Immediate Steps When Facing Financial Crime Allegations
Directors, executives, and other high net worth individuals may face allegations of financial crime during the course of their career. It could be allegations of tax fraud, money laundering, bribery and corruption, sanction breaches, or regulatory compliance.
Nobody wants to face allegations like these, but with the right advice and representation, you can navigate the investigation and defend the accusations robustly.
In this chapter of the Emergency Response Guide we look at the immediate steps that HNWIs should be taking if they have been caught up in financial crime.
Understanding the Nature of Financial Crime Allegations
High net worth individuals, like executives or directors, may find themselves the subject of financial crime allegations if they, or their company, has been involved in fraud, bribery, money laundering, tax evasion or sanctions breaches.
These accusations usually lead to an investigation by various authorities such as; the SFO, the FCA, HMRC, the CMA, the Insolvency Service, and the police. You may face unfamiliar situations including:
- Dawn raids and searches
- Information requests and voluntary interviews
- Production orders and compulsory questioning
- Interviews under caution
These situations can be daunting, particularly if you have not had to deal with circumstances like this in the past.
First Steps: What to Do Immediately
In whatever capacity you have been involved in financial crime, the first step is to appoint legal representation.
Lawyers will help you preserve key evidence, manage interviews with police and the authorities, and protect your position.
After the initial exposure of the crime or the allegations, lawyers can then conduct an internal investigation to find out exactly what has happened. From there, your lawyers create a strategy for pursuing the wrongdoers, or defending your position.
Why Legal Counsel is Your First Call
If you are involved in an investigation, it is important to have legal counsel present who are on your side. Your legal representation will make sure that investigators do not exceed their powers, and they can challenge the authorities on any points of law or process during the investigation.
In any situation that involves pursuing criminals of financial crime, or defending allegations of financial crime, it is important to preserve documents and highlight any documents that may be fundamental to your legal case. Your lawyers may be able to prevent the other side from seeing documents if they are privileged.
Protecting Your Assets
If you have been accused of involvement in financial crime then your assets may be frozen. There is a civil route for this where the other side will go to court (often without your knowledge) and apply for a freezing injunction. You will be served with the freezing order and allowed to deal with your assets only in limited ways until the ‘return date’. At the return date, your legal representation can apply to lift the freezing injunction.
Equally, if you have been the victim of financial crime, lawyers may be able to apply for a freezing order against the perpetrator. This prevents them from dissipating assets that rightfully belong to you, while the lawyers prepare for trial.
There is also a criminal justice route to restraining assets. Under the 2002 Proceeds of Crime Act (POCA), investigating authorities can apply to restrain an individual’s assets if they believe the assets are the proceeds of criminality. Your legal representation can help you respond to production orders, restraining orders, or confiscation orders.
Managing Reputational Risks and Media Inquiries
Involvement in financial crime, whether as the victim or the perpetrator, is likely to attract unwanted media attention.
Having a PR team on board from the outset will help to manage the reputational risks, and avoid premature statements, or anything that might harm your legal case.
The PR team can take away the burden of handling media inquiries and put your mind at ease that information being given to the media will not hinder your reputation or your legal position.
Avoiding Self-Incrimination: What Not to Do
While there may be legitimate reasons to withhold some information from authorities in the initial stages, it is important to avoid concealing key information or looking secretive. Courts can draw inferences from your behaviour if you have not cooperated with the authorities or acted transparently.
Do not lie to the authorities, or give false information or documentation.
If you have been accused of a financial crime like fraud, your assets may have been frozen under a court-sanctioned freezing order. If that is the case, then it is imperative that you do not breach the terms of the order. This could leave you in contempt of court and subject to a fine or even imprisonment.
Your lawyers will advise you on how to handle your assets if you are subject to a freezing injunction. You must be honest about your assets and you must not try to dissipate your assets to put them out of reach.
How to Prepare for Regulatory and Law Enforcement Actions
Preparing for regulatory and law enforcement actions means gathering all of your critical evidence. That may include employing a forensic accountant to explain certain cash flows or financial structures.
Your legal case is likely to require witness evidence too, from anyone involved in the allegations, and expert witnesses (like forensic accountants).
With all the evidence, your lawyers will prepare your legal case.
Emergency Contact List: Who to Call in Different Jurisdictions
Why You Need an Emergency Contact Plan
Allegations of financial crime are often brought to your attention suddenly, without any prior warning.
For example, your home or business could be subject to a dawn raid. The authorities turn up at your door unannounced and begin searching the premises, seizing documents, and interviewing people. These raids can result in fines, disqualification of company directors, and even imprisonment.
While dawn raids are fairly rare, the impact can be profound if you are not prepared. You need to have a plan in place for the eventuality of a dawn raid, and that plan should include your emergency contacts. Lawyers can support you during the dawn raid to minimise business interruption, make sure that privileged documents are not disclosed, and that you and your employees handle interviews with care.
Similarly, if you think you have been the victim of financial crime, you need to act quickly to maximise the opportunity of recovering your stolen assets. Police may be able to track bank transfers and lawyers can put in place measures to freeze assets once they are located.
Key Legal and Financial Experts to Have on Speed Dial
You should have go-to local lawyers who are experienced in dealing with financial crime and can get to your premises quickly.
It is also worthwhile knowing forensic accountants who can trace cash flow in your business or any other flow of funds, including any cryptocurrency.
Coordinating a Global Crisis Response Team
Financial crime is increasingly global. Money is laundered through various offshore structures and bank accounts, and many HNWIs have assets and property located overseas.
Tracing and recovering assets therefore takes on an international element and requires a global response team.
Interpol is the international agency that helps police forces work together to fight crime. With regards to financial crime in particular, Interpol has established a multi-agency approach to centralise the international response. It coordinates law enforcement agencies, police organisations and the financial sector in response to allegations of financial crime.
You may also need lawyers in different jurisdictions, where you have traced the stolen funds. While a UK court can order a worldwide freezing order to freeze these assets in some circumstances, local lawyers will be aware of any other steps you can take to protect your assets under local laws.
How to Stay Prepared Before a Legal Crisis Strikes
Financial crime is prevalent and evolving and there is no way to completely eradicate the risk of being a victim to it, or being caught up in it inadvertently.
But you can stay vigilant and prepared. For businesses, it is important to have a policy for Dawn Raids and provide training so that your people are familiar with the concept, and know how to act during an unannounced search.
Directors should also be meticulous about Customer Due Diligence and Enhanced Due Diligence to reduce the risk that the business is being used for money laundering. Other red flags include cash transactions involving large amounts of money, dealings with politically-exposed persons, or connections with jurisdictions that have a high level of corruption.
Protecting Your Assets in the First 48 Hours
Why the First 48 Hours Are Critical in a Financial Investigation
The start of a financial investigation is fraught and chaotic. Allegations are in the open, but the facts remain uncertain.
The first 48 hours set the tone for the way in which the crisis unfolds later. It is in this period where you manage the relationship with the authorities and the stakeholders, and manage your reputation with the media.
How to Prevent or Respond to an Asset Freeze
Alongside certain allegations of financial crime, you may be served with a freezing order. These orders are usually obtained from court without your knowledge and the first you know of it is when you are served with the order, or your bank transactions are blocked.
For that reason, it is not possible to prevent an asset freeze if the claimant has already applied to court to do it. What you can do however, is respond appropriately and apply to vary or discharge it if possible.
In the first 48 hours after receiving the freezing order, you will usually be required to prepare an affidavit. That is a written statement that is sworn by you to be true. The affidavit will disclose the nature, value, and location of any of your assets over £1,000. This must be a complete and comprehensive list. Any half-truths or omissions could render you in contempt of court.
After the hearing which granted the order, there is a ‘return date’, which is another hearing seven days later. This is your chance to argue that the order should be discharged or varied in some way. There are technical legal arguments for discharging a freezing order, such as the claimant failed to give full and frank disclosure of the facts during the hearing in which the order was granted. Your legal representation can analyse the transcripts from the first hearing and decide whether you have a case to discharge the order.
If the order is to remain in place and your assets remain frozen, you will still be allowed to use your accounts for living expenses and reasonable legal costs. The amount that is frozen should roughly equate to the amount of damages that the claimant would expect to receive if their legal case is successful.
Understanding Restraint Orders and How to Challenge Them
Similarly, you may be served with a restraint order if your company is being investigated under section 40 POCA in connection with alleged criminal activity. A restraint order is another way to freeze your assets and it is usually the order that is sought in connection with money laundering offences or financial fraud.
The application will be made to the Crown Court and brought by an authority such as the SFO, HMRC, or the CPS.
Like freezing orders, you can challenge them to an extent. You can apply to vary or discharge the order. If your application is unsuccessful, you may be able to appeal the decision.
Avoiding Common Mistakes That Could Worsen Your Case
The first 48 hours in the wake of allegations of financial crime can feel like fire fighting, but it is important not to panic. Remember that all of your actions will be scrutinised later on, and you may need to demonstrate that the decisions you took were reasonable and informed, given the facts and information available at the time.
There is a temptation to give a statement to say that everything is fine and that you flatly deny all the allegations. However, this can be detrimental later on if the investigation uncovers wrongdoing. It is better to hold back, comply with the investigation and try to get a comprehensive understanding of the facts.
In the first 48 hours it is crucial that nothing happens that could harm your position. Notably, you should make sure that the entire company is aware of the document retention protocols and complies strictly with them. Destroying evidence can significantly harm your position in an investigation.
Similarly, avoid taking any steps that may contravene the law, such as seizing data in contravention of any data protection rules.
If the police are present, make sure that any interviews under caution are carried out with a solicitor present, who can protect your position.
Try to avoid giving promises to the regulator at this stage. You may want to demonstrate that you are complying, which is a good thing to do. But you may not be able to promise to produce records within a certain time frame. Simply say that you will keep the regulator updated and you will use your best endeavours to find the relevant information.
Finally, be careful about any new documents that you create and be aware that most of these documents will be disclosable in due course. These situations are nuanced and it can be difficult to capture nuance in your notes or in board meeting minutes. But without accurate notes, you could be creating admissions inadvertently.
Managing Multiple Homes and Global Travel During Investigations
How Financial Crime Investigations Affect International Travel
If you’re being investigated in relation to a financial crime, your ability to travel may be restricted.
Once you have been arrested and interviewed under caution, the police have two options if they intend to continue investigating the alleged offence. They may release you on bail, with conditions or unconditionally, or release you under investigation.
If you are released under investigation, it means that the investigation is currently open-ended and there are no restrictions placed on you. In other words, you are free to travel.
However, if you have been charged and released on bail, the conditions could include limits on your ability to travel, or a mandate that you must reside at a certain address. This may mean that your passport is seized by the police, and will be returned to you when the ban is lifted.
Navigating Travel Restrictions, INTERPOL Notices, and Border Issues
During an investigation, you may be subject to a travel ban. Travel bans based on a criminal offence are imposed by the police, the Director of Public Prosecutions, or the court. Such a ban will remain in place until the investigation is complete, a judgment has been issued, or the sentence for the crime has expired.
If you have been given a travel ban, then you will be prevented from entering, re-entering or leaving the country until the grounds for issuing the ban have been dismissed.
In some circumstances, international police may work together to locate a suspect that has breached the terms of a travel ban. Interpol can issue a ‘red notice’ which is a request to all other member states to locate a suspect or convicted person and take steps to facilitate their surrender. If you are the subject of an interpol red notice, international travel becomes risky. It is very likely you will be stopped at a border, which will typically lead to an extradition request.
Managing Residency and Immigration Status During Legal Scrutiny
If you are a foreign national and you have been given a travel ban, any visa applications you make while the ban is in force are likely to be refused. That means that your leave to enter or remain in the UK may be cancelled and you may be removed from the UK.
Planning for Discreet and Legally Compliant Relocation
It is possible to relocate discreetly and in a legally compliant way, once you have been investigated by police. Usually this is only possible if you have not been charged. If you have been questioned by police and released under investigation, there is nothing to stop you from travelling abroad. But you must continue to cooperate with the police during the investigation.
Relocation can be problematic when you are ‘on licence’. This is when you have been released from prison before your sentence is complete and you have a set of rules that you must comply with. Usually you need to spend time in the community on licence before you can be considered for resettlement overseas. Similarly, a standard condition of any licence is not to travel outside the UK without prior permission of the responsible officer.
However, if permission is granted to you, then you may be able to relocate discreetly.
