fraudulent behaviour

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FRAUDULENT BEHAVIOUR Lecturer: Rowin Gurusami Saturday 18 th August 2012

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FRAUDULENT BEHAVIOUR. Saturday 18 th August 2012. FINANCIAL CRIME. Crime is conduct prohibited by law Law tends to be organised on a national basis but financial crime, such as money laundering, can be international in nature, i.e. perpetrated across national borders - PowerPoint PPT Presentation

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Page 1: FRAUDULENT BEHAVIOUR

FRAUDULENT BEHAVIOUR

Lecturer: Rowin Gurusami

Saturday 18th August 2012

Page 2: FRAUDULENT BEHAVIOUR

FINANCIAL CRIME

Lecturer: Rowin Gurusami

Crime is conduct prohibited by law

Law tends to be organised on a national basis but financial crime, such as money laundering, can be international in nature, i.e. perpetrated across national borders

International bodies have to cooperate with one another in order to control financial crimes which spread across borders

Page 3: FRAUDULENT BEHAVIOUR

WHISTLEBLOWING

Lecturer: Rowin Gurusami

Protection provided to people at work when raising proper concerns about civil or criminal offences

Elements:1. Qualifying disclosure2. Made in good faith3. Made to the appropriate person

A worker has the right not to be subjected to ‘any detriment by any act, or any deliberate failure to act’ by his employer as a result of having made a protected disclosure

As such dismissals for having made protected disclosure is automatically unfair dismissal

Page 4: FRAUDULENT BEHAVIOUR

QUALIFYING DISCLOSURE

Lecturer: Rowin Gurusami

Worker must reasonably believe that the information disclosed relates to one or more of the following elements (thus opinions or rumours do NOT qualify) :

- A criminal offence has been committed (or is being committed or is likely to be committed)

- Someone has failed (or is failing or is likely to fail) a legal obligation placed upon him

- A miscarriage of justice has occurred (or is occurring or is likely to occur)

- Health & safety of someone has been (or is being or is likely to be) damaged

- The work environment has been (or is being or is likely to be) damaged

- Information relating to the above has been (or is being or is likely to be) deliberately concealed

Page 5: FRAUDULENT BEHAVIOUR

MADE IN GOOD FAITH & TO APPROPRIATE PERSON

Lecturer: Rowin Gurusami

Intention of the worker must be honest and not as a result of anger, retaliation, payback or some other personal motive

Disclosure must be made to one of the following persons:- Internally to the employer or responsible person- To a legal adviser- To a Minister (for public servants)- To the prescribed person/regulator (e.g. Financial Services Authority, etc.)- To any other persons if it is reasonable given the circumstances & if disclosure is made in good faith (e.g. to the media or police)

Page 6: FRAUDULENT BEHAVIOUR

FRAUD

Lecturer: Rowin Gurusami

Established under the Fraud Act 2006:

1. Fraud by false representation- Dishonesty- False representation of fact/law- Intention to make a gain or to cause loss (or risk thereof)

2. Fraud by failing to disclose information- Dishonestly failing to disclose information- Legal duty to disclose such information- Intention to make a gain or to cause loss (or risk thereof)

Page 7: FRAUDULENT BEHAVIOUR

FRAUD

Lecturer: Rowin Gurusami

3. Fraud by abuse of position- Occupying position whereby safeguarding financial

interests of someone else- Dishonestly abusing of that position- Intention to make a gain or cause loss (or risk thereof)

Maximum penalty is 10 years’ imprisonment and an unlimited fine

Page 8: FRAUDULENT BEHAVIOUR

INSIDER DEALING

Lecturer: Rowin Gurusami

Insider Dealing is the statutory offence of dealing in securities (e.g. shares) while in possession of inside information as an insider, the securities being price-affected by the information if made public

The Criminal Justice Act 1993 contains the rules on insider dealing which is a crime because of its potential to destroy public confidence in the stock exchange

To prove insider dealing, s52 CJA 1993 provides that prosecution must prove that possessor of insider information:1. Dealt in price-affected securities on a regulated market, or2. Encouraged another to deal in them on regulated market, or3. Disclosed the information other than in the proper performance

of their employment, office or profession

Page 9: FRAUDULENT BEHAVIOUR

DEALING

Lecturer: Rowin Gurusami

Dealing is acquiring or disposing of (or agreeing to acquire or dispose of) relevant securities whether directly or through an agent or nominee or a person acting according to direction (s55 CJA 1993)

Offence if individual having information as insider encourages another person to deal in price-affected securities in relation to that information They must know or have reasonable cause to believe that dealing would take place

Irrelevant whether:-The person encouraged realises securities are price-affected-The inside information given to that person-Any dealing takes place; offence is for the act of encouragement

Page 10: FRAUDULENT BEHAVIOUR

INSIDE INFORMATION

Lecturer: Rowin Gurusami

Inside information is ‘price sensitive’ information relating to a particular issuer of securities that are price-affected (s56 CJA)

Inside information must, if made public, be likely to have a significant effect on the price and must be specific or precise

Example of specific information:-Information that a takeover bid would be made by a specific company

Example of precise information:- Details of how much would be offered for shares

Page 11: FRAUDULENT BEHAVIOUR

INSIDER

Lecturer: Rowin Gurusami

Under s57 CJA 93, a person has information as a primary insider if(a) it is (and they know it is) inside information, and(b) If they have it (and know they have it) from an inside source

The information may have been obtained from an inside source:

(i) Through being a director, employee or shareholder of an issuer of securities

(ii) Through access because of employment, office or profession

If obtained through any one of those two categories, individual with information is a secondary insider

Page 12: FRAUDULENT BEHAVIOUR

‘MADE PUBLIC’

Lecturer: Rowin Gurusami

This term is not exhaustively defined by statute, leaving final determination to the Court

Information is made public if:-Published under rules of regulated market-In public records (e.g. Notices in London Gazette)-Can readily be acquired by those likely to deal-Derived from public information

Information may be treated as made public even though:-Can only be acquired by exercising diligence or expertise-Communicated only to a section of public-Acquired only by observation-Communicated only on payment of a fee or published outside UK

Page 13: FRAUDULENT BEHAVIOUR

GENERAL DEFENCES

Lecturer: Rowin Gurusami

Under s53 CJA 93, an individual has defence regarding dealing and encouraging others to deal if it can be proved that:

- They did not expect there to be a profit or avoidance of loss- They had reasonable grounds to believe that the information has been disclosed widely enough to ensure no one would be prejudiced.- They would have done what they did even if they did not have the information

An individual has defence regarding disclosure of information if they can prove that:

- They did not expect any person to deal- Although dealing was expected, profit or avoidance of loss was not expected

Page 14: FRAUDULENT BEHAVIOUR

PENALTIES

Lecturer: Rowin Gurusami

Maximum penalties given by CJA 93 are seven years’ imprisonment and/or an unlimited fine

Transaction/contracts remain valid and enforceable

If insider dealing involves a director, he is in breach of his fiduciary duty and is liable to account to company for any secret profit made

Page 15: FRAUDULENT BEHAVIOUR

FRAUDULENT TRADING

Lecturer: Rowin Gurusami

Fraudulent Trading

- Occurs where the business of a company in liquidation has been carried on with intent to defraud creditors or for any fraudulent purpose (instigated by any individual)

- Civil penalty imposed by s213 Insolvency Act 1986: liable for the debts of the company in insolvency

- Criminal aspect (s993 CA 06) is introduced when business was carried out for the purpose of any kind of fraud

- Required to prove ‘actual dishonesty’

- Knowledge alone is not enough to make someone a party. They must have taken some active step in fraudulent trading

Page 16: FRAUDULENT BEHAVIOUR

MONEY LAUNDERING

Lecturer: Rowin Gurusami

Money laundering is the term given to attempts to make the proceeds of crime appear legitimate (respectable)

Covers any activity by which the apparent source and ownership of money representing the proceeds of income are changed so that he money appears to have been obtained legitimately

The money laundering process involves three phases:-Placement-Layering-Integration

Page 17: FRAUDULENT BEHAVIOUR

OFFENCES

Lecturer: Rowin Gurusami

There are three categories of criminal offences in the Proceeds of Crime Act 2002:a) Laundering (s327)- Acquisition, possession or use of proceeds of criminal

conduct, or assisting another to retain the proceeds of criminal conduct and concealing, disguising, converting, transferring or removing criminal property.

- This relates to its nature, source, location, disposition, movement or ownership of property

b) Failure to report by an individual (s330)- Failure to disclose knowledge or suspicion of money

laundering (suspicion is more than mere speculation, but falls short of proof or knowledge)

Page 18: FRAUDULENT BEHAVIOUR

OFFENCES

Lecturer: Rowin Gurusami

c) Tipping off (s333)- Disclosing information to any person if disclosure may

prejudice an investigation into drug trafficking, drug money laundering, terrorist related activities, or laundering the proceeds of criminal conduct

‘Criminal property’ defined by s3 as property which the alleged offender knows (or suspects) constitutes or represents being related to any criminal conduct

Criminal conduct is any conduct that constitutes or would constitute an offence in any part of the UK

Page 19: FRAUDULENT BEHAVIOUR

DEFENCES

Lecturer: Rowin Gurusami

In relation to laundering, an individual may have a defence if they make disclosure to the authorities:

- As soon as possible after the transaction- Before the transaction takes place Alternatively, if they can show there was reasonable excuse

for not making a disclosure

In relation to failure to report, the person who suspects money laundering must disclose this to a nominated money laundering reporting officer within their organisation or directly to the National Criminal Intelligence Service

In relation to tipping off, it is also an offence if the person making disclosure to NCIS also tells person at the centre of their suspicion of the disclosure. It is a defence if that person did not know that tipping off would prejudice an investigation

Page 20: FRAUDULENT BEHAVIOUR

PENALTIES

Lecturer: Rowin Gurusami

The Proceeds of Crime Act 2002 sets out the following penalties in relation to money laundering:

(a) 14 years’ imprisonment and/or unlimited fine, for knowingly assisting in the laundering of criminal funds

(b) 5 years’ imprisonment and/or unlimited fine, for failure to report knowledge or the suspicion of money laundering

(c) 2 years’ imprisonment and/or unlimited fine, for ‘tipping off’ a suspected launderer

Page 21: FRAUDULENT BEHAVIOUR

2007 REGULATIONS

Lecturer: Rowin Gurusami

Enacted in order to:

- Enable suspicious transactions to be recognised and reported to law enforcement agencies; and

- To ensure that if a client comes under investigation in the future, a relevant person can provide part of the audit trail

Mainly concerns customer due diligence, record-keeping procedures, training, supervision and enforcement

Page 22: FRAUDULENT BEHAVIOUR

PREVENTION

Lecturer: Rowin Gurusami

- Control systems in place to monitor possible money laundering activities

- A Money Laundering Reporting Officer (MLRO) responsible for oversight of anti-money laundering activities and reporting to Serious Organised Crime Agency (SOCA)

- Internal reporting procedures for staff to voice suspicion

- Anti-money laundering training given to all staff who handle transactions that may involve money laundering

- Adequate record on clients (e.g. Copy of evidence of identity and evidence of applicant’s identity must be kept for five years)

Page 23: FRAUDULENT BEHAVIOUR

PREVENTION

Lecturer: Rowin Gurusami

There is legal requirement for organisations to take the following actions:

- Set up procedures and establish accountabilities for senior individuals to take action to prevent money laundering

- Educate staff & employees about potential money laundering- Obtain satisfactory evidence of identity where transaction is

for more than £10,000 (KYC – checking the Office of Foreign Assets Control's Specially Designated Nationals list)

- Report suspicious circumstances- Not to alert persons who are or might be investigated for

money laundering- Keep records of all transactions for five years