Understand Your Rights. Solve Your Legal Problems
Here John Burgar, Head of Investigations at RGL Forensics, talks to Lawyer Monthly about the current work of the Serious Fraud Office (SFO) in the UK, and the current government agendas for confronting fraud crimes across the nation.
The Conservative Party’s election manifesto unveiled their plans, if successful on 8th June, to incorporate the Serious Fraud Office (SFO) into the National Crime Agency (NCA). The stated aim is to ‘strengthen Britain’s response to white collar crime’ and ‘bolster the investigation of serious fraud, money laundering and financial crime’. Other than citing an improvement in intelligence sharing, no additional perceived benefits are evident.
So is this a good idea? The Conservative Party thinks so. The Prime Minister has form of course: in 2011, when she was Home Secretary, she tried to dismantle the SFO, but was thwarted by her cabinet colleagues, most notably Ken Clarke, who was the then Justice Secretary – and reportedly tried to revive the plan in 2014. If she is re-elected to the top job this summer, with a manifesto commitment, the SFO as it stands will be history.
I will readily admit that the SFO is not perfect. It certainly has a public image problem with its fair share of well-publicised failures. It reached rock bottom in 2014, when its ill-starred pursuit of the Tchenguiz brothers resulted in an embarrassing failure followed by the need to pay £3m in compensation (plus a further £3m in costs) to make it go away. It was at this low point that the SFO seemed to deserve the ‘Serious Farce Office’ moniker by which Private Eye affectionately referred to it. To put the SFO out of its misery then would have looked like an act of kindness.
But of late, the SFO has been on a roll. It has been enjoying some notable successes and pulling in some serious fines; Rolls Royce (£500m) and Tesco (£129m). It finally seems to be getting into its stride and showing what it is capable of. To put it down now, when its star is in the ascendency, makes no sense.
The SFO undertakes some large and complex cases and they are getting more so, requiring skilled and well-trained investigators, sharp accountants and keen, intelligent lawyers. It also needs strong management who are independent of the government. Yet, because of the way the SFO is funded (a mixture of ‘core’ and ‘blockbuster’ funding), many SFO staff are temporary, brought in for a particular case and laid off when the case is over. This makes it very difficult to attract and retain the high calibre, committed staff required to work on these long, difficult cases.
I work in the private sector and have been investigating fraud for some 20 years, much of it overseas. I have seen first-hand how fraud and corruption can flourish unchecked in the absence of well-funded, properly trained and independent law enforcement to bring wrongdoers before the courts. You can have the best laws in the world but they are worthless without an effective means to enforce them. We are fortunate in the UK that we have good laws and an excellent legal system that is the envy of many countries. Our independent judiciary is respected internationally for their impartiality, skill and experience in dealing with complex cases. We should capitalise on this by ensuring that our flagship anti-fraud agency is equally well respected, both here and abroad.
Does anyone else think incorporating the SFO into the NCA is a good idea? Not many it would seem - since the manifesto was launched, there has been almost universal condemnation among the legal cognoscenti who think that the move would be a retrograde step. There is nothing in the manifesto about how the SFO or its successor department within the NCA will be managed or funded. In the absence of this essential detail, there is suspicion that this can only be a cost saving measure.
At present, the NCA’s focus appears to be on tackling paedophilia and organised crime, the eradication of which will always play better to voters than locking up a few businessmen suspected of having their fingers in the till. Therefore the role of the SFO will be diminished within the enlarged NCA and the ability to take on complex white collar crime could be damaged for years.
It will not be forever, though. Inevitably, at some point in the future, the government of the day will decide to reorganise the NCA and it will go the same way of its predecessors (SOCA, NCS and Regional Crime Squads). This will probably be triggered by a collapse in public confidence after a massive failure in a particularly newsworthy case and then someone will have a bright idea: ‘Let’s have a dedicated, well-resourced agency that specialises in combatting serious fraud. Now, what shall we call it?
A new report from the Center for Immigration Studies analyzes the fraudulent abuse of the "credible fear" process by aliens seeking to enter or remain in the United States, fraud made possible by weaknesses in the US asylum system, resource constraints, and evidentiary limitations. Already more susceptible to exploitation by terrorists than the refugee process because applicants are not screened before entering the United States, the credible fear process is particularly vulnerable to fraud, hindering the effectiveness of expedited removal and undermining the immigration enforcement system.
Expedited removal is intended to facilitate the removal of aliens who entered illegally or through fraud, and who are apprehended at entry or who have been in the United States for a limited period of time.
But according to the report's author, Andrew Arthur, a former Immigration Judge and the Center's Resident Fellow in Law and Policy: "Many have been instructed to claim 'credible fear' of returning to their home countries. With their oral testimony often offered as the only evidence to support their claims, and with few Asylum Officers, only 35 Fraud Detection and National Security officers assigned to asylum offices throughout the country, and a mere 316 Immigration Judges already overwhelmed by a backlog of 542,411 cases, it should be no surprise that the credible fear process is uniquely susceptible to fraud."
Among the findings:
(Source: Center for Immigration Studies)
In recent weeks, major supermarket chain Tesco found itself penalised after a two-year probe carried out by the Serious Fraud Office (SFO), resulting in an agreement to pay a fine of £129 million for overstating profits in 2014. The shock admission by the leading retailer revealed that it had identified an apparent £250 million overstatement of its profits.
The result of the SFO’s large-scale investigation led to subsequent financial and reputational damage, as well as the supermarket chain being faced with significant share-price falls and the intervention of regulators when the admission was made.
David Haylor, Managing Director at Internal Audit Connections (IAC), specialist recruiters of internal audit and enterprise risk staff, provides Lawyer Monthly with insight into how an effective internal audit strategy can help to safeguard an organisation against falling victim to huge financial losses and the subsequent reputational damage.
An Effective Internal Audit Function
In reality, the discovery of a major fraud is rarely a direct result of scheduled internal audits. The scale and resources of the internal audit team do not provide the coverage to ensure all fraud and malpractice can be eliminated. If the fraud involves collusion amongst senior management, it is particularly difficult to unravel the issue with a standard audit approach because the audit trail of individual transactions may well have followed the documented processes and procedures and be compliant.
These types of fraud become apparent only when individuals with a deep insight into a particular area of the business or someone operating at a strategic level notices an inconsistency in the numbers. They may not fully understand the implications of their discovery, but in a well-governed environment these concerns should be passed on to the internal audit team either formally through the “whistleblowing” helpline, which can be anonymous, or – more usually – through an informal conversation where the concern is raised with audit, which may then lead to a more formal audit or investigation.
Mitigating Risks
Time and again, we hear organisations talk about “company culture”, and this remains the most important influence on the successful running of an organisation. Culture permeates all aspects of the organisation’s relationship with the internal audit function. If the audit team faces a “blame” culture, fear and a lack of communication, transparency and accountability, you have the ingredients that can foster negative behaviours and enable fraud and malpractice to thrive.
Themes you consistently observe in top-calibre internal audit functions include:
Strategic Vision – Does the function interact at the strategic level with the C-Suite Executives and is it privy to key decision-making conversations?
Suitable Audit Director – Do you hire an Audit Director with the attitude, abilities and experience to balance the commercial priorities of the organisation whilst also being able to really understand the business and speak truth to power?
Reporting Structure – Do you create a reporting structure that creates genuine independence? This includes the strengths of your non-execs, Board structure, audit leadership and communication and reporting structures.
Empowerment – Do you empower that individual and their team to create their plan on well-assessed risk, or do you push them down a narrow, pre-programmed path?
Value – Do you value your audit team by fully backing their reports, recommendations and talent progression?
If organisations do not see assurance from the perspective described above, they are more likely to be put at risk. If not followed, that business will also miss out on the dissemination of best practice, the ability to take risks that are well understood and a trusted partner able to prevent damage to the organisation.
In summary, a well-led, well-resourced and well-supported internal audit function, combined with assurance centred on empowerment, structure and values, will safeguard an organisation from financial risk. This will also lead to well-understood risk-taking and best practice filtering through an organisation.
However, whilst internal audit does serve to raise red flags, spread best practice and protect an organisation, the scope of internal audit is far broader than just the prevention of financial losses.
There is a sharp drop in the amount of the public expressing concern about identity theft, according to a new survey conducted for Chartered Professional Accountants of Canada (CPA Canada).
Two-thirds (66%) of the respondents agree that they are concerned about identity theft but the number is significantly down from 74% in 2016. At the same time, 72% of the survey participants agree that Canadian businesses, in general, are doing the best they can to safeguard the personal information of their customers, up from 66% last year.
However, for the second straight year, 73% of the respondents agree that they are concerned that Canadian businesses are vulnerable to cyberattacks regarding personal information.
"In this era of ever-evolving technology and data management challenges, it is good to see an increasing number of Canadians recognizing the efforts that the business community puts into protecting personal information," says Cairine Wilson, vice-president, corporate citizenship, CPA Canada. "It's also encouraging that the respondents understand that, while the business community is doing what it can in terms of information protection, risks do remain."
Almost four-in-ten (39%) of the respondents agree they fear that someone has personal information about them that they should not be in possession of, up from 35% in last year's survey.
"Fraudsters target many avenues to gain your personal information including social media and emails," explains Wilson. Of note, the survey found that 81% of the respondents use a mobile device, such as a cellular phone or tablet as one of their sources for accessing the internet, up from 76% just a year ago.
A majority of respondents (71%) agree that they are concerned that electronic payment methods, such as tapping debit and credit cards or using smartphone apps to make payments, actually makes fraud easier.
In addition, 43% of those surveyed in 2017 either strongly or somewhat agree that they are uncomfortable when making online purchases.
In terms of experiencing financial fraud, 32% of the respondents reported they had been a victim at some point in their lives, basically unchanged from 2016 (33%). Among those who reported being a victim of financial fraud, credit card fraud had the highest incidence rate (74%) followed by debit card fraud (28%). Those were the top two forms of fraud cited in 2016 as well.
"Keep your guard up at all times," stresses Wilson. "Being skeptical is a good thing when it comes to protecting yourself."
An interesting finding to emerge from the survey is that three quarters (75%) of the participants have learned information about how to protect themselves from fraudulent activities through the news media.
March is Fraud Prevention Month in Canada. Actual or suspected frauds can be reported to the Canadian Anti-Fraud Centre (antifraudcentre.ca or toll free at 1-888-495-8501).
The 2017 CPA Canada Fraud Survey was conducted by Harris Poll via telephone between January 31st and February 8th 2017, with a national random sample of 1,001 adult Canadians aged 18 years and over and is considered accurate to within ±3.1%, 19 times out of 20.
(Source: CPA Canada)
Recently hitting the headlines was the prosecution of an ex-HBOS (Halifax Bank of Scotland) manager and five others, all but one of whom were convicted for their roles in a complex and long lasting scam involving £245m of fraudulent loans. With mischief including cash in brown envelopes, exotic holidays, luxury yachts, properties in the sun and call girls, the more lurid details of the case read like the plot for a Hollywood film.
Here Jeffrey Davidson, Managing Director and Freyda Thompson, Senior Associate at Honeycomb Forensic Accounting, provide a thorough account of the story and their thoughts on how we can learn and move on from this ordeal.
The story behind the headlines
But behind the gossip and tabloid articles, the real facts of the case are no less shocking.
The prosecution was the culmination of Operation Hornet, a Thames Valley Police investigation into the relationship between Mr Lynden Scourfield, the lead director of Impaired Assets at HBOS and Mr David Mills, a financier.
In return for lavish gifts, Scourfield referred struggling HBOS small business customers to Mills and his associates, who operated in the guise of turnaround consultants through the firm Quayside Corporate Services. Instead of assisting these bank customers, Quayside conspired with Scourfield to grant them inappropriate loans, engaged in asset stripping and charged exorbitant fees for its services, which led to the insolvency of many businesses.
The value of the fraud is estimated at £245 million. This is the sum Lloyds Banking Group wrote off due to the fraudulent loans after they took over HBOS. The total value of the loans fraudulently issued by Scourfield has been estimated to be in the region of £1 billion.
The full cost of the fraud, in both financial and personal terms, goes much wider. Among the worst hit have been those small business customers so badly let down by the bank, many of whom have lost their businesses and have had to rebuild their lives from scratch. While no value can be placed in human terms on the livelihoods ruined, we, as forensic accountants, would have no difficulty calculating the financial quantum of their losses. The jury is still out, as it were, on whether the bank will now face a string of civil suits as these victims come forward to seek compensation.
It is this human-interest side of the story, coupled with the scandalous and somewhat lurid details of how the defendants spent their ill-gotten gains, which has peaked media interest. The value and scale of the fraud is significantly less than that of financial frauds in more technical areas such as the LIBOR rate rigging, which received relatively little coverage in the popular press. However, it is the story of small family businesses falling victim to an aggressive banking fraud, and the ensuing fight for justice which has, understandably, gained widespread media attention.
The defendants were charged in 2013 with several offences, including the following:
Honeycomb was instructed to act as expert accountants for one of the defendants, Mr Jonathan Cohen, who was acquitted. Mr Cohen is a Chartered Accountant and worked for a firm that acted as auditors, accountants and tax advisers for a number of the defendants and their connected businesses.
Five of the remaining defendants were found guilty at Southwark Crown Court on 30th January 2017, while Mr Scourfield had already pleaded guilty at an earlier hearing. On 2nd February 2017, the six men were jailed for a total of over 47 years between them. Mr Mills was handed the lengthiest sentence of 15 years, the most given for any fraud related conviction in the UK being 17 years.
Policing the fraudsters
Lloyds Bank commissioned an independent investigation into the loans being made by Scourfield after a campaign by business owners who claimed they had been mistreated by HBOS. This resulted in a formal report to the Financial Conduct Authority (FCA) in 2010, who in turn referred the case to Thames Valley Police’s Economic Crime Unit, as the offence originated with HBOS’ Impaired Assets team based in Reading.
Thames Valley Police have released a statement quoting the cost of the investigation as being over £7m, requiring the time of 151 officers and taking over six years to bring to Court. It appears that no other public investigating body had the capacity to take on the case. The Police and Crime Commissioner for Thames Valley, Anthony Stansfeld, added that he would like to see a system whereby the investigating body is reimbursed either through central government or through fines or costs imposed on offenders.
This statement from Thames Valley Police highlights a lack of resources around the UK to deal with such cases of complex frauds. The decision by a public body to take on such a case seems to come down to a judgement call on the cost of case, the utilisation of resources and the chance of a successful prosecution. Even the Serious Fraud Office has an annual budget of only £45.7m, compared to the City of London Police’s (who have the largest fraud division out of all police forces in the UK) total budget of £123.8m. However, the annual cost of fraud in the UK has been estimated as £193bn and suitable resources need to be available to tackle this growing crime without being hamstrung by lack of funds. An investment in investigation and law enforcement in this area of what seems to be less than one tenth of one percent of just the financial damage to society seems insufficient.
A lesson for the banks
The type of fraud evidenced in this case, and the scale of the wrongdoing, should have been prevented by internal safeguards implemented by HBOS, or at the very least spotted earlier.
Scourfield’s dealings with Mills are said to have commenced in 2002, but only came to light in 2006 when a senior executive at HBOS became concerned over the cases under Scourfield’s management. HBOS carried out several internal investigations, some of them following complaints from customers, but did not uncover the extent of the fraud and have since been criticised for not taking customers’ complaints seriously.
An internal review carried out in 2007 of 38 customers showed that their total borrowings amounted to £375m and all 38 customers were supervised by Scourfield. The individual conducting the review later gave evidence in the trial that the loans appeared irregular, and that Scourfield was agreeing the loans without any authorisation. The situation at the bank, however, was allowed to continue.
After questioning in 2008 from MPs representing constituents whose businesses had been ruined by the Scourfield/Mills collusion, HBOS wrote to them in 2009 claiming lack of evidence that Scourfield had personally benefited from his relationship with Quayside. This was then discussed by MPs in Parliament in June 2009, using their right to parliamentary privilege, with reference to the bribes Scourfield was receiving in order to encourage the continued flow of customers to Quayside.
Based on evidence discussed during the trial, the following failures appeared to have proliferated in HBOS’ systems:
‘Red flag’ indicators are important warning signs for organisations when something is going wrong and requires further investigation. The warnings below should have been acknowledged and followed up by HBOS:
A comprehensive internal investigation by Lloyds was concluded in 2010, which led to £250m being written off from the Impaired Asset portfolio, of which £245m related to customers under the management of Scourfield.
It must be noted that this sum represents only one view of the loss to the bank, in terms of loans which, at that date, the bank considered it could not recover. It does not include fraudulent loans made over the period 2002-2010 where it did make recovery. This figure is therefore not a calculation of the loss to customers, which is likely to have been much higher.
This case demonstrates the need for vigilance, and a reinforcement of even the most basic and traditional of checks and balances in business life, including the appropriateness of working relationships and avoiding complacency over long-standing practices. Most importantly, it demonstrates the necessity of paying more than lip service to internal processes designed to prevent and protect both the bank and customers against such frauds.
Looking forward
Lloyds has now confirmed it will be commencing a review of all customer cases that may have been affected by the fraud, and would seek to provide redress “if appropriate”. There is a sense that Lloyds’ hand has been forced, as this represents a departure in its previous attitude to customers affected by the fraud, which could be characterised as dismissive at best. Media spotlight and political pressure from MPs demanding compensation for the affected customers have no doubt influenced the bank’s position.
Lloyds has said that the review will be conducted by an independent third party, who will be appointed in consultation with the FCA. The scale of any compensation Lloyds may offer has yet to be determined. A report will be made to its shareholders if it is thought that the level of compensation will impact on the results.
Not only will the bank need advice, but all the victims will too. The door will now stand fully open for civil proceedings to be brought against the defendants and/or the bank. One firm of solicitors has already released a statement that they have been instructed to investigate the potential for a civil claim by one of the lead prosecution witnesses in the criminal trial.
In additional to legal advice, customers will need expert assistance in reviewing their relationship with the bank and its management, carefully building a complete picture of the losses suffered through their fraudulent activities.
There has been no news yet whether any confiscation proceedings will be brought against the defendants in order to recover sums under the Proceeds of Crime Act 2002.
A final word for external professionals
These proceedings also bring into sharp focus the role of external professionals (such as auditors) in facilitating, knowingly or otherwise, financial crime and money laundering. Our work as expert accountants in this matter has given us insight into the risk of being caught up in criminal prosecution proceedings.
Two key areas of concern have been highlighted. Firstly, the quality of audit or advisory work undertaken, in particular the independence and objectivity of the external professional and correct disclosure of any conflicts of interest.
Secondly, money laundering reporting obligations, particularly filing a Suspicious Activity Report under POCA s330. While all of us in legal and accounting circles diligently complete our money laundering training, this case shows the importance of paying more than lip service to this crucial element of the fight against financial crime, and the need continuously to be considering when it would be appropriate to report suspicion of money laundering.
This case also shows the need for prosecutors to understand and get their cases right on complex technical issues such as auditing and money laundering, including the importance of not confusing regulatory matters to be dealt with by a professional’s regulatory body, and criminal matters.
In light of the EU’s fourth anti-money laundering directive kicking in, Lawyer Monthly hears from Tom Orange, a solicitor at Byrne and Partners LLP, who outlines everything you need to know about the new rules and how to prepare your business for compliance.
The new Directive as of the European Commission proposal
On 26th June 2015, the Fourth European Anti-Money Laundering Directive (EU 2015/849) (the Directive) came into force. Member States will have until 26th June 2017 to implement the Directive into national law. The Directive replaces the Third Anti-Money Laundering Directive (2005/60/EC), which was implemented in the UK by way of the Money Laundering Regulations 2007 (SI 2007/2157). The Directive aims to prevent the European Union’s financial system from being used for tax evasion, terrorist financing and money laundering.
The new Directive follows concerns that the Third Directive did not do enough to achieve consistency across Member States. It takes into account the 40 new recommendations adopted by the Financial Action Task Force (FATF) in February 2012, extending the scope of the current framework and strengthening obligations in several areas.
On 5th July 2016, in response to terror attacks in Europe in 2015 and 2016, and the leak of the Panama Papers, the European Commission published proposals to amend the Directive, with the goal of further strengthening measures against the financing of terrorism and improving the transparency of financial transactions and corporate entities.
This article considers the changes introduced in the Directive in light of the July proposals, the likely impact and the challenges that will be faced by financial institutions.
What are the changes?
Ultimate Beneficial Owners (UBOs)
The Panama Papers revealed the extent to which complex ownership structures are used to hide tax obligations and links to organised crime. The Directive sets out the framework for establishing the beneficial ownership of companies as well as the collection, maintaining and provision of this information.
Further clarification is provided in relation to ownership of companies and trusts. The previous threshold for beneficial ownership remains the same; a shareholding of 25% plus one share or an ownership interest of more than 25%. The July proposal reduces this to 10% with respect to non-financial entities which are considered high risk.
If there is any doubt, the Directive then defines a UBO as a person exercising control over the management of the entity through other means. If it is still unclear who the beneficial owner is, the Directive states that the UBO will be the person(s) holding the position of a senior managing official.
Additional obligations are introduced through the necessity for companies to maintain and make available “adequate, accurate and current” records on who their beneficial owners are to competent authorities, organisations and individuals who can demonstrate a “legitimate interest”. It remains unclear how this will be interpreted by each Member State, but it seems likely that this provision to increase transparency will be accompanied by significant administrative hurdles.
The July proposal extends this right, allowing public access to certain essential beneficial ownership information. This proposal has the potential to cause a great deal of concern with regard to privacy and data protection.
This provision has already been partially implemented in the UK through the introduction of the register of people with significant control (the ‘PSC register’). From 30th June 2016, companies have been required to declare who owns or controls them to Companies House when issuing their annual confirmation statement. The PSC register is designed to ensure that the ultimate owners or controllers of companies are identified and their interests made public in order to deter and impose sanctions on those who hide their interests.
Senior management responsibilities
Although the Directive advises that senior management need not be a member of the board of directors, it indicates in strong terms that this would be a wise idea given the knowledge required. Senior management will need to have “sufficient knowledge of the institution’s money laundering and terrorist financing risk exposure and sufficient seniority to take decisions affecting its risk exposure”, and will be responsible for approving the policies, controls and procedures put in place.
Increased Sanctions
The Directive favours the stick over the carrot, deterring continued breaches by increasing the level of sanctions available. For serious, repeated, systematic (or a combination thereof) breaches, obliged entities face penalties that include naming and shaming, withdrawal of authorisation (where appropriate) and penalties of up to 10% of the annual turnover in the preceding year. In the case of a subsidiary, this is the turnover of the parent company in the preceding year. Individuals face fines of up to €5,000,000 or twice the benefit of the breach.
Simplified Due Diligence (SDD)
The Third Directive enabled Member States to exempt certain entities from Customer Due Diligence (CDD) where there was a low risk of money laundering or terrorist financing. The Fourth Directive enables obliged entities to adapt their measures to low risk situations.
Before applying these simplified measures, the obliged entity must be certain that the business relationship or transaction presents a lower degree risk, as set out in Appendix II. This approach should allow regulated entities to focus their resources on transactions that pose higher risks, such as those involving third countries with ineffective anti-money laundering systems or high levels of corruption.
Enhanced Due Diligence (EDD)
EDD is now required when transacting with entities in high-risk countries. When assessing risks, obliged entities are required to consider the factors detailed in Annex II which include potentially higher-risk situations.
Politically Exposed Persons (PEP)
Foreign PEPs are already considered higher risk. The Directive extends this to domestic PEPs and expands the category to include members of the governing bodies of political parties.
Obliged entities will be required to have appropriate measures in place to determine whether the customer or UBO of the customer is a PEP. If the transaction involves a PEP, senior management approval is required in order to continue or maintain the business relationship. In addition, EDD will continue to be applied for 18 months after the PEP leaves their position. This has been increased from 12 months.
As this change slightly shifts the boundaries, businesses will need to revisit their procedures for identifying and dealing with domestic PEPs before reviewing relationships with existing customers and updating their lists, as EDD may well apply.
Virtual Currencies
Virtual currencies, such as Bitcoin, represent a relatively small market. The European Central Bank reported in 2015 that they do not pose a threat to financial stability due to their size – approximately 70,000 daily transactions worth around €40,000,000.
Though virtual currencies were initially not included in the scope of the Directive, the Commission has changed its view in the wake of the terrorist attacks in Paris. The Commission believes that there is a risk that virtual currencies could be used by terrorist organisations to circumvent checks and conceal transactions as they can be carried out anonymously.
Virtual currency exchange platforms, where virtual currencies can be exchanged for real currencies, and custodian wallet providers, holding virtual funds for customers, are to become obliged entities. This proposal aims to ensure better controls and enhanced due diligence for an unregulated sector, though to some extent virtual currencies already provide a strong digital footprint of transactions.
Pre paid cards
The Commission believes that the anonymous use of pre-paid cards presents a risk of terror financing. The proposal is to reduce the use of anonymous payments through these pre-paid cards by lowering the threshold for identification from €250 (£213) to €150 (£128). Tougher restrictions on their use will apply online.
Financial Intelligence Units (FIUs)
In order to aid the fight against terrorism financing, the Commission proposes new powers and resources for FIUs across the EU.
Member States are to set up centralised bank and payment account registers, allowing FIUs to quickly retrieve necessary information. The Commission has also clarified that FIUs are given a power in the Directive to request information concerning money laundering or terrorist financing from an obliged entity, even if a Suspicious Transaction Report has not been filed. Again, this raises several concerns about safeguards, data protection and conditions of access.
Conclusion
Although much of the aim of the Directive is focussed on preventing terrorism financing, the financial sector will take some collateral damage in the form of increased sanctions and due diligence requirements.
The Directive follows the legislative trend of a stronger compliance culture with a focus on top-down awareness and approval of procedures. It implements harsher requirements for both SDD and EDD and pushes greater responsibility on senior managers. The increased Sanctions further highlight the need to involve compliance teams and solicitors at an early stage in order to ensure that procedures and practices are up to date.
There are questions over how far the duty to provide information on the beneficial owners will extend, and to whom. It is almost inevitable that we will see several challenges to the provision of this information and of its use by investigating or prosecuting authorities.
Despite its inevitable departure from the EU, it seems likely that the UK will want to honour the Directive and maintain its international standing. Notwithstanding perhaps obvious pressures for the UK to attract foreign investment and reduce strain on UK businesses, the strong focus of the Directive on reporting and cooperation between Member States would be significantly undermined if one of the key players in its implementation were to introduce weaker controls. Similarly, it is also unthinkable that the EU would want the UK to withdraw from its obligations; the July proposal makes it quite clear that the effectiveness of achieving transparency and fighting terrorism financing can only be achieved through strong cross-border collaboration and robust, consistent standards.
More than 50,000 people have now signed up to Land Registry’s free Property Alert service.
The service helps people to detect fraudulent activity on their property by sending them email alerts when there is certain activity on the property being monitored, such as a mortgage being taken out against it. The recipient can then decide whether they think the activity is suspicious and act quickly if so. The alert email tells them who to contact should they be concerned.
Alasdair Lewis, Director of Legal Services, said: “Property is usually our most valuable asset so it’s important to protect it from the ever-increasing risk of fraud. Land Registry is doing all it can to detect and prevent fraud but no system can be 100 per cent fraud-proof, which is why we urge people to follow our advice about protecting themselves from property fraud, including signing up for Property Alert.”
Property fraud
Property fraud is where fraudsters try to “steal” a property, most commonly by stealing the homeowner's identity and selling or mortgaging the property without their knowledge. They then disappear with the money leaving the true owner to deal with the consequences.
Since 2009, Land Registry has stopped fraud on properties worth more than £92 million.
How Property Alert works
You can monitor up to 10 registered properties in England and Wales. You will receive email alerts when there is certain activity on the properties you are monitoring, such as an application to change the ownership details.
Although Property Alert won’t automatically stop fraud from happening, it’s a useful early warning of suspicious activity which the home-owner can investigate if they are suspicious.
Example of how Property Alert helped to prevent a fraud
A landlord was renting out a property in England while he lived overseas. He was aware that absent landlords are more at risk of property fraud and signed up to our free Property Alert service. When he received an alert email informing him of a mortgage application being made against his property worth over £300,000, he contacted our property fraud line immediately as he wasn’t expecting this. Using this intelligence, we investigated and discovered the fraud. We then prevented the application from being registered. His contact details were out of date, so we advised him to update them, which he did so that if we need to contact him in the future he will receive our emails or letters.
Most at risk
You’re more at risk if your property:
Other fraud protection measures
To help protect yourself against property fraud, make sure:
your property is registered. If you become an innocent victim of fraud and suffer financial loss as a consequence, you may be compensated. Properties most likely to be unregistered are those that haven’t changed hands or been mortgaged since 1990.
Land Registry has up-to-date contact details so we can reach you easily. You can have up to three addresses in the register including an email address and/or an address abroad.
More property fraud advice is available and you can watch our video.
(Source: UK Land Registry)
One of the most prominent but less publically acknowledged crimes over the last few decades has been fraud, which in recent years has taken centre stage in large-scale political and financial issues, and been the bane of many nations’ governments, especially as the benefits of certain jurisdictions make it easier to hide wrong-doings and deceive the system.
Here to discuss the litigation and defence work behind such large-scale fraud and deceit matters is Yvonne Jeffries, a Partner at Byrne & Partners. Yvonne delves into the best ways to strategize the lawyering work behind fraud, and talks us through hers and the firm’s thought leadership in this complex legal segment.
You have dealt extensively with prosecuting and defending civil fraud claims; what are often the challenges involved in these cases?
Each case turns on its own circumstances. That said, one of the most common challenges in civil fraud cases is responding to attempts to inflict practical and reputational damage to one’s client. This may include seeking intrusive and restrictive interim injunctive relief such as freezing orders and search orders, often accompanied by a damaging media campaign. These measures are designed to harm your client and stop him conducting business freely, with the endgame being to force an unfavourable settlement – or worse.
From a claimant’s perspective, the pursuit of civil fraud claims often requires assets to be traced internationally. Civil fraud claims frequently throw up questions of foreign law and require intelligence to be gathered on a defendant’s assets. Thought often needs to be given to how one challenges the legitimacy of mechanisms used by defendants to place assets out of reach.
How does your 30+ years of experience help navigate these issues what key advice would you give to the potential Fraud Lawyers of the future?
My Experience has taught me that a lot can, and does, change in the course of a long complex case. Even the most horrible ones which look like stomach-churning losers at first, but are often retrievable so long as one has the stamina to keep at it. In terms of advice I would give to would-be fraud lawyers:
What has been your most prominent and impacting achievement in the legal field of Fraud and Deceit?
One of my proudest achievements recently was securing a complete victory for Abdourahman Boreh in the litigation pursued against him by the Republic of Djibouti.
The background to the claim spanned a decade and Mr Boreh faced extremely serious allegations of corruption and abuse of public position. All of this was against a backdrop of uncertainty in terms of the operation of Djibouti law.
This already difficult scenario was exacerbated by the use of a domestic terrorism conviction, made in absentia, to obtain an Interpol Red Notice and Worldwide Freezing Order against Mr Boreh and the brandishing of the underlying judgment to the media, financial institutions and international security organisations, including US Homeland Security.
The key breakthrough came with the discovery that the evidence underlying the terrorism conviction was fatally flawed. We subsequently applied to discharge the freezing order. After a 5-day hearing, during which lead Gibson Dunn Partner Peter Gray was cross-examined, Mr Justice Flaux held that the court had been deliberately and dishonestly misled by Gray and Djibouti, and set aside the freezing order.
The setting aside of the freezing order dramatically altered the momentum of the litigation and the court’s perception of the parties began to shift. In the run-up to and early stages of trial, the Republic dropped all but two of 21 heads of claim originally pursued. After a 10-week trial, the remaining claims were dismissed and Mr Boreh was fully vindicated in his contention that the entire litigation had been the culmination of a politically motivated campaign against him.
I have fought larger and more legally complex cases in the past but not one that has been as all-consuming. It was extremely satisfying to take on and beat a sovereign nation that had far greater resources at its disposal but had seen fit to behave with such impropriety.
In terms of cross-border Fraud and Deceit disputes, what are the biggest talking points and what kind of problems can arise?
A point of personal interest is the use of the English courts, most typically the Commercial Court, by foreign high net worth individuals and sovereign nations to resolve high value cases.
In a couple of recent decisions, the courts have made it clear that parties to litigation here, no matter their status, are expected to play by the rules.
I experienced this first-hand in the Boreh case. Djibouti had a rude awakening when its impropriety led to the discharge of its freezing order. Matters were compounded when the President, Djibouti’s key witness, declined to attend to give evidence despite the court having indicated that he should. The fact that he announced that he wouldn’t be attending in a letter to the judge, referencing his concerns at the precedent his attendance might set, was not well received and his statements were afforded limited weight.
A similar approach was taken in Estrada v Al-Juffali ([2016] EWHC 213 (Fam) and [2016] EWCA Civ 176), albeit in the context of a matrimonial financial relief application as opposed to a civil fraud action. In Al-Juffali, a wealthy Saudi businessman attempted to resist the application against him on the basis of diplomatic immunity because of his role as permanent representative to the International Maritime Organisation for St Lucia. His claim to diplomatic immunity was rejected by the High Court who described it “an entirely artificial construct.” Al-Juffali later appealed this decision, which received criticism from Phillip Hammond, then the Foreign Secretary, who intervened in the appeal. The Court of Appeal found that the High Court had been wrong to hold that Al-Juffali was not, in principle, entitled to immunity. However, it dismissed his appeal on the basis that he was not entitled to immunity because he was permanently resident in the UK and the claim did not relate to any official acts he was performing in the exercise of his functions.
The Foreign Secretary’s intervention shows how sensitive this issue is. These decisions also illustrate the robustness of the English judiciary and how its independence will not be interfered with.
Is there anything else you would like to add?
I would like to say a few words about Byrne and Partners. We consider that we provide a very attractive service. As a litigation boutique, we can keep costs competitive and costs arrangements flexible without compromising on quality. We ensure that there is always hands-on partner involvement, which gives clients great comfort. We receive a lot of our instructions via referrals from high-profile city firms who know we will do a good job but don’t have to worry that we’ll steal their clients. We are used to going up against some of the largest Magic Circle and US firms and getting excellent results. The breadth of our experience in civil and criminal fraud matters means that we have a fantastic network of contacts. Finally, we are absolutely committed to achieve the best outcomes possible for our clients.
According to recent figures from the ONS, there were 3.8 million fraud offences committed last year. Fraud has become the most common crime committed in the UK. But when it comes to serious fraud – the big ticket crime committed by banks, companies and their employees – there is little serious data, only broad brush estimates. In combatting it, the Serious Fraud Office confines itself to taking on only the largest and most prominent criminal matters: just a few dozen cases each year.
All well and good. But does the SFO always play the game according to the rules, or has it been actively trying to shift the existing framework of the law to suit its own agenda? If that helps the successful investigation and prosecution of criminal conduct in the end, does this really matter?
One key area where the SFO has sought to redress the balance in its favour is legal professional privilege (LPP): a long-established legal principle which ensures that communications between clients and their lawyers remain confidential, facilitating the frank disclosure of information between them. It is a privilege belonging to clients, and which they alone can waive.
The SFO has said that assertions of privilege are not always properly made. Last year, SFO Director David Green QC, complained that some companies are obstructing investigations by hiding behind LPP, preventing access to all communications with their lawyers. He indicated that the SFO would be willing to make applications in the courts, both civil and criminal if necessary, to override privilege and gain access to relevant material.
He told ‘The Times’ that although it was not seeking to dispense with LPP, the SFO was preparing to target companies “whose lawyers obstructed investigations by hiding behind the shield of legal professional privilege. We believe that, in some instances, professional privilege is claimed artificially and, in cases where that is over a matter of importance to the investigation, we will pursue it.”
He added: “These companies call in outside lawyers, who make a lot of money by doing an investigation and are the first to interview key witnesses at the coal face, then claim privilege - it is absolutely ludicrous.” Lawyers, he added, were effectively “ploughing up the crime scene.”
In February, Barclays Bank, which had vigorously resisted legal attempts by the SFO via the courts to access communications the bank said were covered by LPP, eventually agreed to make them available. The SFO has been investigating Barclays for nearly four years over its 2008 payment of £322 million in advisory fees to Qatar Holdings, a subsidiary of Qatar’s sovereign investment fund. The Barclays' concession to release documents followed another High Court victory for the SFO in January over a challenge by Colin McKenzie to the way in which it handles the identification of material potentially subject to LPP.
Alun Milford, SFO General Counsel, recently clarified the agency’s position on LPP in a speech: “We have no interest in communications between client and lawyer on questions of liability or rights,” he said. “We are focused on the underlying facts, including the accounts of witnesses spoken to in corporate investigations. We do not regard ourselves as constrained from asking for them even if they are privileged…and our experience is that at least some corporates are not themselves constrained from letting us know what their investigators were told.”
Should we therefore be concerned if the SFO appears to want to sidestep LPP? The answer must be positive. These attempts come against the backdrop of the Investigatory Powers Bill, promoted by Theresa May whilst she was Home Secretary, which increases the surveillance powers not only of the police, but also other agencies including the SFO. The Bill is currently progressing through parliament, with various amendments tabled, but looks set to pass.
The government recognises that LPP, likely to be impacted by key elements of the Bill, is insufficiently protected by the draft legislation. A joint committee of the Bar Council and the Law Society has stated that there should be provision made “for the protection of LPP" and that the protection should be included in the Bill itself, not simply in and as part of a code of practice.
The widespread concern of lawyers is that giving greater investigatory powers to agencies such as the SFO may well undermine LPP, and prevent them from being able to assure clients that their communications are confidential. They say that the status quo should be preserved in the Bill, to ensure that clients have total confidence that they can communicate with complete candour and without fear of information being shared with a third party without their consent.
Indeed, recent guidance published by The Law Society shows the importance of LPP to the legal profession. LPP is variously referred to as “one of the highest [legal] rights”, a “fundamental common law right”, “precious” and “sacrosanct.” The guidance confirms that LPP is the right of the client, rather than the lawyer. This undermines David Green’s comments that lawyers themselves are abusing the “shield” of LPP. A lawyer who discloses privileged information without client consent “would be in breach of his professional duties,” and the Law Society opines that cases where abuses of LPP are proven are “few and far between.” In fact, contrary to the position taken by the SFO, it continues: "If clients justifiably assert their privilege… they should not in any way be criticised or penalised for doing so, nor regarded as being uncooperative – nor should their legal advisers.” This point is returned to repeatedly, the Law Society stating: “No regulator or investigator is entitled to pressure a client to waive LPP…no client can be criticised, let alone treated detrimentally… however helpful a waiver might be to the regulator or investigator” and “no adverse inferences should be drawn from a claim to privilege or a refusal to waive privilege.”
The legal profession generally is increasingly frustrated by attacks on LPP by the SFO and government. While it is important to thoroughly investigate and prosecute criminals successfully, investigatory agencies should not attempt to undermine or circumvent accepted legal practice simply to make their task easier. The original justifications for LPP have not changed. The government – in particular – should take note and ensure that appropriate statutory protection is given to LPP, stopping the erosion of and guaranteeing the rights of all of us, which are entitled to be properly protected.
(Source: Adam Rooney, Partner at Signature Litigation)
The Serious Fraud Office (SFO), as Britain’s prosecutor of serious fraud, bribery and corruption cases, finds itself under attack from various angles if it ever missteps, particularly in high profile cases. One recurring source of pressure has been Theresa May’s long-held enmity towards the SFO, and her desire to incorporate it within the National Crime Agency (NCA). In February, it was announced by the then-Home Secretary’s spokesperson that the NCA would be given ‘power of direction’ over the SFO. Now that May is Prime Minister, the SFO will surely be worried for its future.
The SFO’s work has long been fraught with turbulence and controversy. One account of the first decade of its existence – 1988 to 1998 - documented a series of collapsed trials and failed prosecutions, a pattern which has continued in recent years, culminating with the botched investigation into the affairs of Robert and Vincent Tchenguiz, which dragged from 2011 to 2014 and led to a multi-million pound pay out.
More recently, the SFO has seen their long running ‘blockbuster’ investigation into Libor, fall prey to similar instability. Following on from the initial success of the conviction of Tom Hayes, currently appealing the 11 year sentence he received, the second trial represented a rude awakening. All six defendants were acquitted, leading many to question whether the SFO was fit for purpose.
The third Libor trial, however, marked more of a mixed bag for the SFO. While it resulted in four convictions, only one was a unanimous decision by the court, alongside two majority verdicts and a guilty plea. The other two cases resulted in no decision from the jury, and the SFO is currently preparing for a retrial. While this was heralded as a success, the SFO has currently achieved only five convictions out of 13 in their flagship investigation, at a present cost of £21,424,868.
Although David Green QC, the SFO’s present director, has worked to restore its battered reputation since his appointment in 2012, fundamental issues still remain. There is a high turnover of staff, especially problematic in investigations that often run for multiple years, and a difficulty in attracting high-calibre talent. In the Civil Service People Survey, only 23% of the SFO workforce felt their pay “adequately reflects” their performance. More damningly, just 18% felt they received reasonable pay when compared to those doing a similar job in other organisations.
It is unlikely that May’s opinions on the SFO will have changed since February, or that she will be willing, in these economically uncertain times, to provide the funding required for the SFO to remedy some of its fundamental issues. The simple fact is that, however effective the SFO may or may not be in dealing with specialised fraud, the NCA is simply cheaper to run. This could be the justification for May to finally dismantle the SFO, in spite of the recent Libor convictions and seizure of £20m in 2015 to 2016, during which time their spend was £58.9m according to their most recent accounts.
(Source: Steve Cochrane)
