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Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539
Rapid Response Team: 0800 559 3500
Switchboard: +44 (0)203 947 1539

Understanding the Risks and Legal Implications of Civil Fraud

Author: Azizur Rahman  22 July 2013
4 min read

Taking a risk-based approach to fraud and other financial crime is the only genuine option open to all professionals nowadays. So why take a chance?

There are many situations that have many of us asking whether it’s worth the risk. Anything from buying a house without having a proper survey through to having an extra five minutes in bed and hoping you can still make it to work on time. We know the potential benefits and we’re aware of the possible downsides. But we always hope we’ll gain the former rather than the latter. In short, we want to be better off for taking the risk.

But taking a risk doesn’t always work out. Just ask the man who put everything on red only for the roulette ball to land on black. The risk didn’t pay off. And it seems as if that is increasingly the case when it comes to companies not protecting themselves against future accusations of financial crime. The law regarding financial crime does not allow much room any more for risk taking, regardless of your profession or location.

The Bribery Act 2010 makes it compulsory for companies to have adequate procedures in place to prevent bribery. Companies have to be able to assess the on-going and possible future risk of bribery. Such assessment has to be “periodic, informed and documented’’. Turning a blind eye to - or being completely ignorant of - an employee, an agent working on your behalf or any kind of intermediary who is involved in bribery anywhere in the world is simply not good enough any more.

 Similarly, money laundering is not simply someone choosing to buy whatever he wants with the proceeds of his crimes. Sections of the Proceeds of Crime Act 2002 (POCA) ensure that prosecutors can cast their net far and wide when looking to bring charges for money laundering – far beyond the person with the proceeds to launder. Taking a gamble that what you are dealing with is not ill-gotten gains - or that you will never be detected by the authorities – cannot be considered a risk worth taking; especially when it could mean the loss of your professional standing.

Money laundering is punishable by up to 14 years in prison. Offences under the Bribery Act can carry unlimited fines and jail sentences up to 10 years. When this is weighed up, it is hard to find a logical argument for taking the risk of not going all out to comply with the law. As proof of this, the European Union’s Third Money Laundering Directive even makes it mandatory to take a risk-based approach to tackling money laundering and terrorist financing and, in particular, to due diligence procedures for customers. Individuals, companies and organisations have to devise, adopt and enforce an approach that assesses risk based on factors such as the people they are dealing with and the sector and geographical area they are operating in. Such an approach has to see risks managed, controlled and monitored; with all such activity thoroughly recorded and documented. Only then can they legitimately claim – and produce strong evidence to show –they did all they could to prevent it happening.

Risk now has to be something that is sought out, identified and eliminated (or at least significantly reduced) to stay on the right side of the law. It can no longer be seen as something that should be taken on the assumption that you’ll get lucky and avoid the pitfalls. A random look through today’s headlines alone shows allegations of bribery involving millions of dollars for mining rights in Guinea, a company banned from tendering for contracts after bribery in Bangladesh, organised crime involvement in business corruption in Bulgaria, bogus US defence contracts leading to multi-million dollar fraud, investigations into contracts for Panamanian hospitals, estimates of annual EU fraud totalling £1.3 billion and claims of tens of millions of dollars of embezzlement at CONCACAF, the confederation of North and Central American and Caribbean football associations. Quite how many of the above companies and organisations were fully aware of the risks they ran may never be known. But what we can say is that a rigorous approach to preventing corruption is essential if a company wants to have any hope of avoiding featuring in similar headlines in the future.

This is not an idle claim. The facts back it up. National and international agencies have all the technology they need to assist their investigations and share their findings with colleagues around the world. In the UK, the investigating authorities are either gaining extra funding to tackle corruption or being restructured to become more effective. They have the Code of Practice 9 (COP 9) and Deferred Prosecution Agreements that they can use to seek admissions of guilt without all the time, cost and risk of a criminal trial.

In such circumstances, companies have to be able to show that workplace procedures were thorough and regularly reviewed, that risk management was always high on the agenda and that arrangements were in place whereby whistle blowers could raise suspicions of wrongdoing, safe in the knowledge that they would be investigated and acted upon.

At Rahman Ravelli, we draw up procedures to help ensure companies are legally compliant. From our experience of many business crime cases, clients always come to realise the benefit of taking decisive, proactive action to prevent wrongdoing rather than leaving things to chance. For some, that realisation comes too late – when they are facing prosecution for something that could have been identified and prevented at an earlier stage. But many are able to make changes to the way they function to avoid problems further down the line. A company needs the most appropriate legal advice if it is to have any hope of being legally compliant. It will also need it if wrongdoing is discovered; leading to either an investigation or a decision to self-report to the authorities.

The right legal advice will always minimise the risk. But the earlier it is sought the more effective it can be…and there is no risk of that ever changing.

Azizur Rahman C 09369

Azizur Rahman

Senior Partner

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Aziz Rahman is Senior Partner at Rahman Ravelli and its founder. His ability to coordinate national, international and multi-agency defences has led to success in some of the most significant corporate crime cases of this century and top rankings in international legal guides. He is recognised worldwide as one of the most capable legal experts regarding top-level, high-value commercial and financial disputes.

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