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Expert journalist Dominic Carman here provides Lawyer Monthly with an overview of the “false picture” he claims is being portrayed in regard to the country’s battle against serious fraud, shedding light on the true scale of the UK’s fraud problem, and touches on the increasing and ongoing uncertainty surrounding the SFO’s future.
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.
Online gaming, online gambling and eSports are increasingly present across the UK, as well as across the rest of the world. This this creates ample space for illicit activity, betting and cheating. So what are the rules in today’s modern day? Andrew Tait, Partner at Gordon Dadds, has some answers.
What is eSports and Skill Based Gaming?
eSports is competitive video gaming between 2 or more persons, a fast growing phenomenon mainly in the Millennium Generation. Whilst the percentage of eSports players compared to traditional gambling is relatively small, it may well increase in the future as our younger generation are rapidly turning to eSports as a preferred form of entertainment.
Operators breaking into this new market are already looking at ways to commercialise it by adopting very different strategies which will largely depend on whether the activity is considered unregulated gaming or regulated gambling as can be seen below.
eSports may in fact fall within the larger Skills Based Gaming category, which covers a myriad of skill games such as: chess; crosswords; quizzes; spot the ball; skilled slot machines and many other new innovative products. These all share the common feature that the extent of skill over chance is key in establishing how they will be treated from a regulatory aspect, having major knock-on ramifications for both consumers and operators.
The UK vs Other Jurisdictions
A game of chance to win a prize in the UK is subject to regulation (and with it compliance, fees and taxes) under the 2005 Gambling Act, where this definition includes skilled games with a small element of chance unless so insignificant as to not matter. Similarly a competition to win a prize requiring an entry fee to participate will also be subject to regulation unless the skill requirement is so high as to prevent a significant proportion of persons from winning a prize or deterring them from participating in the first place.
This is very different from the approach used in many other jurisdictions, such as the USA which relies on a predominance test, where a dominant element of skill over chance takes it outside the definition of gambling and all the regulatory consequences of that (including prohibition if there’s no regulation)
eSports involving games such as Call of Duty or Counter-Strike are highly skilful games, something even acknowledged by the Gambling Commission in its position paper on this topic. However games which introduce randomly generated elements, (through use of a random number generator) may lead to the game having more than an insignificant level of chance.
eSports which mange to pass this skills hurdle may still be subject to regulation if there is facilitation for participants or the audience to bet on the outcome.
Therefore the UK has a strict approach, when compared with other gambling jurisdictions such as the Isle of Man and Malta, which are both moving towards a tiered regulatory approach with regards to games of chance, skill games and hybrids of both.
What it means for UK Consumers
eSports and skilled games which fall outside the regulatory framework, will by doing so rob players of the consumer based protections mandated in the regulations such as: game integrity to prevent cheating, controls against compulsive playing (‘problem gambling’) and protection of minors.
Normally operators coming under the regulatory umbrella would be subject to technical and operating standards that would ensure these protections are built into the gambling products and services. Without these, players are dependent on providers adhering to responsible levels of behaviour. To be fair many of the providers in this space have voluntarily joined associations such as eSports Integrity Coalition (ESIC) to maintain standards. Three months ago ESIC handed out a two year ban to a player caught cheating in a Counter-Strike tournament.
Unregulated eSports is becoming more commercialised with the prevalence of purchased in-game items (’Skins’). This creates a particular issue for children who may inadvertently gone on a buying spree of ‘skins’, especially as many games are specifically targeted at them. The lack of protection in this area is particularly worrying, especially to the many parents who get a nasty shock when they look at their credit card bills.
There is however a growing base of professional eSports players who not only earn prize money but also sponsorship fees. Also now that it is an official Olympics event, we will no doubt see this increase in the lead up to the Tokyo Games in 2020.
What it means for the Operators
eSports and skilled game operators generally depend on player liquidity across multiple jurisdictions. The patchwork of international regulation or its absence therefore makes the design of a viable product which for instance, fits in with the US’s predominance test and the UK’s virtual exclusion of chance, problematic to say the least. This will inevitably lead to silos of players and eSports products tuned to compatible jurisdictions.
EU based operators also need to be wary of the VAT that may be chargeable under eService provisions on revenues generated from the games on a point of consumption basis. Regulated gambling operators on the other hand are exempt from this in most EU jurisdictions (including the UK).
Another downside of maintaining their unregulated status is the need to ensure that facilities for gambling are not provided or facilitated. Operators who have tried to commercialise their offering by enabling access to other sites which allow betting on the outcome of the games with Skins or other forms of virtual currency, face the real danger of enforcement action, as occurred in the FutGalaxy case.
However some eSports providers such as Unikrn have gone down the regulatory route, teaming up with traditional sports betting operators to bring greater commercial value.
Gaming & Gambling Convergence: The Future?
Currently only about 8.5% of UK adults bet on eSports but given the US market where eSports, skilled games and fantasy sports are some of the few online gaming sectors where it is possible to participate across a growing number of States, we will no doubt see more convergence between gaming and gambling. Furthermore with the explosion in new block chain technologies and a multitude of crypto currencies, we are already starting on new era of gambling.
Here Richard Grint, financial services expert at PA Consulting Group warns firms to start acting now to implement a framework that will monitor and mitigate risks of the new tax evasion fines to be implemented by HMRC this month.
Firms need to start acting now to implement a framework that will monitor and mitigate risks. The new legislation introduces an entirely new offence whereby corporations can be held responsible if any employee or agent acting on their behalf facilitates tax evasion in any way – and it has a global scope. This represents a steep change from the range of previous tax evasion offences and is a significant additional burden for firms.
Recent surveys by industry bodies suggested that less than 40% of financial services (FS) institutions have considered (let alone acted upon) the regulations – which could have significant fines attached. There is also no ‘grace’ period – HMRC will be enforcing this from the 1st October and are traditionally less open to dialogue than ‘true’ regulators.
Firms are obliged to have a framework in place to monitor and mitigate the risks – the government guidelines recommend that firms broadly use their Financial Crime frameworks as a starting point, and there are considerable synergies.
The risk is notably bigger for insurers and those FS firms that have a lot of intermediated business (IFAs, brokers etc.), as they are more likely to have agents operating on their behalf in a position to help facilitate tax evasion by customers. Managing the risk created by these intermediaries will be a substantial change from what has happened before.
Tax evasion has been a low priority for companies, but this needs to change and fast. The nature of this sort of change (i.e. boring, complex, no benefit at all to customer-facing businesses) means that:
This needs to change. If companies do not reorganise their priorities and enforce these regulations, then they will be facing significant fines.
Regularly writing on news surrounding the Serious Fraud Office, here Dominic Carman analyses the success of David Green QC's tenure at the SFO, pointing towards Green’s key moves, role and the poisoned chalice that is the job of being SFO Director.
In one of his more astute observations, Enoch Powell suggested that all political careers end in failure. Of course, the same can equally be said of other careers, not least that of the Director of the Serious Fraud Office. For the present incumbent, the clock is ticking.
Next April, David Green QC will pack up his bags, make his way out across Trafalgar Square, and stroll down Whitehall in his black quilted Barbour jacket. To paraphrase Margaret Thatcher, the seventh SFO Director will be leaving Cockspur Street for the last time after six eventful years – at 64, possibly on his way to do other things, and perhaps with a knighthood to follow for his many years of selfless public service, including spells at the HMRC and CPS.
Green has made the role his own, putting a distinct stamp on the office of Director. I once interviewed George Staple, the third SFO Director (1992-97). Tight-lipped, old school, and patrician, this unworldly former Clifford Chance partner seemed distinctly unsuited to prosecuting fraudsters in Savile Row suits. By contrast, in meeting Green in 2015, it was obvious that he knew his way round a criminal courtroom and the personalities you encounter there. Strikingly different from Staple, Green was garrulous, and behind his genial grin, quietly aggressive.
Before Brexit subsumed everything, the impetus for greater regulation and more effective criminal prosecution of serious fraud had been high on the political agenda. This came in the aftermath of the Lehmans debacle and the ensuing financial crisis: more fraud is usually uncovered during a recession which might not come to light in better times.
Despite media attention straying elsewhere, Green has done his best to ensure that the SFO has never been far from the headlines throughout his tenure. But it has been a double-edged sword.
Green took office with three immediate objectives clearly in his sights: burying the mismanaged investigation into the Tchengzuiz brothers, getting Deferred Prosecution Agreements in place as part of the SFO’s armoury, and prosecuting the fixing of Libor rates by the banks before and during the financial crisis.
Resolving the Tchenguiz affair, which he had inherited from his predecessor Richard Alderman QC, took more than two years. Eventually, the SFO agreed to pay Robert Tchenguiz £1.5m in damages and unspecified legal costs, in a settlement that brought closure to its torrid investigation into the collapse of Icelandic banks. Robert’s brother, Vincent, was earlier awarded £3m in damages and £3m in legal costs by the SFO.
It was not the agency’s finest hour.
Next on Green’s list was Deferred Prosecution Agreements, or DPAs, which became part of English law in February 2014. As agreements reached between the SFO and an organisation which could be prosecuted, under the supervision of a judge, DPAs allow a prosecution to be suspended for a defined period provided the organisation meets certain specified conditions. Applying to organisations rather than individuals, DPAs can be used for fraud, bribery and other economic crime.
The justification for DPAs is to incentivise companies to co-operate fully with the SFO and to save public funds. They are certainly cost effective for very big companies as a way of buying themselves out of trouble since the most notable element is a large fine. To date, there have been four DPAs. By far the largest was Rolls-Royce which paid an eye-watering £497.3m in January 2017 after admitting sustained bribery and corruption in multiple jurisdictions. Three months later, Tesco also agreed a DPA, involving a fine of £129m for overstating profits by £263m in its annual accounts.
Although the UK Treasury has benefited to the tune of more than £600m from these two DPAs, no-one has gone to prison, or yet faced trial. Understandably, DPAs polarise opinion. Green has trumpeted their success, although others are distinctly less keen to celebrate. Instead, their argument runs: yes, big companies plead guilty and pay a hefty fine for their past misdeeds, but even fines on the scale of those levied on Rolls-Royce and Tesco are affordable to multinationals with vast resources. Meanwhile, no-one goes to prison for fraud offences running into tens, or possibly hundreds of millions of pounds.
Then there was Libor. In his final months of office, Alderman had looked at the issue of rate fixing by the banks and decided not to prosecute. By then, he was in no mood for a fresh SFO challenge, having had a pretty unsuccessful stint in his four years as Director. But Green was. Revoking Alderman’s decision almost as soon as he walked through the door, a range of investigations were launched into the banks. It was the issue by which the SFO’s success should be judged, Green told journalists, unwisely.
The results did not match the rhetoric. So far, 19 traders have been charged in respect of Libor and Euribor manipulation with four trials delivering very mixed results: one defendant pleaded guilty, four were convicted and eight were acquitted. The remaining six defendants will be tried in April 2018.
But of the four convictions, at least two are subject to appeal following fresh evidence when when the lead SFO expert witness admitted under cross-examination that he had been texting questions on technical points from the courtroom. And for all of Green’s bravado, not one senior banker has yet to see the inside of a courtroom as result of Libor manipulation. If we are to judge him on that, as requested, then the SFO has not succeeded.
Green will be well aware that Alderman’s reputation as SFO Director was severely damaged by Tchenguiz and by a slew of other mishaps. After stepping down, Alderman gave evidence to a Parliamentary Committee in 2013, which the Telegraph reported: ‘In a grilling before the Public Accounts Committee, former Serious Fraud Office head Richard Alderman was attacked for his “shocking” stewardship of the organisation and forced to admit he had not obtained written approval for the severance packages to three colleagues.’
Alderman’s predecessor Robert Wardle (2002-8) was similarly sunk by BAE Systems. Labelled ‘the Fall Guy’ by the Guardian, Wardle was further described as ‘a man who will go down in history for caving in to political pressure to drop the investigation of the arms giant BAE over alleged bribes to Saudi Arabia.’ In a final sideswipe, the newspaper added: ‘The departing SFO chief, who steps down today, has been made to look like the primary victim of last Thursday's crushing legal judgment in the BAE case. Lord Justice Moses said in almost so many words that Wardle had allowed the course of justice to be perverted.’
As the search for Green’s successor gathers pace, the current SFO Director must be starting to wonder about his legacy. There are forthcoming trials which may yet determine this, not least the four senior defendants in the Barclays-Qatar prosecution, the three former Tesco senior executives and the remaining six Libor defendants.
During his tenure, Green will have been painfully aware of Theresa May’s relentless desire - first as Home Secretary and now as Prime Minister - to shut down the SFO and roll it into the National Crime Agency. As part of the Conservatives doomed election manifesto, that policy appears to have been scrapped.
Like Wardle and Alderman before him, Green must now recognise that the role of SFO Director is something of a poisoned chalice. Avoiding the unmitigated disasters that befell his two predecessors, his actions have nevertheless further exposed the incapacity and ineptitude that have too often characterised the SFO in the public consciousness.
Below Maia Cohen-Lask, Associate at Corker Binning, explains the three stages that lead up to a cash forfeiture order, including how cash is seized, prior to discussing the details of the case. Maia also discusses the extent to which cash forfeiture is being expanded by the Criminal Finances Act 2017.
The various asset recovery powers contained in the Proceeds of Crime Act 2002 (POCA) are routinely criticised for being draconian and unfair to those who fall subject to them. Cash forfeiture is one element of this regime, and the recent decision of Campbell v Bromley Magistrates’ Court and Commissioner of Police of the Metropolis [2017] EWCA Civ 1161 was a timely reminder of the lack of protections afforded to those facing the forfeiture of cash believed to be the proceeds of crime.
To understand the significance of the Campbell case, it is necessary to understand the three stages of the process which lead up to a cash forfeiture order:
The Campbell case related to a challenge by the appellant to the initial detention of the cash. He sought to argue that if the initial detention was unlawful, then this should be a preliminary issue to be resolved, before forfeiture was determined i.e. that lawful detention was in effect a “gateway for forfeiture”. The magistrates’ court refused to hear it as a preliminary issue, and judicial review was applied for and refused. The Court of Appeal dismissed the appellant’s appeal.
The significance of this decision, therefore, is that the Court has effectively determined that it does not matter whether or not the initial detention (and by logical extension, seizure) of the cash was lawful or not for forfeiture to take place.
At first blush, this does not appear to be a controversial decision. For cash to be forfeited, the police must be able to prove to the civil standard that it is recoverable property or intended for use in crime. So this decision will not mean that people are deprived of “innocent” cash resulting from unlawful seizures. An unlawful arrest does not mean that a person cannot be prosecuted if there is still evidence which would justify a charge. To preclude a justified forfeiture on the basis of an unlawful seizure might appear to be throwing the baby out with the bathwater.
However, on closer inspection, the ramifications of this decision give cause for concern. Unlike the analogy with arrest and prosecution, seizure and detention are necessary prerequisites to a forfeiture application. Parliament has not given police the power to seize cash on a whim, but has provided a statutory framework within which it must take place. If cash can be forfeited even after an unlawful seizure, does this not circumvent the statutory requirement for reasonable grounds for suspicion? Individuals who have been subject to an unlawful seizure or detention do have the power to judicially review, which could, if successful, result in a return of the cash. However, if an application for forfeiture is concluded before judicial review proceedings, then this will provide no effective remedy.
In conclusion, the Campbell case is demonstrative of how easy it is for the investigative agencies to deprive individuals of assets. With the ambit of cash forfeiture being expanded by the Criminal Finances Act 2017 into moneys held in banks and building society accounts, issues of this nature may begin to trouble the courts with increased frequency. For now, the practical impact of the case is that it will be imperative that anyone wishing to challenge the initial seizure or detention of cash to do so by way of judicial review immediately, in order to ensure that this is litigated prior to a forfeiture application being made.
The new bill, which is being dubbed ‘The Freedom from Equifax Exploitation (FREE) Act’, aims to protect consumers during a data breach that may result in their data being compromised. The bill suggests amending the ‘Fair Credit Reporting Act to enhance fraud alert procedures and provide free access to credit freezes, and for other purposes’.
Warren has also pushed for further investigation into the company’s actions and has sent letters to Equifax, TransUnion and Experian to the Federal Trade Commission (FTC) and Consumer Financial Protection Bureau (CFPB), asking for information related directly to the leak and the ways in which it was handled. She has also written to the Government Accountability Office to request a thorough investigation into consumer data security. Warren stated she was, “troubled by this attack - described as 'one of the largest risks to personally sensitive information in recent years', and by the fact that it represents the third recent instance of a data breach of Equifax or its subsidiaries that has endangered American's personal information”.
The bill is another blow to Equifax who are still reeling from one of the largest data breaches in US history, resulting in 143 million people being left with un-protected data and are already under investigation by the Federal Trade Commission following pressure from Senate Democratic leader Chuck Schumer last week.
“It’s one of the most egregious examples of corporate malfeasances since Enron,” Schumer said, adding that the data breach and the treatment of Equifax customers was “disgusting”.
Equifax shares have plummeted since the data breach was announced, falling a further 2.4% last Thursday bringing the overall drop to 32%. Now it seems they may have to contend with a full-blown investigation from an agency they have tangled with in the past. In 2012 the company settled with the FTC regarding allegations that it had improperly sold consumers data who were behind on mortgage payments.
In a rare move, the FTC spokesman Peter Kaplan released an e-mail statement confirming the ongoing investigation, stating: “In light of the intense public interest and the potential impact of this matter, I can confirm that FTC staff is investigating the Equifax data breach”.
With both Senators backing these investigations and Schumer publicly stating that if Equifax do not take steps to increase protection for customers, the CEO and board may have no option but to resign. All in all, the company faces a turbulent time ahead.
Study of bank fraud victims reveals that one in nine felt like their provider treated them like the criminal, not the victim.
Following RBS chief executive, Ross McEwan’s blaming of 'careless' fraud victims for devastating losses of money, Aspect Software responds with further findings that banks are needlessly blaming victims for fraud across the industry, rather than employing technology that can help.
Research by Censuswide, commissioned by Aspect, revealed that one in nine people who were a victim of banking fraud, felt like their provider treated them like the criminal, not the victim. 12% were not believed, and 12% felt the bank was not doing all it could to put their mind at rest. The research also found that over a quarter of bank customers also have to go out of their way to report fraud to their providers even though the technology is there to solve this issue. Shockingly, the most common way that customers were first alerted to any fraud on their account, building society or credit card account(s) was that they personally saw a suspicious transaction/activity via online banking.
The CEO of RBS continues to warn that victims of bank fraud should not expect automatic refunds stating that people “can't keep blaming this on an organisation where customers don't take their own duty of care as well. When people are passing their iPads or laptops over with their passwords and the like, there's got to be a care here, otherwise this will just become a major issue for all and the cost will pass through.”
But according to Aspect’s research, only 44 per cent of cases where monies were lost fraudulently were refunded by banks, taking on average 3.7 days to reach their accounts. Some 16 per cent claimed they were refunded “immediately”, with a further 28 per cent receiving a refund within 24 hours. 3 per cent say that it took longer than a week, and 2 per cent claim they never received reimbursement from their provider despite the fraud being through no fault of their own.
Keiron Dalton, Global Program Senior Director, Aspect Software, commented: “Pointing fingers, and victim blaming won’t solve the real issue at hand. More than a quarter of respondents had to report fraud or suspicious activity to their providers first. The use of mobiles for banking has made it possible to leverage publicly available mobile data to verify users with something as simple as a short, automated call, which can identify and flag suspicious activity such as SIM Swap and call divert. Security need not be taxing, but instead it can be imperceptible to the customer and offer multi-factor authentication at the same time thus avoiding fraudster’s access to accounts and avoiding any victim blaming,” he concluded.
Keiron concluded: “The BBA calculates that people log into mobile banking apps more than 11 million times a day in Britain alone. Consumers that choose to manage their money via a device expect flexible, speedy digital banking that’s so easy it has become second nature, so why are we still in the dark ages when it comes to fraud? If mobile can make money management easy, frictionless and convenient, why can’t it for security, verifying identity and identifying attacks before they can succeed?”
*Survey conducted by Censuswide and commissioned by Aspect Software UK. Sample of 500 respondents in the UK 16+ years old, who have experienced at least one incidence of banking fraud in the last 12 months. Research conducted in April 2017.
(Source: Aspect Software)
A generation of vulnerable people could be faced with problems managing their finances and assets if improvements to the process of setting up a Lasting Power of Attorney (LPA) is not improved, according to leading law firm Roythornes Solicitors. Elizabeth Young, head of private client at Roythornes, discusses for Lawyer Monthly below.
Denzil Lush, the hugely respected former Master of the Court of Protection, has vocalised his long-known views on the robustness of our system for regulating and supervising decisions made on behalf of those no longer or never able to make decisions for themselves.
After years of seeing first-hand how an LPA can be used to abuse the most vulnerable in our society, I do consider the views of Mr Lush a stark reminder of the importance in making the right decision of who should be appointed as an attorney and involving professionals to support people make these decisions wisely.
Highlighting the importance of choosing an attorney comes at a time when the Ministry of Justice is keen to simplify and digitalise the system for completing LPAs.
Mr Lush has described the promotion of using LPAs as a ‘crusade’ which ‘demonised’ the legal alternative - the appointment of deputies by the Court of Protection itself. There is indeed potentially more security as the deputys themselves must have insurance, whereas attorneys do not, and so if they do relieve their ward of funds, a deputy’s bond can be called in.
Deputys must produce accounts and submit these annually for scrutiny so problems and concerns that arise are far more likely to be spotted. Although, if proper safeguards are put in place, and the right people are appointed, then LPAs do work well for most people who prepare them.
When LPAs were introduced in 2007, applications required the involvement of a suitably qualified professional and that nominated people were notified upon completion of registration. However, both conditions have since been dropped, which has lost a certain level of safeguarding and protection.
Perhaps the Ministry of Justice (MOJ) might listen to Denzil and reintroduce previous safeguarding measures, or consider ways of how to improve the LPA process. Denzil’s comments could also instigate the introduction of insurance and accounting requirements for attorneys, and a more stringent creation process.
Even if this is only at a professional level, it would be useful to improve best practice, and reverse the relaxation of the MOJ’s stance. We could also request for banks to notify when LPAs have first been actively used, with the Office of the Public Guardian looking at random samples of LPA attorneys for details of account activity.
We are all often reminded of our aging population and the full extent of the impact of dementia. For many years Roythornes, as a matter of course, has advised client families on the importance of making plans in case of potential health problems that could inhibit them making decisions for themselves, whether a short-term injury, such as a bump to the head, or a longer-term debilitating illness.
We hope Lush’s comments will not deter people from thinking carefully about what would happen if they sustained a health problem that would affect their decision-making capability, and they understand the importance of future-proofing themselves and their families against difficulties that could have an impact on their personal lives and businesses.
We take great care in helping our clients choose the right team of people to represent their interests, if the worst happens. The risk of abuse is hopefully averted through implementing a whole string of safeguards that we work with clients to put in place.
Below, Dominic Carman, noted legal commentator, discusses with Lawyer Monthly the shadowed attention given to the lawyers behind some of the biggest SFO investigations of our time, uncovering the real gainers of large fraud.
The phrase cui bono, originally made famous by Cicero, remains a key forensic question in many legal and police investigations. Its literal meaning – for whose benefit – carries a wider interpretation in modern usage: determining who has a motive for a crime that has been committed. In short, the question whodunnit routinely depends on: who had the motive to do it.
Although the Serious Fraud Office does not resonate with cries of ‘cui bono’, the question remains at the heart of its investigations into serious fraud, bribery and corruption by companies, their officers and employees.
In pursuit of alleged fraudsters, the SFO has a full-time equivalent of around 400 permanent staff. These include investigators, lawyers, forensic accountants, analysts, digital forensics experts and a variety of other people in specialist and support roles. In taking on very big cases, the SFO routinely expands its capacity with temporary and fixed term staff. For the Libor investigations, this peaked at an extra 80 staff, for example.
The SFO received £35.7m in core funding last year, topped up by £17.9m in blockbuster funding from the Treasury for additional expenditure in large scale investigations. Although core funding was up slightly from £33.8m in 2015-16, blockbuster funding was down from £28m, largely because the Libor investigations began to tail off. The net effect is that total funding fell from £61m to £53.63m between 2015-16 and 2016-17.
Simultaneously, the SFO has been targeting some of Britain’s biggest companies. Which leads back to Cicero’s question: cui bono. One clear answer emerges: the lawyers. Boutique criminal firms in London have experienced a boom in SFO-related work over recent years. Predictably, this has been good news for the top-drawer players: BCL Burton Copeland, Corker Binning, Kingsley Napley, and Peters & Peters.
And then there are the criminal barristers who have also benefited. A healthy cluster of QCs and senior juniors have found themselves very busy advising on SFO investigations, prosecutions and representing clients at criminal trials. This is especially true at the top sets of chambers: 2 Bedford Row; Cloth Fair Chambers; 2 Hare Court; QEB Hollis Whiteman and 3 Raymond Buildings.
These names are entirely as expected. But far less predictable has been the use of big corporate law firms in this space: Clifford Chance and Ashurst, together with transatlantic firms like Eversheds Sutherland and Norton Rose Fulbright, US firms such as Winston & Strawn and WilmerHale and commercial dispute resolution specialists like Quinn Emanuel Urquhart & Sullivan.
In response to the SFO’s investigations into big UK corporates and banks, they have increasingly turned to their big corporate legal advisers in addition to the white collar boutiques. Herbert Smith Freehills and Willkie Farr & Gallagher are advising Barclays; Linklaters is advising Amec Foster Wheeler; Kirkland & Ellis is advising Rio Tinto. And so on.
When two deferred prosecution agreements (DPAs) were agreed by the SFO earlier this year, Freshfields Bruckhaus Deringer and Kingsley Napley advised Tesco while Slaughter and May and New York white shoe firm Debevoise & Plimpton advised Rolls-Royce. In response to its imminent investigation by the SFO, launched in July 2017, British American Tobacco first hired Linklaters to conduct a “full internal investigation” only to replace one magic circle firm for another by appointing Slaughter and May as its sole adviser on the case.
Since the start of 2012, the total legal spend by companies and wealthy individuals, either subject to or anticipating an SFO investigation, now approaches £1bn. As one of the fastest growing areas and increasingly lucrative areas of legal practice, it explains why some of the world’s most profitable firms - Kirkland and Ellis (annual profits per partner $4.1m), Quinn Emanuel ($5m), and Slaughter and May ($3.6m) - are now taking a slice of the available pie.
An unintended consequence of the SFO’s transparent strategy of going for the biggest corporate names, the rise of the biggest corporate law firms advising on aspects of criminal investigations provides them with another revenue stream. So does it work? The SFO would point to the success of this year’s DPAs: Tesco agreed to pay a fine of £129m while Rolls-Royce paid a total penalty of £497.3m.
However, the public is much less impressed by companies getting away with large fines while no individual is convicted and sent to jail. For all the high-profile investigations of Britain’s biggest companies, not one FTSE 100 company director or former director has yet been jailed for any fraudulent wrongdoing as a result of SFO inquiries.
The forthcoming trials of former senior executives of Tesco and Barclays are therefore eagerly anticipated. If no alleged perpetrators of fraud at major companies or banks end up being sent to prison, then the mere payment of large fines is a distinctly Pyrrhic victory in the long-term battle against fraud.
And the question will become even more urgent: cui bono?
Former Senior Judge at the Court of Protection, Denzil Lush, recently gave his opinion regarding Lasting Powers of Attorney (LPAs) and the potential for fraud in a radio interview for BBC Radio 4 and the BBC published the article here. Below experts at Humphries Kirk discuss.
Whilst reading this article may encourage fears that making an LPA will automatically lead to fraud and abuse, Former Senior Judge Lush’s comments must be taken in context. Following a career spanning 20 years at the Court of Protection, Former Senior Judge Lush will have seen the worst situations of financial abuse that can arise between families and this will shape his own view.
However, significant numbers of LPAs are created every year. Many will not cause issues and work in the way that they are intended to. Naturally success stories are not going to make the headlines in the same way and it is misleading to assume that making an LPA will lead to fraud.
Former Senior Judge Lush has advocated the Deputyship route over making an LPA. In terms of avoiding financial abuse his comments are correct. Those people subject to a Deputyship Order can be assured that their Deputies must fulfil reporting requirements from the Office of the Public Guardian (OPG), they are supervised in their activities and required to enter into a security bond in case the Donor’s assets are mismanaged.
There has so far not been any mention of the costs of obtaining a Deputyship Order, in our experience this can be between £1,200 and £1,500 + VAT of legal costs and a £400 court fee, or the fact that obtaining an order from the Court of Protection usually takes 6 – 9 months.
In our opinion, Former Senior Judge Lush’s comments should be interpreted to highlight the need for professional advice when considering an LPA. Solicitors have a role to play in ensuring that the public understands the nature and extent of the power that is granted and the pitfalls of not carefully considering the choice of Attorney(s) before completing the arrangement.
The OPG and Ministry of Justice have been keen to advertise the LPA as a simple document that anyone can prepare. This strategy, whilst having the positive effect of bringing LPAs into public consciousness, fails to identify the issues that need to be considered when making one and is only likely to lead to personal applications for basic LPAs which make no provision for differing situations and no advice has been taken on their merits. Such LPAs may later be found to have led to fraud and financial abuse.
Another serious flaw in the OPG’s message, is that in suggesting that anyone can make an LPA and it is easy to do so, vulnerable people may find themselves pressured to enter into an arrangement allowing financial access to difficult family members, carers or friends that do not have their best interests at heart.
A clear way to address this issue and the concerns that Former Senior Judge Lush clearly has voiced, would be to reiterate the role of the Certificate Provider (a person that signs the LPA to state that those making the document understand the nature of it) and to require that the Certificate Provider be a trusted professional, such as a solicitor or doctor, rather than a friend or neighbour.
All too often a Certificate Provider will be appointed who will not be aware of their responsibilities. This Certificate Provider will not necessarily be able to judge capacity or spot signs of undue influence.
There are undoubtedly issues with the current LPA system and the ‘dumbing down’ of its importance perpetuated by the Ministry of Justice and OPG. However, an LPA remains an essential tool in the armoury of protecting and safeguarding affairs of the elderly and vulnerable and Former Senior Judge Lush’s comments should be seen as a warning against the system, not against the concept of an LPA.
Our message is clear – obtain legal advice and speak to a professional and we can ensure that the LPA you make is right for you. Contact your local branch and speak to the Private Client department to find out more about the process of creating an LPA.
