PREVENTING FRAUD AND MONEY - Rahman Ravelli...way individuals and departments work – both independently and with colleagues and third parties – can make it harder for illegal acts

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PREVENTING FRAUD AND MONEY LAUNDERING

The government wants corporate executives charged when their staff carry out offences such as fraud and money laundering. How can you make sure you’re not one of those prosecuted?

The government wants to take the fight against business crime right into the boardroom in a way that has not been seen before.

Attorney General, Jeremy Wright, has said the government is considering prosecuting those at the top of a company if any of its staff commit fraud or money laundering. Until now, such “failure to prevent” offences have only covered bribery (under the Bribery Act) and tax evasion. Extending their scope will place huge responsibility on those running a company.

So what can senior executives do to prevent themselves being prosecuted for the wrongdoing of those they employ?

Adequate measuresThese latest proposals are about punishing breaches of the law. But the Attorney General says they are also an attempt to promote a culture of corporate responsibility – an attempt to encourage prevention of wrongdoing rather than just reacting to it and prosecuting it.

Edition 044 / October 2016eBookSerious Fraud, Regulatory and Complex Crime Lawyers

At the moment, it is difficult for the authorities to prosecute corporate executives for wrongdoing carried out by their staff. When an employee is found to have, for example, laundered money, the evidence trail can rarely be followed all the way to the top of the company’s staff structure.

Just last month, US bank Wells Fargo dismissed 5,300 employees as a result

of a scandal involving large-scale mis-selling of bank accounts and credit cards. The bank is contrite and has paid $185 million to settle the matter. Yet the question remains, what could and should have been done to prevent it? And who in the boardroom should be to blame?

If the new proposals outlined in this article are introduced, any such cases

arising in the UK are likely to see senior company figures in the dock.This, however, will not be necessary if certain steps have been followed. Those in the boardroom will become liable for the crimes of their staff if they had not taken adequate measures to prevent those working for them breaking the law. But if they have taken adequate measures then they have a defence.

Putting it simply, they need to design out the problem: take careful steps to reduce the potential for employees to indulge in business crime.

PotentialThe potential for wrongdoing being committed by any staff at a company has to be assessed and then acted upon. Senior staff must introduce new procedures or change existing ones so that it is as difficult as possible for any employee to commit the offences covered by the new proposals.

If need be, executives can hire business crime lawyers to investigate the possibility of offences being committed and then suggest ways in which this can then be designed out. This is done by making sure the potential for wrongdoing is removed from the way the company functions. Changes to the way individuals and departments work – both independently and with colleagues and third parties – can make it harder for illegal acts to be committed. Importantly for senior executives, these changes provide a strong defence should the new proposals become law and they find themselves investigated regarding offences committed by staff.

EncourageHowever, if staff do still break the law, the company needs to have clear and appropriate whistle blowing procedures in place. Such procedures must be regularly reviewed and publicised if they are to be of value. Encouraging staff to report their suspicions of wrongdoing and assuring them that their concerns will be investigated can go a long way to developing an anti-crime culture in a workplace.

Developing such a culture of legal compliance is another way in which senior company figures can show investigators that they should not be prosecuted if their staff have broken the law. Being able to show that you have carefully devised and thoroughly

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implemented such measures will be a robust way of defending yourself should you ever be investigated.

VulnerableThe key is to know what potential there is for your workforce to commit business crime and then take action to both prevent it and, should it still happen, allow staff to report it. Failure to do either of these will leave you very vulnerable to prosecution under these new proposals.

These proposals are not a gimmick. They are the government’s way of making sure that those in senior positions do not try and get by doing the bare minimum when it comes to tackling business crime. A failure to pay attention to - or take action regarding - the illegal behaviour of your staff is now more likely to lead to you being prosecuted for their wrongdoing.

The challenge in business now is to make sure everything possible has been done to prevent staff bringing legal trouble on themselves, the company and the individuals running it.

The government wants to take the fight against business crime right into the boardroom in a way that has not been seen before.

Attorney General, Jeremy Wright, has said the government is considering prosecuting those at the top of a company if any of its staff commit fraud or money laundering. Until now, such “failure to prevent” offences have only covered bribery (under the Bribery Act) and tax evasion. Extending their scope will place huge responsibility on those running a company.

So what can senior executives do to prevent themselves being prosecuted for the wrongdoing of those they employ?

Adequate measuresThese latest proposals are about punishing breaches of the law. But the Attorney General says they are also an attempt to promote a culture of corporate responsibility – an attempt to encourage prevention of wrongdoing rather than just reacting to it and prosecuting it.

At the moment, it is difficult for the authorities to prosecute corporate executives for wrongdoing carried out by their staff. When an employee is found to have, for example, laundered money, the evidence trail can rarely be followed all the way to the top of the company’s staff structure.

Just last month, US bank Wells Fargo dismissed 5,300 employees as a result

of a scandal involving large-scale mis-selling of bank accounts and credit cards. The bank is contrite and has paid $185 million to settle the matter. Yet the question remains, what could and should have been done to prevent it? And who in the boardroom should be to blame?

If the new proposals outlined in this article are introduced, any such cases

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2–


arising in the UK are likely to see senior company figures in the dock.This, however, will not be necessary if certain steps have been followed. Those in the boardroom will become liable for the crimes of their staff if they had not taken adequate measures to prevent those working for them breaking the law. But if they have taken adequate measures then they have a defence.

Putting it simply, they need to design out the problem: take careful steps to reduce the potential for employees to indulge in business crime.

PotentialThe potential for wrongdoing being committed by any staff at a company has to be assessed and then acted upon. Senior staff must introduce new procedures or change existing ones so that it is as difficult as possible for any employee to commit the offences covered by the new proposals.

If need be, executives can hire business crime lawyers to investigate the possibility of offences being committed and then suggest ways in which this can then be designed out. This is done by making sure the potential for wrongdoing is removed from the way the company functions. Changes to the way individuals and departments work – both independently and with colleagues and third parties – can make it harder for illegal acts to be committed. Importantly for senior executives, these changes provide a strong defence should the new proposals become law and they find themselves investigated regarding offences committed by staff.

EncourageHowever, if staff do still break the law, the company needs to have clear and appropriate whistle blowing procedures in place. Such procedures must be regularly reviewed and publicised if they are to be of value. Encouraging staff to report their suspicions of wrongdoing and assuring them that their concerns will be investigated can go a long way to developing an anti-crime culture in a workplace.

Developing such a culture of legal compliance is another way in which senior company figures can show investigators that they should not be prosecuted if their staff have broken the law. Being able to show that you have carefully devised and thoroughly

“The potential for wrongdoing being committed by any staff at a company has to be assessed and then acted upon. Senior staff must introduce new procedures or change existing ones so that it is as difficult as possible for any employee to commit the offences covered by the new proposals.”

implemented such measures will be a robust way of defending yourself should you ever be investigated.

VulnerableThe key is to know what potential there is for your workforce to commit business crime and then take action to both prevent it and, should it still happen, allow staff to report it. Failure to do either of these will leave you very vulnerable to prosecution under these new proposals.

These proposals are not a gimmick. They are the government’s way of making sure that those in senior positions do not try and get by doing the bare minimum when it comes to tackling business crime. A failure to pay attention to - or take action regarding - the illegal behaviour of your staff is now more likely to lead to you being prosecuted for their wrongdoing.

The challenge in business now is to make sure everything possible has been done to prevent staff bringing legal trouble on themselves, the company and the individuals running it.

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3–


The Serious Fraud Office (SFO) has managed to defeat a company’s legal bid to have a bribery investigation into it ended because it was damaging its business prospects. But while the SFO has seen off this challenge, the issues that the case focused on remain relevant for many who are subject to such investigations.

In its legal action, Soma Oil & Gas Holdings Ltd attempted to have the SFO end its bribery investigation into the company; arguing that the firm could become insolvent if the probe continued. Soma’s lawyers had sought a judicial review, claiming that the SFO had not considered the risks to the company’s future posed by the continuing investigation; which began in August 2015 with offices raided, 50,000 documents and 20,000 emails

LENGTHY SFO INVESTIGATIONSAziz Rahman considers whether SFO investigations could be concluded quicker.

into Soma regarding possible illegal payments to Somali officials under a programme to explore the region for oil and gas. Soma had argued that it would be insolvent within weeks if the SFO investigation continued; as it would prevent vital contracts being signed. SFO lawyers denied this; adding that it was still looking into another strand of the investigation.

Length of InvestigationAt present, there is no power to stop an investigation in its tracks due to the length of time it is taking. It is likely that the SFO covertly began building its Soma case before the raids; for example, seeking disclosure orders against banks. This means that the case may have already been going on for more than a year and a half.

Every Director of the SFO has expressed a willingness to cut the length of time it takes to complete investigations. Yet some take more than five years while the average gestation for an SFO investigation seems to be around two years. This has to be considered unacceptable.

Many have suffered a similar fate to Soma. As well as disruption to their daily life caused by restrictions on their movement, they may also be subject to a restraint order; which means restricted access to their assets. Assets are often frozen under the terms of a restraint order imposed when an investigation begins – before any guilt has been proven.

Restraint OrderIn cases where a restraint order is in place, one solution to such problems would be to discharge it after a set amount of time if no charges have been brought. If there is a restraint order,

the investigation does at least have to be the subject of judicial scrutiny.

With the right legal advice, there is usually scope to have the order discharged or at least amended so a person can access some of their assets. But this does not mean that the investigation would end, meaning many would still suffer the problems Soma was alleging. And it certainly is of no benefit or relevance to those who are the subject of a lengthy investigation without a restraint order.

A point that is worth noting from the Soma case is that although the SFO was determined to carry on its investigations, it did at least confirm in a letter to the oil and gas company that it had concluded the first strand of its investigation and found no need to take it further. This could at least provide some comfort to Soma – and give the company some reassurance to pass on to potential investors and business partners.

If Soma had not brought its legal action, it is very unlikely it would have received such detail from the SFO: a possible indicator of the value of having a legal team that thinks “outside of the box’’ to pursue a client’s interests during an investigation.

It still, however, remains unclear about the extent of the second strand of investigation that the SFO is continuing. Which again prompts the question, how long should a serious and complex fraud investigation be allowed to go on for?

The SFO may choose to relax bail conditions. But does that mean that an investigation is over? When a person’s business and personal life is still being disrupted, we would clearly say no.

Judicial ScrutinyMy belief is that we live in an era in which the police and / or the SFO are under resourced. This means that it can take a long time for an investigation to be completed.

One way to solve this could be for there to be a time limit imposed on investigating authorities: if they have not completed their investigations by a set time they should have to justify to a court why they should be granted extra time to continue.

This way would mean that the conduct and speed of the inquiry would be

subject to judicial scrutiny. Perhaps in this way, those under investigation would at least have some idea of how long their ordeal may last – and their legal representatives would have a better chance of gauging the likelihood of charges being brought against their client.

LegislationCould or should legislation be introduced to remove the problem? It is possible. The Policing and Crime Bill may have a profound effect on such situations.

Five years ago, the High Court upheld a ruling by a district judge that police must question and charge a suspect within four days of detention. It led to fears that suspected murderers and rapists could walk free if police couldn’t build up a case in time and contradicted 25 years of police practice. It also led to then Home Secretary Theresa May rushing through an emergency bill to restore the police power to bail. The resulting Police (Detention and Bail) Act 2011 was retrospective, meaning that police forces were protected from any possible compensation claims.

The change in the law made it clear that time spent on police bail does not count towards those 96 hours and the “clock” only runs while suspects are detained. It was an emergency piece of legislation that swiftly corrected a problem.

Now, however, there is the Policing and Crime Bill, which is currently being considered by Parliament. This Bill proposes a 28-day maximum period of time for people to be kept on bail before a decision is made on whether to charge them. A decision to extend this bail by a further three months can then be taken by a police superintendent; with any further bail extensions only granted by application to the magistrates court or if the case is considered to have “exceptionally complex’’ provisions.

The government has also indicated that especially serious cases could be subject to a different bail timescale.

The Bill is not yet law. If it becomes law, it remains to be seen how many SFO investigations may be considered exceptionally complex or especially serious for the purposes of bail. But it is at least a cause for optimism that the current problems could be reduced.

“The Court nonetheless had some sympathy with the position in which Soma found itself and exhorted the SFO to proceed as expeditiously as possible.’’

examined and three directors interviewed as suspects.

Judicial ReviewThe application for a judicial review – a court review of the SFO’s actions - was denied by judges at London’s High Court of Justice, Queen’s Bench Division as they did not see it having any "prospect of success." But in the judgment, Lord Justice Gross acknowledged that “The Court nonetheless had some sympathy with the position in which Soma found itself and exhorted the SFO to proceed as expeditiously as possible’’.

In simple terms, Soma was told it wasn’t gaining its wish to end the investigation but the SFO was being told to be quick about it. Which may be a dilemma familiar to many under investigation by the SFO. The SFO had opened an investigation

The Serious Fraud Office (SFO) has managed to defeat a company’s legal bid to have a bribery investigation into it ended because it was damaging its business prospects. But while the SFO has seen off this challenge, the issues that the case focused on remain relevant for many who are subject to such investigations.

In its legal action, Soma Oil & Gas Holdings Ltd attempted to have the SFO end its bribery investigation into the company; arguing that the firm could become insolvent if the probe continued. Soma’s lawyers had sought a judicial review, claiming that the SFO had not considered the risks to the company’s future posed by the continuing investigation; which began in August 2015 with offices raided, 50,000 documents and 20,000 emails

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into Soma regarding possible illegal payments to Somali officials under a programme to explore the region for oil and gas. Soma had argued that it would be insolvent within weeks if the SFO investigation continued; as it would prevent vital contracts being signed. SFO lawyers denied this; adding that it was still looking into another strand of the investigation.

Length of InvestigationAt present, there is no power to stop an investigation in its tracks due to the length of time it is taking. It is likely that the SFO covertly began building its Soma case before the raids; for example, seeking disclosure orders against banks. This means that the case may have already been going on for more than a year and a half.

Every Director of the SFO has expressed a willingness to cut the length of time it takes to complete investigations. Yet some take more than five years while the average gestation for an SFO investigation seems to be around two years. This has to be considered unacceptable.

Many have suffered a similar fate to Soma. As well as disruption to their daily life caused by restrictions on their movement, they may also be subject to a restraint order; which means restricted access to their assets. Assets are often frozen under the terms of a restraint order imposed when an investigation begins – before any guilt has been proven.

Restraint OrderIn cases where a restraint order is in place, one solution to such problems would be to discharge it after a set amount of time if no charges have been brought. If there is a restraint order,

the investigation does at least have to be the subject of judicial scrutiny.

With the right legal advice, there is usually scope to have the order discharged or at least amended so a person can access some of their assets. But this does not mean that the investigation would end, meaning many would still suffer the problems Soma was alleging. And it certainly is of no benefit or relevance to those who are the subject of a lengthy investigation without a restraint order.

A point that is worth noting from the Soma case is that although the SFO was determined to carry on its investigations, it did at least confirm in a letter to the oil and gas company that it had concluded the first strand of its investigation and found no need to take it further. This could at least provide some comfort to Soma – and give the company some reassurance to pass on to potential investors and business partners.

If Soma had not brought its legal action, it is very unlikely it would have received such detail from the SFO: a possible indicator of the value of having a legal team that thinks “outside of the box’’ to pursue a client’s interests during an investigation.

It still, however, remains unclear about the extent of the second strand of investigation that the SFO is continuing. Which again prompts the question, how long should a serious and complex fraud investigation be allowed to go on for?

The SFO may choose to relax bail conditions. But does that mean that an investigation is over? When a person’s business and personal life is still being disrupted, we would clearly say no.

Judicial ScrutinyMy belief is that we live in an era in which the police and / or the SFO are under resourced. This means that it can take a long time for an investigation to be completed.

One way to solve this could be for there to be a time limit imposed on investigating authorities: if they have not completed their investigations by a set time they should have to justify to a court why they should be granted extra time to continue.

This way would mean that the conduct and speed of the inquiry would be

subject to judicial scrutiny. Perhaps in this way, those under investigation would at least have some idea of how long their ordeal may last – and their legal representatives would have a better chance of gauging the likelihood of charges being brought against their client.

LegislationCould or should legislation be introduced to remove the problem? It is possible. The Policing and Crime Bill may have a profound effect on such situations.

Five years ago, the High Court upheld a ruling by a district judge that police must question and charge a suspect within four days of detention. It led to fears that suspected murderers and rapists could walk free if police couldn’t build up a case in time and contradicted 25 years of police practice. It also led to then Home Secretary Theresa May rushing through an emergency bill to restore the police power to bail. The resulting Police (Detention and Bail) Act 2011 was retrospective, meaning that police forces were protected from any possible compensation claims.

The change in the law made it clear that time spent on police bail does not count towards those 96 hours and the “clock” only runs while suspects are detained. It was an emergency piece of legislation that swiftly corrected a problem.

Now, however, there is the Policing and Crime Bill, which is currently being considered by Parliament. This Bill proposes a 28-day maximum period of time for people to be kept on bail before a decision is made on whether to charge them. A decision to extend this bail by a further three months can then be taken by a police superintendent; with any further bail extensions only granted by application to the magistrates court or if the case is considered to have “exceptionally complex’’ provisions.

The government has also indicated that especially serious cases could be subject to a different bail timescale.

The Bill is not yet law. If it becomes law, it remains to be seen how many SFO investigations may be considered exceptionally complex or especially serious for the purposes of bail. But it is at least a cause for optimism that the current problems could be reduced.

examined and three directors interviewed as suspects.

Judicial ReviewThe application for a judicial review – a court review of the SFO’s actions - was denied by judges at London’s High Court of Justice, Queen’s Bench Division as they did not see it having any "prospect of success." But in the judgment, Lord Justice Gross acknowledged that “The Court nonetheless had some sympathy with the position in which Soma found itself and exhorted the SFO to proceed as expeditiously as possible’’.

In simple terms, Soma was told it wasn’t gaining its wish to end the investigation but the SFO was being told to be quick about it. Which may be a dilemma familiar to many under investigation by the SFO. The SFO had opened an investigation

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When a company collapses, it is a testing time for everyone associated with it: owners, creditors and trading partners.

Whether it is an individual whose business has collapsed or a company that has ceased trading, the Insolvency Service (IS) will attempt to find out the reasons why the enterprise has gone into administration. It will start looking at the collapse of a company from a civil law aspect; examining whether there has been an issue of incompetence and any breach of the Companies Act.

But such an investigation will not necessarily remain a civil law matter. The answers you give initially when questioned could later form part of a criminal investigation. For that reason, it is very important that you seek the right legal advice at the earliest possible opportunity.

If or when the IS issues a petition for the compulsory winding up of the company or bankruptcy proceedings, the Official Receiver (OR) will be notified and will be responsible for collecting and preserving assets and investigating the causes of the winding up of a company. You need legal advice from the moment you know that the company’s collapse is to be investigated by the IS or the OR.

InvestigationThinking that any investigation will always remain a civil law matter could be a huge mistake. You need specialist lawyers with a business crime background once the IS or OR asks you to attend an interview. This is because questions that may appear to have been asked in connection with civil law matters can have implications should the investigators later decide that the company’s failure is a criminal matter.

Section 236 of the Insolvency Act 1986 deals with inquiries into company dealings where that company has been made the subject of a winding up order by the Court. Under Section 236, officers of a company have a duty to provide information in relation to company enquiries. If they fail to do so, this section allows the Court to summons to appear before it any officer of the company, any person known or suspected to have in his possession any property of the company or any person the Court thinks capable of giving information concerning the promotion, formation, business dealings, affairs or property of the company.

Where a person without reasonable excuse fails to appear before the Court when summonsed the Court may, under Section 236(5), cause a warrant to be issued for the arrest of that person or the seizure of any books, papers or records in that persons possession.

Following winding up orders or voluntary liquidation, the OR is legally obliged to investigate how a company failed and examine the conduct of its directors in accordance with the Company Directors Disqualification Act 1986. The OR can also request that information be provided under section 236(2)(a) or Section 236(2)(c) of the IA 1986.

Putting it in the most basic terms: Section 236 gives the authorities a lot of power regarding a collapsed company and everyone associated with it. A failure to recognise and respond appropriately to this would be dangerous.

INSOLVENCY AND CRIMINAL INVESTIGATIONS

Rahman Ravelli’s Nicola Sharp and Syedur Rahman explain the importance of early legal advice when facing questions regarding a company’s collapse.

QuestionedSection 236 (2) is designed to help discover the truth regarding a company’s problems so that its affairs can be put in order and the liquidation process completed. But – and this is where the right legal advice is crucial – any information obtained for this purpose can be used to alert the appropriate authorities to wrongdoing, prompt a criminal prosecution or bring disqualification proceedings against a director.

For this reason, anyone questioned under Section 236(2) must be aware of the possible implications of what they say under interview. The section applies to directors, debtors, shareholders, auditors, solicitors and bankers. Anyone who is questioned under either Section 236(2)(a) or Section 236(2)(c) could later be subject to criminal investigation.

Section 236(2)(a) applies to any officer of the company. Under it, anyone questioned is legally obliged to answer the questions – saying you have no knowledge is not enough. This section is often used where investigators suspect that there are shadow directors – people not named as company officers who are actually running it without any formal position. Section 236(2)(c) applies to any person that the Court thinks is capable of giving information regarding the business dealings of the company.

RepresentationAs Section 236(2) offers the authorities such scope for further action, anyone questioned has to find out if they are being questioned under Section 236(2)(a) or Section 236 (2)(c). This will prove especially important if you

are suspected of being a shadow director of the company as opposed to someone who merely had dealings with the company.

The distinction between Section 236(2)(a) and Section 236(2)(c) is a major one. If you are asked under Section 236 to appear before the court for examination, submit a witness statement or produce any records, you may have some scope under (2)(c) to resist. But if you are being questioned under (2)(a) you then have very little, if no scope at all, for resisting answering questions, as an officer of the company has a duty to provide information.

At this stage, the right legal representation can help you seek clarification about which section you are being questioned under and advise you accordingly. For example, there may be sound legal reasons why, even if you are being questioned under Section 236(2)(c) – and, therefore, there may be scope not to answer questions or provide information – it may be in your interest to cooperate partially or fully with investigators.

CautionFailure to establish which section you are being questioned under and any subsequent lack of caution regarding how you answer questions can lead to bigger problems developing later.

For example, answers you give to questions that may appear insignificant in connection with Section 236(2)(c) could take on greater significance if the OR or IS later decides to recommend that you be disqualified as a director or prosecuted. Alternatively, it may be in your best interests to volunteer answers to some Section 236(2)(c) questioning. Only by seeking the appropriate legal advice can

you be sure of navigating safely what can be a legal minefield.

The OR or IS is required to report any evidence of possible criminal offences that they uncover while investigating a company’s affairs to The Insolvency Service’s Enforcement Directorate, which will then consider whether a prosecution is appropriate. By this stage, you have to have made sure that you have followed legal advice that has prevented any unnecessary suspicions being aroused.

About the AuthorsNicola Sharp and Syedur Rahman are both acknowledged experts in the fields of business crime and fraud, corporate investigations and civil fraud.

Nicola SharpSenior Associate Solicitor+44 (0)1422 [email protected]

Syedur RahmanAssociate Solicitor+44 (0)1422 [email protected]

When a company collapses, it is a testing time for everyone associated with it: owners, creditors and trading partners.

Whether it is an individual whose business has collapsed or a company that has ceased trading, the Insolvency Service (IS) will attempt to find out the reasons why the enterprise has gone into administration. It will start looking at the collapse of a company from a civil law aspect; examining whether there has been an issue of incompetence and any breach of the Companies Act.

But such an investigation will not necessarily remain a civil law matter. The answers you give initially when questioned could later form part of a criminal investigation. For that reason, it is very important that you seek the right legal advice at the earliest possible opportunity.

If or when the IS issues a petition for the compulsory winding up of the company or bankruptcy proceedings, the Official Receiver (OR) will be notified and will be responsible for collecting and preserving assets and investigating the causes of the winding up of a company. You need legal advice from the moment you know that the company’s collapse is to be investigated by the IS or the OR.

InvestigationThinking that any investigation will always remain a civil law matter could be a huge mistake. You need specialist lawyers with a business crime background once the IS or OR asks you to attend an interview. This is because questions that may appear to have been asked in connection with civil law matters can have implications should the investigators later decide that the company’s failure is a criminal matter.

Section 236 of the Insolvency Act 1986 deals with inquiries into company dealings where that company has been made the subject of a winding up order by the Court. Under Section 236, officers of a company have a duty to provide information in relation to company enquiries. If they fail to do so, this section allows the Court to summons to appear before it any officer of the company, any person known or suspected to have in his possession any property of the company or any person the Court thinks capable of giving information concerning the promotion, formation, business dealings, affairs or property of the company.

Where a person without reasonable excuse fails to appear before the Court when summonsed the Court may, under Section 236(5), cause a warrant to be issued for the arrest of that person or the seizure of any books, papers or records in that persons possession.

Following winding up orders or voluntary liquidation, the OR is legally obliged to investigate how a company failed and examine the conduct of its directors in accordance with the Company Directors Disqualification Act 1986. The OR can also request that information be provided under section 236(2)(a) or Section 236(2)(c) of the IA 1986.

Putting it in the most basic terms: Section 236 gives the authorities a lot of power regarding a collapsed company and everyone associated with it. A failure to recognise and respond appropriately to this would be dangerous.

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QuestionedSection 236 (2) is designed to help discover the truth regarding a company’s problems so that its affairs can be put in order and the liquidation process completed. But – and this is where the right legal advice is crucial – any information obtained for this purpose can be used to alert the appropriate authorities to wrongdoing, prompt a criminal prosecution or bring disqualification proceedings against a director.

For this reason, anyone questioned under Section 236(2) must be aware of the possible implications of what they say under interview. The section applies to directors, debtors, shareholders, auditors, solicitors and bankers. Anyone who is questioned under either Section 236(2)(a) or Section 236(2)(c) could later be subject to criminal investigation.

Section 236(2)(a) applies to any officer of the company. Under it, anyone questioned is legally obliged to answer the questions – saying you have no knowledge is not enough. This section is often used where investigators suspect that there are shadow directors – people not named as company officers who are actually running it without any formal position. Section 236(2)(c) applies to any person that the Court thinks is capable of giving information regarding the business dealings of the company.

RepresentationAs Section 236(2) offers the authorities such scope for further action, anyone questioned has to find out if they are being questioned under Section 236(2)(a) or Section 236 (2)(c). This will prove especially important if you

are suspected of being a shadow director of the company as opposed to someone who merely had dealings with the company.

The distinction between Section 236(2)(a) and Section 236(2)(c) is a major one. If you are asked under Section 236 to appear before the court for examination, submit a witness statement or produce any records, you may have some scope under (2)(c) to resist. But if you are being questioned under (2)(a) you then have very little, if no scope at all, for resisting answering questions, as an officer of the company has a duty to provide information.

At this stage, the right legal representation can help you seek clarification about which section you are being questioned under and advise you accordingly. For example, there may be sound legal reasons why, even if you are being questioned under Section 236(2)(c) – and, therefore, there may be scope not to answer questions or provide information – it may be in your interest to cooperate partially or fully with investigators.

CautionFailure to establish which section you are being questioned under and any subsequent lack of caution regarding how you answer questions can lead to bigger problems developing later.

For example, answers you give to questions that may appear insignificant in connection with Section 236(2)(c) could take on greater significance if the OR or IS later decides to recommend that you be disqualified as a director or prosecuted. Alternatively, it may be in your best interests to volunteer answers to some Section 236(2)(c) questioning. Only by seeking the appropriate legal advice can

you be sure of navigating safely what can be a legal minefield.

The OR or IS is required to report any evidence of possible criminal offences that they uncover while investigating a company’s affairs to The Insolvency Service’s Enforcement Directorate, which will then consider whether a prosecution is appropriate. By this stage, you have to have made sure that you have followed legal advice that has prevented any unnecessary suspicions being aroused.

About the AuthorsNicola Sharp and Syedur Rahman are both acknowledged experts in the fields of business crime and fraud, corporate investigations and civil fraud.

Nicola SharpSenior Associate Solicitor+44 (0)1422 [email protected]

Syedur RahmanAssociate Solicitor+44 (0)1422 [email protected]

“Failure to establish which section you are being questioned under and any subsequent lack of caution regarding how you answer questions can lead to bigger problems developing later.”

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The way banks and other financial professionals prevent financial crime is outdated. Governments worldwide should pass laws to ensure information sharing between them and those working in finance in order to combat financial crime.

Not my personal view: this is what HSBC's Chief Legal Officer Stuart Levey recently told a banking conference. HSBC has a far from clean reputation when it comes to financial crime: it paid $1.9 billion as part of a global settlement in 2012 for failing to stop drug cartels from pumping at least $800 million through the bank.

But Levey has been Under Secretary for Terrorism and Financial Intelligence at the US Treasury and he believes national secrecy and privacy laws prevent information sharing that could tackle illegal flows of money. The mere fact that HSBC has appointed him reflects the bank’s belief that doing nothing to prevent money laundering, turning a blind eye to it or even (in some cases) welcoming it, are no longer options.

VulnerabilityThe authorities around the world – but especially in financial centres such as the UK and US – are looking ever closer at those working in finance and their vulnerability to money laundering.

In the UK, the Joint Money Laundering Initiative Taskforce (JMLIT), set up as a pilot last year, is now to become a permanent and increasingly strong weapon in the battle against money laundering. JMLIT was developed between the UK government, the British Bankers Association, law enforcement agencies and more than 20 UK and international banks. The aim was to discover, analyse and then disrupt the ways financial systems could be used for money laundering, as well as bribery and terrorist financing.

In announcing JMLIT would become a permanent body, the National Crime Agency (NCA) said it had led directly to

WHY THOSE IN FINANCE MUST TACKLE MONEY LAUNDERING

With the authorities looking for more ways of tackling money laundering, Aziz Rahman explains why those working in finance must stop it for themselves.

21 arrests for money laundering, 544 investigations of bank customers suspected of money laundering, the identification of 1,999 suspicious accounts and heightened monitoring of 573 accounts and closure of 336 accounts.

ScrutinyThe figures look good for the NCA. But they should also be taken as a stark indicator that the financial professional sector is under more scrutiny than ever – and the penalties can be huge. What also has to be remembered is that any investigation into money laundering does not begin and end at the door of a bank or financial institution.

Anyone involved in the movement, concealment or spending of the proceeds of crime faces prosecution under the Proceeds of Crime Act (POCA) 2002 as an investigation fans out to cover all parts of the money laundering trail. Lawyers, those working in stocks and shares, the property sector and dealers in luxury goods, art or other “high end’’ investments are among those who can be implicated if they fail to make proper checks on the origins of the money they are handling. And involvement in money laundering can mean sentences of up to 14 years’ imprisonment under POCA. Even a failure to report knowledge or suspicions of money laundering can lead to prosecution.

If prosecution is to be avoided then anyone handling other people’s money need to ask some basic, important questions before proceeding further with any suggested transaction.

Where has the money come from? Who is its rightful owner? And how did they acquire it? Are there any unusual or unexplained conditions attached to the deal that is being requested? Is the request made suddenly, with no prior discussion? Does the deal make commercial sense for the person requesting it? Has the person requesting the deal’s completion been subject to any checks now or before any previous deals? Is this is the first time they have used a particular person or company for the deal? And, if so, why?

RegulationsMost of the professional sectors that are likely to be affected by money laundering investigations have obligations placed on them by the Money Laundering Regulations 2007.

The Regulations cover businesses or sole traders that:

• Exchange currency, send money or cash cheques.

• Accept cash payments of over 15,000 Euros.

• Form trusts or companies or arrange directorships, trustees or business addresses.

• Provide accountancy, auditing or tax advice services.

• Act as estate agents.

The Regulations require such businesses to introduce certain controls to prevent them being used for money laundering. Such measures include assessing the risk of the business being used by people to launder money, checking the identity of customers and ‘beneficial owners’ of corporate bodies and partnerships, monitoring customers’ business activities and reporting anything suspicious to the NCA.

ManagementBut such measures can only be effective if those obliged to execute them have proper management systems in place. Are all relevant financial documents kept and correctly filed? Has a full risk assessment been carried out to identify and then remove the potential for a business to be used for money laundering? Are employees aware of the obligations placed on the business by the Regulations and by POCA? And have they had adequate training to help them identify and report possible money laundering?

If a business is covered by the Regulations, it must appoint a nominated officer to whom staff can then report any knowledge or suspicion of money laundering. The nominated officer must then review the information they have received and decide if it needs to be reported to the NCA.

The procedures may appear daunting. But legal advice is available for those looking to make sure they meet their obligations under the Regulations. But even if a business is not covered by the Regulations, it should still have in place proper practices to make sure it does not allow itself to be used for money laundering. Failure to have them in place can prove costly.

The way banks and other financial professionals prevent financial crime is outdated. Governments worldwide should pass laws to ensure information sharing between them and those working in finance in order to combat financial crime.

Not my personal view: this is what HSBC's Chief Legal Officer Stuart Levey recently told a banking conference. HSBC has a far from clean reputation when it comes to financial crime: it paid $1.9 billion as part of a global settlement in 2012 for failing to stop drug cartels from pumping at least $800 million through the bank.

But Levey has been Under Secretary for Terrorism and Financial Intelligence at the US Treasury and he believes national secrecy and privacy laws prevent information sharing that could tackle illegal flows of money. The mere fact that HSBC has appointed him reflects the bank’s belief that doing nothing to prevent money laundering, turning a blind eye to it or even (in some cases) welcoming it, are no longer options.

VulnerabilityThe authorities around the world – but especially in financial centres such as the UK and US – are looking ever closer at those working in finance and their vulnerability to money laundering.

In the UK, the Joint Money Laundering Initiative Taskforce (JMLIT), set up as a pilot last year, is now to become a permanent and increasingly strong weapon in the battle against money laundering. JMLIT was developed between the UK government, the British Bankers Association, law enforcement agencies and more than 20 UK and international banks. The aim was to discover, analyse and then disrupt the ways financial systems could be used for money laundering, as well as bribery and terrorist financing.

In announcing JMLIT would become a permanent body, the National Crime Agency (NCA) said it had led directly to

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21 arrests for money laundering, 544 investigations of bank customers suspected of money laundering, the identification of 1,999 suspicious accounts and heightened monitoring of 573 accounts and closure of 336 accounts.

ScrutinyThe figures look good for the NCA. But they should also be taken as a stark indicator that the financial professional sector is under more scrutiny than ever – and the penalties can be huge. What also has to be remembered is that any investigation into money laundering does not begin and end at the door of a bank or financial institution.

Anyone involved in the movement, concealment or spending of the proceeds of crime faces prosecution under the Proceeds of Crime Act (POCA) 2002 as an investigation fans out to cover all parts of the money laundering trail. Lawyers, those working in stocks and shares, the property sector and dealers in luxury goods, art or other “high end’’ investments are among those who can be implicated if they fail to make proper checks on the origins of the money they are handling. And involvement in money laundering can mean sentences of up to 14 years’ imprisonment under POCA. Even a failure to report knowledge or suspicions of money laundering can lead to prosecution.

If prosecution is to be avoided then anyone handling other people’s money need to ask some basic, important questions before proceeding further with any suggested transaction.

Where has the money come from? Who is its rightful owner? And how did they acquire it? Are there any unusual or unexplained conditions attached to the deal that is being requested? Is the request made suddenly, with no prior discussion? Does the deal make commercial sense for the person requesting it? Has the person requesting the deal’s completion been subject to any checks now or before any previous deals? Is this is the first time they have used a particular person or company for the deal? And, if so, why?

RegulationsMost of the professional sectors that are likely to be affected by money laundering investigations have obligations placed on them by the Money Laundering Regulations 2007.

The Regulations cover businesses or sole traders that:

• Exchange currency, send money or cash cheques.

• Accept cash payments of over 15,000 Euros.

• Form trusts or companies or arrange directorships, trustees or business addresses.

• Provide accountancy, auditing or tax advice services.

• Act as estate agents.

The Regulations require such businesses to introduce certain controls to prevent them being used for money laundering. Such measures include assessing the risk of the business being used by people to launder money, checking the identity of customers and ‘beneficial owners’ of corporate bodies and partnerships, monitoring customers’ business activities and reporting anything suspicious to the NCA.

ManagementBut such measures can only be effective if those obliged to execute them have proper management systems in place. Are all relevant financial documents kept and correctly filed? Has a full risk assessment been carried out to identify and then remove the potential for a business to be used for money laundering? Are employees aware of the obligations placed on the business by the Regulations and by POCA? And have they had adequate training to help them identify and report possible money laundering?

If a business is covered by the Regulations, it must appoint a nominated officer to whom staff can then report any knowledge or suspicion of money laundering. The nominated officer must then review the information they have received and decide if it needs to be reported to the NCA.

The procedures may appear daunting. But legal advice is available for those looking to make sure they meet their obligations under the Regulations. But even if a business is not covered by the Regulations, it should still have in place proper practices to make sure it does not allow itself to be used for money laundering. Failure to have them in place can prove costly.

“If prosecution is to be avoided then anyone handling other people’s money need to ask some basic, important questions before proceeding further with any suggested transaction.”

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Official figures from ActionFraud, the national fraud reporting centre, report that £1.2 billion is lost to investment fraud every year in the UK. Pensions is seen as an area where such fraud is increasing.

Part of this is because legal reforms have created a boom in pension liberation. But a worryingly large part of it appears to be due to a lack of anti-fraud measures among many pension funds.

Responsibility Recent research showed that in 2013, 17% of pension funds had experienced fraud. By last year, that figure was up to 37%. The same research reported that more than a quarter of pension fund trustees did not know that they were responsible for fraud detection and prevention. More than a fifth of those funds questioned admitted they were not “actively considering’’ fraud risk.

This means pension funds are fertile ground for those looking to defraud investors – and that the pressure and responsibility is on those who create, manage and invest on behalf of pension funds.

PENSIONS AND THE RISK OF FRAUDWhat those working in pensions must do to avoid being a victim of fraud – or being accused of it.

InvestmentEvery pensions professional has to act in accordance with the wishes of the pension holder. This means carrying out the instructions of the person whose money is being managed. While this may seem relatively straightforward, it is not once you consider the danger of pensions fraud.

Pension funds – and the people who manage them – are attractive targets to those looking to fraudulently obtain large amounts of money or launder their proceeds of crime. Should either of these happen, the pensions professional who failed to prevent it will find themselves under intense scrutiny from the authorities.

Pleading ignorance will be of no use. The dangers of pension liberation have been highlighted at length by HM Revenue and Customs and the Pensions Regulator. And while 37% of pension funds experienced fraud last year, the same research revealed that 40% of pension schemes have not tested their internal controls in the last 12 months - and 47% of pension trustee boards have not received training on mitigating fraud risk.

Should one of those pension funds fall victim to investment fraud, those managing it will find it hard to convince the authorities and their members that they were neither incompetent nor criminal. So what has to be done to avoid such a scenario?

DiligenceIf those managing pensions are to reduce the risk of fraud, they must carry out due diligence. If they are not sure what to do, they must seek appropriate legal advice to assess the danger of criminality and introduce procedures to prevent it.

Investment fraud can take many forms. But regardless of the nature of the “investment opportunity’’ that pension fund managers are being offered, caution has to be exercised on every occasion.

Those managing pension funds need to ask themselves whether the investment opportunity being offered:

• Makes financial sense. Is there evidence that it is a safe, genuine opportunity? Are the potential benefits clearly and adequately explained?

• Has a proven track record. Can the person promoting it produce clear, well-documented records and people who have already benefitted from the scheme?

• Provides guarantees or safeguards regarding profits or returns. And is there clear, verifiable evidence of these returns?

• Is the best possible option. Are there other opportunities out there which are safer and have a better track record?

• Is legal. Business crime solicitors can help devise procedures to prevent a pension fund being vulnerable to fraud but they can also carry out individual fraud assessments on proposals put to fund managers.

VigilantThe research clearly indicates that pension funds are targets for fraud. Clearly, this is not a situation that all pension funds find themselves in. But even the most diligent fund manager needs to remain vigilant regarding the risk of fraud.

The figures indicate that many of those running pension funds are at least honest about the lack of fraud prevention they have initiated. Their next step has to be taking action to remedy this….otherwise their honesty is likely to be called into question should their fund suffer fraud.

Official figures from ActionFraud, the national fraud reporting centre, report that £1.2 billion is lost to investment fraud every year in the UK. Pensions is seen as an area where such fraud is increasing.

Part of this is because legal reforms have created a boom in pension liberation. But a worryingly large part of it appears to be due to a lack of anti-fraud measures among many pension funds.

Responsibility Recent research showed that in 2013, 17% of pension funds had experienced fraud. By last year, that figure was up to 37%. The same research reported that more than a quarter of pension fund trustees did not know that they were responsible for fraud detection and prevention. More than a fifth of those funds questioned admitted they were not “actively considering’’ fraud risk.

This means pension funds are fertile ground for those looking to defraud investors – and that the pressure and responsibility is on those who create, manage and invest on behalf of pension funds.

“Pleading ignorance will be of no use. The dangers of pension liberation have been highlighted at length by HM Revenue and Customs and the Pensions Regulator.”

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10–


InvestmentEvery pensions professional has to act in accordance with the wishes of the pension holder. This means carrying out the instructions of the person whose money is being managed. While this may seem relatively straightforward, it is not once you consider the danger of pensions fraud.

Pension funds – and the people who manage them – are attractive targets to those looking to fraudulently obtain large amounts of money or launder their proceeds of crime. Should either of these happen, the pensions professional who failed to prevent it will find themselves under intense scrutiny from the authorities.

Pleading ignorance will be of no use. The dangers of pension liberation have been highlighted at length by HM Revenue and Customs and the Pensions Regulator. And while 37% of pension funds experienced fraud last year, the same research revealed that 40% of pension schemes have not tested their internal controls in the last 12 months - and 47% of pension trustee boards have not received training on mitigating fraud risk.

Should one of those pension funds fall victim to investment fraud, those managing it will find it hard to convince the authorities and their members that they were neither incompetent nor criminal. So what has to be done to avoid such a scenario?

DiligenceIf those managing pensions are to reduce the risk of fraud, they must carry out due diligence. If they are not sure what to do, they must seek appropriate legal advice to assess the danger of criminality and introduce procedures to prevent it.

Investment fraud can take many forms. But regardless of the nature of the “investment opportunity’’ that pension fund managers are being offered, caution has to be exercised on every occasion.

Those managing pension funds need to ask themselves whether the investment opportunity being offered:

• Makes financial sense. Is there evidence that it is a safe, genuine opportunity? Are the potential benefits clearly and adequately explained?

• Has a proven track record. Can the person promoting it produce clear, well-documented records and people who have already benefitted from the scheme?

• Provides guarantees or safeguards regarding profits or returns. And is there clear, verifiable evidence of these returns?

• Is the best possible option. Are there other opportunities out there which are safer and have a better track record?

• Is legal. Business crime solicitors can help devise procedures to prevent a pension fund being vulnerable to fraud but they can also carry out individual fraud assessments on proposals put to fund managers.

VigilantThe research clearly indicates that pension funds are targets for fraud. Clearly, this is not a situation that all pension funds find themselves in. But even the most diligent fund manager needs to remain vigilant regarding the risk of fraud.

The figures indicate that many of those running pension funds are at least honest about the lack of fraud prevention they have initiated. Their next step has to be taking action to remedy this….otherwise their honesty is likely to be called into question should their fund suffer fraud.

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Documents

PREVENTING FRAUD AND MONEY - Rahman Ravelli...way individuals and departments work – both independently and with colleagues and third parties – can make it harder for illegal acts