Chapter 11 - Criminal Law

Question 1

What is money laundering?

Answer 1

Money laundering is the process by which the proceeds of crime are converted into assets which appear to have a legitimate source.

Question 2

What are examples of money laundering?

Answer 2

Examples include buying luxury goods, overpaying tax, using cash-based businesses, buying chips in a casino and cashing them in, and depositing funds with a solicitor or accountant and then seeking repayment.

Question 3

What are red flags for money laundering?

Answer 3

Red flags include unusually large or frequent transactions, unjustified cash deposits, large increases in account balances, transferring large amounts of cash using money transfer services, unwillingness to discuss business activities, and inconsistencies in information provided.

Question 4

What are the offences under the Proceeds of Crime Act?

Answer 4

The offences are (1) Money laundering, (2) Failure to report suspicion of money laundering, and (3) Tipping off.

Question 5

What is the penalty for money laundering under the Proceeds of Crime Act?

Answer 5

14 years imprisonment or an unlimited fine.

Question 6

What is the penalty for failing to report suspicion of money laundering?

Answer 6

5 years imprisonment or an unlimited fine.

Question 7

What is the penalty for tipping off under the Proceeds of Crime Act?

Answer 7

2 years imprisonment or an unlimited fine.

Question 8

What is the defence against money laundering allegations?

Answer 8

A reasonable excuse, which is narrowly interpreted by the courts. For example, threats of physical violence against the individual.

Question 9

What does the Criminal Finances Act 2017 address?

Answer 9

It makes companies and business organizations liable if employees or agents are involved in tax evasion under UK or foreign tax law.

Question 10

What is the defence for companies under the Criminal Finances Act 2017?

Answer 10

Having reasonable procedures in place to prevent tax evasion or demonstrating that prevention was unrealistic.

Question 11

What is tax evasion?

Answer 11

Tax evasion is the illegal practice of not paying taxes owed by individuals or businesses through misrepresentation or concealment of income or profits.

Question 12

What does the Criminal Finances Act 2017 address regarding tax evasion?

Answer 12

It makes companies and business organizations liable if employees or agents are involved in tax evasion under UK or foreign tax law.

Question 13

What are the potential offences related to tax evasion under the Criminal Finances Act 2017?

Answer 13

Facilitating tax evasion or failing to prevent it.

Question 14

What is the defence for companies against tax evasion under the Criminal Finances Act 2017?

Answer 14

Having reasonable procedures in place to prevent tax evasion or demonstrating that it was unrealistic to do so.

Question 15

How does tax evasion differ from tax avoidance?

Answer 15

Tax evasion is illegal and involves concealing income or inflating expenses to reduce tax liability. Tax avoidance is the legal use of tax laws to minimize tax liability.

Question 16

What are the purposes of the Money Laundering Regulations 2017?

Answer 16

To allow suspicious transactions to be recognized and reported and to provide an audit trail for future investigations.

Question 17

What is the penalty for non-compliance with the Money Laundering Regulations 2017?

Answer 17

A fine and/or two years imprisonment, regardless of whether money laundering has taken place.

Question 18

Who are considered ‘relevant persons’ under the Money Laundering Regulations 2017?

Answer 18

Credit and financial institutions, accountants, legal professionals, estate agents, casinos, and high-value dealers (cash transactions over 10,000 Euros).

Question 19

What are the key requirements under the Money Laundering Regulations 2017?

Answer 19

Records keeping, whole firm risk assessments, internal controls, policies and procedures, identification of politically exposed persons, processes for third-party reliance, and customer due diligence.

Question 20

When does customer due diligence apply?

Answer 20

When establishing a new business relationship, providing a business formation service, for occasional transactions, when money laundering or terrorist activities are suspected, and when there are doubts about the veracity of provided information.

Question 21

What are the actions required for customer due diligence?

Answer 21

Identify and verify customers’ identities, identify beneficial owners, obtain information on the purpose of a business relationship, and identify those with ultimate control in organizations.

Question 22

What is the duty of confidentiality under the Money Laundering Regulations 2017?

Answer 22

Accountants owe confidentiality to clients but must disclose knowledge or suspicion of money laundering, overriding confidentiality.

Question 23

What are the reporting requirements under the Money Laundering Regulations 2017?

Answer 23

Knowledge or suspicion of money laundering must be reported to the MLRO or NCA. Failure to report is a criminal offence.

Question 24

What constitutes suspicion under the Money Laundering Regulations 2017?

Answer 24

Suspicion must be based on objective grounds, such as red flags, and must be reported to the MLRO.

Question 25

What must accountants report to Companies House when conducting customer due diligence (CDD)?

Answer 25

Accountants must report any discrepancy between the information they hold about a beneficial owner of a company and the information on the people with significant control register.

Question 26

What is the duty of confidentiality for accountants under the Money Laundering Regulations?

Answer 26

Accountants owe confidentiality to their clients, but this duty is overridden by the legal obligation to disclose knowledge or suspicion of money laundering.

Question 27

What is legal privilege for professionals in respect of confidentiality?

Answer 27

Legal privilege applies to professionals such as solicitors, accountants, and tax advisers when they give advice in respect of litigation. It does not apply if there is an intention to further a criminal purpose.

Question 28

Who can claim legal privilege under the Money Laundering Regulations?

Answer 28

Solicitors (but not accountants) can claim a general legal privilege for all communications with clients, whether in respect of litigation or general legal advice.

Question 29

Does legal privilege apply to accountants under the Money Laundering Regulations?

Answer 29

No, case law shows that general legal privilege does not apply to accountants under the Money Laundering Regulations.

Question 30

When does legal privilege not protect professionals from disclosing knowledge of money laundering?

Answer 30

Legal privilege does not protect professionals if the communication is intended to further a criminal purpose.

Question 31

What are the four main offences under the Bribery Act 2010?

Answer 31

1) Bribing another person, 2) Being bribed, 3) Bribing a foreign public official, 4) Corporate failure to prevent bribery.

Question 32

What constitutes ‘bribing another person’ under the Bribery Act 2010?

Answer 32

Offering, promising, or giving a financial or other advantage to induce or reward improper performance of a relevant function or activity.

Question 33

What constitutes ‘being bribed’ under the Bribery Act 2010?

Answer 33

Requesting, agreeing to receive, or accepting a financial or other advantage as a reward for improper performance of a relevant function or activity.

Question 34

What is a ‘relevant function or activity’ under the Bribery Act 2010?

Answer 34

Any activity of a public nature, connected with business, in the course of employment, or where the person is in a position of trust.

Question 35

What constitutes ‘bribing a foreign public official’ under the Bribery Act 2010?

Answer 35

Offering, promising, or giving financial or other advantage to a foreign official to influence them in their official capacity and obtain a business advantage.

Question 36

What is ‘corporate failure to prevent bribery’ under the Bribery Act 2010?

Answer 36

When a commercial organization fails to prevent bribery by persons performing services on its behalf, such as employees, agents, or subsidiaries.

Question 37

What is the defence for corporate failure to prevent bribery?

Answer 37

Having adequate procedures in place to prevent bribery, such as risk assessments, regular reviews, and following secretary of state guidelines.

Question 38

What are the penalties for offences under the Bribery Act 2010?

Answer 38

Unlimited fines and/or up to 10 years imprisonment.

Question 39

What is the general defence for an individual charged under the Bribery Act 2010?

Answer 39

Showing that the bribery was carried out as part of the intelligence services or armed forces on active service.

Question 40

What are the three ways fraud can be committed under the Fraud Act 2006?

Answer 40

1) Fraud by false representation, 2) Fraud by failing to disclose information, 3) Fraud by abuse of position.

Question 41

What is fraud by false representation under the Fraud Act 2006?

Answer 41

Dishonestly making a false representation of fact or law to make a gain for oneself or another, or to cause loss to another.

Question 42

What is fraud by failing to disclose information under the Fraud Act 2006?

Answer 42

Dishonestly failing to disclose information one is legally required to disclose, intending to make a gain or cause loss.

Question 43

What is fraud by abuse of position under the Fraud Act 2006?

Answer 43

Occupying a position of trust and dishonestly abusing it to make a gain or cause loss.

Question 44

What is the maximum penalty for fraud under the Fraud Act 2006?

Answer 44

10 years imprisonment and an unlimited fine.

Question 45

What types of cybercrime are identified under the Fraud Act?

Answer 45

Phishing, webcam manager, file hijacker, keylogging, screenshot manager, and ad clicker.

Question 46

What is electronic financial fraud?

Answer 46

Online banking frauds where individuals are tricked into transferring money or funds are taken from their accounts without their knowledge.

Question 47

What is fraudulent sales through online auctions or retail sites?

Answer 47

Setting up bogus websites to sell counterfeit goods or services that are not provided after payment.

Question 48

What is phishing in cybercrime?

Answer 48

Fraudulent emails designed to trick individuals into providing personal details such as passwords.

Question 49

What is pharming in cybercrime?

Answer 49

Directing users to fake websites to steal their personal information, such as bank details.

Question 50

What is online romance or social networking fraud?

Answer 50

Fraudsters form relationships with victims and persuade them to part with money or personal information.

Question 51

What are the five controls for protecting against cybercrime under the Cyber Essentials scheme?

Answer 51

1) Firewalls, 2) Secure settings for devices, 3) Access control, 4) Protection against malware, 5) Keeping software up to date.

Question 52

What is the purpose of the ‘Cyber Essentials’ scheme?

Answer 52

To help organizations protect themselves against low-level cyber risks by providing guidance on technical controls.

Question 53

What are the five technical protections recommended under the ‘Cyber Essentials’ scheme?

Answer 53

1) Firewalls to secure internet connections, 2) Applying secure settings for devices and software, 3) Controlling access to devices and software, 4) Protecting against viruses and malware, 5) Keeping devices and software up to date (patching).

Question 54

What is the role of firewalls in protecting against cybercrime?

Answer 54

Firewalls help secure internet connections and are often built into operating systems.

Question 55

How can consumers apply secure settings for devices and software?

Answer 55

Consumers can ensure devices are set up with cybersecurity as a priority by applying secure configuration settings.

Question 56

How can access to devices and software be controlled?

Answer 56

Access can be controlled using physical and network security measures, such as passwords and touch or voice ID.

Question 57

How can protection against viruses and other malware be achieved?

Answer 57

Using virus and malware protection software to prevent and remove unwanted programs from the system.

Question 58

Why is keeping devices and software up to date important?

Answer 58

Applying updates ensures that the latest security patches are installed to protect against vulnerabilities.

Question 59

What is the purpose of the Accountancy Sector Fraud Charter?

Answer 59

To create greater transparency of fraud threats across the accountancy sector and improve understanding of fraud to tackle it effectively.

Question 60

What are the key points of the Accountancy Sector Fraud Charter?

Answer 60

1) Improved information regarding fraud, 2) The fraud awareness toolkit, 3) Enhancing Companies House data, 4) Increasing fraud awareness and changing customer behavior.

Question 61

What is the purpose of the Computer Misuse Act?

Answer 61

To protect computer material from misuse or modification and to make such activities punishable by fines or imprisonment.

Question 62

What are the offences under the Computer Misuse Act?

Answer 62

1) Unauthorised access to a computer system, 2) Unauthorised access with intent to commit further offences, 3) Unauthorised acts impairing operation of a computer, 4) Acts causing risk of serious damage, 5) Making or supplying tools for misuse (e.g., viruses).

Question 63

What is fraudulent trading as defined under the law?

Answer 63

A criminal and civil offence committed when a business is carried on with intent to defraud creditors or any other person for fraudulent purposes.

Question 64

What are the characteristics of fraudulent trading as a criminal offence?

Answer 64

1) Applies regardless of liquidation, 2) Applies to any knowingly involved person, 3) Requires intent to defraud, 4) Can disqualify the guilty person from acting as a director, 5) Punishable by up to 10 years imprisonment or unlimited fines.

Question 65

What are the characteristics of fraudulent trading as a civil offence?

Answer 65

1) Applies only if the company is in liquidation, 2) The liquidator can ask the court to order contributions to the company’s funds.

Question 66

What is the penalty for fraudulent trading under the Company Directors Disqualification Act 1986?

Answer 66

The court may disqualify a person guilty of fraudulent trading for up to 15 years from acting as a director or being involved in the management of companies.

Question 67

What are the three offences under the Criminal Justice Act 1993 related to insider dealing?

Answer 67

1) Dealing in securities while in possession of inside information, 2) Encouraging another to deal in securities, 3) Disclosing inside information improperly.

Question 68

What is the definition of ‘dealing’ in the context of insider dealing?

Answer 68

Acquiring or disposing of relevant securities or agreeing to do so.

Question 69

What is ‘encouraging another to deal’ in the context of insider dealing?

Answer 69

Where a person, having inside information, encourages another to deal in price-affected securities, knowing or having reasonable cause to believe that dealing would take place.

Question 70

What constitutes ‘inside information’ under insider dealing regulations?

Answer 70

Price-sensitive information that is capable of significantly affecting prices, has not been made public, and is specific and precise.

Question 71

What are the defences against charges of insider dealing?

Answer 71

1) The individual did not expect profit or avoidance of loss, 2) They believed the information was disclosed widely, 3) They would have acted the same without the information.

Question 72

What is the maximum penalty for insider dealing under the Criminal Justice Act 1993?

Answer 72

Seven years imprisonment and/or an unlimited fine.

Question 73

What is the Economic Crime (Transparency and Enforcement) Act 2022?

Answer 73

An act establishing the Register of Overseas Entities to identify property owners in the UK, and empowering the NCA to use Unexplained Wealth Orders to confiscate criminal assets.

Question 74

What are the key provisions of the Economic Crime Act 2022?

Answer 74

1) Establishes the Register of Overseas Entities, 2) Strengthens the NCA’s ability to use Unexplained Wealth Orders, 3) Imposes strict civil liability for sanctions-busting transactions.

Question 75

What are the defences against dealing or encouraging others to deal in insider trading?

Answer 75

1) The individual did not expect profit or avoidance of loss, 2) They had reasonable grounds to believe the information was disclosed widely, 3) They would have acted the same way even without the information.

Question 76

What are the defences against disclosing insider information?

Answer 76

1) The individual did not expect profit or avoidance of loss, 2) They did not expect the recipient to deal in the securities.

Question 77

What is the maximum penalty for insider dealing under the Criminal Justice Act 1993?

Answer 77

Seven years imprisonment and/or an unlimited fine.

Question 78

What is market abuse?

Answer 78

Market abuse refers to a civil law offence where individuals fail to meet the standard of behavior reasonably expected of a person in their position in the market.

Question 79

How does the standard of proof differ between insider dealing and market abuse?

Answer 79

Insider dealing requires proof beyond reasonable doubt as it is a criminal offence, whereas market abuse has a lower standard of proof (balance of probabilities) as a civil law offence.

Question 80

Can individuals be penalized for market abuse even without a conviction for insider dealing?

Answer 80

Yes, individuals can be held accountable for market abuse under civil regulations even if they are not convicted of insider dealing.

Question 81

What is the key principle behind market abuse?

Answer 81

A person has committed market abuse if they fail to observe the standard of behavior reasonably expected of them given their position in the market.

Question 82

What are the steps in the ethical procedure when encountering criminal activities?

Answer 82

1) Check understanding of facts and circumstances, 2) Consult or report as legally required (e.g., MLRO or NCA), 3) Refer to guidance from ICAEW or a relevant body, 4) Obtain legal advice, 5) Discuss with senior colleagues, 6) Seek advice from the ICAEW Ethics Advisory Service.

Question 83

What does the acronym PIPCO represent in the ICAEW Code of Ethics?

Answer 83

1) Professional behaviour, 2) Integrity, 3) Professional competence and due care, 4) Confidentiality, 5) Objectivity.

Question 84

What is the purpose of the ICAEW Code of Ethics?

Answer 84

To ensure accountants maintain integrity, competence, objectivity, confidentiality, and professional behaviour in all professional and business relationships.

Question 85

What does the acronym MASSIF represent for threats to ethics?

Answer 85

1) Management threat, 2) Advocacy threat, 3) Self-interest threat, 4) Self-review threat, 5) Intimidation threat, 6) Familiarity threat.

Question 86

What are examples of the ‘management threat’ in ethics?

Answer 86

Being asked to take on the role of management, such as making business decisions or taking responsibility for them, which compromises independence.

Question 87

What are examples of safeguards for accountants in business?

Answer 87

1) Corporate oversight, 2) Ethics and conduct programs, 3) Strong recruitment procedures, 4) Internal controls, 5) Disciplinary procedures, 6) Example set by leadership.

Question 88

What are examples of safeguards for accountants in practice?

Answer 88

1) Leadership team stresses compliance, 2) Policies to identify interests and relationships, 3) Monitoring revenue from clients, 4) Separate teams for assurance and non-assurance work.

Question 89

What are examples of the ‘self-interest threat’ for accountants?

Answer 89

Financial interests in transactions, incentive arrangements, or concerns over job security in business. For industry, dependence on one client or contingency fees.

Question 90

What are examples of the ‘intimidation threat’ for accountants?

Answer 90

In business: Threat of dismissal over disagreements or influence by a dominant person. In industry: Legal action threats or pressure to reduce fees.

Question 91

What is the definition of ‘Integrity’ in the ICAEW Code of Ethics?

Answer 91

Being straightforward and honest in all business and professional relationships.

Question 92

What is the definition of ‘Professional competence and due care’ in the ICAEW Code of Ethics?

Answer 92

Being aware of all prevailing knowledge necessary to give professional services and applying this knowledge diligently to all clients.

Question 93

What is the definition of ‘Confidentiality’ in the ICAEW Code of Ethics?

Answer 93

Respecting the confidentiality of information acquired in the course of business and professional dealings and not using this for personal gain.

Question 94

What is the definition of ‘Objectivity’ in the ICAEW Code of Ethics?

Answer 94

Not allowing bias, conflict of interest, or influence of others to override professional judgment.

Question 95

What is the definition of ‘Professional behaviour’ in the ICAEW Code of Ethics?

Answer 95

Complying with laws and regulations and not discrediting the profession through professional behavior.

Question 96

What is the ‘Self-interest threat’ in the context of professional ethics?

Answer 96

Occurs when financial or other interests compromise objectivity or independence, such as financial interest in a transaction or job security concerns.

Question 97

What is the ‘Self-review threat’ in the context of professional ethics?

Answer 97

Occurs when an individual is tasked with reviewing their own work or decisions, such as providing assurance on a system they designed.

Question 98

What is the ‘Advocacy threat’ in the context of professional ethics?

Answer 98

Occurs when an accountant promotes a client’s position to the extent that objectivity is compromised, such as acting as an advocate in litigation.

Question 99

What is the ‘Familiarity threat’ in the context of professional ethics?

Answer 99

Occurs when close relationships compromise professional judgment, such as long-term association with a client.

Question 100

What is the ‘Intimidation threat’ in the context of professional ethics?

Answer 100

Occurs when undue pressure or threats compromise professional judgment, such as the threat of dismissal or legal action.

Question 101

What is the ‘Management threat’ in the context of professional ethics?

Answer 101

Occurs when an accountant takes on management responsibilities that compromise independence, such as making decisions for a client.

Question 102

What is whistleblowing?

Answer 102

Whistleblowing refers to workers making a disclosure of wrongdoing, usually by their employer. The wrongdoing is often, though not necessarily, of a criminal nature.

Question 103

What legislation protects whistleblowers in the UK?

Answer 103

The Public Interest Disclosure Act 1998, which inserts provisions into the Employment Rights Act 1996.

Question 104

What protections are provided to whistleblowers under the Public Interest Disclosure Act 1998?

Answer 104

Workers are protected from ‘any detriment’ by their employer as a result of making a protected disclosure. Examples include lack of promotion, lack of training, unjustified disciplinary action, or dismissal.

Question 105

What qualifies as a protected disclosure?

Answer 105

The disclosure must be: 1) A qualifying disclosure of information, 2) Made in the public interest, 3) Made to the appropriate person.

Question 106

What is a qualifying disclosure?

Answer 106

A disclosure is qualifying if, in the worker’s reasonable belief, it shows one or more of the following: 1) A criminal offence has been committed, 2) A person is failing or is likely to fail with a legal obligation, 3) A miscarriage of justice has occurred, 4) Health and safety of an individual is endangered, 5) The environment is being damaged, 6) Information is being deliberately concealed.

Question 107

What is the test of reasonable belief in whistleblowing?

Answer 107

The test is subjective to the worker making the disclosure, but rumour or unfounded suspicion is not sufficient. Documentation or evidence may be required for credibility.

Question 108

What does public interest mean in the context of whistleblowing?

Answer 108

The disclosure must be made in the public interest. The requirement for good faith has been removed, though compensation may be reduced if the employee was not acting in good faith.

Question 109

What is whistleblowing according to the Public Interest Disclosure Act 1998?

Answer 109

Whistleblowing is the act of workers making a disclosure of wrongdoing, typically by their employer, which may include criminal activities or breaches of law. The Act provides employment protections for whistleblowers.

Question 110

Who does whistleblowing protection under the Public Interest Disclosure Act apply to?

Answer 110

Protection applies to ‘workers,’ including employees, agency workers, and home workers, but not to the self-employed or volunteers.

Question 111

What actions are considered ‘any detriment’ under whistleblowing protections?

Answer 111

Examples of detriments include: 1) Lack of promotion, 2) Lack of training or opportunity, 3) Unjustified disciplinary action, 4) Pay issues or failure to renew contracts, 5) Unfair dismissal or redundancy for making a disclosure.

Question 112

What are the criteria for a disclosure to be protected under whistleblowing legislation?

Answer 112

1) It must be a qualifying disclosure of information, 2) It must be made in the public interest, 3) It must be made to an appropriate person or body.

Question 113

What are examples of qualifying disclosures under whistleblowing legislation?

Answer 113

A disclosure qualifies if it shows one or more of the following: 1) A criminal offence has been committed or is likely to occur, 2) A person has failed or is likely to fail with legal obligations, 3) A miscarriage of justice has occurred, 4) Health and safety of an individual is endangered, 5) The environment is being damaged, 6) Information is being deliberately concealed.

Question 114

What is the test of reasonable belief in whistleblowing cases?

Answer 114

The test is subjective to the worker making the disclosure. Unfounded suspicions or rumours are insufficient, and documentation or evidence may be required to establish reasonable belief.

Question 115

What does ‘public interest’ mean in whistleblowing cases?

Answer 115

The disclosure must be in the public interest. While the requirement for good faith has been removed, compensation may be reduced by up to 25% if the whistleblower did not act in good faith.

Question 116

What does the case Bill v D Morgan plc 2000 illustrate about whistleblowing?

Answer 116

It illustrates that a worker must have a ‘reasonable belief’ for a disclosure to qualify. In this case, an accountancy assistant was not protected because he lacked documentation to support allegations.

Question 117

What protections are offered to workers dismissed for making a protected disclosure?

Answer 117

If an employee is dismissed or selected for redundancy due to making a protected disclosure, it is regarded as automatically unfair dismissal under employment law.

Question 118

What care must be taken when a disclosure relates to a future event?

Answer 118

Reasonable belief must be established with evidence. Industrial tribunals may require documentation to verify that the event is likely to occur. Mere statements of opinion are insufficient.

Question 119

Is there an obligation to report an employer under whistleblowing legislation?

Answer 119

There is no obligation to report an employer, but the Public Interest Disclosure Act provides employment protection for employees who report the wrongful acts of their employers.

Question 120

Who should disclosures be made to under whistleblowing legislation?

Answer 120

Disclosures should be made to an appropriate person, with preference for internal reporting wherever possible.

Question 121

What are the types of disclosure and their appropriate recipients under whistleblowing legislation?

Answer 121

1) Internal: To the employer or responsible person, 2) Legal adviser: In the course of obtaining legal advice, 3) Minister: To a minister of the Crown (e.g., NHS workers), 4) Prescribed person/regulator: To prescribed bodies such as HMRC, 5) Wider: To media, police, MPs, or others when certain conditions are met.

Question 122

Under what conditions can disclosures be made to wider recipients (e.g., media, police, MPs)?

Answer 122

Disclosures to wider recipients are permitted if: 1) The worker reasonably believes they would be victimized for internal reporting, 2) A cover-up is likely with no prescribed person, 3) The matter was already raised internally or with a prescribed person.

Question 123

What factors determine whether a wider disclosure is reasonable?

Answer 123

Factors include the seriousness of the matter, whether it is ongoing, identity of the recipient, breach of confidentiality, and whether the worker complied with procedures.

Question 124

What is a gagging clause in whistleblowing?

Answer 124

A gagging clause is a clause in an employment contract or severance agreement restricting a worker’s right to disclose information. Such clauses are void if they conflict with the Public Interest Disclosure Act.

Question 125

What happens to gagging clauses that prevent making a protected disclosure under whistleblowing legislation

Answer 125

If a gagging clause stops a worker from making a protected disclosure, the clause is not valid, even if it has been signed.”

Question 126

Worked Example

Rita is an accountant working in the forensic department of her firm. She has been asked to be an expert witness in a personal injury case (ie this relates to litigation). During the course of an interview with the claimant, Bob, in which Rita is seeking to ascertain the lost earnings for the relevant period, Bob tells her that he has not always reported all his earnings to HM Customs and Revenue in recent years.
This constitutes a money laundering offence, as he has been retaining the proceeds of criminal conduct (failing to declare his proper income to HMRC). However, as this interview qualifies as being privileged, she is not required to report this knowledge.

Answer 126

Rita is an accountant working in the forensic department of her firm. She has been asked to be an expert witness in a personal injury case (ie this relates to litigation). During the course of an interview with the claimant, Bob, in which Rita is seeking to ascertain the lost earnings for the relevant period, Bob tells her that he has not always reported all his earnings to HM Customs and Revenue in recent years.
This constitutes a money laundering offence, as he has been retaining the proceeds of criminal conduct (failing to declare his proper income to HMRC). However, as this interview qualifies as being privileged, she is not required to report this knowledge.

Question 127

INTERACTIVE QUESTION 26: MONEY LAUNDERING

Angela is an auditor working at Frazzle Ltd. She has been auditing the journals put through after the trial balance had been extracted which therefore affect the financial statements. There is one round sum journal relating to cash which appears to have no justification, for which the description reads ‘Transfer per CB’ and which the accountant cannot explain. CB is the managing director. During the audit, Angela has also noticed a distinct change in the lifestyle of CB from previous years. He is driving an expensive car and his address as noted in the company records has changed to an address in a much more lavish part of town. None of this is explained by payroll transactions in respect of CB.
Angela should:

A Do nothing. She has no grounds for reasonable suspicion of criminal activity as the change in the managing director’s lifestyle might be explained by a legacy or a lottery win.
B Ask the managing director about what the transfer relates to. If the answer causes her to be suspicious that illegal activity might be taking place, given the other factors causing suspicion, she should make a report to her MLRO.
C Make a report to the MLRO without delay and not query the transaction with the managing director, as that might constitute the offence of tipping off
D Make a report to the MLRO without delay and let the company accountant know that such a report has been made as a professional courtesy

Answer 127

C If Angela did nothing, she might be committing the offence of failing to report a reasonable suspicion. On the basis of the cash transfer, coupled with the other observations Angela has made, this appears to be a case of reasonable suspicion rather than mere speculation and, whilst it might be reasonable not to make further enquiries (although to do so would not constitute tipping off), she should not do nothing at all.
It would be best if Angela reported her suspicion to the MLRO. If Angela were also to inform the company accountant of her report, she would be committing the offence of tipping off. Despite any personal or professional regard Angela has for the company accountant and any potential trouble he might be in, Angela should not inform him about the report.

Question 128

INTERACTIVE QUESTION 27: BRIBERY
Indicate whether the offence of bribery is committed in the following instances:

YES OR NO
First Intuition take the senior training partner of Accountants R Us to the Wimbledon tennis final in the hope securing new business

Jack offers a HM Customs and Revenue inspector a sum of money to turn a blind eye to a minor irregularity in his financial records, but the inspector refuses to accept it.

Answer 128

No. This is likely to be regarded as general corporate hospitality to foster good business
relations.

Yes. Offering a financial advantage is an offence regardless of whether it is accepted.

Question 129

WORKED EXAMPLE

Arnold, a director of Five-a-Day Ltd is aware that the company has a number of debts outstanding and the finance director has advised him that he can see no way of the company recovering its profitability sufficiently to settle its debts in the foreseeable future. However, when the sales director of Sunshine Fruits Ltd offers Arnold a consignment of pineapples for £800 with 50% to be paid on delivery and 50% three months later, he accepts, optimistic that it might aid the recovery of the company.
There is a possibility that Arnold may be guilty of fraudulent trading and liable to criminal sanctions (as well as civil remedies) and, if the finance director is party to the transaction in any way (although this seems unlikely), he may also be liable. However, it is necessary for the prosecution to show an intent to defraud creditors or the carrying on of business for any fraudulent purpose.
Knowing full well that a company has no hope of paying its debts may be sufficient in certain circumstances, although case law on this offence is not very extensive or clear and it is arguable that more is required, for example, deliberately moving assets out of a company and into another company (especially where that other company is also controlled by the director).
Often the offence of wrongful trading (which imposes civil liability where a company is in liquidation and a director knew or should have known that there was no reasonable prospect of avoiding insolvent liquidation) is more easily proved and is likely to be more appropriate in this case. (Unlike fraudulent trading, the offence of wrongful trading is limited to directors.)

Answer 129

Arnold, a director of Five-a-Day Ltd is aware that the company has a number of debts outstanding and the finance director has advised him that he can see no way of the company recovering its profitability sufficiently to settle its debts in the foreseeable future. However, when the sales director of Sunshine Fruits Ltd offers Arnold a consignment of pineapples for £800 with 50% to be paid on delivery and 50% three months later, he accepts, optimistic that it might aid the recovery of the company.
There is a possibility that Arnold may be guilty of fraudulent trading and liable to criminal sanctions (as well as civil remedies) and, if the finance director is party to the transaction in any way (although this seems unlikely), he may also be liable. However, it is necessary for the prosecution to show an intent to defraud creditors or the carrying on of business for any fraudulent purpose.
Knowing full well that a company has no hope of paying its debts may be sufficient in certain circumstances, although case law on this offence is not very extensive or clear and it is arguable that more is required, for example, deliberately moving assets out of a company and into another company (especially where that other company is also controlled by the director).
Often the offence of wrongful trading (which imposes civil liability where a company is in liquidation and a director knew or should have known that there was no reasonable prospect of avoiding insolvent liquidation) is more easily proved and is likely to be more appropriate in this case. (Unlike fraudulent trading, the offence of wrongful trading is limited to directors.)

Question 130

WORKED EXAMPLES

Jazmin is an accountant at Calibrations Ltd. She has recently come across documents that show that the company is illegally dumping waste into a local river. She raised this issue with the managing director who ignored her. She spoke to the managing director again and threatened to tell the external auditors, so he fired her.
Jazmin has a substantiated (and therefore reasonable) belief that the company is breaking the law. She has correctly raised this with the managing director.
Jazmin’s disclosure to the managing director therefore qualifies as a protected disclosure. She is therefore given employment protection. She can make a claim for unfair dismissal which is likely to be found in her favour (since dismissal for making a protected disclosure is automatically unfair) unless the MD can prove she was dismissed for another reason. If the tribunal confirms she has been unfairly dismissed, she can claim compensation from Calibrations Ltd.

Answer 130

Jazmin is an accountant at Calibrations Ltd. She has recently come across documents that show that the company is illegally dumping waste into a local river. She raised this issue with the managing director who ignored her. She spoke to the managing director again and threatened to tell the external auditors, so he fired her.
Jazmin has a substantiated (and therefore reasonable) belief that the company is breaking the law. She has correctly raised this with the managing director.
Jazmin’s disclosure to the managing director therefore qualifies as a protected disclosure. She is therefore given employment protection. She can make a claim for unfair dismissal which is likely to be found in her favour (since dismissal for making a protected disclosure is automatically unfair) unless the MD can prove she was dismissed for another reason. If the tribunal confirms she has been unfairly dismissed, she can claim compensation from Calibrations Ltd.

Question 131

1 In order to receive the protection conferred by the whistleblowing provisions of the Public Interest Disclosure Act 1998:
Requirements
Does a person need to be an ‘employee’?
A Yes
B No
Does the person need to be of a minimum age? C Yes
D No

Answer 131

1 Correct answer(s): B No
The Act applies to ‘workers’ (which is wider than ‘employees’ but does not include the self- employed).
Correct answer(s): D No

Question 132

2 Steph has been working in her employer’s factory for five months. She plans to make public some information about her employer’s unsafe working practices, but she has been told the following things about the protection afforded by the whistleblowing provisions contained in the Public Interest Disclosure Act 1998.
Requirements
Are they true or false?
Statutory protection is not available to Steph because she has less than one year’s continuous service with her employer.
A True
B False
She will have to prove that her employer’s working practices are unsafe. C True
D False

Answer 132

2 Correct answer(s): B False
There is no requirement as to length of continuous service.
Correct answer(s):
D False
She will, however, need to have a reasonable belief that the health and safety of an individual has been, is being, or is likely to be endangered.

Question 133

7 Nina is a nurse working in the National Health Service. She has seen Mandy, an NHS consultant for whom she often works, stealing medicinal drugs from the hospital supplies on three occasions in the last month. Mandy knows that Nina has seen her but believes that she would never divulge the information to anybody.
Requirements
Are the following statements true or false?
Nina must disclose Mandy’s wrongdoing either internally within the NHS or to a legal adviser, in order to receive the protection afforded by the Public Interest Disclosure Act 1998.
A True B False If, as a result of her disclosing what she knows, Nina is denied a promotion, she will be entitled to compensation.
C True D False

Answer 133

7 Correct answer(s): B False
Nina could disclose the information to the Minister responsible for the NHS and still receive the statutory protection (even though the aim of the Act is to encourage internal disclosure in the first instance).
Correct answer(s): C True
A tribunal may award an amount that it considers just and equitable in all the circumstances and there is no maximum limit.

Question 134

8 Martin proposes to disclose information to the police about his employer’s criminal acts, but he has been told that he will need to satisfy certain criteria in order for such a disclosure to be protected by the Public Interest Disclosure Act 1998. For instance:
Requirements
Does it matter if Martin’s proposed disclosure is made, principally, for personal gain?
A Yes
B No
Does Martin need to have raised the matter already internally or with a prescribed regulator? C Yes
D No

Answer 134

8 Correct answer(s): A Yes
It must be reasonable in all the circumstances and must not be made for personal gain. Correct answer(s):
D No
This is one option, but alternatively he may show that he had a reasonable belief that a cover-up was likely and there was no prescribed regulator or a reasonable belief that he would be victimised if he raised the matter internally or with a prescribed regulator.

Question 135

9 With regard to the offence of fraud under the Fraud Act 2006, is it necessary to show that the defendant intended to make a gain for themselves or another person?
A Yes B No If a director of a company is found guilty of fraudulent trading, will they automatically be disqualified from acting as a director?
C Yes D No

Answer 135

9 Correct answer(s): B No
The offence is also committed where the defendant intended to cause another person loss or to expose that person to the risk of making that loss. (This is true whichever of the three instances of fraud applies.)
Correct answer(s):
D No
He faces the possibility of being disqualified, however, for up to 15 years as a result.

Question 136

10 All of the following, except one, are the specified ways in which the statutory offence of fraud may be committed under the Fraud Act 2006.
Requirement
Which is the exception?
A Fraud by abuse of position
B Fraud by dishonestly appropriating property belonging to another C Fraud by making false representation
D Fraud by failing to disclose information

Answer 136

10 Correct answer(s):
B Fraud by dishonestly appropriating property belonging to another
Under the Fraud Act 2006 there are three statutory instances of fraud. Options A, C and D are these three instances. Dishonestly appropriating property belonging to another is primarily an offence of theft.

Question 137

13 With regard to the criminal offence of fraudulent trading, answer the following:
Can this offence be committed by a director of a company even if the company is not in liquidation? A Yes
B No
Is this offence committed where a business is carried on for any fraudulent purpose?
C Yes
D No

Answer 137

13 Correct answer(s): A Yes
Civil liability, on the other hand, arises only where a company is in liquidation. Correct answer(s):
C Yes

Question 138

14 Nigella and Karmen are directors of Go Karts Ltd. Leo, the company’s financial adviser, tells Karmen that the company is facing mounting debts and that its assets and projected income is not sufficient to pay them. Notwithstanding this, Karmen orders 20 state-of-the-art go-karts, in the hope that she would be able to keep at least one of the go-karts once the company was wound up (as she knew it would be). Three months later, the company goes into compulsory liquidation. Nigella has never been involved with the day-to-day running of the company as she is much too busy with her other business ventures. As far as she’s concerned, Go Karts Ltd is doing very well.
Requirement
Which of the following best describes who is and who is not guilty of the criminal offence of fraudulent trading?
A Karmen and Leo are guilty. Nigella is not guilty because she is unaware of the situation.
B Karmen and Nigella are guilty. Leo is not guilty because he is a financial adviser and not a director.
C Karmen is guilty. Leo and Nigella are not guilty because neglect or lack of positive dishonest action cannot constitute fraudulent trading.
D Nigella, Karmen and Leo are all guilty because they are all aware or should be aware that insolvency is likely.

Answer 138

14 Correct answer(s):
C Karmen is guilty. Leo and Nigella are not guilty because neglect or lack of positive dishonest action cannot constitute fraudulent trading.
No statutory definition of ‘fraudulent’ is given but it seems that some positive act is needed and not just neglect. Nigella may be in breach of her director’s duty to exercise reasonable care and skill, however. The fact that Leo is not a director does not mean that he has no potential liability.

Question 139

15 The Criminal Justice Act 1993 governs the criminal offence of insider dealing.
Requirement
Which of the following best describes the offence of insider dealing?
A Making public information relating to price-affected securities in order to influence dealings in those securities
B Dealing in securities while in possession of inside information as an insider, the securities being price-affected by the information
C Acquiring securities with the benefit of price-sensitive information obtained as an insider
D Being an insider and in possession of confidential information about the likely effect of dealings on the price of securities

Answer 139

15 Correct answer(s):
B Dealing in securities while in possession of inside information as an insider, the securities being price-affected by the information

Question 140

17 Roo is a corporate banker and is just about to close a deal in which Bigfish plc is to take over Smallfry Ltd. She knows that this will mean a huge increase in the share price of Smallfry Ltd. She is chatting to a friend, Freya, over lunch and tells her all about it because it has been an exciting deal. Freya has never dealt in shares and never seems to have any money to spend anyway. However, unknown to Roo, Freya has just inherited £10,000 and immediately goes out and buys shares in Smallfry Ltd.
Requirements
Is Roo guilty of encouraging another person to deal, contrary to the Criminal Justice Act 1993?
A Yes
B No
Is Roo guilty of disclosing inside information that she obtained in the course of her employment? C Yes
D No

Answer 140

17 Correct answer(s): B No
She does not know or have reasonable cause to believe that Freya will deal.
Correct answer(s):
C Yes
The disclosure is not made in the proper performance of their employment and so an offence is committed under the Criminal Justice Act 1993.

Question 141

21 Which of the following best describes the process of money laundering, which is governed by the Proceeds of Crime Act 2002?
A It is the process by which the proceeds of illegal activity are disposed of into apparently legitimate business activities.
B It is the process by which monies are transferred from business to business or place to place in order to conceal their original source.
C It is the process by which property illegally obtained is converted into cash in order to facilitate its disposal.
D It is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin.

Answer 141

21 Correct answer(s):
D It is the process by which the proceeds of crime are converted into assets which appear to have a legitimate origin.

Question 142

22 What is the maximum length of imprisonment that can be imposed under the Proceeds of Crime Act 2002 for failing to report a suspicion of money laundering?
A 5 years
B 7 years
C 10 years
D 14 years

Answer 142

22 Correct answer(s): A 5 years
Plus an unlimited fine. The principal offence of money laundering is punishable by 14 years’ imprisonment and tipping off by two years.

Question 143

25 Gracie owns a large estate agency business and has recently become aware that she is required by law to establish some internal systems and procedures designed to prevent the possibility of money laundering. She comes to you for advice in respect of the Money Laundering Regulations 2017 and, in particular, as to whether the following are true or false.
Requirements
The appointment of a Money Laundering Reporting Officer is recommended but not compulsory. A True
B False Failure to implement measures required by the Regulations is punishable by an unlimited fine and up to two years’ imprisonment.
C True D False

Answer 143

25 Correct answer(s): B False
A business must appoint a MLRO. Correct answer(s):
C True

Question 144

26 There is no defence to a charge of bribery. A True
B False
Whenever an employee commits an offence of bribery, the commercial organisation for which they work is also guilty of an offence under the Bribery Act 2010 for failing to prevent the commission of the offence.
C True D False

Answer 144

26 Correct answer(s): B False
A defendant will have a defence if they can show that their conduct was necessary for the proper exercise of any function of either an intelligence service or the armed forces when engaged on active service.
Correct answer(s): D False
If the commercial organisation can show that it had ‘adequate procedures’ in place to prevent bribery, it will not be guilty.

Question 145

27 Under the Public Interest Disclosure Act 1998, a worker would be required to follow their organisation’s internally or externally mandated whistleblowing procedures where they have a reasonable belief that:
A criminal offence is being committed eg, fraud
A Yes
B No
The health and safety of their organisation’s workers is being put at risk C Yes
D No

Answer 145

27 Correct answer(s): A Yes
Disclosure of such activity would amount to a qualifying disclosure.
Correct answer(s):
C Yes
Likewise, disclosure of endangering the health and safety of employees would amount to a qualifying disclosure.

Question 146

29 Are the following statements true or false in relation to the provisions relating to fraudulent trading contained in the Companies Act 2006?
They do not apply unless the business was carried on with intent to defraud or for any fraudulent purpose.
A True B False
A successful conviction for fraudulent trading could be secured against an officer of a company who had secured further credit for the company, at a time when they suspected that there was no reasonable prospect of the company being able to repay the debt. C True D False

Answer 146

29 Correct answer(s): A True
Correct answer(s): D False
Fraudulent trading is a criminal offence and it is not sufficient to show the officer ‘suspected’ the company might not be able to pay its debts.

Question 147

30 In relation to the criminal offence of bribery:
Requirements
Offering a person in public office money or other favours in order to circumvent the ethical guidelines of their professional body is an offence.
A True B False
It is punishable by a term of imprisonment or a fine, or in serious cases both imprisonment and a fine.
C True D False

Answer 147

30 Correct answer(s): A True
The offence is committed whether or not the offeree accepts the money or other favour. Correct answer(s): C True

Question 148

32 Gavin, a partner in Ingatestone & Co, is the engagement partner on the audit of Tolleshunt Electronics Ltd (Tolleshunt). He is in a close personal relationship with the finance director of Tolleshunt and agrees to sign an unmodified audit report on the company’s accounts despite its having declared a dividend which is illegal under the Companies Act 2006. The finance director has a substantial personal shareholding in Tolleshunt.
Requirements
Is Gavin in breach of:
The Proceeds of Crime Act 2002 in respect of money laundering? A Yes
B No The ICAEW Code of Ethics in respect of professional behaviour? C Yes
D No

Answer 148

32 Correct answer(s): B No
The term ‘money laundering’ covers any activity by which the apparent source and ownership of the proceeds of crime are changed, in such a way that the cash or other assets appear to have been obtained legitimately. Gavin has not conducted any such activity because payment of a dividend which is illegal under the Companies Act 2006 is not a criminal offence.
Correct answer(s): C Yes
Gavin is party to the deception of users of the financial statements who will believe the dividend was legitimate. Deception is dishonest and is likely to bring the profession into disrepute, hence he is in breach of professional behaviour.

Question 149

37 The Computer Misuse Act 1990 makes a number of actions illegal.
Requirements
In relation to the Act, which of the following statements are true or false?

It is an offence to carry out unauthorised acts with intent to impair the operation of a computer system.
A True B False
It is an offence to supply or obtain articles that another individual can use to access a computer system.
C True D False

Answer 149

37 Correct answer(s): A True
This statement describes hacking.
Correct answer(s):
C True
This statement might involve, for example, the supply of stolen logins, that another individual could use to gain unauthorised access to a computer system.

Question 150

38 Ronnie is guilty of dealing and encouraging another to deal in price affected securities, contrary to the Criminal Justice Act 1993 and has four possible arguments in defence of her guilt. All except one of these defences are valid.
Requirement
Which is the exception?
A She did not expect there to be a profit.
B She had reasonable grounds to believe that the information had been disclosed widely.
C She would have done what she did even without the information.
D She passed the information on in the course of her employment.

Answer 150

38 Correct answer(s):
D She passed the information on in the course of her employment.
Passing on information in the course of employment is only relevant (and means that no offence has been committed) to the offence of disclosing inside information. The other options are all valid defences.

Question 151

40 Are the following statements true or false?
The penalty for failing to prevent bribery is a fine.
A True
B False
Bribing a public official whilst outside of the UK is an offence under the Bribery Act 2010. C True
D False

Answer 151

40 Correct answer(s): A True
This is an offence which is committed by commercial organisations such as companies and partnerships. The penalty is a fine.
Correct answer(s):
C True
It is an offence to bribe foreign public officials as well as those in the UK.

Question 152

45 Marcus is auditing the accounts of Zonefest plc. He is aware that the company is about to announce huge profits. He tells Amy what he knows, as he knows that she already owns shares in Zonefest plc. Amy buys a further 100 shares but later says that she had been planning to buy more shares anyway. Marcus also includes the information in a report to his senior partner, Karl, who quickly buys 200 shares in Zonefest plc.
Requirements
Is Amy guilty of insider dealing, contrary to the Criminal Justice Act 1993?
A Yes
B No
Is Marcus guilty of insider dealing, contrary to the Criminal Justice Act 1993 in relation to his report to Karl?
C Yes D No

Answer 152

45 Correct answer(s): B No
Provided she can demonstrate that she would have purchased the shares in any event.
Correct answer(s):
D No
Disclosing information in the course of employment is not an offence under the 1993 Act. Assuming he did not also encourage Karl to buy, he has committed no offence.