White collar crime is on the increase. Although exact details on the volume of fraud in the UK are not known, Rosalind Wright, director of the Serious Fraud Office, said last year that “the problem is very large and growing”. This was confirmed by the National Criminal Intelligence Service, which reported a 27 per cent increase in the number of suspicious financial transactions in the UK, with 18,000 cases reported to it in 2000.
The fastest-growing white collar crime is said to be identity theft, which as a result of the increasingly widespread use of modern technologies such as the internet is reported to be increasing by nearly 500 per cent per year.
The cost of fraud to the UK economy is significant. Figures prepared for the Home Office reveal that it could be up to £13.8bn per year, although other estimates put the cost as low as £8bn and as high as £16bn.
Despite this high cost and the growing incidences of fraud, historically, the UK has a poor track record at securing convictions for white collar crime. The conviction rates are low compared to other countries, with just 173 convictions secured for money laundering from 1990 to 2000. This may well be connected to the reported decline in the number of police officers assigned to the fraud squads that investigate and collect evidence of fraud.
In an attempt to tackle these issues, a number of changes to the legal framework surrounding white collar crime have been introduced. They have the stated objectives of making it easier to prove fraud, securing convictions and ensuring that those who commit such crimes are not allowed to benefit from the proceeds.
Financial Services and Markets Act 2000
The Financial Services and Markets Act 2000 (FSMA) came into force on 1 December 2001, a day also known as N2.
The statutory objectives of the FSMA, as outlined in Section 2(2), are: generating market confidence in the financial system; promoting public awareness and understanding of the financial system; protection of consumers; and reduction of financial crime.
The definition of ‘financial crime’ is wide, and includes: fraud or dishonesty; misconduct in, or misuse of, information relating to a financial market; and handling the proceeds of crime.
Under the provisions of the FSMA, the Financial Services Authority (FSA) has become the single statutory regulator responsible for regulating deposit taking, insurance and investment business. The FSA has been granted new investigatory powers which are backed by criminal sanctions. It has acquired explicit responsibilities under Section 146 to make rules in relation to the prevention and detection of money laundering, and for monitoring compliance by banks and financial institutes with their money laundering obligations. City businesses will now be required to provide detailed organisational and management plans to the FSA.
The FSA is an independent non-governmental body presided over by a board appointed by the Treasury. It is accountable to Treasury ministers and, through them, to Parliament. Howard Davies has been appointed as chairman of the FSA.
The Financial Services and Markets Tribunal, headed by Stephen Oliver QC, will provide an independent and impartial check on the FSA. Companies will be able to challenge regulatory and disciplinary decisions of the FSA at this tribunal.
The FSMA has a direct impact on those law firms currently authorised for discrete investment business (DIB), with the FSA seizing regulatory power from the Law Society. The FSA’s new requirements are stricter than those of the Law Society and law firms have been faced with the choice of continuing with DIB and complying with FSA regulations, or opting out and discontinuing the business of financial advice.
In recent months, firms have been considering the benefits of opting in and out. Most have elected for the latter, preferring to concentrate on their core activity of legal advice and pursuing other options, such as splitting their operations to ensure a continued, but more distant, association with financial advice. Clifford Chance has opted to comply with FSA regulation, but is reportedly the only magic circle firm to have done so.
Proceeds of Crime Bill (Bill No.31)
The Proceeds of Crime Bill is currently on its passage through Parliament. It contains a series of measures designed to consolidate and strengthen existing provisions concerned with criminal assets. In particular, it makes provision for: confiscation orders in relation to persons who benefit from criminal conduct; restraint orders to prohibit dealing with property; and recovery of property which is, or represents, property obtained through unlawful conduct or which is intended to be used in unlawful conduct.
In relation to money laundering, proposals in the bill are designed to make prosecutions for money laundering easier to prove by targeting the problem that professionals, such as lawyers and accountants, are failing to report their suspicions of laundering.
Clause 314 creates an obligation on people employed in the regulated sector to report suspicions of money laundering, and extends the duty to any suspected offence, not just terrorism or drug trafficking as is currently the case.
The test for criminal liability in failing to report a suspicion is to become objective, with the introduction of a negligence test. An offence will now be committed where a person fails to disclose information to the police where he knows, or suspects, or has reasonable grounds for suspecting that another person is engaged in money laundering.
Under clause 89, the definition of money laundering offences is stated to include three new principal money laundering offences, as well as the inchoate offences, to commit such wrongdoing.
Lord Justice Auld’s review of the criminal courts of England and Wales
While still a long way from the statute books, the recommendations of Lord Justice Auld concentrate on the judicial framework surrounding serious fraud.
The recommendation to abolish jury trial in serious fraud cases has once again reared its head, with Judge Auld stating: “In serious and complex frauds, the nominated trial judge should have the power to direct trial by himself and two lay members drawn from a panel established by the Lord Chancellor.”
Many members of the legal profession do not welcome this recommendation. They maintain that there is no reason why juries should not be able to understand the complicated issues if they are properly explained by the lawyers. Many believe that complex fraud cases should not be subject to special treatment, but rather conducted in the same judicial framework as every other crime. There are also concerns that the specialist lay panel members who would hear cases alongside the judge could become case-hardened in the same way as stipendiary magistrates, and that, in high profile cases, it may be hard to find specialists not connected with the proceedings in any way.
The legal profession, including the Bar Council, is more accepting of the recommendation to allow a white-collar defendant himself to elect trial by judge alone.
The effects that these new initiatives will have on the investigation and successful prosecution of white collar crime still remain to be seen. But they will inevitably be subject to further legal debate and judicial scrutiny and lawyers in this field of practice will be closely following such developments.
Deborah Talbot is group editor for specialist products at Lawtel