Financial Crime

Question 1

Define Financial Crime and Financial Criminal

Answer 1

Financial crime: any offence involving fraud or dishonesty’; misconduct in, or misuse of info relating to a financial market or handling the proceeds of crime

Financial criminal: someone who has committed a financial crime + has a certain standing within a business

Question 2

Define Corporate Criminal Liability

Answer 2

• corporate structures used by criminals
• prosecution must prove a MENS REA and ACTUS REUS

mens rea = fault element/guilty mind

actus reus = conduct element

i.e. someone must act wrongfully and have a guilty mind to have criminal liabiilty

Question 3

Define separate legal personality

Answer 3

• when a company has been incorporated, it has a legal entity separate from the owners + directors of the company

-the company becomes a legal person + has the rights + obligations to be sued

• the company can be criminally liable through a director’s actions

Question 4

Corp Criminal Liability case - Lennard Carrying Company Ltd v Asiatic Petroleum Company Ltd

Answer 4

Facts:
- Lennard owned a ship that was transporting goods to Asiatic Petroleum Company
- The ship caught fire + sank on the voyage, losing all the cargo
- Asiatic sued the company for the losses made
- The company denied, stating that the director should be liable for this

Held: The court held that because the director is the DIRECTING MIND AND WILL of the company, his fault is also the company’s fault, therefore the company was liable for the losses

Question 5

How to identify the directing mind + will of the company

Answer 5

Identification doctrine:
1. Legal test deciding whether the actions of a natural person can be regarded as those of a legal person

2. Common law required that the offence must be committed by the ‘directing mind and will’ of the corporation to trigger attribution to the corporation itself
3. If the person(s) identified as the directing mind and will of the corporation commits a criminal offence in that capacity, the offence is also considered that of the corporation

Question 6

Case on identifying the directing mind + will of the company - Tesco Supermarkets Ltd v Nattrass

Answer 6

Facts:
- A store employee made a mistake of not applying the discounted price to the product a customer bought

Held: The court held that the store employee is not the directing mind and will of Tesco, therefore it is not liable for his actions.
- A company is only liable for the acts of those who represent its directing mind and will e.g. directors, top executives

Question 7

The Economic Crime + Transparency Act 2023

Answer 7

• Reforms the identification doctrine which tests for corporate criminal liability
• Makes it easier to prosecute companies for economic crime offences
• Aims to enhance accountability within corporate structures, ensuring that companies can be held liable for the economic crimes committed by ppl in significant managerial positions

Question 8

S.196 Economic Crime + Corporate Transparency Act 2023

Answer 8

Attributing criminal liability for economic crimes to certain bodies

• If a senior manager of a corporation acting within the actual or apparent scope of their authority commits a relevant offence, the corporation is also guilty of that offence
• Broadens the scope of individuals whose actions can be attributed to the organisation

Question 9

Penalty under the Economic Crime + Corporate Transparency Act 2023

Answer 9

• Company is criminally convicted + receives a fine
• Individuals who are guilty of the same offence will have a sentence imposed on them
• The max fine depends on the particular offence charged, but an unlimited fine is available for most serious crimes

Question 10

Regulatory Bodies involved in Corporate Crime Enforcement

Answer 10

1. Serious Fraud Office:
   - negotiates the Deferred Prosecution Agreement (DPA) with corporations to allow the company to avoid a criminal trial for a serious economic crime under strict rules
2. Financial Conduct Authority (FCA)
   - Issues financial penalties
3. HM Revenue and Customs (HMRC)
   - Monitoring + enforcing corporate offence of failing to prevent tax evasion
4. Competition + Markets Authority (CMA)

Question 11

Proceeds of Crime Act 2002 (POCA)
- Name + explain s.327

Answer 11

• a person commits an offence if he conceals, disguises, converts, transfers or removes criminal property from the UK
• criminal property constitutes a person’s benefit from the crime or it represents such a benefit and the alleged offender knows or suspects that it represents such a benefit

Question 12

POCA 2002 - s.328

Answer 12

• a person commits an offence if he enters into or becomes concerned in an arrangement KNOWING OR SUSPECTING it to facilitate the acquisition, retention, use or control of criminal property on behalf of another person
• Suspicion: being beyond mere speculation and based on some foundation

Question 13

POCA 2002 - s.329

Answer 13

• a person commits an offence if acquires, uses or has criminal property in his possession
• Possession means physical custody
• Prosecution has to prove that the. property handled is criminal property + it comprises a benefit
• Prosecution must prove that the defendant knows or at least suspects that the property is obtained from criminal conduct

Question 14

Money Laundering - Financial Institutions and regulatory bodies

Answer 14

1. HM Treasury + Home Office
   - Responsible for implementation of Money Laundering Detectives + the execution of the UN’s financial sanctions regime
2. FCA
   - Authority for supervising compliance of most credit + financial institutions withe the Monet Laundering Regulations
   - Enforce Anti-money laundering systems: firms must have AML controls, appoint a senior manager for oversight + designate a Money Laundering Reporting Officer (MLRO)
   - Suspicious Activity Reporting (SAR): firms must train staff to identify + report suspicious behaviour to authorities
3. National Crime Agency (NCA)
   - s.330 POCA 2002: financial institutions are required to report allegations of money laundering to the NCA
   - If a firm suspects that it is being used for money laundering purposes, it is legally obligated to act
   - Must have an MLRO to oversee + manage AML compliance
   - If MLRO deems the suspicion to be valid, they must submit a SAR to the NCA
   - NCA will review info on SAR + determine whether to further investigate or not
4. HM Revenue and Customs (HMRC)
5. Crown Prosecution Service

Question 15

Money Laundering, Terrorist Financing and Transfer of Funds Regulations 2017 (MLR)

Answer 15

Regulation 27: the business must carry out customer due diligence measures when:
- establishing a business relationship
- carrying out transaction that amounts to 15,000 euros or more
- you suspect money laundering or terrorist financing
- you doubt the accuracy or adequacy of docs/info previously. obtained for CDD

Question 16

Money LAundering Sentencing + Recovery

Answer 16

• The max pernatly for offences within s.327-329 of POCA 2002 is 14 years
• A fine may be imposed instead or in addition to imprisonment
• There is no max fine in the UK

Question 17

Regina (FCA) v National Westminster Bank Plc (Natwest)

Answer 17

Facts:
- Natwest failed to properly monitor the activity of a commercial customer
- Over the course of the customer relationship, about £365m was deposited with the bank of which around £264m was in cash
- The bank’s automated transaction monitoring system incorrectly recognised some cash deposits as cheques which carry a lowr money laundering risk than cash
- Red flags raised those handling these cash deposits were ignored

Held: Natwest fined £264m for failing to comply with money laundering regulations
- this is the 1st time the FCA pursued criminal charges for money laundering

Question 18

Fraud Act 2006 section 1

Answer 18

Fraud is the act of gaining a dishonest financial advantage over another person

• The offence can be committed in 3 different ways:
  1. By false representation
  2. By a failure to disclose infor when there is a legal duty to do so
  3. BY abuse of position

Question 19

Fraud Act 2006 Section 2

Answer 19

Fraud by false representation:
A person is in breach of this section if he:
- Dishonestly makes a false representation + intends to make a gain for himself or another or to cause loss to another or to expose another to a risk of loss
- A representation is false if i is untrue or misleading and the person making it knows that
- Representation can be made if it is submitted in any form to any system or device designed to receive, convey or respond to communications e.g. phishing emails
- Actus reus requires proof that a false representation was made
- Mens reus requires proof that the person knew the representation was or might be false, acted intending to make a fain or cause a loss + acted dishonestly

Question 20

Objective Test for Dishonesty: Ivey v Genting Casinos

Answer 20

Facts:
- Ivey visited a casino + won a substantial amt of money over 2 days
- the casino refused to pay out his winnings, suspecting that he had cheated

Held: The court held that Ivey had cheated + that dishonesty must not be judged by Ivey himself, but by the jury
- The test for dishonesty:
1. Determine the actual state of the individual’s knowledge or belief of what counts as dishonesty
2. Whether the conduct was dishonest by the standards of ordinary decent ppl

Question 21

Fraud Act 2006 Section 3

Answer 21

Fraud by failing to disclose info
- A person is in breach of this section if he dishonestly fails to disclose to another person info which he is UNDER A LEGAL DUTY TO DISCLOSE + intend to make a gain for himself or another, or cause loss to another by not disclosing the info

Question 22

Case of Fraud by failing to disclose info - R v Firth

Answer 22

Facts:
- Peter performs a surgical opertaion on Linda at a hospital
- He did not tell the hospital that Linda was a private patient + assuming she was a NHS patient, the hospital did not invoice him for the cost of the treatment

Held: Court ruled he was guilty of deceiving the hospital by not disclosing the patient’s info

Question 23

Fraud Act 2006 Section 4

Answer 23

• A person is in breach of this section if he occupies a position in which he is expected to safeguard or not to act against the financial interests of another person, but dishonestly abuses that position + intends to make a gain for himself or another or cause a loss to another
• A person has abused his position even though his conduct consisted of an omission rather than an act
• e.g. an employee abuses his position to grant contracts or discounts for friends

Question 24

Fraud Regulatory Bodies

Answer 24

1. Serious Fraud Office: Investigates + prosecutes serious and complex fraud
2. FCA: firms regulated by FCA are required to safeguard their customers data and have adequate system controls in place to discharge these responsibilities
3. City of London Police: national lead force for fraud and home to Action fraud, the UK’s national fraud reporting centre
4. HMRC
5. Crown Prosecution Service
6. National Economic Crime Centre (NECC): brings all these regulators together to form a joint response to fraud

Question 25

Fraud Sentencing

Answer 25

Under Section 1(3) of Fraud Act 2006, the max term of imprisonment is 10 years - Unlimited fine

Question 26

Bribery Act 2010

Answer 26

- A bribe is the giving or receiving of a financial or other advantage in connection with the improper performance of ppl in positions of trust - It is an offence to pay or receive a bribe directly or indirectly - The act covers all transactions that take place in the UK or abroad in both public + private sectors - The offence does not have to take place in the UK but the person committing it must have a close connection with the UK - A commercial organisation does not have to be formed or incorporated in the UK, it only has to carry on some part of business in the UK ( but merely being listed on a UK market does not count)

Question 27

Bribery Act 2010 Section 1

Answer 27

An offence of bribing another person: - offering, promising or giving a financial or other advantage to a person to induce a reward a person to perform a relevant function/activity improperly

Question 28

Bribery Act 2010 Section 2

Answer 28

An offence of being bribed: accepting, receiving or requesting a financial or other advantage as a reward for performing a relevant function or act improperly

Question 29

Bribery Act Section 6

Answer 29

An offence of bribery of foreign public officials: Using a bribe to influence a foreign public official to obtain or retain business or a business advantage

Question 30

Bribery Act 2010 Section 7

Answer 30

A corporate offence of failing to prevent bribery: - A commercial org can be found guilty of an offence if a person associated with it bribes another with the intention of obtaining or retaining business or a business advantage for the organisation - Associated persons = any person performing services for or on behalf of the company - Where an organisation commits an offence, senior officers of that org can also be held liable

Question 31

Bribery Act 2010 Section 7 Adequate procedures to prevent bribery

Answer 31

1. Proportionate procedures: procedure should be proportionate to the risk posed, the scale + complexity of the organisation's activities 2. Commitment from top level management: to create a culture where bribery is never acceptable 3. Risk assessment: identify which parts of the firm are most at risk of offering or accepting bribes 4. Due Diligence: put processes in place for checking agents, contractors, consultants and others that may act for or on behalg of the firm OR your firm has a business relationship with to mitigate bribery risks 5. Communication: bribery prevention policies + procedures must be embedded + understood throughout the organisation through communication and training 6. Monitoring and Review: the organisation must monitor and review procedures + make improvements where necessary

Question 32

Bribery Act 2010 Section 3

Answer 32

A function or activity is defined as: - a function of a public nature - any activity connected with a business - any activity performed in the course of a person's employment - any activity performed by or on behalf of a body of persons

Question 33

Case of failing to prevent bribery - Skansen Interiors Limited

Answer 33

Facts: - A director and project manager of Skansen paid bribes to secure contracts to a former project manager at a property company - Skansen discovered the bribery + reported it to the police - But it was prosecuted for failing to prevnt bribery - Skansen argued that the company was small + therefore did not require elaborate systems for its controls to be adequate under the act Held: Skansen did not have adequate procedures to prevent bribery + was convicted under s.7 of BA 2010 - anti bribery policies should be kept up to date + communicated with staff

Question 34

Ministry of Justice guidance on the UK Bribery Act

Answer 34

- The Act does not define boundaries of providing or receiving Gifts and Hospitality, which is a part of business culture - Firms should consider what is appropriate in terms of gifts + hospitality, and avoid it if it may be perceived to influence a business decision - Bona fide gifts and hospitality , or other business expenditure which seeks to improve the image of a business is recognised as an established + important part of doing business + it is not the intention of the Act to criminalise such behavior

Question 35

Bribery Regulatory Bodies

Answer 35

1. Serious Fraud Office 2. Financial Conduct Authority

Question 36

Bribery Sentencing

Answer 36

- A person found guilty of any offences in s.1,2 and 6 is liable to a max sentence of 10 years imprisonment +/or a unlimited fine