Chapter 11 - Criminal Law

Question 2

What is money laundering?

Answer 2

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

Question 3

What are examples of money laundering?

Answer 3

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 4

What are red flags for money laundering?

Answer 4

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 5

What are the offences under the Proceeds of Crime Act?

Answer 5

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

Question 6

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

Answer 6

14 years imprisonment or an unlimited fine.

Question 7

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

Answer 7

5 years imprisonment or an unlimited fine.

Question 8

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

Answer 8

2 years imprisonment or an unlimited fine.

Question 9

What is the defence against money laundering allegations?

Answer 9

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

Question 10

What does the Criminal Finances Act 2017 address?

Answer 10

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

Question 11

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

Answer 11

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

Question 12

What is tax evasion?

Answer 12

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

Question 13

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

Answer 13

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

Question 14

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

Answer 14

Facilitating tax evasion or failing to prevent it.

Question 15

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

Answer 15

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

Question 16

How does tax evasion differ from tax avoidance?

Answer 16

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 17

What are the purposes of the Money Laundering Regulations 2017?

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

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

Question 20

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

Answer 20

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 21

When does customer due diligence apply?

Answer 21

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 22

What are the actions required for customer due diligence?

Answer 22

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 23

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

Answer 23

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

Question 24

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

Answer 24

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

Question 25

What constitutes suspicion under the Money Laundering Regulations 2017?

Answer 25

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

Question 26

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

Answer 26

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 27

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

Answer 27

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

Question 28

What is legal privilege for professionals in respect of confidentiality?

Answer 28

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 29

Who can claim legal privilege under the Money Laundering Regulations?

Answer 29

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 30

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

Answer 30

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

Question 31

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

Answer 31

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

Question 32

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

Answer 32

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

Question 33

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

Answer 33

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

Question 34

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

Answer 34

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

Question 35

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

Answer 35

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 36

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

Answer 36

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 37

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

Answer 37

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

Question 38

What is the defence for corporate failure to prevent bribery?

Answer 38

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

Question 39

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

Answer 39

Unlimited fines and/or up to 10 years imprisonment.

Question 40

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

Answer 40

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

Question 41

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

Answer 41

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

Question 42

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

Answer 42

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

Question 43

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

Answer 43

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

Question 44

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

Answer 44

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

Question 45

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

Answer 45

10 years imprisonment and an unlimited fine.

Question 46

What types of cybercrime are identified under the Fraud Act?

Answer 46

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

Question 47

What is electronic financial fraud?

Answer 47

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

Question 48

What is fraudulent sales through online auctions or retail sites?

Answer 48

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

Question 49

What is phishing in cybercrime?

Answer 49

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

Question 50

What is pharming in cybercrime?

Answer 50

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

Question 51

What is online romance or social networking fraud?

Answer 51

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

Question 52

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

Answer 52

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

Question 53

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

Answer 53

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

Question 54

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

Answer 54

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 55

What is the role of firewalls in protecting against cybercrime?

Answer 55

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

Question 56

How can consumers apply secure settings for devices and software?

Answer 56

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

Question 57

How can access to devices and software be controlled?

Answer 57

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

Question 58

How can protection against viruses and other malware be achieved?

Answer 58

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

Question 59

Why is keeping devices and software up to date important?

Answer 59

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

Question 60

What is the purpose of the Accountancy Sector Fraud Charter?

Answer 60

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

Question 61

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

Answer 61

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

Question 62

What is the purpose of the Computer Misuse Act?

Answer 62

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

Question 63

What are the offences under the Computer Misuse Act?

Answer 63

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 64

What is fraudulent trading as defined under the law?

Answer 64

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 65

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

Answer 65

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 66

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

Answer 66

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 67

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

Answer 67

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 68

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

Answer 68

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

Question 69

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

Answer 69

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

Question 70

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

Answer 70

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 71

What constitutes ‘inside information’ under insider dealing regulations?

Answer 71

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

Question 72

What are the defences against charges of insider dealing?

Answer 72

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 73

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

Answer 73

Seven years imprisonment and/or an unlimited fine.

Question 74

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

Answer 74

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 75

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

Answer 75

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 76

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

Answer 76

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 77

What are the defences against disclosing insider information?

Answer 77

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

Question 78

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

Answer 78

Seven years imprisonment and/or an unlimited fine.

Question 79

What is market abuse?

Answer 79

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 80

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

Answer 80

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 81

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

Answer 81

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

Question 82

What is the key principle behind market abuse?

Answer 82

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 83

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

Answer 83

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 84

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

Answer 84

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

Question 85

What is the purpose of the ICAEW Code of Ethics?

Answer 85

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

Question 86

What does the acronym MASSIF represent for threats to ethics?

Answer 86

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

Question 87

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

Answer 87

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

Question 88

What are examples of safeguards for accountants in business?

Answer 88

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

Question 89

What are examples of safeguards for accountants in practice?

Answer 89

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 90

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

Answer 90

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

Question 91

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

Answer 91

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

Question 92

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

Answer 92

Being straightforward and honest in all business and professional relationships.

Question 93

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

Answer 93

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

Question 94

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

Answer 94

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

Question 95

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

Answer 95

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

Question 96

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

Answer 96

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

Question 97

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

Answer 97

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

Question 98

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

Answer 98

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

Question 99

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

Answer 99

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 100

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

Answer 100

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

Question 101

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

Answer 101

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

Question 102

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

Answer 102

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

Question 103

What is whistleblowing?

Answer 103

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 104

What legislation protects whistleblowers in the UK?

Answer 104

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

Question 105

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

Answer 105

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 106

What qualifies as a protected disclosure?

Answer 106

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

Question 107

What is a qualifying disclosure?

Answer 107

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 108

What is the test of reasonable belief in whistleblowing?

Answer 108

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 109

What does public interest mean in the context of whistleblowing?

Answer 109

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 110

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

Answer 110

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 111

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

Answer 111

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

Question 112

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

Answer 112

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 113

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

Answer 113

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 114

What are examples of qualifying disclosures under whistleblowing legislation?

Answer 114

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 115

What is the test of reasonable belief in whistleblowing cases?

Answer 115

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 116

What does ‘public interest’ mean in whistleblowing cases?

Answer 116

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 117

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

Answer 117

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 118

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

Answer 118

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 119

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

Answer 119

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 120

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

Answer 120

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 121

Who should disclosures be made to under whistleblowing legislation?

Answer 121

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

Question 122

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

Answer 122

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 123

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

Answer 123

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 124

What factors determine whether a wider disclosure is reasonable?

Answer 124

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 125

What is a gagging clause in whistleblowing?

Answer 125

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 126

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

Answer 126

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

Question 127

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 127

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 128

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 128

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 129

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 129

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 130

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 130

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 131

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 131

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.