology from Green for his predecessor’s conduct. But in the SFO’s most recent annual report, no mention was made of the Libor trials which had concluded in the previous year - despite Green confirming that he would be judged largely on their performance.
They were airbrushed from the record because the SFO had failed to achieve convictions. Meanwhile the furore surrounding Rowe reignited in Pabon’s appeal last week, when Lord Justice Gross said: "We take a very serious view of what in the judgment we will describe as a debacle, whatever the outcome. We want to know how did it come about that he (Rowe) was instructed when he lacked expertise? We are very concerned as to how he can have been instructed, the due diligence, and how it came to light. We are troubled by it.”
Critically, the Court asked the SFO for its internal report into the debacle. But it emerged that there was "no such document".
Much publicity surrounded the convictions of Hayes, Pabon and others; if either were acquitted on appeal, the publicity would be devastating. Not only would it undermine all the Libor prosecutions, but it would also serve to diminish Green’s legacy when he steps down next April. And for all the effort he has undoubtedly put in to restore the SFO’s tarnished reputation, the end result would be another fiasco…or debacle. Take your pick.
The 2017 UK National Risk Assessment of Money Laundering and Terrorist Financing (NRA) highlighted the money laundering risks faced by legal firms, over 10,000 of which now have fewer than ten employees. Donald Toon, Director of Economic and Cyber Crime at the National Crime Agency (NCA), explains why that means that every individual counts in the fight against financial crime.
There is no doubt that a good deal of progress has been made in the fight against financial crime in the two years since the first NRA was published by the UK Government.
The Money Laundering Regulations 2017 and the Criminal Finances Act 2017, coupled with the continued expansion of information sharing efforts with and by professional body supervisors, have tightened up the supervisory regime and created closer collaborative working between law enforcement agencies and professional service firms and supervisors.
Added to this, the Office for Professional Body Anti- Money Laundering Supervision (OPBAS), expected to become operational in January 2018, will support supervisors in helping to ensure that professionals effectively target criminal activity.
However, the release of the 2017 NRA in October shows us that there’s plenty more still to do.
Nearly all forms of serious crime, such as drug dealing, fraud, modern slavery and human trafficking are committed for financial gain. The effect of money laundering is widespread and complex, ranging from undermining trust in established organisations to disrupting communities and devastating the lives of individuals.
Criminals are becoming more sophisticated in their attempts to cover their tracks. Many are now using new types of ‘blended methodologies’ to try and stay under the radar, making it all the more important for SMEs and individual legal practitioners to be on their guard. Often these criminal practices are deliberately done at a micro level, using the services of a number of smaller firms to provide a veneer of legitimacy.
Low volumes of reported suspicions within the legal sector continue to be a concern to the authorities. , and there is room for improvement. This is particularly true of firms operating in high risk sectors, as banks and other financial institutions have been known to file a variable SAR, where reported activity has involved one or more firms from the legal sector who, despite their direct engagement with clients, have not submitted a SAR themselves.
With this in mind – and taking into account the fact that the social and economic cost of serious crime to the UK, according to the 2013 Serious and Organised Crime Survey, is more than £24 billion a year – it is vital for the health of our economy for the legal profession, particularly in the SME space, to fully engage with the SAR reporting process.
It is important to emphasise that there is no such thing as a ‘wasted SAR’. Any SAR could contain information that contributes to painting a picture of current trends or patterns. This is crucial in helping reporters and law enforcement to plan and prevent against new crime trends. A single SAR may be used several times by different users for different purposes and SARs submitted by lawyers have directly supported the successful prosecutions of criminals. They are critical pieces of the intelligence jigsaw, which not only help to tackle the scourge of money laundering itself, but are often the starting point in a journey that leads to uncovering the underlying criminality behind the cash.
However, the effectiveness of SARs is directly linked to the quality of the information contained within them. Too many reports fail to articulate suspicions accurately enough to enable any money laundering implications to be properly assessed. If the quality of information contained in the SARs submitted was improved, it would aid in making a more valuable contribution to the fight against financial crime and the harm that it perpetuates.
Far from being a victimless crime, money laundering can ruin the reputations of unsuspecting legal and other professional businesses, it distorts the labour market and even skews property prices. It undermines confidence in the UK as a financial centre and deprives the Treasury of taxation that would be used for vital public services.
On a societal level, money laundering is the fuel that feeds the drug trade and assists terrorist activities, as well as allowing criminals who commit inhumane practices such as human trafficking and modern slavery to profit from their crimes.
It is estimated that more than £90 billion worth of dirty cash could be running through our financial system each year and as key players on the frontline of the fight against financial crime, legal professionals, particularly those operating in the SME sector, have a critical role to play.
Pull out box
The Home Office, in partnership with the National Crime Agency, and through the successful Flag It Up campaign, is highlighting the risks of money laundering amongst accounting and legal professionals. The campaign wants everyone within these sectors to be crystal clear on the following red flags:
Transactions – Are there discrepancies in client transactions? Is the client involved in transactions which do not correspond to their normal professional or business activities? Are the transactions unusual because of their size, nature, frequency, or manner of execution?
Donald started his career in law enforcement in 1990 joining the then HM Customs & Excise and has worked in criminal investigation, enforcement policy and operational management for more than 20 years. He was HMRC’s Criminal Investigation Director from 2011.
The Serious Fraud Office has had a good year, or so its advocates would suggest. In 2017, two deferred prosecution agreements made by the SFO with Rolls-Royce (£479.25m) and Tesco (£129m) delivered more than £600m in fines for the UK Treasury. The fact that no-one has yet gone to prison for the crimes committed by these companies, who both admitted their guilt, seems to have passed with little comment.
But the wealth of media coverage created by these two prominent prosecutions of high profile companies presents an entirely false picture of the UK’s wider battle against fraud. The simple truth is that there is more fraud and there are fewer convictions than in 2011, the year before David Green took over as SFO director. Data illustrating the full extent of the problem emerged over the summer as a result of much good work by the law firm, Pinsent Masons (Pinsents), which has done a public service in making the details available.
So what is the scale of fraud in Britain today? As a result of a Freedom of Information (FOI) request made by Pinsents, the Ministry of Justice (MoJ) provided figures which showed a fall in 2016 in the number of white-collar crimes prosecuted in England and Wales. In the same year, there was a sharp spike in the number of white-collar crimes reported.
The MoJ data for 2016 showed that there were 8,304 prosecutions brought, down from 9,489 in the previous year – a decline of 12.5%. These prosecutions comprise offences including: bribery, corruption, fraud, computer fraud, false accounting and insider dealing. This decline is not a one-off, but part of a sustained trend with a decline every year since 2011 when the figure was 11,200. That means an overall decline of 26% in prosecutions over five years.
On the other side of the coin, there has been an even more shocking increase in the number of crimes reported to the police relating to fraud. The figures for 2016 show that there were 641,539 reports - up from 617,112 in 2015 and a massive jump from the 2011 figure of just 142,911 in 2011. An extraordinary jump of 350% in five years. This is in line with comparable figures for 2016 produced by the Crime Survey of England and Wales.
According to a recent National Audit Office report, fraud cost private sector businesses an estimated £144 billion last year and individuals £10bn. Combined, these figures put the £600m fines levied on Tesco and Rolls-Royce into perspective since they are more than 250 times that sum. They also raise doubts over the true efficacy of the SFO to investigate and prosecute white collar criminals.
While it is fair to say that the SFO only investigates serious fraud, bribery and corruption, it would also be fair to assume that this has increased along broadly the same trajectory as more general fraud. We do not know the detail because government data does not breakdown reported or prosecuted fraud figures by value.
One thing we do know for certain, and upon which all commentators are agreed - uncertainty over the SFO needs to end. The constant speculation about its fate has a long and turbulent history: the SFO’s future has been in doubt as far back as 2011, when Theresa May (then Home Secretary) first mooted its abolition. Under her watch as Prime Minister, disbanding the SFO was firmly promised in the 2017 Conservative Election manifesto.
But since the election, there has been no government statement about the agency, simply an uneasy stalemate with May on one side and the SFO’s cheerleaders on the other. As someone who prominently supports the SFO in his newspaper, the former Chancellor and now London Evening Standard editor George Osborne has reportedly said that he will not rest until Theresa May is “is chopped up in bags in my freezer”.
None of which does anything at all to serve the interests of justice. Fraudsters, especially serious ones, must be rubbing their hands with glee since most of them, according to government statistics stand very little chance of either being detected or prosecuted for their crimes. Plotted on a graph, a year-on-year pattern of dramatically increasing fraud figures and ever-dwindling prosecutions would point to only one conclusion: as a country, we do not take fraud anywhere seriously enough.
Dominic Carman is a freelance journalist, author and ghostwriter. He regularly contributes to national and legal publications, as well as executing bespoke projects for international law firms and investment banks.
Criminals are working to out-do authorities on all levels, and one of the most common types of crime is fraud. This is because most of the time it happens right under your nose and before you know it, it's too late. Here Azizur Rahman, Senior Partner at corporate fraud solicitors Rahman Ravelli, talks to Lawyer Monthly about how businesses can prevent fraud and protect themselves from all angles.
In the digital age, the immense scale of multi-layered global trade chains - and the many legitimate trading processes and structures these allow - provide a number of ways for trade-based money laundering (TBML) to be carried out by criminals.
With Organised crimes costing the UK at least £24bn a year, according to the Home Office, it’s a worry that corporates need to heed.
TBML covers the wide range of intricate and complicated schemes used by criminals to disguise the origins of their money and integrate it into the legitimate economy.
“Transnational crime is worth up to £1.5 trillion a year, with the value of global TBML being estimated at hundreds of billions,” according to Romila Chowdhury, Global Strategic Intelligence Lead, Barclays Financial Intelligence Unit.
TBML is now a major concern for governments globally.
The UK recently hosted the first annual anti-corruption summit. World leaders, law enforcement agencies and businesses gathered to discuss ways to find new and more effective ways to tackle the challenges.
Azizur Rahman, Senior Partner at corporate fraud solicitors Rahman Ravelli commented: “Economic crime is ever-evolving as new technologies bring new opportunities and create a complex web for criminals to hide behind. At the same time, the regulatory landscape is also changing; bringing with it numerous challenges that can potentially make things even more complicated for businesses that want to protect themselves from such activity.”
How trade-based money laundering can affect your business
A global economic crime survey by PwC looked into the effect of TBML on businesses and organisations and noted that “the onus is now squarely on the shoulders of the business community to protect itself, and its stakeholders, from economic crime”.
In the financial services sector alone it found that:
- 1 in 5 had experienced enforcement actions by regulators
- Over 25% were yet to conduct risk assessments across their entire global footprint
- 33% cited issues with data quality that led to only 50% of TBML incidents triggering security alerts
“But,” says Imran Farooqi, Partner at PwC, “it’s not just financial services institutions. Any organisation that facilitates financial transactions – including non-bank money service businesses such as digital/mobile payment services, life insurers and retailers, to name a few – is also coming within the scope of anti-money laundering legislation worldwide.”
Using technology to protect your business
At the top end of the scale, anti-money laundering programmes offer businesses a suite of services and technology that allow you to apply strict customer identification verification and implement automated transaction-monitoring policies and procedures. These digital detectives search for ‘eDNA’ behind transactions and highlight any suspicious signs of criminal fingerprints that are found.
At a simpler level, there are more manual ways to use technology that allow businesses to check for signs of TBML.
These include:
TBML: the price of inactivity is just too high to ignore
A passive approach to detecting and preventing economic crime is not enough. The costs are just too high.
Julian Dixon, CEO of anti-money laundering specialist Fortytwo Data, says: “The tentacles of anti-money laundering regulations are reaching deeper into more industries than ever before. Estate agents and casinos are two sectors facing more stringent requirements, thanks to the latest EU money laundering directives. The importance of these checks on your clients should not to be understated and suspicious activity identified in one company can lead to the dismantling of entire criminal networks.”
Legislative and regulatory changes have made it abundantly clear that the responsibility for preventing, protecting and responding to economic crime rests firmly with businesses and organisations.
Put simply, trade-based money laundering can cost you your reputation, your finances and so much more.
SFO specialist journalist Dominic Carman here discusses with Lawyer Monthly the SFO's announcement of its annual report at the Cambridge Symposium on Economic Crime. Dominic argues that income generated should not be what we base the SFO's success on, rather we should be pushing the SFO to achieve convictions that result in serious fraudsters going to prison.
David Green, Director of the Serious Fraud Office recently gave his final annual report to the Cambridge Symposium on Economic Crime, of which he also Director. When reviewing the work done by the SFO over the last year, he said that the agency ‘polices a discrete part of the waterfront’ investigating and prosecuting serious and complex fraud, bribery and corruption. ‘We are part of the pursue strand, and contribute to prevention through deterrence,’ he added.
In 2016/17, the SFO’s caseload included: Libor, Rolls-Royce, Tesco, Barclays, GSK, Airbus, BAT, Unaoil, and Petrofac, among others. Big names which have resulted in big investigations, and for some, prosecutions. When determining what and whom to investigate, he defined his ‘take-on criteria’ to be where ‘the apparent criminality undermines UK Plc’s commercial or financial interests in general, or the City of London in particular.’ He cited the complexity of Rolls-Royce, which involved 30 million documents, as an example.
Turning to the highlights of the year, Green said that the most significant were the Deferred Prosecution Agreements (DPAs), in particular that with Rolls-Royce. DPAs allow a prosecution to be suspended for a defined period, provided the organisation meets certain specified conditions. They can be used for fraud, bribery and other economic crime, but apply only to organisations, and never individuals.
Last year, DPAs agreed by the SFO totalled £640 million in financial penalties and costs, of which Rolls-Royce comprised the lion’s share: more than £510m (a £497.25m fine plus costs). That was after the company received ‘a 50% discount’ from the SFO according to Green - equivalent to a year’s profit - for fully complying and acknowledging that it had been involved in sustained bribery covering seven jurisdictions over thirty years.
‘DPAs have been a real success,’ suggested Green in his speech ‘enabling cooperative companies to account for conduct to a court in a transparent way without sustaining a criminal conviction, or the collateral damage (including disbarment), that may well follow. The company is able to draw a line under the past and radically to overhaul compliance and removing the board on whose watch the conduct took place.’
Green then asked the following: ‘What sort of value for money does the SFO provide to the British taxpayer?’ Responding to his own question, he said: ‘Over the period April 2014 to date, the SFO has cost the taxpayer £216m. Over the same period, we have generated £676m in DPA receipts and costs. That is a net contribution of £460m to the Treasury over four years, equivalent to approximately £1m per member of SFO staff.’
So, thanks entirely to Rolls-Royce, each member of SFO staff has made an average net contribution of £1m to the Treasury. But is that really the right criterion by which to judge a fraud agency? If its mandate is to investigate, prosecute and, hopefully, convict criminals - albeit they are typically criminals with money, status and reputation - should there be congratulations when heavy fines are paid, but the individuals responsible for that criminality pay no price, least of all with their liberty.
Apart from fraud, for what other serious crime might a criminal escape conviction, and likely incarceration, by paying a fine instead. Excepting terrorism, serious crimes of violence, or those of a sexual nature, what of the jewel thief, the cat burglar, or the (unarmed) bank robber? The man who steals a famous painting, an expensive car, or valuable silver. If they walked free from court, save for a hefty fine, would anyone be celebrating?
Would Dame Cressida Dick, Commissioner of the Metropolitan Police, ever call a press conference to announce: ‘What sort of value for money does the Met provide to the British taxpayer? We arrested X thousand serious thieves and burglars last year. And although none of them have been convicted or gone to prison, because of the fines they’ve paid, we have managed to contribute to the Treasury £Xm - the equivalent of £1m for every police man and woman in London. Which is very good value.’
Of course, serious fraud has its own distinct challenges: evidence is often weighty and complex; cases usually take considerable time and resources to bring; convictions can be difficult to achieve. But the men and women who perpetrate it are ordinary criminals, just like the thief, burglar or robber. They are not extraordinary because their crime is fraud, even if the opportunity to commit serious fraud is usually confined to those with some degree of affluence and power.
Members of the public might therefore be unconvinced that justice for their crimes is best served by substantial fines, paid for by their company, as they get off scot-free. On the contrary, they may see large organisations with very deep pockets, like Rolls-Royce, buying their way out of trouble, walking away from court with a great big financial slap on the wrists, while no past or present Rolls-Royce employee or director goes to prison for offences running into tens or possibly hundreds of millions of pounds. And yet many people must have been knowingly involved at Rolls-Royce in a sustained pattern of bribery in seven countries over 30 years, including senior employees who sanctioned those payments.
The SFO’s magnanimity does not arise because we are reluctant as a country to lock people up. Quite the opposite. Our prison population has increased by more than 50% in less than a generation to nearly 86,000. Of those sentenced last year, more than 70% had committed a non-violent crime, thousands of them for repeated thefts or burglaries where the amount stolen was worth less than £10,000. Without money, status or reputation, these criminals may be seen as the unlucky many.
Rather than celebrating its status as £1m-a-head revenue generators, the SFO should perhaps be actively piercing the corporate veil in serious fraud to get to the men and women responsible for committing serious crime involving millions of pounds. Agreeing an enormous penalty (including a 50% discount) with a big company, and allowing guilty people to walk free, should not really cause too much self-congratulation.
In achieving value for money, Green’s prevention through deterrence strategy - pour encourager les autres - can only be seen as a real success if there are many more convictions of serious fraudsters that result in them going to prison. It should not be measured by large fines levied on their employers. To many, these represent no more than A Get Out of Jail Free card for the lucky few.
A new study examining the security practices of law firms has found that only one organisation out of the top 100 UK firms, Walker Morris, has sufficient measures in place to fully protect against email fraud. With the threat of phishing attacks increasing by 65% in 2016, this revelation serves as a stark warning to law firms in the possession of the strictest of confidential consumer information.
The research, undertaken by cloud data intelligence company OnDMARC, comes in the wake of recent reports that UK law firms saw an unprecedented 45 cases of cyber theft in the first quarter of 2017. With law firms under a duty to replace any lost client monies, OnDMARC warns that the financial burden of future email fraud attacks could be crippling.
“With over 10,000 law firms operating in the UK, handling sensitive and hugely confidential commercial and private data, there is a real opportunity for scammers to target the legal sector,” said Dr. Rois Ni Thuama, head of cybersecurity governance partnerships and legal, OnDMARC. “Many law firms either don’t understand the risk or assume that their existing email systems will do the job of protecting them, even though our study very quickly demonstrated that it’s all too easy for a criminal to exploit these firms’ email domains in order to impersonate the company and send out fraudulent messages to external clients and stakeholders.”
The research shows firms questioned by OnDMARC incorrectly assumed that their existing IT security solutions would cover their organisation against sender fraud. According to OnDMARC, this is because these solutions don’t provide compliance with DMARC (domain-based message authentication, reporting and conformance), a recently ratified email protocol that has been approved and endorsed by the National Cyber Security Centre, part of GCHQ, as the only sure-fire way of stamping out email spoofing.
The Solicitors Regulation Authority’s annual Risk Outlook report provides the sector with the latest advice on tackling information security breaches. Technology solutions such as DMARC should be included to enable law firms to fully protect client data and monies.
“We’re usually quick to blame human users as the most insecure element of the cyber security chain, but in the case of email spoofing, it’s the basic email systems that are being duped, which is a big reason why legal firms have experienced losses, mainly via phishing, of over £3 million in just three months,” continued Ni Thuama. “Implementing DMARC will enable the 99% of firms currently susceptible to email impersonation to combat this type of email fraud and thus help to prevent them from suffering reputational or financial damage with their client base further down the line. Legal firms such as Walker Morris should be applauded for implementing the necessary measures to thwart the risks of data theft.”
Besides public sector bodies such as HMRC or the NHS, the threat of data theft from law firms would represent the greatest break of client trust. May 2018’s GDPR is set to transform data protection, and organisations of any sector should be encouraged to correctly configure their domains to prevent email impersonation, thus minimising security breaches.
(Source: OnDMARC)
