Update: fraud

One of the last acts of the previous Parliament was to replace Britain's much maligned and ageing corruption laws (dating back to 1889). The Bribery Act 2010 effectively creates an international commercial bribery offence. It creates a coherent offence of bribing foreign public officials, and a corporate offence of negligently failing to prevent bribery. There are two main offences. The first is offering, promising or giving a financial or other advantage to another, who can include a foreign public official. The second involves the requesting, agreeing to receive or accepting of bribes, linked with the improper performance of a relevant function or activity. Improper performance may follow as aconsequence of the bribe; alternatively, the requesting, agreeing to receive or accepting may itself amount to improper performance. Third, corporate liability will attach in a case of negligently failing to prevent bribery by a person 'associated' with the organisation (C). Persons 'associated' include persons who perform services 'for or on behalf of C'. The capacity in which they do so does not matter.

The result is that all commercial organisations must have adequate procedures in place for implementing transparency and anti-bribery policy and to apply these to employees, agents, subsidiaries and any others who could be said to perform services for them or on their behalf (see Nick Burkill's 'civil conduct' article in this issue, page 18). The main provisions are not yet in force but are expected in the autumn.

Corruption: SFO settlements

In late 2009, the SFO published its approach to dealing with foreign corruption by UK-based corporates. In essence, it said that it would try to deal with such matters by way of civil settlements where possible and where appropriate. However, this approach has been undermined by a lack of consistency in published settlements thereafter. Bridge builder Mabey & Johnson was forced to plead guilty to an offence of corruption, and a settlement with BAE in early 2010 was viewed by many as a climbdown after the SFO declared in late 2009 that it was preparing to bring charges.

Its settlement policy has been further thrown into confusion by apparently contradictory remarks in two cases in which its settlements have been discussed; in Campaign Against Arms Trade and Corner House Research v Director the Serious Fraud Office, BAE Systems and Count Alfons Mensdorff-Pouilly [2008] EWHC 246 (Admin), the Queen's Bench Division refused to order a judicial review of the recently announced settlement between BAE, the SFO and the US Department of Justice. Mr Justice Collins refused permission to apply for judicial review, saying: 'It is only in the most exceptional case that the court will think it right to interfere with a prosecutorial decision such as this.' He also said: 'The Crown Court judge will have to consider whether the sentence proposed is acceptable and he will be able to consider all material facts and, if necessary, to decide issues of fact.'

In March 2010, Innospec Ltd reached a 'global' settlement with both the Serious Fraud Office and the UK Department of Justice. This settlement had included the amounts of various penalties to be paid to each of the two agencies, including some $12.7m in the UK, $6.7m as confiscation and $6m as civil recovery.

Lord Justice Thomas delivered a detailed written judgment in which he criticised the agreement in a number of respects. He made it plain (as courts have in the past) that the Serious Fraud Office 'cannot enter into an agreement under the laws of England and Wales with an offender as to the penalty in respect of the offence charged'. He added:'It will'¦ rarely be appropriate for criminal conduct by a company to be dealt with by means of civil recovery order; the criminal courts can take account of cooperation and the provision of evidence against others by reducing the fine otherwise payable.'

In ultimately imposing a fine of $12.7m, the judge indicated that, had matters been different (i.e. he had not been presented with a fait accompli), the fine would have been measured in 'tens of millions'. He made it clear that 'there will be no reason for any such limitation in any other case'. The future of such 'global settlements' for companies in the area of international corruption is, to say the least, unclear.

Defence costs orders

Many defendants in fraud cases rely on third party funders such as family, friends or insurance companies to cover their costs. Perhaps unhappy at the extent to which privately represented defendants were able to secure acquittals, and thereafter the return of a substantial majority of the funds paid out for their defence, the government passed the Costs in Criminal Cases (General) (Amendment) Regulations 2009. The intention behind these regulations seems to have been, for all cases beginning after 31 October 2009, to cap any defendant's costs from central funds at a level similar to that for legal aid.

I say 'intention' because the Law Society has taken the view that these new regulations only apply where costs are ordered to be taxed (i.e. under section 16(9)(b) of the Prosecution Offences Act 1985) and not where the court summarily awards costs under section 16(9)(a). So strongly does the Law Society feel about this that it has issued a practice note to this effect and is currently judicially reviewing the position. Privately paid solicitors whose clients are acquitted are urged to come to court with a summary of their costs and to urge the judge to make a summary award rather than referring the matter for taxation.

Criminal Justice Act 2003: video link evidence and defence witnesses

For cases commencing after 26 April 2010, a court may direct of its own motion or following application by either party that a witness other than the defendant gives evidence by live video link. The court must be satisfied that it is in the interests of the efficient or effective administration of justice for the person concerned to give evidence this way. Once a direction has been made the witness can only give evidence in the directed way. A judge may direct the jury to give the same weight to the evidence heard by live link as if it had been given by the witness in the court room.

For cases beginning after 1 May 2010, the accused must notify the court and the prosecutor of its intention to call any person other than himself as a witness at his trial. This notification must include their name, address, date of birth or as many details that are known and where not known any information that might be of material assistance in identifying or finding them. The witness notice must be amended where the accused changes his mind about which witnesses to call, and, if a witness notice is served out of time, or witnesses are called that were not identified in a witness notice, the court may make appropriate comment and the court or jury may draw appropriate inferences.

The purpose behind this second enactment appears to be as much about notifying the police of potential defence witnesses who can then be tracked down for the purpose of verifying the defence. Fraud cases seldom turn on disputes of fact or on mystery witnesses (experts are notified in advance in any event) and the most important effect on fraud cases is likely to be the requirement to notify the court of character witnesses that will be called to give evidence.

The Criminal Procedures Rules 2010

On 5 April 2010, the Criminal Procedure Rules 2010, a 'historic re-statement of the rules' came into force. Important parts for fraud practitioners include the following:

Part 11 deals with transfers of serious fraud cases under the Criminal Justice Act 1987 or the Criminal Justice Act 1991. Essentially, such cases can and should be sent directly to the Crown Court under the provisions of section 51 of the Crime and Disorder Act 1998.

Under part 15, preparatory hearings must be applied for in cases of serious fraud and where the prosecutor wants to conduct a trial without a jury. Application must be made within 28 days after committal, consent to prosecution, transfer or service of the case. Rule 15.5 also deals with orders for disclosure by the prosecution or defence.

Part 28 deals with witness summonses, warrants and orders, which are very often necessary where evidence is required from a third party that will not willingly produce it.

Part 33 deals with expert evidence. Rule 33.4 provides that any party who wants to introduce expert evidence must serve it on the court and each other party as soon as practicable. On request, another party must have a reasonable opportunity to inspect any examination, measurement, test or experiment on which the findings and opinions are based. The court may direct experts for either side to discuss the issues in the proceedings and prepare a statement on the matters on which they agree and disagree. A court may direct that evidence is to be given by a single joint expert (rule 33.7) and each of the co-defendants may give instructions to the expert which instructions must be copied to the other co-defendants (rule 33.8).

Confiscations and related proceedings deserve (and have) entire books to themselves; the rules can be found at parts 56-61.

Money laundering

Recent cases on money laundering offences under the Proceeds of Crime Act 2002 (POCA) and the Money Laundering Regulations 2007 have proceeded in two divergent directions: first, there is the ever-increasing willingness of the criminal courts to allow prosecutions for money laundering to go to the jury without evidence as to the criminal conduct that was said to generate the funds that had been laundered (see F [2008] EWCA Crim 1868 and Ahmed v HM Advocate [2009] HCJAC 60). Second, the trend, as reflected in Shah and Another v HSBC Private Bank UK Ltd [2010] EWCA Civ 31, to allow civil claimants to enquire into and ultimately thereby evaluate the basis upon which a disclosure is made under POCA of a suspicion that property is criminal property.

While the two decisions refer to different 'ends' of POCA '“ the former to prosecutions for the main offences under sections 327-329, the latter to disclosures of suspicion under sections 337 and 338 '“ the minimum mental element in respect of both is the same: suspicion. In Shah, the court has turned the traditional notion of confidentiality for disclosers on its head. Where those about whom a disclosure is made allege they have suffered loss (as Mr Shah alleges) as a result of a failure to effect instructions while waiting for consent there will be a huge incentive for them to enquire into the internal operation of the disclosing body in an effort to uncover some evidence that the disclosure was somehow made incorrectly, improperly or without the required state of mind, namely a genuinely held suspicion. This has disturbing implications for the entire system of anti-money laundering reports on which the money laundering regulations (and indeed a large part of the third European directive on money laundering) are based.

For corporate and professional persons who have cause to make disclosures, it also effectively obliterates any meaningful distinction between a subjectively held suspicion and objective, reasonable grounds for suspicion. For the true meaning of Shah appears to be that to make an application for consent without both of the above is to invite considerable trouble.