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2017: A YEAR IN BUSINESS CRIME Aziz Rahman casts his eye over events of the past 12 months and analyses what we can learn from them.

13 December 2017

Another year over. And are we any the wiser when it comes to business crime?

In a way, we are. We have learnt the outcome of some of the major investigations that were ongoing at the start of the year. But I think we can also look at some of the events of 2017 as indicators of what we can expect in 2018 and beyond.

When we came into 2017, there were two major, high-profile cases that had yet to be concluded that appeared to be coming to an end. Rolls-Royce had been under investigation for years after compelling evidence came to light that it had used bribery extensively to secure contracts around the world for a number of years. And Tesco was still being investigated over the accounting scandal that had seen the supermarket giant hit the headlines for overstating profits in 2014 by £326M.

2017 will go down as the year that both companies escaped prosecution in 2017 – despite both being found to have clearly done wrong. Instead of being prosecuted, both were granted a deferred prosecution agreement (DPA).

DPA’s

Introduced under Schedule 17 of the Crime and Courts Act 2013, DPA’s are available to the Crown Prosecution Service (CPS) and the Serious Fraud Office (SFO) and allow a prosecution to be suspended for a defined period provided the organisation meets certain specified conditions.

They can be used for fraud, bribery and other economic crime and apply to organisations, not individuals. A DPA gives a corporate a chance to make reparation for its criminal behaviour without being convicted. Any DPA has to be concluded under the supervision of a judge, who must be convinced that the DPA is in the interests of justice and that the terms of it are fair, reasonable and proportionate.

Tesco and Rolls-Royce each gaining a DPA meant that they paid a fine and agreed to introduce certain changes to the way they work but, crucially, did not face criminal charges. They were not the first companies to gain a DPA in the UK. Rolls-Royce was the third and Tesco the fourth. But they were arguably the highest profile DPA’s so far. And the fact that both companies obtained one is due largely to their willingness and ability to negotiate and cooperate with the Serious Fraud Office (SFO).

Every case is different and no company investigated by the SFO will be in exactly the same position as either the supermarket giant or the aircraft manufacturer. But when it comes to obtaining a DPA, both Rolls-Royce and Tesco were open and proactive when it came to identifying the problems and cooperating with the SFO. This has to be considered by any company that looks to obtain a DPA in the future.

Liability

What may also become an increasingly important feature in the future is the split between corporate liability and individual liability. The fact that Tesco and Rolls-Royce were not charged does not necessarily mean that their employees will not be charged. The SFO will make a decision in 2018 on whether to charge any Rolls-Royce individuals, while three former Tesco directors have been on trial in late 2017; charged with fraud and false accounting.

If we are to learn anything from this, therefore, it is that individuals in a company that is investigated have to seek their own expert legal representation. If and when an investigation commences into suspected wrongdoing at a company, the individuals will be treated as separate to the company itself. As a result, those individuals will be questioned and may face allegations unique to them: they cannot rely on the company or its in-house lawyer to give them the best and most appropriate legal representation.

Tax

In what appears to be an almost virtual re-run of the 2016 Panama Papers scandal, the similarly-named Paradise Papers scandal of late 2017 saw the financial and tax affairs of 120,000 companies and individuals leaked.

It brought the issue of non-payment of tax back into the headlines. For all the protests and accusations prompted by the Papers, it remains to be seen if prosecutions will follow. But it already can be seen as a sharp warning that those in business and finance now have far fewer hiding places when it comes to their financial dealings.

A particularly pointed reminder of this came in September 2017, when the Criminal Finances Act introduced two new criminal offences: one applying to the evasion of UK taxes and one applying to the evasion of foreign taxes. Both offences hold corporations and partnerships criminally liable when they fail to prevent their employees, agents or other representatives from criminally facilitating tax evasion.

A company can face unlimited fines if found guilty. The only real defence available is that the company had reasonable prevention procedures in place to prevent the offence being committed here or abroad. Turning a blind eye to such activity is no longer an option.

Whether it be through a huge leak of data, such as the Paradise Papers, or closer scrutiny by the authorities, any financial wrongdoing is far likelier to be uncovered now than it was only a decade ago. And, with our forward-looking head on, it can only be the case that we will see more and more companies and individuals having to explain their tax affairs.

Scrutiny

If 2017 has had a trend, therefore, it has been scrutiny. From Tesco and Rolls-Royce paying the price of wrongdoing after coming under scrutiny through to the close examination of those involved in the Paradise Papers and the penalties that many have paid this year for their illegal financial activities, one thing is clear – business is being watched very closely. Arguably, closer than ever before.

2017 has seen a raft of banks across the world accused of money laundering; with many being fined millions. This year has also witnessed the implementation of the Fourth Money Laundering Directive, which requires far greater scrutiny of financial transactions across the EU. The past 12 months have also seen many countries announcing tougher scrutiny of those looking to do business within their borders.

Tighter regulation of business – and enforcement of this – has been an ongoing issue for a number of years. 2017 has been a year where this trend has continued at speed. Major bribery and corruption cases have been brought this year relating to the activities of the gas and energy sector around the world and massive fraud has been identified in the NHS and charities; with even the Red Cross saying its own officials defrauded it out of $6M during the Ebola crisis.

While the places, the sectors of business and the types of organisation may have varied widely, 2017 has seen many coming under scrutiny – and many of those have paid a price, as a result. If we look towards 2018, therefore, everyone in business must do all they can – and seek all necessary help – to make sure they remain on the right side of the law.

Authors


Azizur Rahman
Senior Partner
aziz.rahman@rahmanravelli.co.uk
+44 (0)1422 346666


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