White Collar Crime & Corporate Fraud Corporate International

Published on 28 May 2009 under category: cubism

By Dan Hyde, Consultant at Cubism Law

As published in Corporate International

"It´s only when the tide goes out that you learn who´s been swimming naked." Warren Buffet - arguably the world´s greatest investor.

When Edwin Sutherland coined the term ´white-collar crime´ in his address to the American Sociological Society in 1939, he used the concept to challenge conventional stereotypes and theories. Crime then was generally seen as the work of the disadvantaged. Sutherland challenged the traditional image of criminals and the predominant etiological theories of crime of his day. The white-collar criminals he identified were often middle-aged men of respectability and high social status, living in affluent neighbourhoods and well respected in the community. In that respect very little has changed and, with little sign of an economic recovery on the horizon, white-collar crime and corporate fraud are on the increase.

Basham, Ringe y Correa has had an interesting role in matters related to corporate fraud. Francisco Tiburcio, a partner at the firm, has represented companies on the stock exchange who have a presence in financial markets. He said: "We have represented companies on the stock exchange who have a presence in financial markets. As corporate lawyers we are always concerned about our clients´ best interests with respect to standards of corporate governance. Fortunately, in Mexico we do not have fraud actions conducted by corporations against those who invest on the stock market." The firm has worked very closely with external auditors in relation to the implementation of diverse legislation aimed at avoiding illicit conduct internally within companies. "We have also worked in a pro-active manner with our clients to create preventive measures that discourage any illegal conduct," Dr Tiburcio explained. "Basham is a pioneer in Mexico in having developed programs and manuals to help prevent illegal behaviour within corporations."

Corporate corruption

Tackling bribery and corruption has become a key focus for many prosecuting authorities around the world. The World Bank estimates that more than $1 trillion (£503 million) is paid in bribes worldwide. As the global mar-kets open up, governments want to ensure that companies are operating on a level playing field. UK companies are increasingly finding themselves in these global markets, and against foreign competitors, where bribery has long been part of the business culture. UK bribery law has not kept up with the pace of globalisation.

It is Roiter Zucker´s philosophy is to provide advice that fundamentally and robustly defends its clients whilst also recognising the need for them to be able to continue with ´business as usual´ in order to mitigate the impact of an investigation and any subsequent proceedings on them.

The firm defends individuals and businesses in parallel regulatory and criminal proceedings with a particular emphasis on those brought by the FSA, OFT and SFO. Sara Teasdale, a partner at the firm, explained: "We regularly advise on matters relating to fraud, corruption and money laundering and our offering ranges from non-contentious compliance advice through to defending complex criminal prosecutions. We provide training on issues facing clients including money laundering and insider dealing."

In addition the firm offers a dawn raid training service in order to train clients about how to deal with a search by a prosecuting body and are on hand and fully prepared to attend their offices at short notice if required.

"Our experience as a team is such that we are able to handle cases from ´cradle to grave´ and are experienced in dealing with matters from investigation through to confiscation and sentencing," Ms Teasdale added.

Corporate fraud and corporate identity theft have become ever more common. Companies House recently estimated that corporate ID theft alone could be costing British business as much as £50 million per annum, and the Metropolitan Police believes the true figure could be much higher, with an average loss to victims of corporate identity theft of £2 million for each case. This issue must, therefore, go higher up the agenda for companies and organisations, as quickly as possible. Stephen Smith, an associate at Roiter Zucker, believes it is important to be commercially aware and alive to a client´s needs and vulnerabilities in what is understandably often a time of crisis for them. "Given that an investigation can last for several years, it is rarely an option for a business to grind to a halt awaiting the outcome of the investigation and any subsequent proceedings," he said. "This requires the ability at an early stage to identify the best practical ways for the client to continue to trade within the confines of being under investigation. This may, for example, call upon negotiation skills to agree a symbiotic way forward with the regulator or prosecutor."

It is also necessary to have an in depth knowledge and experience of dealing with an investigation where the prosecutor has both criminal and regulatory powers available and the ability to balance the (often) competing interests that arise. Mr Smith explained: "As a firm we are ever mindful as to the prosecutor / regulator dichotomy and the fact that alongside dealing with an investigation or prosecution it is often necessary to preserve for the client a working relationship with the regulator and ensure that where possible the client company is in a position to continue business as usual during and after the conclusion of proceedings."

Paying the price

More than £1.1 billion of fraud came to UK courts in 2008 according to KPMG Forensic´s Fraud Barometer - the highest level recorded since 1995 and the second highest in the twenty-one year history of the survey.

According to KPMG´s Barometer, which measures fraud cases coming to court where the charges are for £100,000 or more, there were 239 cases through the year. Fraud by professional gangs remained at the extremely high levels seen in previous years (£800 million in 2008), but there was a marked increase in fraud by individuals.

Taken together, company managers, employees and customers together were tried for some £300 million of fraud last year, three times the value seen in 2007. The corporate sector suffered during 2008. There was a five-fold increase in fraud losses, up from £24 million (45 cases) in 2007 to £125 million (54 cases) in 2008. For all companies, the fraud threat grew both internally and externally: managers accounted for £128 million (£54 million in 2007) and employees for £100 million (£27 million), while customers inflicted £66 million (£25million).

The worst hit sector was financial services, which suffered £388 million of fraud in 63 cases, a ten-fold increase on the £37 million (36 cases) recorded in 2007. However, this was in part fuelled by an alleged £220 million attempt to hack into Sumitomo Matsui Banking Corporation´s systems which came to court in the first half of the year.

Cubism Law selects its teams to match the areas of expertise required and will bolt on additional experts through its collaboration with highly rated barristers´ chambers if the case demands it. Dan Hyde, a consultant at the firm, believes that business crime is an area that straddles so many disciplines that a firm must be able to put together a cohesive team with the right blend of experience. "Cases can routinely require knowledge of criminal and civil litigation together with a myriad of issues such as taxation, insurance, intellectual property and company law. This mix of expertise will rarely if ever be found in a single department," he said.

Mr Hyde has witnessed that all the forecasts are that business crime is on an upward curve and that the regulatory map is set to be re-drawn and with tighter regulation and decreased rewards for those in the financial sector the result is predictable. "The regulatory map is set to be re-drawn and with tighter regulation and decreased rewards for those in the financial sector the result is predictable," Mr Hyde said. "Bankers who have built a lifestyle (and standing orders) to match their bonuses will have to either scale down their overheads or find alternative income streams. Some of those income streams may constitute a regulatory breach or criminal offence. It is thought that crime rises in a recession; this recession was banking led and the banking sector may well lead the way in the business crime created to plug the gap in earnings," he added.

On the incline

Mortgage fraud cases, which started to show an increase in the first half of 2008, continued to grow in the second half of the year, with 25 cases worth £36 million across the whole year compared to just 10 cases worth £3.7 million in 2007. KPMG Forensic warns that as the downturn unfolds mortgage frauds conducted during the boom years, both by organised syndicates and individuals, are likely to become more visible as property values continue to drop and lending markets remain constrained.

The Greek law firm Anagnostopoulos Bazinas (AB) is recognised as a market leader in all aspects of economic and corporate crime with a footing in such diverse areas as financial crimes, tax and customs fraud, money laundering, corruption, and anti-competition practices, and is able to mobilise a full array of strategic and tactical options to deliver efficient and effective solutions.

Ilias Anagnostopoulos, a partner at the firm, believes that in a global economy asset tracing requires a speedy and well coordinated joint action of highly specialised legal practitioners. "AB´s highly qualified commercial crime team has a remarkable record in complex cases, involving multiple jurisdictions and is distinguished by its ability to offer sophisticated services relying on synergies with top practitioners around the world," he said.

Corporate entities are striving to improve their compliance structures and procedures using increasingly internal investigations to prevent and detect unlawful practices. Mr Anagnostopoulos explained: "Instructing independent counsel to conduct such investigations in cooperation with accountants and financial or other experts is becoming common practice in an effort to achieve systematic interaction with state agencies while protecting legitimate corporate interests against highly intrusive practices in various states. AB ranks among the country´s leaders in this area having successfully conducted a umber of internal investigations in relation to corruption practices within subsidiaries of multi national corporations."

KPMG warns that the worst is yet to come: the bulk of the fraud committed since the credit crunch began in August 2007 will most likely not yet have come into the public courts. The Fraud Barometer´s records show that in the last recession of the early nineties the full peak of fraud in the courts was not reached until 1995.

Dan Hyde of Cubism Law is an award winning fraud solicitor with extensive experience in high vale and high profile corporate fraud and white collar crime cases.

You can find more information about all of our White Collar Crime and Corporate Fraud services here.