The fruits of fraud
30 October 2000
7 June 2013
28 January 2013
15 April 2013
16 August 2013
19 July 2013
The fraud bar is traditionally a segregated market, with barristers choosing to specialise in criminal, civil or regulatory work. However, it is soon to undergo great change, not least because of the Financial Services and Markets Act (FSMA), set to come into force next year.
Under the new regime, all the regulatory bodies such as the Investment Management Regulatory Organisation (Imro), the Personal Investment Authority (PIA), the old Financial Services Authority (FSA) and the Bank of England's regulatory arm, will all be rolled into what Kuldip Singh QC, of 5 Paper Buildings, describes as a massive apparatus with a "super authority" at the top, harnessing an array of new powers.
One of the key elements of the new system is that the revamped FSA will have far greater powers to decide which cases should and should not be tried criminally, and it gets its own rights to prosecute criminally, along with the Crown Prosecution Service (CPS) and the Serious Fraud Office (SFO). Once a fraud becomes apparent, the FSA will look at it along with the SFO or CPS and decide how to proceed. More cases will be kept out of the criminal courts and tried by the FSA Tribunal, which will have its own appeals process and allow defendants to appeal to the courts on points of law. The act also introduces whole new categories of offences for which, even when tried in a civil or regulatory context, the standard of proof will be of a criminal rather than a civil standard.
The effect of these changes will impact on all three branches of the fraud bar. Many expect that the divisions between the branches will by necessity become more fluid, and those who are already able to deal in all areas will be ideally placed to snap up the work. "The coordination between criminal and civil cases will be something quite new," says Singh. "Traditionally, we have had people who do civil work who have not been involved in the criminal side, and vice versa. Similarly, on the financial services regulatory side, although some people who had done civil fraud might have been involved in regulatory work, criminal practitioners would not have been. There are still very few silks who traverse all three areas. Most of my cases overlap, and that's going to increase," he predicts.
It follows that some barristers will want to tout themselves for a spot of this more lucrative civil work, and Robert Rhodes QC, head of chambers at 4 Kings Bench Walk, says: "I don't see why a competent barrister shouldn't be able to meet any challenge. If they can't do that, they should get out of the job." Barbara Dohmann QC, chairwoman of the Commercial Bar Association (Combar) and a tenant of Blackstone Chambers, thinks differently. "There's going to be a shrinkage in the amount of reasonably paid criminal work," she says. "But you can't just switch across [from criminal to civil/regulatory work]. My observation has been that criminal prosecutions were often much less successful than they should have been. Financial services work is immensely technical - it takes significant expertise to be able to do that."
Explaining the need for the new regime, Singh says: "Before, there were too many authorities, too many rules and no coherent, effective system of regulation." He adds that the new authority and rules are intended to create a more proactive regime with sharper teeth, one which is quicker to bite hard. "Now it's clear that it's one of the intentions of the FSA and of the Government that the FSA should be more proactive, and we won't have situations such as Barings, where it only did something when someone came and told it about it. Inspections that were carried out were inadequate and too infrequent."
Another prime intention of the new regime, according to Javan Herberg of Blackstone Chambers, is to be more effective in fields such as insider dealing, where the criminal law has only been able to be effective in a very small number of cases. He explains that the act introduces the new category of "market abuse", and powers to deal with offences falling into this category. The two primary offences falling into this category are insider dealing and market manipulation. Defendants to these allegations can not be put in prison if found guilty, but they will be subject to far more punitive fines.
Herberg says: "In the financial services area there's going to be a big change. At the end of the day, it's a new regulator and it's going to want to make its mark - it's going to be a busy time."
As with all areas of practice, the introduction of the Human Rights Act (HRA) at the beginning of this month is expected to have some impact, although nobody yet knows quite how much. But even in the drafting of the FSMA, it has been taken into account. The act introduces criminal-style protections into civil proceedings, such as the proviso that, even though the new FSA will be able to compel parties to answer questions, it will not necessarily then be able to use the answers in proceedings. This is a direct result of the HRA's provisions against self-incrimination. Furthermore, the standard of proof in market abuse cases will be the same as for criminal cases, while other categories will retain the lower, civil standard. Herberg says: "One of the human rights debates is, how far should the protections given to market abuse procedures be given to defendants in other types of proceedings?"
Dohmann does not think the HRA will impinge a great deal on fraud cases. "It may impose greater obligations, but on the whole courts are very careful to take care in fraud cases because fraud is such a serious allegation to make - but we'll have to wait and see," she says.
It is up to the judge's discretion as to whether or not to allow evidence such as bugged tape recordings and illicitly photographed documents in civil fraud cases, although Dohmann predicts that the HRA will "make it a lot more difficult to get illegally-obtained evidence in".
Elsewhere at the fraud bar, there are other changes afoot. The civil procedure rules introduced late last year replaced the time-honoured tradition of Mareva orders and Anton Pillar injunctions with the rather bland freezing order and search and seizure order. In terms of growth areas for work, there seems to be more and more of it. As Dohmann puts it: "Civil fraud is very much there - there seems to be so much swindling going on. It's global, on the net, in banking and transactions of many kinds. I'm afraid it's very much a growth area."
According to senior clerk Ian Moyler, Brick Court Chambers is seeing more and more tracing type work, and many multijurisdictional cases either go on for years or flop at one of the first fences. As Herberg points out, there is an increasing intolerance in general banking terms of ex-leaders moving money out of their countries. He cites the Obuttra case in Nigeria, and the investigation into the Bhutto and Sharif regimes in Pakistan, which are all under investigation for ferreting treasury funds out of the country, as current examples of this trend. "It's an area that's really expanding. There's also big pressure on overseas regimes to open up, and a lot of Organisation for Economic Cooperation and Development (OECD) pressure. It's a very active area in the English bar." One famous case he has been involved in, as has most of the London fraud bar, instructed by Lovell's and Freshfields on each side it would seem, is the Sultan of Brunei's claim that his brother had defrauded him of between $30bn (£20.6bn) and $40bn (£27.5bn).
Still, in the Middle East, the huge amounts of money around, plus a large number of intermediaries, adds up to a thriving practice for lots of fraud barristers in London. And Mark Howard QC of Brick Court Chambers reports that another hotbed of activity at the moment is, somewhat unsurprisingly, in Eastern Europe, and in particular the former Soviet Union and Kazakhstan. He explains that a favourite ruse is for companies to set up parallel companies with almost identical names in other jurisdictions such as the British Virgin Islands and Cayman Islands to cream off the profits. "By the time you find the companies, the money has gone, and asserting jurisdiction can be difficult," he says.
He also says that "good old bribery and corruption" is still very much alive and well. He has recently acted for Fyffes in a case where the fact that one of its key managers was bribed over a period of several years to the tune of $1m (£0.68m) meant that the company lost even more because it entered into "soft" contracts. He also cites the Indian Solo case, revolving around letter of credit fraud as another typical case at this time.
Robert Rhodes QC, a criminal fraud practitioner, and also deputy chairman of Imro's membership appeals tribunal, is pleased to see the FSMA. "I have suggested for years that we have the US Securities and Exchange Commission (SEC) equivalent here. The SEC can bring civil and criminal proceedings. That's what can be done now. The FSA can prosecute money laundering cases. I think that could be enormously helpful in the detection, prosecution and diminution of that sort of conduct."
On the criminal side, a key case Rhodes is about to appear in is Regina v The Criminal Cases Review Commission ex parte Hunt, which has arisen out of the Nissan tax fraud case. Appearing for Mr Hunt, Rhodes will argue in the divisional court that the Inland Revenue does not in fact have the power to prosecute on indictment. If the court accepts his argument, this will of course have a widespread impact on the way the Inland Revenue brings charges.
Like many criminal practitioners, he is mostly concerned about Lord Justice Auld's report into the criminal justice system. Just as the Government was forced to drop its controversial Mode of Trial Bill, Lord Auld has indicated that he will favour the introduction of a three-judge trial, without jury, for offences warranting up to two years' imprisonment. Most see this as a template for things to come. "I must say I would be most unhappy if juries were to be abolished for offences carrying up to two years' imprisonment, and for advanced fraud cases," says Rhodes. "Keeping juries is very important for all sorts of reasons. What's more important, efficiency or liberty?" he asks. "I am in little doubt that if Lord Justice Auld abolished juries at the bottom end, that he will recommend it at the top end as well."
John Hardy at 3 Raymond Buildings, another eminent criminal fraud practitioner, says Auld's research is trying to achieve the same thing as the Mode of Trial Bill, but by a different means. "It's a principle at stake: this would take out of the juries' ambit a number of lesser either-way offences. The single and most crucial point in any fraud case is dishonesty, and laypeople are just as able to assess dishonesty as anyone else. The burden is on the prosecution to explain the mechanics of the case in a way that lay people can understand."
So, for criminal fraud practitioners, as in all fields of criminal law, there is enough concern to pressure some barristers into attempting to break into other fields of practice. It is only logical then that criminal fraud barristers will attempt to expand their practices to take advantage of the lucrative and expanding realm of civil fraud. While some question the possibility of specialist barristers reinventing themselves in new fields (just look at the criticism of certain members of Matrix Chambers) there is a substantial crossover between these two fields, and at the very top end of the market leading silks are employed as much for their advocacy skills as for their subject knowledge.