Corporate Fraudulent and Criminal Behaviour Flashcards
What is fraudulent trading?
Fraudulent trading involves establishing a company with the intention of defrauding creditors or for any fraudulent purpose, according to the Companies Act 2006 s.993(1)
What is wrongful trading?
Wrongful trading occurs when directors allow the company to continue trading without a realistic prospect that it will be able to avoid an insolvent liquidation in the foreseeable future.
What is the punishment for money laundering?
According to the Proceeds of Crime Act 2002, the maximum sentence is 14 years in prison and/or a fine on indictment.
For summary convictions, the max is 6 months in prison and/or a fine not exceeding the statutory maximum.
What are the offences associated with money laundering?
There are 3 offences in money laundering:
- Laundering
- Failure to report
- Tipping off
What are the steps in money laundering?
There are 3 steps used to launder money:
- Placement
- Layering
- Integration
What is insider information?
According to CJA 1993, section 56, insider information is specific or precise information about shares not made public which would materially affect the share price.
What is insider dealing?
Insider dealing involves the use, the encouragement of use or the disclosure of insider information to buy price-affected securities, according to section 52 of CJA 1993
What defenses can a person use against charges of insider dealing?
- The dealing was not expected to result in a profit or avoidance of loss (section 53 CJA 1993)
- It could be reasonably thought that the information was already public
- The dealer would have dealt, even without the information
- The dealer did not know or did not suspect the information provider was an insider.
Is insider dealing a criminal or civil offense?
Under the CJA 1993, insider dealing is a criminal offense.
Under the Financial Services and Markets Act 2000, it can be treated as a civil or criminal offense as a form of market abuse.
If someone is told by an insider about a potential increase in share price and goes to buy shares due to that information, has an offence been committed?
Yes, insider dealing
If a person, once told by an insider about a potential increase in share price, goes and buys shares from a friend, has an offence been committed?
No, as the shares were not dealt on a recognised, regulated market
A person who posts an inaccurate story about a company’s future plans on an internet bulletin board is an example of what type of market abuse?
Dissemination of information
An example of misuse of information is a person who buys shares in a company that they know is a takeover target of their employer before a general disclosure of the proposed takeover is made.
Is this statement true or false?
True
What is irrelevant to determine whether encouraging another to deal in insider dealing exists or not?
- Whether any dealing takes place, encouraging to deal is an offence itself
- Whether the person being encouraged realises that the securities are price-affected securities
- The inside information is given to the person being encouraged
What is layering in money laundering?
Layering is the transfer of monies from business to business, or place to place, to conceal the original source
Bribery is related to the offering and receiving of gifts or hospitality.
Is this statement true or false?
True
What activities are often connected with market abuse?
- False or deceptive or engaging in a misleading course of conduct
- Forecast that is misleading
- Recklessly making a statement
Manipulating transactions involves interfering with the normal process of share prices moving up and down in accordance with supply and demand for the shares.
Is this statement true or false?
True
Placement in money laundering is the initial disposal of the proceeds of the initial illegal activity into apparently legitimate business activity or property.
Is this statement true or false?
True
What is integration in money laundering?
Once layered, the money has the appearance of legitimate funds
What does the prosecution have to prove in order to prove insider dealing?
They must prove that the possessor of insider information:
- Dealt in price-affected securities on a regulated market
- Encouraged another to deal in them on a regulated market
- Disclosed the information other than in the proper performance of their employment, office or profession
Market distortion is any behaviour that interferes with the normal process of market prices moving up and down in accordance with supply and demand.
Is this statement true or false?
True
In relation to money laundering, what is failure to report?
Failure to disclose knowledge or suspicion of money laundering
Where suspicion is more than mere speculation but falls short of proof or knowledge
Money laundering is used to refer to attempts to make the proceeds of crime appear respectable.
Is this statement true or false?
True
Manipulating devices involves both artificially raising the share price and making false statements to the market to encourage other investors to buy the shares, driving the price up further.
Is this statement true or false?
True
What are the offences associated with bribery as per the Bribery Act 2010?
There are 4 offences:
- Bribing someone
- Receiving a bribe
- Bribing a foreign public official
- Corporate failure to prevent bribery
What offence of bribery occurs when a company fails to prevent a bribery offence by a person who performs services for it in any capacity?
Corporate failure to prevent bribery
What defence can a company use against corporate failure to prevent bribery?
The company can show that it has adequate procedures in place to prevent bribery.
Can a partnership be found guilty of corporate failure to prevent bribery?
Yes
The directors of a company who have been found guilty of corporate failure to prevent bribery can be sued for compensation for failing to have adequate procedures in place.
Is this statement true or false?
True.
The offence of corporate failure to prevent bribery has both civil and criminal consequences.
