Author: Azizur Rahman
18 December 2014
4 min read
For the first time, Chinese authorities have teamed up with European counterparts to prevent fraud. The joint operation, coordinated by the European Anti-Fraud Office (OLAF) may be a taste of things to come. Aziz Rahman believes the increasingly international nature of prosecutions means that defence teams often have to take a similar global approach.
It wasn’t so much the scale of the success of the operation. What was most eye catching was one of the operators involved.
EU and national authorities prevented losses of over £66 million in customs duties during a major joint customs operation overseen by OLAF. An impressive figure. But not as impressive as the latest party to join a European crackdown on customs fraud. This particular operation was significant because, for the first time ever, it involved Chinese customs authorities.
Operation Snake targeted the undervaluation of imported goods. Over one month, OLAF and the participants detected more than 1,500 containers where the customs value was heavily under declared. Inaccurate descriptions of goods, false weights and quantities and counterfeit goods were discovered. In addition, customs authorities identified several “missing traders’’ and non-existent importers; leading to criminal investigations in several countries.
Those overseeing the operation were not slow in praising the outcome. But the most telling words came from those who welcomed Chinese involvement and indicated that they would like the country to be involved in many more such operations to tackle fraud. From the noises coming out of OLAF, there already seems to be an agreement with the General Administration of China Customs to continue what has so far been a rewarding partnership.
Let’s not make the mistake of believing that the EU has suddenly fallen in love with China. OLAF exists to protect the financial interests of the European Union by investigating fraud, corruption and any other illegal activity and assists the European Commission in devising and implementing anti-fraud legislation. It sees China as being key to helping with this – just as it has done with other nations it has sometimes viewed warily. This year alone, the EU has been looking to work with Russia to combat VAT fraud and other forms of organised economic crime. It has also looked to work closely with Canada and Norway to reduce the potential for cross-border fraud, especially VAT fraud.
These developments come at a time when the EU is looking for ever closer working agreements in order to reduce the scope for fraud offered by cross-border inconsistencies and shortfalls in information between countries. There is little doubt that the VAT system offers the opportunity for fraud. The use of mobile phones, other high-tech equipment and even carbon credits as vehicles for large-scale fraud across the EU have prompted UK government action and many a discussion between ministers of many European nations.
At Rahman Ravelli, we have represented people involved in cases alleging hundreds of millions of pounds of VAT fraud, involving all manner of commodities and goods. The scope for fraud has always existed. Even if the opportunities have been limited in recent years thanks to the efforts of the authorities. Now, with China coming on board in the fight against fraud, it seems as if we are entering a whole new era.
Every EU member is aware that VAT fraud is a problem and that the customs system is often prone to abuse. That has always been the case. But the fact that agreements to tackle such wrongdoing are now being reached with the likes of China indicates a new level of international cooperation to tackle fraud. It is more than likely that we will see more and more agencies that tackle business crime seeking the cooperation and assistance of their counterparts around the world. The main fraud investigating authorities know that pooling information makes them more effective. In our experience, there now appears to be a greater need among clients for their defence to be coordinated internationally. As authorities in one country increasingly turn to foreign colleagues, anyone who is the subject of such an investigation has to make sure that their solicitors are experienced when it comes to international, cross-border cases that may involve potential prosecutors in more than one country.
The authorities now have more technology with which to obtain evidence to charge and prosecute those it believes to be guilty of business crime. Such technological advances have now made it far easier to share that information with a counterpart anywhere around the world. When you add this to the spirit of international cooperation that the China partnership epitomises, it becomes clear that we are living in what is effectively a shrinking world when it comes to crime. Technology has made the authorities more efficient. International cooperation has made them more effective. And, lest we forget, legislation has made them more powerful. That is certainly the case in the UK where the Bribery Act, the Fraud Act, the Money Laundering Regulations and a host of other legal developments have made it easier for the authorities to bring a prosecution.
We talked earlier about the increasing need for defence teams to have international expertise. That is certainly the case when it comes to cross-border offences. But for many, a little care closer to home may prove valuable. Running some checks on your business to check its susceptibility to fraud may prove rewarding in the long term. For example, what risk of bribery is there regarding your staff, representatives or other third parties? Has everything been done to avoid any possibility of breaching the Fraud Act? Is there any way some of the funds flowing through the company’s accounts are the proceeds of crime? These questions are not posed as academic discussion points: they are questions that those running companies should be asking themselves regularly. If they are not asked then the consequences can be very grave indeed.
GSK probably never thought it would end up paying huge fines for bribery in China, Innospec could never have imagined its senior figures would be convicted for corruption in Indonesia while Rolls-Royce now has to come to terms with activities carried out decades ago in the Far East. These are all big companies brought to book in this new spirit of international cooperation and determination to tackle corruption worldwide. The argument goes something along the lines of if it can happen to them then it is logical to believe it can happen to anyone.
If it does happen to anyone else then they will certainly need the type of worldwide savvy defence team we mentioned earlier. But would it not make even more sense to take a long, hard look at the workings of your business to see if wrongdoing can be prevented before it ever reaches the stage where it has to be defended? Legal expertise can help a company either identify or reduce the potential for wrongdoing.
Yes, we are certainly living in a time where the bodies that tackle and punish business crime are taking a more global and an increasingly effective outlook. And this will mean defence teams have to be more globally minded. But perhaps this is also the perfect prompt for those running companies to show their awareness that the eyes of the world are watching them. This has to be done by examining closely what is going on in their name; both around the world and close to home.
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.