– 1 –

www.rahmanravelli.co.uk

INVESTMENT FRAUDA SPECIAL RAHMAN RAVELLI REPORT

What it is, how to defend yourself against allegationsand the issues at stake.

Investment fraud is a huge topic. Here, we give an insight into it and explain what assertive and eff ective defending in investment fraud cases should look like. It is a specialist area of criminal litigation which requires handling by those with the

appropriate expertise and experience.

Building a strong case is what eff ective, proactive defending in investment fraud cases is all about. Positive case building has to be the ethos in any complex fraud department – it certainly is in ours

– because fraud, unlike many other off ences, does at least off er the chance for pro-active defenders to deploy their skills at an early stage to increase the chance of a positive outcome.

In our fi rst article here, we look at a central theme of investment fraud defence.

Edition 038 / March 2016eBookSerious Fraud, Regulatory and Complex Crime Lawyers

– 2 –

www.rahmanravelli.co.uk

INVESTMENT FRAUD AND DISHONESTYWhen it comes to defending investment fraud cases, you have to go back to basics. After all, the jury will. No matter how complex the allegation or how diffi cult the subject matter may be to the average juryman or woman, there is really only one issue at the end of the day: those 12 people of the jury have to consider whether the defendant in the dock is honest or dishonest.

Whether it’s a Fraud Act prosecution, a conspiracy to cheat or a conspiracy to defraud case, the prosecution fails unless the jury is persuaded, to a very high standard, that the intent of the defendant was a dishonest one: not only was the investment scheme a dishonest one, but the defendant knew it and dishonestly took part.

GhoshThat question of dishonesty is always a matter of fact for the jury, and it always relates to the defendant’s state of mind – not his conduct. In Ghosh [1982] QB 1053, the Court of Appeal set down the correct approach.

It is a two-stage test. The jury must be directed fi rst of all to decide whether; “according to the ordinary standards of reasonable and honest people what was done was dishonest” (this is assuming ‘what was done’ is proven). If so, the jury then goes on to consider whether the defendant “himself must have realised that what he was doing was by those standards dishonest….”. This is the so-called objective/subjective test of putting a reasonable ordinary man in the shoes of the defendant.

In theory, it is for the prosecution to prove dishonesty by applying the Ghosh test. In reality, there will often be a pressing need for the defendant to show either honesty, or a clear lack of

dishonesty. There must be a pro-active defence case in investment fraud cases.

AnalysisWe all know from life experience that gauging someone’s credibility, their honesty and integrity is not something that is easily assessed by dry recital of facts. Juries do not live in a vacuum and just because they have to decide facts on disputed evidence does not mean they will not apply their own life experiences to the task at hand. That reality appears to be often overlooked in fraud cases.

Demonstrating honesty requires tapping into the ‘human condition’. Getting the jury to understand the peculiarities of the defendant’s nature

– 3 –

and the circumstances which led him or her to the dock requires understanding. The jury are not trying to figure out who pulled the trigger or assess if consent was really given in a sex case. Matters in investment fraud can be much more subtle. Fraud defences will usually require a deeper analysis of the facts and the personalities – and preparation and presentation skills.

The more astute defendants understand this. They are often concerned that the jury will simply not understand them and will not appreciate the need for the complex financial arrangements that are being presented to them as evidence of money laundering. Those defendants know that their explanations are long and complex and require an understanding of their trade, relationships with co-defendants and personal backgrounds. It not only about a ‘knowledge’ of facts, but a real understanding of how, for example, accountants audit accounts or how investment brokers earn their fees.

The UNES PrincipleAt Rahman Ravelli, our lawyers are skilled in looking for, and bringing to the fore, those key features so that the jury might first have some UNDERSTANDING of our client, and

then move onto EMPATHY, so that they are truly imagining what it is like to be in the client’s shoes. That is often enough, as all that is needed for a successful defence is ‘reasonable doubt’ about the Crown’s claims.

But often we can go further so that the understanding and empathy engender a SYMPATHY from the jury for our client’s position. That is the aim. This is our firm’s UNES Principle; it works and is the guiding principle in building our investment fraud defence.

As will be seen the components of the UNES Principle have to be found – see the article below on unused material. If they cannot immediately be found in the prosecution’s case then the defence solicitor has to go and obtain them elsewhere. That is where defence witnesses need the most careful consideration; including defence experts.

ExpertsOf course, the defence can use experts to demonstrate industry norms and accepted practice. But experts can not only help build the defence, they can also provide the ammunition for the counter-attack.

So, for example, an accountant in trouble in a conspiracy to cheat allegation can use an independent

accounting expert to help explain to the jury what would be professionally expected of an accountant in such a situation. Such an expert can emphasise how the defendant appears to have complied with all the regulatory requirements with little that would stand out as unusual or odd.

But that only goes so far because the jury might know there was indeed a fraud. For example, if a co-defendant has pleaded guilty, the only question is was the accountant (our client) involved? In that situation experts can really come into their own by an examination, for example, of other business in the defendant’s firm. This would involve a comparing and contrasting not just with industry norms but how, day to day, the evidence shows that the defendant did nothing different than he or she did for any of their other clients. The point can be made that these aspects were never properly assessed by the prosecuting authorities – thus providing the defence with a strong counter-attack.

This kind of counter-attack also helps engender the empathy part of our UNES Principle. It always helps when the jury is able to empathise with the man in the dock and see him as simply a person doing their job – maybe imperfectly but not dishonestly.

www.rahmanravelli.co.uk

– 4 –

www.rahmanravelli.co.uk

INVESTMENT FRAUD AND THE IMPORTANCE OF DEFENCE CASE STATEMENTSDefence case statements are taking on increasing importance in criminal litigation. This is especially so where there are huge amounts of unused material; as there always will be in an investment fraud case. The prosecution will have a lot of material that is not a part of their case – the unused material.

The prosecution must disclose material that assists the defence case as pleaded in the defence case statement or which undermines the Crown’s case. It is, therefore, vitally important that care and skill is used in drafting the defence case statement, as it is that document which will prompt further disclosure.

The MG6COf course, the Crown might fail to see the signifi cance of a point in the defence case statement and not properly disclose material that could assist the defence case. That is what the MG6C is for. The MG6C is the prosecution’s schedule of unused material. All material seized or gathered in by the investigators must be either used in the case, returned or listed as unused in the MG6C – in an investment fraud case the MG6C will usually be a very lengthy document.

If the prosecution don’t want to use particular documents or material then you can be sure, in an investment fraud case, that there will be material in there that the defence can fi nd a use for. For example, there may be reams of material about similar transactions to the ones under scrutiny which raise no concern at all or other evidence that indicates that patterns of behaviour highlighted as suspicious are, in fact, quite typical.

There will be email chains that appear odd if the defendant was a dishonest schemer. There may be reams of mundane emails, calls, texts and Facebook messages between co-defendants and others happening at key times which, if the allegations were true,

might be thought to include our client. But analysis – and proper use – of them may help convince a jury that a defendant might be an honest fool rather than a dishonest rogue.

Disclosure and Digital Unused MaterialMany investment frauds will be huge in terms of the paperwork (in digital format) produced in the course of the investigation and used in the trial by the prosecution – the “used’’ material. But the “unused’’ will be monumental. There will often be a vast quantity of what is called “digital unused material’’. This is simply material stored on computers and the like that have been seized and examined and which the prosecution are not relying on.

In July 2011, the Attorney General

produced Supplementary Guidelines on disclosure in relation to digitally stored material. That document, coupled with Lord Justice Gross’ Review of Disclosure, provides defenders with ammunition to positively engage and infl uence the way investigators handle the seized digital material. There is also now further Attorney General Guidance; which was issued in December 2013.

The prosecuting body, be it the police, Serious Fraud Offi ce (SFO) or any other organisation, cannot look at every single item of digital material seized. But they must be seen to have examined it all somehow to comply with their duty of balanced investigation. Thus, as per the AG’s Guidelines the investigators use key word searches seeking ‘hits’. The defence can ask the Crown to explain why it is looking for certain key words

– 5 –

www.rahmanravelli.co.uk

in digital searches. This is a little-known power. But it is one that can help defenders understand the mind-set of those conducting the searches and make their own search term requests in response. The defence should also be supplying their own key word suggestions for digital searching.

SeizureThe seizure of numerous computers by prosecutors from suspects can cause real practical problems in terms of scheduling the material on the computers even though the MG6C should technically include all the material on the seized computers. Somewhere in there may be emails, documents letters and so on that help the defence case or weaken the prosecution’s case. But how is it found?

The answer is by ensuring that the investigators do their key word searches properly – and prove it. Critically, the prosecution must properly schedule all the digital unused material in the MG6C. This is vital. Scheduling, using broad generic terms, e.g. “emails from A Ltd to various investors in May 2013” is all that is required under the Guidelines and the Gross Review. Even so that requirement may be an onerous one for the investigators – and it is a duty that they have often failed at in recent times; leading to failed prosecutions.

Our experience is that different prosecution teams will take a different approach to the issue of digital unused material. Failing to properly apply the Guidelines can be fatal. Concerns about the disclosure process cannot be cured by warnings to the jury or the exclusion of evidence. If the disclosure process is not working properly then it is difficult for the Crown to argue that there can be a fair trial …and no fair trial equals no trial at all.

Operation AmazonThe AG’s 2013 Guidelines, the Gross Review and the problems investigators and prosecutors face in coping with huge amounts of seized digital material was considered in the ‘Operation Amazon case; R v R & Others [2015] EWCA Crim

1941. The Court of Appeal, led by Leveson LJ, upheld all the principles established in the AG’s Guidance and the critical importance of the prosecution “getting it right first time” (a concept introduced by Leveson LJ in his 2015 Review of Efficiency in Criminal Proceedings). The Court was rightly concerned that defendants might take advantage of the high standards required for proper administration of seized digital material by providing an “incentive… to undermine the prosecution by creating hurdles to overcome all in the hope that, at some stage, a particular hurdle will cause it to fail.”

The concerns that some defenders have are that their demands on the prosecution may be seen as the ‘game-playing’ that Leveson LJ was concerned about. The risk is that proper caution turns into full-scale simple timidity so that the proper demands are not made. We believe the solution is simple. It is early, full and effective preparation, especially in the taking of instructions leading to the drafting of the defence case statement. That early defence building

deflects any kind of criticism.The fact is that the prosecution have

to meet the demands of proper handling of disclosure. These standards are high. If the defence can demonstrate that they have advanced their defence early and strongly then the prosecution cannot complain about improper tactics or come up with silly excuses for their failings. The Crown’s duty is to meet the demands of a fair trial, not find an excuse for there not to be one. This was endorsed in R v R where it was again stated that “it is essential that the prosecution takes a grip on the case and its disclosure requirements from the outset.” Our experience in many investment cases is that such a grip is sometimes missing.

It is absolutely vital in investment fraud cases, therefore, that defenders are completely on top of the demands of the AG’s 2013 Guidelines from Day One – and can see how they can affect their client’s case. This means the lawyers must take the client through disclosure documents and, in particular, the MG6C at an early stage.

– 6 –

www.rahmanravelli.co.uk

INVESTMENT FRAUD AND REGULATORY ISSUESMany of our clients who are facing possible investment fraud prosecution are professional people who are regulated by a supervising body; either personally or through their company, or in some cases both. There is an interface between the civil regulatory process and criminal litigation. That meeting of processes can sometimes produce fault lines which can be exploited. This is a particular feature of many investment fraud investigations.

Pension FraudA good example of how regulatory issues can have a significant impact on a prosecution is a pension fraud case that was heard in Birmingham in 2014. Those selling pensions are regulated by the Financial Conduct Authority (FCA). Those administering pensions are regulated by the Pensions Regulator (TPR) – and to a limited degree the FCA too. The FCA is the firewall protecting the consumer against mis-selling; the TPR is the firewall protecting the HM Revenue and Customs (HMRC) from improper pensions attracting tax relief.

The case centred on whether the pension schemes being offered were truly “pensions’’ and whether tax relief – known as “Relief at Source’’ (RAS) could, therefore, properly be claimed. In fact the Finance Act 2004 sets out the circumstances in which HMRC must pay out RAS and s150 provides a definition of “pension scheme”. The Birmingham case was thrown out at half time following submissions on the Finance Act and other regulatory provisions. The prosecution’s appeal was un-successful. A significant reason for the failure of the case was that under the Finance Act the individual investors were making proper contributions – despite allegations that they had been conned.

This pension scheme was registered with the TPR. Thus, all the formal statutory and regulatory boxes were ticked so the scheme under consideration was, by definition, a pension scheme. It therefore followed that the tax relief, the RAS, was properly payable as a matter of law and was lawfully obtained. HMRC

had simply cast their case improperly as they had not understood the technical regulation of pensions. It was a proper consideration of the statutory and regulatory provisions of the pensions industry that saved the day for the defence.

Given that allegations of pension fraud by small FCA-registered firms offering SIPP pensions are the flavour of the month, we fully expect that there will be many more cases like this where HMRC’s case demonstrates a flawed understanding of technical regulation. And we expect that our clients, working with our lawyers and possibly outside experts, can expose this HMRC weakness to our positive effect.

Regulatory InvestigationsVery often regulators, such as the FCA, will conduct their own investigations and even conduct civil/regulatory interviews before turning the case over to HMRC or others when they believe the case might be a criminal one.

In many cases, the regulator will work hand in glove with the police. This usually makes complete sense. But great

care has to be taken by the police, HMRC or other bodies in such situations so that, for example, civil regulatory powers are not misused to gather evidence actually intended for a prosecution. The right to a fair trial guaranteed by Article 6 of the European Convention means that a suspect can simply refuse to answer questions. He has the right not to incriminate himself. That Article 6 right is simply stated but can, in fact, be very complex in its operation.

In R v F [2009] EWCA Crim 1639 the Financial Services Authority (FSA) and SFO were conducting an investigation. F was an Independent Financial Advisor charged with investment fraud offences. The police, who had been working with FSA, applied to the Crown Court for a Production Order for bank accounts. The application was refused.

The FSA later applied to Magistrates’ Court for a search warrant but did not disclose the fact of the previous Crown Court refusal. That failure to disclose, and the FSA’s subsequent action, led the trial Judge to stop the case as an abuse of process. The prosecution were saved – just – by an appeal to

HMRC had simply cast their case improperly as they had not understood the technical regulation of pensions. It was a proper consideration of the statutory and regulatory provisions of the pensions industry that saved the day for the defence

– 7 –

www.rahmanravelli.co.uk

the Court of Appeal. The Appeal Court re-iterated that in circumstances such as these the regulator had to be careful, or in the Court’s word ‘mindful’ of the requirements of a fair criminal trial.

We are always surprised at this fi rm where there is lack of concern about a regulator providing information to the police or other body. In R v Kearns [2003] 1 Cr. App. R 7 the Court of Appeal considered the position where material was produced under compulsion for one apparent purpose but actually used for another – a criminal prosecution. The Court found that much depends on the true purpose of the disclosure demands: i.e. whether (a) the information demanded was factual or an admission of guilt and whether (b) the demand for the information and its subsequent use in proceedings was proportionate to the particular social or economic problem that the relevant law was intended to address.

DiscretionThis second part of the test suggests a degree of discretion. In R v K [2009] EWCA Crim 1640 K had disclosed

certain tax off ences as part of ancillary relief proceedings in a divorce case. He was then prosecuted. The Court of Appeal found that K had had to provide information under pain of imprisonment, and though there were circumstances where the “social purpose” of admitting such evidence in a criminal prosecution was proper, protecting the Revenue was not one of them.

So it can be seen that where a criminal investigation has involved the use of a regulator working with the criminal investigators, should be astute in identifying whether civil/regulatory powers are being inadvertently misused. These points are often missed.

Company InvestigationsThe pitfalls that can exist when there are parallel proceedings of the type described above are, to a lesser degree, also present where a company conducts an investigation into someone; usually a senior employee.

Back in 2008, this fi rm was involved in Cancer Research UK v Morris & Morris [2008] EWHC 2678 (QB). In that case, a senior employee was accused of

defrauding his employer. The employer took certain investigative measures including interviewing the employee before suspending him and calling in the police. The employer then issued civil proceedings freezing the assets of the employee and his wife. We represented the employee at his High Court hearing in response to the freezing order and successfully argued that the provision in the order for the release of interview notes to the police was unlawful as the employee had a right not to incriminate himself under Article 6 and, as no caution was given, the police could not be given the interview material.

We were recently involved in a signifi cant money laundering case where a bank employee tipped off the authorities about a suspicious transaction. The employee was then used by the police to provide information to them about confi dential banking activity – without bothering to secure a Production Order from a Judge, which is the usual means of securing confi dential information. That formed a central part of our defence case statement and the case was dropped because of evidential diffi culties.

– 8 –

www.rahmanravelli.co.uk

CHALLENGING INVESTMENT FRAUD ALLEGATIONSVery often we will be dealing with clients, individuals or companies pre-charge. This is when early defence building can really begin earnest.

In 2013, a London police offi cer stopped a man on the street who was carrying a large amount of cash to a bank. The money was seized. The money came from a nearby money service bureau – a cash business. The police decided to investigate the entire business and obtained a Production Order to that eff ect. This fi rm caused that Order to be quashed in proceedings at the Woolwich Crown Court.

MistakesThe facts are long and complex but the point is simple. The police can, and frequently do, make mistakes in securing pre-charge investigative orders. They are not lawyers and yet they insist on going to Court and present evidence without the defence being present. The procedural demands for such without notice hearings are high – and when the

police, HMRC or other body get it wrong it can be fatal to their order.

The Lord Chief Justice himself has eff ectively encouraged the police to start using lawyers to ensure that they get things right; see R (Golfrate Property Management Ltd & Dr. Gulam Adam) v Southwark Crown Court & Commissioner for Police for the Metropolis [2014] EWHC 840 (Admin). However, our experience is that the investigators still do not call in their lawyers at the early stage and continue to make mistakes in securing their orders.

This is important because, very often, we fi nd that what most vexes our clients is that they have been restrained by a Restraint Order: an order secured at a hearing that they had no input into, which is having a damaging eff ect on their business and which is going on for far too long. In every case where there is a Restraint Order in place consideration

needs to be given to an application to discharge the Order.

Restraint OrdersUp until May 2015 last year it was fairly easy for a prosecutor to secure a Restraint Order. All that had to be shown was there was a reasonable cause to believe that the alleged off ender had benefi ted from his criminal conduct. Since 1st June 2015, the test is now even easier as s40 was amended by the Serious Crime Act 2015 so that now all the prosecution has to show is that there are reasonable grounds to suspect an alleged off ender benefi ted from criminal conduct.

But it is little known that, at the same time, Parliament introduced a reporting requirement in order to beef up the powers of the Court to stay a Restraint Order where the police have not charged within a “reasonable time”.

Under section 41, the Court must impose a reporting requirement at the time of making the Order unless the Court decides not to do so and gives reasons for that decision (new subsection (7C)(a)).

These reporting orders can give the defence a valuable insight into what exactly the police have been doing in their investigation. If not much is revealed then there is a case for discharging the Restraint Order.

The topic of challenging pre-charge orders such as Restraint/Production and Search Warrants is a huge one and not one that can be explored in any depth here. But we can say that in investment fraud investigations there is likely to be extensive use of such pre-charge tools and lengthy delays in completing the investigation. Pro-active defence builders should be utilising their right to challenge in appropriate cases. It can sometimes make the diff erence between being charged or not.

– 9 –

www.rahmanravelli.co.uk

Head Office

Roma House59 Pellon LaneHalifaxWest YorkshireHX1 5BEUnited KingdomTel: +44 (0)1422 346666Fax: +44 (0)1422 430526enquiries@rahmanravelli.co.uk

DX 16001 Hx1

Rapid Response Team 24 Hour Emergency ContactTel: 0800 5593500

London Office

One Fetter LaneLondonEC4A 1BRTel: +44 (0)203 4405 515enquiries@rahmanravelli.co.uk

Rapid Response Team 24 Hour Emergency ContactTel: 0800 5593500