Corporate and fraudulent behaviour Flashcards
(17 cards)
What is Insider Dealings
Insider dealing involves using confidential, price-sensitive information to buy or sell shares or securities before that information is made public.
Governed by Section 52 of the Criminal Justice Act 1993.
It is a criminal offence and can only be committed by individuals, not companies.
Applies both when an individual deals themselves and when they tip off another person to deal.
⚠️ Key criteria:
Information must be non-public.
Information must be price-sensitive.
The person must have acquired it by virtue of their position (e.g. director, employee, advisor).
Insider Dealings Impact on Company Law and Market Integrity
Insider dealing is a form of corporate fraud and is treated seriously because it:
-Undermines trust in financial markets.
-Gives unfair advantage to insiders over public investors.
-Breaches fiduciary duties of loyalty and good faith.
Falls under the broader regulatory framework of Market Abuse, regulated by the Financial Conduct Authority (FCA).
💬 Market Abuse includes:
Insider dealing
Unlawful disclosure of inside information
Market manipulation
Defences to Insider Dealing
Under the Criminal Justice Act 1993, three key statutory defences may be available:
✅ The individual did not intend to make a profit or avoid a loss.
✅ The individual reasonably believed the information was already generally available.
✅ The individual would have acted the same way even without the information.
Consequences and Penalties of Insider Trading
As a criminal offence, insider dealing carries significant penalties:
On summary conviction, the maximum sentence is 6 months imprisonment.
On conviction on inictment, the maximum sentence is 7 years imprisonment.
There can also be unlimited fines.
It is also considered a breach of fiduciary duty.
What is Market Abuse
Market abuse is described as improper conduct in relation to investments traded on a financial market.
It involves the misuse of information, the creation of a false or misleading impression, and the distortion of the market.
What is the Prohibited Behaviour Under Market Abuse
Behaviour prohibited includes:
Insider Dealing
Using non-public, price-sensitive information to buy or sell securities.
Also includes tipping off others or inducing them to deal.
Unlawful Disclosure of Inside Information
Sharing inside information outside the proper course of employment, whether or not trading occurs.
Market Manipulation
Engaging in behaviour that gives a false or misleading impression of the supply, demand, or price of a financial instrument.
Includes actions like “pump and dump”, wash trades, or spreading false rumours to influence prices.
What are the Consequences of Market Abuse
The Financial Conduct Authority (FCA) may take enforcement action. The consequences of market abuse can include:
Fines.
Being publicly named and shamed (“name and shame”).
Injunctions.
Restitution.
Money Laundering
Money laundering is the process by which criminals disguise the origins of money obtained through illicit activities (e.g. drug trafficking, fraud, corruption) so that it appears to come from a legitimate source.
It is a crime against the state because it undermines the financial system and helps sustain organised crime.
Key Legislation of Money Laundering
Proceeds of Crime Act 2002 (POCA) – Primary legislation.
Money Laundering Regulations 2007 – Sets out compliance obligations for businesses and professionals.
National Crime Agency (NCA) – Receives suspicious activity reports (SARs).
What are the Three Phases of Money Laundering
Placement
Introduction of criminal proceeds into the financial system.
E.g. depositing large amounts of cash into a bank.
Layering
Moving money between multiple accounts, companies, or jurisdictions to obscure its origin.
Integration
Reintroducing the laundered money into the economy as apparently legitimate funds (e.g. via property purchases, business investments).
What are the Three Offences of Money Laundering under the POCA 2002
Laundering: This refers to concealing, disguising, converting, transferring, or removing criminal property. This is covered under s 327 of POCA.
Failure to report: This offence involves failing to disclose knowledge or suspicion of money laundering where it is known or suspected or there are reasonable grounds for knowing or suspecting. Section 330 of POCA requires a report to be made to the National Crime Agency (NCA), which used to be known as SOCA.
Tipping off: This means making a disclosure likely to prejudice a money laundering investigation. It covers situations where, for example, an accountant informs a client. This is covered under s 333 of POCA.
What are the Sanctions for Money Laundering (Consequences)
Laundering, 14years + Fine
Failure to report, 5years + Fine
Tipping off, 5years + Fine
What’s Bribery
Bribery involves offering, giving, receiving, or soliciting a financial or other advantage to influence the improper performance of a function or duty. It undermines corporate governance, the rule of law, and damages economic development.
What are the Four Key Offences Under the Bribery Act 2010
S1 Bribing another person
Offering or giving an advantage to induce or reward improper performance of a relevant function or activity.
S2 Being bribed
Receiving or accepting an advantage intending or as a reward for improper performance.
S6 Bribing a foreign public official (FPO)
Offering an advantage to an FPO to influence them and gain business advantage. Applies even if the bribe is made through a third party.
S7 Failure of commercial organisations to prevent bribery
A corporate offence: where a person associated with the company commits bribery to gain or retain business, and the company failed to have adequate procedures in place to prevent it.
🧾 A “relevant function” can be public, business-related, or employment-based, performed in or outside the UK.
What are the 6 Defences to Prevent Bribery
Proportionate procedures
Top-level commitment
Risk assessment
Due diligence
Communication (including training)
Monitoring and review
⚖️ The burden of proof is on the organisation. The procedures must be risk-based – no risk, no need for procedures.
What are the Penalties of Bribery
Individual - up to 10 years and fine
Commercial Organisation - unlimited fines/ reputational damage
Hospitality and gifts
Genuine, reasonable, and proportionate hospitality is not prohibited.
However, if it is:
Extravagant or excessive, or
Intended to induce improper performance,
then it may breach sections 1 or 2.
Example: A client offers a lavish day trip and lunch. While possibly acceptable as hospitality, it must be assessed for intent, timing, and reasonableness in context.
