H Corporate Fraudulent and Criminal Behaviour

Question 1

Insider dealing meaning and legal controls

Answer 1

Insider dealing:

Value of a share reflects profitability and prospects of a company, this info should only be available to a purchaser after it has been made public - if a trader could anticipate the way the price was to change and make a profit this is known as insider dealing which is a criminal offence under criminal justice act 1993

Insider knowledge can be retrieved through directors/employees, the nature of their profession and punishable by fine or imprisonment
In the persons defence they must prove at the time they had no knowledge of insider information

Question 2

Market abuse meaning and legal controls

Answer 2

Market abuse:

Behaviour in relation to any qualifying investments falling below the standard expected of a person in that position

Based on info not generally available to market users, where if available to a regular user would likely give a false or misleading impression to the market value of investments, or likely to distort the market

Insider dealing

Improper disclosure where an insider discloses info

Misuse of info where behaviour that isnt generally available would affect an investors decisions

Manipulating transactions that gives a false or misleading impression of the supply/demand for investments, in turn raising the price of an investment abnormally

Manipulating devices, employing fictitious devices to deceive investors

Dissemination, giving out info that is misleading

Distortion and misleading behaviour

Market abuse can result in fine and public reprimand

Question 3

Money laundering meaning and legal/company controls

Answer 3

Money laundering:

Process by which proceeds of crime are converted into assets which appear to have a legal source

Regulated by proceeds of crime act 2002 imposing obligations on accountants, auditors and legal to report to authorities

Usually 3 phases of placement being initial disposal of proceeds into business activity, layering being the transfer of money across businesses, and integration being the culmination of money in the appearance of a legit source

Risk management practices:

Failure to report is guilty of an offence failing to disclose knowledge or suspicion of money laundering

Tipping off is that its an offence to make a disclosure likely to prejudice a money laundering investigation

Money laundering regulations 2017 require firms to put preventative measure in place, such as money laundering risk assessments, implementation of systems and policies in compliance with legislation, enhanced record keeping and data protection systems.

Internal controls:

Written risk assessment must be carried out to identify risk of money laundering, used to develop policies and apply a risk based prevention approach
Firms must appoint a money laundering compliance principal on the board of directors or senior management to receive activity reports and assess suspicious activity
Firms must assess skills and integrity of employees in prevention

Customer due diligence:

Accountants required to establish new clients with integrity with customer due diligence procedures, background checks for higher risk clients

Question 4

Bribery meaning and legal controls

Answer 4

Bribery is an act of implying money or gift given that alters the behaviour of the recipient:

Briber act 2010 covers bribing a person to induce or rewardm requesting or accepting a bribe, using a bribe to influence or agin a business advantage

Organisations must have anti bribery procedures proportionate to the risk posed

Deferred prosecution agreements allows organisations to settle allegations without being prosecuted where the prosecutor will bring criminal charges but then immediately suspend the process

Question 5

Criminal activity in management and liquidation- common criminal offences

Answer 5

Number of criminal offences can be undertaken in the operaiton/management/inding up of a company:

Failure to file accounts or annual returns

Providing misleading info to an auditor

Business names

Company directors disqualification act 1986 states any person who acts to contribute in a disqualification order is guilty of offence

Question 6

Fraudulent trading meaning and legal controls

Answer 6

Fraudulent trading:

Occurs where the companies business is carried on with intent to defraud creditors or any other fraudulent purpose, and can give rise to civil/criminal liability if the company is in the course of being wound up once dishonest intent is established

The fraud act 2006:

Before the fraud act, offences were based on deception which has now been defined as dishonesty by the defendant and intention to gain or cause loss to another

The criminal finance act 2017:

Sets out the corporate offence on failure to prevent facilitation of criminal tax evasion, and the relevant body is criminally liable of the crime committed by an associated person

Question 7

Wrongful trading meaning and legal controls

Answer 7

Wrongful trading:

Occurs where on a winding up it appears to the court that the company has gone into insolvent liquidation and before this, the director would’ve know there is no reasonable prospect the company would avoid going into insolvent liquidation.

Applying to directors and shadow directors only