Wealth defence

Those accused of serious financial crimes are finding themselves at a disadvantage, with the system conspiring to leave them without adequate funds for a robust defence. By Anthony Barnfather

The aggressive stance adopted by UK regulators has seen more directors and professionals than ever before being investigated for serious white-collar crime allegations.

In recent years a raft of legislation has created criminal offences from what were once civil wrongdoings, leaving businesses to navigate a regulatory minefield.

This, coupled with a greater appetite among prosecutors to pursue criminal investigations once regarded as too technical, has resulted in an increase in investigations by the SFO, HMRC, the OFT and in particular the FSA. It seems likely that the enforcement divisions of some, if not all, of these authorities will be unified in the future.

Traditionally, because of the state’s numerous resources and the complexity of investigations, most individuals seek legal aid once they have been charged.

Rate debate

Back in the days of the Guinness and Polly Peck cases, defence solicitors were remunerated at rates equivalent to those of commercial lawyers in substantial litigation cases, and more than a decade ago legal aid rates were around £200 an hour for the most complex cases.

Nowadays cases are categorised at levels one to four, with category one reserved for the highest-profile cases. However, many believe the criteria are being interpreted too narrowly, leading to very few, if any, category one cases. Therefore, an experienced solicitor is being paid around £85 an hour. In reality, given the specialist resources required and time needed to agree tasks with the Legal Services Commission contract managers, the hourly rate achieved is far less.

Time is tight

However, much more damaging is the ever-tightening regime when it comes to the time allotted to such cases, and it appears we are now in a fantasy when it comes to assessing what time is required for preparation. (Each task in these legally aided cases needs prior approval from a contract manager.)

Defence lawyers need substantial recourses to compete with the prosecuting teams, which often outnumber them 10 to one and produce thousands of documents in each case as a matter of course.

Prosecutors have also become extremely proficient in securing electronic evidence: recently a disc containing more than two million emails was served on the defence.

More cynical observers may believe that businesspeople and professionals should be excluded from legal aid in favour of those more deserving. But it is important to remember that legal aid does not provide assistance at the pre-charge or investigation stage, which can now take up to three years before charges are brought.

However, in what is a draconian tool, suspects are increasingly finding their assets frozen under the Proceeds of Crime Act 2002. While practitioners argue that restraining orders made without charge are exceptional, in reality it is becoming the norm at the start of investigations. Unlike with civil cases, once assets are restrained in this way no exception is permitted to fund one’s defence.

If assets are frozen, how is an individual supposed to pay for their defence while the prosecution team is busy collating evidence  or, indeed, challenge a restraining order? There is one case where, since the order was made two years ago, the accused has lost his job, his business and suffered family bereavements, yet the prosecution has still not brought charges.

The funding problem is exacerbated by the fact that, since the Madoff scandal, insurers are adopting a hard stance on Directors and Officers (D&O) insurance.

D&O insurance is taken out to protect senior personnel in the event of a regulatory investigation. However, many practitioners believe insurers are increasingly resorting to delaying tactics to avoid paying out by asserting that they need to ‘investigate’ whether the accused has cover.

Delaying tactics

In fact, it is becoming increasingly common for these so-called ‘investigations’ to continue until a defendant’s case comes to trial. In one case, a former director of a plc, who is now impecunious, had hoped to rely on D&O insurance to fund his defence following an investigation by the FSA into accounting irregularities at his company. His insurer has been ‘investigating’ whether the D&O cover was appropriate for more than three years. Having become unemployed following the investigation, the client’s position is being severely prejudiced.

In another case, a group of clients is seeking to rely on its D&O policy to make representations to HMRC to avoid charges. Once again insurers, through their solicitors, are taking a hard and I believe unfair stance in an attempt to save money.

Fair do’s and don’ts

As the UK enters a new age of austerity, it is inevitable that those charged with serious and complex crimes will not receive the legal funding that they think they require.

However, as regulators step up their aggressive pursuit of those suspected of financial crime, and are more willing to take on complex investigations, adequate funding provisions need to be in place.

While it may be laudable to protect assets, is it fair to restrain financially those suspected of white-collar crime from the early stages of an investigation?

And why are insurers allowed to avoid cover to the extent that the policyholders are left unable to fund their defences? Certainly, clarity is needed in this area.

Is it also fair that, under disturbing regulation, in cases that have been withdrawn by the prosecution, those who stood wrongly accused and found themselves having to pay up to £250 an hour for an experienced defence lawyer can only recover the legal aid rate of £85 an hour?

While those accused of white-collar crime may not evoke much sympathy in many quarters, it is important to remember that if guilty they will inevitably face a custodial sentence. The difference between a civil wrong and criminal guilt in these cases often rests on a knife edge.

Given the new Government’s commitment to pursuing white-collar crime through a new unified agency, it seems these issues are unlikely to go away.

And while I firmly believe that the state should pursue those guilty of crime, there should be no shame in defence lawyers boldly representing their clients to ensure the prosecution proves its case beyond doubt – a central tenet of a true democracy. n

Anthony Barnfather is head of regulatory law at Pannone