Chapter 11 - Criminal law Flashcards
What are the criminal offences we will consider in this course?
- Money Laundering
- Bribery
- Fraud
- Insider dealing
What is money laundering?
Money laundering is the crime which is the process by which the proceeds of crime are converted into assets which appear to have a legitimate source.
Proceeds of crime is widely defined and includes any assets resulting from a criminal act, e.g. smuggling, drugs, tax evasion, and bribery.
What are the common red flags that indicate money laundering? (5)
- Unusually large or frequent transactions or activity compared to what is normal for an individual
- Cash deposits into bank accounts that cannot be justified
- Large increases in the size of account balances
- Transferring large amounts of cash using money transfer services, especially if money is going overseas
- Unwillingness to discuss business activities or provide other business-related information Inconsistencies in information being provided
How as accountants can we become implicit in money laundering?
As a chartered accountant, you can be implicated in money laundering either by taking part in the money laundering process itself, or if you become aware/suspect that money laundering is taking place and fail to make an appropriate report.
What are the offences defined under the Proceeds of Crime Act with regards to money laundering and what penalty do they carry?
What does the The Money Laundering Regulations 2017 act aim to achieve?
Apply to all relevant persons and seek to enforce record keeping, client due diligence and staff training to allow suspicious transactions to be recognised and reported and to provide an audit trail on a future investigation
What is the defense of reasonable excuse accountants could rely on if accused of money laundering offences?
There is a defence of reasonable excuse. This has been narrowly interpreted by the courts so accountants should not assume they can rely on this. However, it would be cover extreme situations, for example, threats of physical violence being made against you or family.
Who are defined as ‘relevant persons’ under the The Money Laundering Regulations 2017 act?
- Credit and financial institutions
- Accountants in practice including auditors, insolvency practitioners, external accountants and tax advisers
- Independent legal professionals, including solicitors and barristers
- Estate agents
- Casinos
- ‘High value dealers’ (those who sell goods for cash over 10,000 euros)
What are the requirements of ‘related persons’ to conform with The Money Laundering Regulations 2017 act?
- Sufficient records keeping
- Whole firm risk assessments
- Internal controls
- Policies and procedures
- Identification of politically exposed persons
- Processes for when there is reliance on third parties
- Customer due diligence
When does customer due dilligence apply with regards to money laundering regulations?
- On establishing a new business relationship
- When providing a business formation service
- For occasional transactions
- When money laundering or terrorist activities is suspected
- When accountant doubts the veracity of information provided
What actions must be taken when doing customer due dilligence with regards to money laundering regulations?
- Identify customers and verify their identity
- Identify beneficial owners and those who have significant influence e.g. executive directors, senior financial managers, significant shareholders or loan creditors
- Obtain information on the nature and purpose of a business relationship
- For organisations the firm must identify who has ultimate control or significant influence e.g. creditors, executive directors
What is the legal position of client-professional confidentiality with regards to money laundering, particularly accountants and solicitors?
- Professionals (including accountants) owe a duty of confidentiality to their clients BUT this is overridden by the legal duty to disclose knowledge or suspicion of money laundering.
- Legal privilege can apply to professionals (solicitors, accountant and tax advisers) who give advice in respect of litigation. Where this specific legal privilege applies the professional need not make a disclosure if there is no intention of furthering a criminal purpose.
- Solicitors (but not accountants) may claim a general (and wider) legal privilege which applies to all communications between the solicitor and his client whether in respect of litigation or general legal advice. Case law shows that this is NOT the case for accountants.
When must accountants report money laundering and to whom?
When an accountant has a knowledge or suspicion of money laundering they must make a report to their Money Laundering Reporting Officer (MLRO).
What is meant by knowledge and suspicion with regards to reporting money laundering?
Knowledge:
Knowledge is actual knowledge or virtual certainty. Unless covered by specific privilege discussed above, knowledge must be reported to MLRO/NCA as not to is a crime.
Suspicion
Suspicion is less well defined. However, it must be based on something objective, that is, be more than speculation. Note that if there is suspicion, it should be reported to the MLRO.
What is bribery?
Bribery is the act of offering, giving, or receiving something of value to influence someone to act improperly
What are the four main offences regarding bribery?
- Bribing another person
- Being bribed
- Bribing a foreign public official
- Corporate failure to prevent bribery
What constitutes ‘bribing another person’?
Where a person offers promises or gives financial or other advantage to another person to induce or reward them for improperly providing a relevant function or activity
NOTE:
* The bribe need not be offered to the person who performs the function.
* Benefit may be for a third party.
* Can be given before or after the improper performance.
What constitutes ‘being bribed’?
Where a person requests accepts or receives financial or other advantage as a reward for improper performance of a relevant function or activity.
NOTE:
* The bribe need not be offered to the person who performs the function.
* Benefit may be for a third party.
* Can be given before or after the improper performance.
Define ‘relevant function or activity’ and ‘improper’ with regards to
Relevant function or activity: Where the person performing the function is in a position of trust (need not have any connection with the UK), including:
* Any activity of a public nature
* Any activity connected with business or in the course of employment N
Improper: Does not meet the standard which a reasonable person in the UK would expect.
What constitutes ‘bribing a foreign public official’?
Where a person offers promises or gives any financial or other advantage to the official or a third party with the officials consent or acquiescence and that official is not permitted by law to be influenced
Must intend to influence the official; and to obtain a business advantage as a result
What constitutes ‘corporate failure to prevent bribery ‘?
Any commercial organisation which fails to prevent an offence being committed by anyone who performs services for the company. Includes employees, agents, subsidiaries
Defence if the organisation can show it has adequate procedures in place to prevent persons associated with it from committing bribery. (Adequate – size, risk exposure, secretary of state guidelines, regular review)
Do gifts and hospitality amount to bribery?
Hospitality and gifts are permitted if they are to encourage good business relations and not to persuade the other party to award business favours
What is the general defence for bribery?
There is a general defence if the person can show that the bribery was carried out as part of the intelligence service or armed forces on active service.
What is the punishment for bribery?
Bribery is a criminal offence punishable by unlimited fine and/or 10 years imprisonment.
What is fraud?
A criminal offense that involves obtaining property by deception
What are the different types of fraud defined under the Fraud Act 2006? Define each (3)
What is the punishment for fraud?
Fraud is a criminal offence punishable by unlimited fine and/or 10 years imprisonment.
What are the elements of cyberfraud described under the Fraud Act?
- Phishing
- Webcam manager
- File hijacker
- Keylogging
- Screenshot manager
- Ad clicker
When is a whistleblowing disclosure a qualifying disclosure?
A disclosure must be a qualifying disclosure, made in good faith to the appropriate person in the appropriate manner, and the person making it must have a reasonable belief that the information is valid.
What are the suggested controls that can provide protection agaisnt cyber crime outlined by the ‘Cyber Essentials’ scheme?
What things are illegal as per the Computer Misuse Act 1990? (5)
- Unauthorised access to computer material
- Unauthorised access with intent to commit or facilitate commission of further offences
- Unauthorised acts with intent to impair, or with recklessness as to impairing, operation of computer
- Unauthorised acts causing, or creating risk of, serious damage
- Making, supplying or obtaining articles for use in the above offences
What is fraudulent trading?
A criminal and civil offence which may be committed where a business is carried on with intent to defraud creditors of the company or creditors of any other person or for any fraudulent purpose.
When can fraudulent trading become a criminal offence and when can it become a civil offence?
Criminal Offence: Applies whether or not the company is in liquidation.
Civil Offence: Applies only if the company is in liquidation.
Can someone be convicted of a criminal offence for fraudulent trading for a negative action (i.e. neglect)?
A positive act is required and not just neglect plus some element of dishonesty.
What is the criminal punishment for fraudulent trading?
- Punishable by an unlimited fine and/or imprisonment for up to 10 years.
- Court may disqualify a person who is guilty of fraudulent trading for up to 15 years from acting as a director or being involved in the management of companies,
What is the civil liability for fraudulent trading?
Fraudulent trading also carries civil liability for any persons who were knowingly parties to it.
Any such person may be held liable for some or all of the debts of the company.
What is insider dealing?
The illegal buying and selling of a company’s stock or other securities based on non-public information
What are the different offences described under the Criminal Justice Act 1993 relating to insider trading? Define each (3)
- Dealing in securities while in possession of inside information as an insider, the securities being price-affected by the information.
- Encouraging another to deal in securities while in possession of inside information, the securities being price-affected by the information.
- Disclose information other than in the proper performance of one’s employment, office or profession.
Define ‘dealing’ with regards to insider dealing?
Acquiring or disposing of relevant securities or agreeing to do so
Define ‘securities’ with regards to insider dealing?
Securities include shares, debt securities and warranties and must be regulated on a regulated market such as the Stock Exchange.
Define ‘inside information’ with regards to insider dealing? (3)
Inside information has the following characteristics:
* Capable of having a significant effect on price
* Has not been made public
* Specific and precise
Define ‘insider’ with regards to insider dealing?
A person has information as an insider if it is (and he knows it is) inside information, and if he has (and knows he has) it from an inside source.
What are the defences for insider trading regarding dealing and encouraging others to deal?
The individual has a defence regarding dealing and encouraging others to deal if he can show that:
* He did not expect there to be a profit or avoidance of loss
* He had reasonable grounds to believe that the information had been disclosed widely
* He would have done what he did even if he did not have the information
What are the defences for insider trading regarding disclosing information?
The individual has a defence to disclosing information if;
* He did not expect there to be a profit or avoidance of loss
* He did not expect the person to deal
What is the criminal punishment for insider trading?
Insider trading is a criminal offence punishable by seven years’ imprisonment and/or an unlimited fine
What is market abuse?
The civil law offense equivalent for insider trading
What is the major issue with criminal convictions for insider trading and why is the civil offense of market abuse more beneficial?
The standard of proof to convict for insider dealing (a criminal offence) is high (beyond reasonable doubt). This means it can be difficult to convict offenders.
The civil law offence of ‘market abuse’, has a lower standard of proof (balance of probabilities).
Individuals can be made to account for wrongs under the regulations even if they cannot be convicted of insider trading.
ECONOMIC CRIME ACT 2022
What are the five fundamental principles of the ICAEW Code of Ethics?
- Integrity
- Objectivity
- Professional competence and due care
- Confidentiality
- Professional behaviour
What are the threats for accountants in business? (5)
- Self-interest
- Self-review
- Advocacy
- Familiarity
- Intimidation
What is whistleblowing?
‘Whistleblowing’ is the name commonly given to workers making a disclosure of wrongdoing (usually) by their employer. That wrongdoing is often, though not necessarily, of a criminal nature.
Does the Employment Rights Act 1996 impose an obligation on the whistle-blower to disclose wrongdoings?
No.
The legislation does not impose an obligation to whistleblow, rather it protects individuals who choose to do so.
What right is afforded to workers who make protected disclosure under the Public Interest Disclosure Act 1998?
A worker (regardless of his age or length of service) has the right not to be subjected to ‘any detriment by any act, or any deliberate failure to act’ by his employer as a result of having made a protected disclosure.
Such as:
* lack of promotion
* lack of training or opportunity unjustified disciplinary action
* pay issues or failure to renew contracts
* an ‘employee’ who is dismissed or selected for redundancy principally for having made a protected disclosure shall be regarded as having been automatically unfairly dismissed
What is considered a protected disclosure regarding whistleblowing?
In order to receive protection, the disclosure made by a worker must be:
* A qualifying disclosure of information
* Made in the public interest
* Made to the appropriate person
What is considered a qualifying disclosure regarding whistleblowing?
In the reasonable belief of the worker making it, the information disclosed tends to show one or more of the following:
- Criminal Offence - That a criminal offence has been committed, is being committed or is likely to be committed
- Failure of any legal obligation - That a criminal offence has been committed, is being committed or is likely to be committed
- Miscarriage of justice - a miscarriage of justice has occurred, is occurring or is likely to occur
- Health and safety endangered - that the health and safety of an individual has been, is being or is likely to be endangered
- Environment damaged - that a criminal offence has been committed, is being committed or is likely to be committed
- Information regarding above is being deliberately concealed - that information tending to show any matter falling within these categories has been, is being or is likely to be deliberately concealed
Does suspicion constitute reasonable belief when making a qualifying disclosure?
The test of reasonable belief is subjective in that it is specific to the worker making the disclosure BUT rumour or unfounded suspicions will not be sufficient
Who are considered ‘appropriate people’ when making a qualifying disclosure?
The aim is to encourage the employees to make disclosure internally wherever possible - the wider ‘people’ are more of a last resort
What is a gagging clause? Is it sufficient to prevent whistleblowers?
A gagging clause is a clause in an employment contract or a severance agreement which restricts a worker’s right to make disclosure.
Any clause which conflicts with the Act will be void - cannot prevent whistleblowing
Are awards of compensation regarding whistleblowing capped?
No.
Awards of compensation are uncapped and based on the losses suffered.
