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The Investigation of Ethical Investments and Fraud

SFOThe Serious Fraud Office (SFO) is the UK’s investigative and prosecuting body for dealing with cases of serious fraud and bribery. Owing to the increasing complexity with which fraudsters operate, the SFO employs sophisticated means to investigate suspicious activity. It recently featured in the press, with its criminal investigation into an “Ethical” Investment Company.

What is being investigated?

In March this year, the SFO announced that it had opened a criminal investigation into the dealings of two companies, Global Forestry Investment and Global Forex Investments, and their potentially fraudulent activity. Both companies are headed up by the same people: business partners Mr Andrew Skeene and Mr Omario Bowers, who founded their company GFI Consultants Ltd in April 2010. Following the creation of their consulting company, both gentlemen invited potential clients to a business event where they would give potential investors greater insight into available investment opportunities. Investors were given information regarding an allegedly lucrative investment project in Brazil, the Global Forestry Investments Belem Sky Plantation. The Plantation was described as having huge potential and which could grant a return of up to 20% to investors, through investing in sustainable forestry.

The project was described by Mr Skeene and Mr Bowers as allowing investors to “participate in an ethical and financially rewarding investment.” The investment was presented in the following manner: investors were to lease a plot of land on the timber plantation in Brazil. The value of their investment and the return they could expect was to be based on the trees growing on the land. The project used specialist timber management companies who would then lease the plots from the investors and manage the land on their behalf. The minimum investment was £5,000 with no upper limit. It was claimed that the Rental fees, which were to be £500 per 0.1 hectare plot per year, depending on the timber management company that the investor had chosen. This was to bring about a 10% return, with more to come in the following years. The interesting point to note is that in their literature, GFI Consultants Ltd did highlight (in the small print at the back of their brochure of investment information):

“GFI Consultants Ltd is not regulated by the FSA and is not authorised to offer advice to the general public concerning regulated or unregulated investments. This is not an authorised investment for the purpose of the UK FMSA (2000) and as such buyers have no access to statutory or regulatory protections including the Financial Ombudsman Service and the Financial Services Compensation Scheme.”

In order to give effect to the investment, the land that the investors were to invest in was supposed to be held “in beneficial ownership for the investor” by an organisation called Title Trustees International, a subsidiary of a company called Hutchinson & Co. Trust Company Limited. Hamilton & Co. Trust Company Limited also had another subsidiary, Citadel Trustees which in 2014, changed its name to Highport Trustees.

In what was already becoming a complicated situation, another organisation entered the picture. Emerald Knights, sold the plots of land on the Belem Sky Plantation to the investors and it claimed to investors that Citadel Trustees was regulated by the FSA, even though Global Forestry Investments was not. Investors soon noticed that the investment quickly stopped making payments. In 2013 GFI claimed that this was due to “a cumulate of various factors”, citing severe weather, and a series of banking and logistical issues caused by the regulatory framework in Brazil. In early 2014 GFI claimed that the administrative issues had been resolved. However this did not appease investors who are reported to have lost over £4 million via Global Forestry Investments.

What is the SFO concerned with?

The SFO is concerned that there has been some criminal activity in the alleged ‘ethical’ investment that was being proposed by Global Forestry Investments Ltd, namely Fraud. The law of Fraud is set out in the Fraud Act 2006. The Act defines fraud as: a) The making of a false representation; b) By failing to disclose information if you are under a duty to do so; or c) By abusing the position which you are expected to safeguard. In respect of the activities of Global Forestry Investments, Global Forex Investments and Mr Bowers and Mr Skeene, the SFO will be looking for evidence of Investment Fraud, in that:

  1. They knowingly gave investors information regarding the investment that they knew to be false e.g. the likely return on their investment that they could expect;
  2. They failed to bring to investors’ attention that they knew would have an impact on their decision making; or
  3. In some other way, abusing their position as advisors on potential investments.

The investigation is still ongoing, and has already resulted in the searches on at least two properties in England. If there is any evidence of fraudulent activity, the SFO is entitled to bring both civil and criminal prosecutions against the perpetrators. A civil prosecution by the SFO can result in a substantial fine being issued, while a successful criminal prosecution could result in an individual being imprisoned for up to ten years.

The law of Fraud is very complex, and can be difficult to understand. It effectively looks to guard against any kind of deception that could result in either personal gain or loss to another party. The SFO has developed a very sophisticated structure to investigate cases of alleged fraudulent activity of both individuals and organisations.

Contact Lewis Nedas

At Lewis Nedas we have an expert team of financial crime lawyers, who are regularly involved in a helping clients deal with SFO and other regulatory investigations. We have many years of experience in the field, and work in partnership with our clients to ensure that they are fully advised on the law and how it affects them. If you have any concerns regarding the law on Fraud, or are perhaps concerned about how you or your organisation would be affected by an investigation, please contact us now. We are here to help.

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What is a SOCPA Agreement & How Can it Help Me? – By Siobhain Egan

monopolyA SOCPA Agreement covers an arrangement made between a specified prosecuting authority such as the CPS or the SFO with defendants willing to provide assistance to them with a view to securing immunity against prosecution or a heavily discounted sentence.

The relevant sections with in the Serious Organised Crime and Police Act 2005 are as follows:

  • s.71 covers a full immunity agreement
  • s.72 the Crown has power to agree not to serve certain evidence
  • s.73 power to negotiate a sentencing reduction which has to be finalised by the Sentencing Court
  • s.74 allows the prosecutor to refer a case back to the Court for a sentencing reduction after assistance has been given
  • s.75 power to exclude the public from court during a hearing as defined in s74

In truth though, there have a few SOCPA immunity deals, especially with the former SOCA (Serious Organised Crime Agency – now replaced by the NCA), and they have been very controversial because, as the press have highlighted, those who have faced serious allegations of fraud or organised crime have been given complete immunity and found themselves in the witness protection programme. However, very few individuals have been given complete immunity as a result of the public reaction.

The authorities are keen to promote SOCPA Agreements, in particular the SFO and City of London Police.

Alan Milford, General Counsel of the SFO, gave an important speech in September 2014 at the Cambridge Symposium on Economic Crime and talked openly and encouragingly about the use of these agreements.

What do I need to do in order to secure a SOCPA Agreement?

If you are facing prosecution for a serious allegation and are likely to be facing a serious term of imprisonment as a result, it may be worth considering a SOCPA Agreement. Either party to the prosecution can make the invitation to consider such an agreement. The EARLIER in the process that the invitation is made, the better it will be for the defendant.

First, find a lawyer who has genuine experience of negotiating such agreements. It is a difficult delicate situation, which, if it is to be successful, needs to be handled very carefully, and it requires trust and professionalism on both sides. There have been very few of these agreements recently, therefore only a handful of lawyers in the country have genuinely dealt with SOCPA Agreements. Check which cases they have dealt with before instructing them.

Understand what it is the specified prosecuting authority wants. Generally, it will be fresh information and evidence on aspects of the prosecution about which they are unaware; strong, accurate, admissible evidence implicating other defendants; or the location of hitherto un-located assets purchased with the proceeds of crime. The authorities will need some persuading and it pays if your lawyers are persistent, particularly as it is a decision that will ultimately be taken by a very senior officer.

The whole process can take many months, initially to persuade the authorities to listen to the proposal, and then when the SOCPA process begins.

Frankly, the prosecutors have the stronger hand throughout the process and will expect complete honesty about the defendant, so not just full admissions about the criminal prosecution in question, but about all aspects of any dishonesty or criminality committed in any aspect of the defendant’s life, whether the authorities know about it already or whether or not it could be attributable to the defendant.

It is also important to remember that if the authority is going to proceed to an initial scoping interview, it will have to calculate the time and manpower involved (and therefore, in these difficult economic times, the expense of a SOCPA Agreement), and as far as the forthcoming information is concerned it had better be good quality and completely honest.

There are stringent procedures put in place to maintain ‘sterile corridors’ between those officers conducting the SOCPA interviews and the investigating officers dealing with the main case. All dealings with the defendant will either be recorded by way of interview tapes or on documents, because some of the material maybe disclosable under the Criminal Disclosure Regime to the remaining co-defendants.

Initially, independent officers will embark upon the ‘scoping interview’, which will be recorded. At this stage, the officers will be weighing up the value and extent of the information which the defendant wishes to give. They will also be weighing up his/her motives for co-operation.

Then will come the ‘cleansing stage’, when it will be expected that the defendant comes to the authority with ‘clean hands’ i.e. full admissions of his/her involvement in this and any other criminality. This is a crucial stage of the whole process.

The officers will take time to consider what the defendant has told them and, if they are happy with and interested in what they have heard, they may offer a SOCPA contract for the defendant to sign. Be aware that the prosecuting authority has the right to withdraw that SOCPA contract at any time and for any reason.

Sentencing Discount

Obviously the defendant’s aim in this situation is to achieve the maximum sentencing discount because, as stated, full immunity from prosecution is remote.

It is possible in certain cases to achieve a reduction in sentence of 75% in those cases where the defendant has given maximum assistance, which may include willingness to give evidence or has actually given evidence against others.

SOCPA is quite clear - the defendant must enter guilty pleas at the earliest opportunity, i.e. at the preliminary hearing or at the plea and directions hearing. This depends on the complexity of the case and the efficiency of the prosecuting authority.

Ordinarily, a guilty plea attracts a sentence reduction of one-third. In addition, the sentencing Judge will then apply a further discount depending on the extent of the assistance given under the SOCPA Agreement.

There is some case law on the subject:

R v P, R v Blackburn (2007) EWCA CRIM2290; R v H, R v D, R v Choudhury (2009) ECCA CRIM 2485; R v D (2010) EWCA CRIM 1485.

The role of the defence lawyer within the SOCPA Agreement process

All authorities agree that it is preferable that the defendant’s solicitors assists him/her in this difficult delicate process and, as stated, the invitation to enter such an agreement is often raised, initially, by the defendant’s solicitors, plus many of the subsequent negotiations closely involve defence solicitors.

The difficulty is that there is virtually no payment for the services of the defence solicitor, unless the defendant or a third party meets the lawyer’s fees privately, which probably explains why so few of these agreements have been pursued.

We have just successfully negotiated and completed a SOCPA Agreement in a very high profile SFO prosecution, which will undoubtedly result in a heavily discounted sentence.

My co-defendant has signed a SOCPA Agreement and has offered to give evidence against me

The first thing to do is to demand that all documentation in relation to the agreement be served by the prosecuting authority and to scrutinise it carefully. Take immediate advice from your lawyers.

If we can assist with any of the issues raised within this article, please contact Siobhain Egan on 0207 387 2032 or complete our online enquiry form here.

ADDENDUM 09/10/2015:
The SOCPA agreement to which we referred within this blog resulted in a suspended sentence for our client, who was a former Director of Arck LLP. Both directors were sentenced at Southwark Crown Court on 9 October 2015; the co-defendant was sentenced to a term of imprisonment of 10 years and 8 months, our client received a sentence of two years suspended for two years and 300 hours unpaid work.

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Some of the Latest News from HMRC - by Siobhain Egan

HMRCHMRC’s latest trawl of self-assessed taxpayers, which focused on landlords, high net worth individuals and online traders, has reaped high rewards for them, namely £845million in 2013-14, an increase in revenue of 39% (Financial Times 15/11/2014).

This is quite an achievement, considering the draconian budgetary cuts that HMRC have suffered, so how have they done this?

Quite simply, they have invested some £80 million in a computer system called CONNECT, which analyses information from the internet, other government departments , various data bases, social media, and overseas tax authorities. Additionally, in 2013 HMRC paid £400,000 to whistle-blowers who gave information on tax avoidance schemes and membership thereof. The Telegraph reports that meant a 30% increase in payments to whistle-blowers in 2013. It is as well to note that the majority of whistle-blowers were divorcing spouses and former business partners.

Recent years have also seen the strongest clampdown ever on tax avoidance schemes by HMRC; they have won most (but by no means all) of the tribunal decisions in relation to these schemes, though the current battle with Ingenious remains of real interest.

According to International Business Times, HMRC intend to issue 43,000 Accelerated Payment Notices to individuals they believe to have been involved in these schemes. They expect the average payment due will be £155,000 and believe the overall sum due will be some £7.1billion. The taxpayer will receive 90 days notice to pay, and the notices will be issued where there has been a DOTAS notification or where a GAAR counteraction has taken place.

HMRC will also issue Follower Notices where they believe to be a final tribunal/court decision in a case that is similar to the tax scheme claimed by the taxpayer.

What do you do if you receive any of these notices or notification of an investigation into your tax affairs?

All tax professionals would advise you to sit down with HMRC and negotiate. That is not as easy as it used to be. Since HMRC brought in their Litigation and Settlement Strategy (LSS) it has been found that many of the Inspectorates lack the authority to reach a compromise. Essentially HMRC are seeking consistent resolutions of disputes and individual authority has been curtailed. Certainly, a number of our clients embroiled within tax avoidance disputes have been told that HMRC will only deal with groups of taxpayers and not individuals.

The ultimate solution for HMRC is a criminal prosecution, and it is not to be taken lightly. The courts are handing down longer custodial sentences and any remaining assets will be confiscated. HMRC are on target to prosecute 1,165 cases in 2014-15. So far, they have prosecuted the smaller cases.

Radical changes in the COP9 procedure now mean that the taxpayer can either admit to the fraud and co-operate, or refuse to co-operate and face prosecution.

HMRC’s Summer 2014 Consultation on the highly controversial (and potentially problematic) proposal of a strict liability criminal offence of failing to declare offshore income has resulted in its quiet disappearance from the draft Finance Bill 2015 (see the Financial Times 11/12/2014). Instead, there will be more emphasis upon civil deterrence and financial penalties. For example, those taxpayers who avail of more sympathetic tax regimes in other jurisdictions will face a further 50% penalty in addition to the penalty for non-compliance.

There will also be amendments to the DOTAS regime that will further protect whistle-blowers who give information about proposed or existing tax avoidance schemes. HMRC will also publish details of the ‘hallmarks’ of such schemes e.g. premium fees and tightly drawn non-disclosure agreements in order to warn tax payers.

There will be a further consultation published by HMRC in 2015, focusing on potentially ‘naming and shaming’ serial tax avoiders who have entered various tax avoidance schemes.

This article is for informational purposes only and does not constitute legal advice. If you require any advice please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032, or complete our online enquiry form here.

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Lionel Messi to Stand Trial for Tax Evasion: The Story so Far

ujfaInternational footballer, Lionel Messi, will now be involved in a criminal trial after an appeal against being named in an alleged tax fraud case was rejected by a judge in Barcelona.

The appeal was based on the premise that there was no evidence that the player had been involved in any wrongdoing. The captain of the Argentina squad had his father manage all of his financial affairs and act as his representative. The fraud was alleged to have began before the footballer came of age.

The public prosecutor in Spain challenged the appeal and the judge rejected the appeal, the judge said:

“In this type of crime, it is not necessary for someone to have complete knowledge of all the accounting and business operations nor the exact quantity, rather it is sufficient to be aware of the designs to commit fraud and consent to them”

Messi along with his father Jorge Messi, have five days to appeal against the ruling.

Background to the Case

Lionel Messi, four-time winner of Player of the Year, along with his father Jorge Messi, stand accused of defrauding authorities of more than €4 million.

Whilst both deny the allegations, it is suspected that they used companies in the UK, Switzerland, Belize and Uruguay to sell the rights to use images of the football star in 2006-2009 – this meant that they were able to avoid tax obligations in Spain.

However, in August this year, Jorge Messi made a payment of €5 million to the Spanish Tax authorities, which accounted for the €4.16 million owed plus interest accrued. Lionel Messi stated that he and his father:

 “Have never committed any infringement. We have always fulfilled all our tax obligations”.

It is estimated that Messi’s net salary is around €16 million per season – not including the millions made from endorsements by commercial sponsors such as Adidas, PepsiCo and Procter & Gamble.

However, a complex set of companies based in the UK, Switzerland, Belize and Uruguay were used to disguise his income from tax authorities.

Initially, tax prosecutors lodged a writ at a court in Gava, just outside Barcelona where Messi lives. In response to this Messi said:

"We have just known through the media about the claim filed by the Spanish tax authorities. We are surprised about the news, because we have never committed any infringement. We have always fulfilled all our tax obligations, following the advice of our tax consultants, who will take care of clarifying this situation."

Earlier this year, the public prosecutor in Spain put forward that Jorge Messi was entirely responsible for the decision to use the corporate structure. However, a court in Barcelona has rejected this appeal and stated that Lionel Messi must stand trial for the alleged tax evasion. Messi has 5 days to appeal the decision.

The Pending Trial

Lionel Messi a now faces criminal charges over the multi-million euro tax evasion scheme. It is speculated that the Spanish prosecutors will focus on the secrecy aspects of the case. The prosecutors say that the basis of the scheme was hiding the identity of the true owners of the companies, which were registered in the UK, Switzerland, Uruguay and Belize.

The deals were structured to keep Messi’s name hidden, with the money being ciphered through the network of companies to make it increasingly opaque.

Messi denies the allegations and says his father carried out the deals without his knowledge. Whilst his father is most likely to have a greater role in the tax avoiding transactions, the court in the appeal said that Lionel Messi “could have known and consented” to the implementation of the corporate structure to avoid tax liabilities. On these grounds the prosecution of Lionel Messi is to go ahead.

The potential sentence for Messi if found guilty, could be two to six years in jail for each of the three tax evasion charges against him. He may also be required to pay a fine of up to six times the amount he defrauded the authorities of.

Contact Us

If you are facing a HMRC enquiry / investigation contact Jeffrey Lewis on 0207 387 2032 or using our online enquiry form.

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Another Crisis in Our Prison System? – by Tony Meisels

old-jailbirdWhile the UK continues to come top of the table in Western Europe for the number of persons in prison per head of population, it has become particularly noticeable that the fastest growing category of inmates is the one over 60. In 1994 there were only 589 inmates aged 60 or over. By 2014 this had increased to an astonishing 3,577 representing some 5% of the prison population. The general public may be surprised to know that within this category there has been a significant increase in prisoners aged over 80 – in the most recent figures released earlier this year they numbered 102, up from 42 as recently as 2011.

Concerns have been raised as to how the prison system is coping with this influx of older inmates and this was something the Justice Secretary Chris Grayling was challenged on in a recent interview on Radio 4. In response he, as would be expected, insisted there was no crisis in the prison system but undoubtedly this shift is having an impact on the MoJ budget.

The principal explanation for the increase in older prisoners is an upsurge in the reporting of sexual offences; 40% of the over 60s are in prison for such offences, especially those which are historic in nature. Prosecution of these offences is not time-barred and the Court of Appeal has ruled that even after a lapse of 65 years it does not follow that there has been an abuse of process (R v Davies).

In the past the CPS have looked for corroboration of a victim’s account and have shied away from prosecuting cases where there is a single complainant, believing that there was not a realistic prospect of conviction. Even before the Saville scandal a more robust approach to prosecuting these cases had been adopted by the CPS, and last year fresh guidance was issued in which prosecutors now focus on the credibility of the complaint as opposed to the complainant.

Inevitably, the reporting of instances of abuse by celebrities has encouraged those who have similar experiences to bring them to the attention of the authorities. Indeed, Lewis Nedas dealt with one such case in which the complainant was motivated to go to the police when he read the autobiography of the former England rugby star Brian Moore.

Publicity can be unwelcome in any criminal allegation, but can be particularly damaging if it is a sexual offence. The Contempt of Court Act, in theory, ensures that inappropriate reporting is kept in check, but in practice publishing names of persons arrested but not charged does not fall foul of this act. Last year the Police introduced a new national policy of not providing the media with the names of persons arrested but not charged. However, with the growth of social media and its increasing invasiveness in all aspects of life, the Police have struggled to maintain this policy especially when approached by representatives of the media. Indeed, just such an occasion arose quite recently when the BBC became aware of the investigation of Sir Cliff Richard for a single historic sex offence.

It is not just the rich and famous who are in danger of their reputations being tarnished or even having their safety compromised. For instance, the Police recently published details of the 660 alleged paedophiles who have been arrested in recent months as part of an ongoing operation. One of those is a client of Lewis Nedas Law and the details provided in the reports in the media were arguably sufficient to identify him to anyone who knows him. We certainly believe that pre-charge publicity needs to be addressed by the Government by way of primary legislation. A recent project by the Law Commission has focused on updating the law on contempt, but pre-charge publicity has not featured in the first two of the reports to be published. The third is due later this year.

Contact Lewis Nedas Expert Lawyers

At Lewis Nedas Law we have extensive experience of dealing with those facing allegations of historic sexual abuse. We are non-judgmental and sensitive when handling such matters, and recognise the distress such accusations can have on both the accused and their immediate family. If you have a matter for which you require our assistance please contact Tony Meisels on 0207 387 2032 or complete our online enquiry form here.

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