Fraud Newsletter 1 – November 2016
Confidentiality: re scope of duty of confidentiality owed by HMRC to tax payers. Breach of duty of confidentiality where Customs briefed Times reporters off the record as to individual participation in tax avoidance film investments schemes: R (Ingenious Media Holdings plc) v HMRC  UKSC 54,  1 W.L.R. 4164.
Concurrent Civil and Criminal Proceedings: guidance on competing interests of potential defendants who took opposing views as to whether stay should be granted where SFO fraud charges overlapped with s393 FSMA references (both the FCA and the SFO sought stays for different but legitimate reasons): Bittar v FCA  UKUT 82 (TCC),  Lloyds Rep FC 559.
Corporate Conspiracy and the Identification Principle: knowledge and intention of director acquired before becoming a directing mind is still attributable to the company: considering St Regis Paper Co Ltd  1 Cr.App.R. 177 (14) where the operations manager who was not responsible to another for the manner in which he discharged his duties i.e. was not under another’s orders and was not a person whose state of mind can be attributed to the company): A Ltd  EWCA Crim. 1469,  Cr.App.R. 1.
JR of SFO Investigation: examines the restricted scope for challenging SFO investigations on the grounds of irrationality, breach of ECHR Art. 8 and minimum standards of disclosure (Directive 2012/13 on the right to information in criminal proceedings Art. 1, Art. 2, Art. 6): R. (Soma Oil and Gas Ltd) v Director SFO  EWHC 2471 (Admin), Crim. L.R. 2017, 65-68.
SENTENCING AND CONFISCATION
Financial Reporting Orders (FROs): an FRO may be appealed to the CA, provided it is within time. There is a residual category of cases where the CA enjoys an implicit power to reopen a concluded appeal to avoid real injustice in exceptional circumstances: Geraghty  EWCA Crim 1523,  1 Cr App R (S) 10.
Green: (17 Nov 2016) solicitor defrauded his firm of £25k over a number of years. However, the firm had also to repay the Legal Aid Authorities £180k in respect of fictitious claims she had made. £30k was attributed to the costs of an internal investigation into her activities. Sentence of 3 years awarded at Cat. 2A: Cat. A (abuse of trust) and Cat. 2 rather than Cat. 3 because of the alleged consequential losses. On appeal reduced to 2 years. Loss must be caused or intended. Here it was not intended. The loss was only £25k in the absence of evidence that any consequential loss was directly attributable to the offence. Consequential loss must be proved to the criminal standard.
Money Laundering and DPAs (Deferred Prosecutions Agreements): Rita Cheung: Money laundering – a new era for sentencing organisations, J.B.L. 2017, 1, 23-50. Evaluates effect and coherence of Corporate Sentencing Guidelines on money laundering, compares with USA, and suggest reforms.
BILLS, STATUTES & STATUTORY INSTRUMENTS
Criminal Finances Bill: (Details and Progress Report)
Part 1 amends POCA and creates a range of new powers to request information and seize monies stored in bank accounts, mobile assets (e.g. jewellery) etc. These include Unexplained Wealth Orders (UWOs) which require a person suspected of involvement with serious criminality to explain the origin of assets that appear to be disproportionate to known income. Failure to respond gives rise to a presumption that the property is recoverable in any subsequent civil recovery action. Making false or misleading statements in response to a UWO is a criminal offence. UWOs will apply even if the predicate crime took place overseas.
The civil recovery powers currently available to the SFO, CPS and NCA will be extended to the FCA and HMRC.
Part 2 extends money laundering and assets recovery powers to terrorist investigations.
Part 3 creates 2 new corporate offences of failure to prevent facilitation of tax evasion. At present, where a banker or accountant criminally facilitates a customer to commit a tax evasion offence, the taxpayer and the banker or accountant commit criminal offences but the company employing the banker or accountant does not. The new offences criminalise the failure of the company (the relevant body) to prevent those who act for or on its behalf from criminally facilitating tax evasion when acting in that capacity. The offence is not committed where:
- The taxpayer engages in aggressive avoidance falling short of fraudulent evasion or is otherwise non-compliant.
- The person on behalf of the relevant body inadvertently or negligently facilitates the taxpayer’s fraudulent evasion of tax.
- The taxpayer’s fraudulent evasion is facilitated by a person who is not acting for or on behalf of the relevant body at the time of the facilitation (e.g. if an employee acting in a private capacity).
- The company has reasonable (not fail proof) procedures in place to prevent those acting for or on its behalf from criminally facilitating the fraudulent evasion of tax, when acting in that capacity. A risk based, rather than zero tolerance, approach is adopted.
- Where tax evasion offences are currently being committed by those acting for or on behalf of a company, the new offences will require nothing more than for that company to have reasonable procedures in place to prevent such offences being committed by those acting for or on its behalf.
The Home Office have published a Factsheet.
Christopher Coltart QC: Failing to prevent the facilitation of tax evasion: challenging times for banks. B.J.I.B. & F.L. 2016, 31(10), 573-574.
Kevin Robinson: Establishing dishonesty. Accountancy 2016, 157(1480), 55.
Impersonation Fraud: The Awards for Valour (Protection) Bill has been endorsed in a Report by the Defence Committee. The Bill seeks to reintroduce and criminalise the unauthorised and deceitful use of military decorations.
CONSULTATIONS, GUIDANCE CIRCULARS AND REPORTS
FCA consultation on its future mission. This includes the interaction between regulation and public policy, and its current role relating to competition, supervision and enforcement.
The Treasury Committee published the FCA’s response to its report on the failure of HBOS:
- FATF: as of 21 Oct 16, FATF (Financial Action Task Force) have identified North Korea (DPRK) and Iran as having strategic deficiencies in their anti-money laundering regimes and HM Treasury have identified them as high risk.
- European Commission published a roadmap on its proposal to amend 4th Money Laundering Directive (MDL4) by introducing minimum rules on money laundering (MDL5). Main amendments relate to enhanced due diligence requirements for high risk countries; requires member states to establish central mechanisms to identify holders and controllers of bank accounts etc. and; new powers to request ML information from firms.
- Joint Committee of European Supervisory Authorities published their Risk-Based Supervision Guidelines under MLD4. These set out what UK (and other) national authorities should do to ensure that the allocation of resources is proportionate to money-laundering and terrorism risks, 16 Nov 2016.
- Basel Committee on Banking Supervision have published a consultative document seeking views on revisions to guidelines on money laundering and terrorist finance risks involving correspondent banking.
Corruption: Hannah von Dadelszen SFO’s newly appointed Joint Head of Fraud spoke at the TRACE Global Anti-Bribery In-House Network (GAIN) Conference, 27 Oct 16.
Currently policy restated: SFO would focus on cases which risk the UK’s reputation as a safe place to do business, taking on the most serious or complex fraud and/or bribery and/or corruption cases. Confirmed SFO’s approach to DPAs: that the proper response of a responsible company wanting to confront issues and move forwards is self -reporting, even though this could be uncomfortable.
SFO: David Green’s evidence to the Justice Select Committee: more specialised economic crime judges; Southwark backlog was unhelpful; reform of corporate liability to even the playing field between large companies and smaller companies; the continuance of the SFO with its multi-disciplinary teams, 25 Oct 16.
Chancellor’s Autumn Statement: Relevant future developments are mainly tax and VAT related and will appear in the draft Finances Bill published on 5 December. These include
- Requirement to register offshore structures and correct under-declaration of offshore interests.
- Strengthening tax avoidance sanctions and deterrents.
- Tackling the hidden economy.
- Additional avoidance and evasion investment in HMRC.
- Update of VAT DOTAS (Disclosure of Tax Avoidance Schemes).
- 30% fixed rate penalty for VAT fraud in Finance Bill 2017.