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NOV
15

Tesco Scandal - Allegations of Fraud and False Accounting

Back in 2014, the Serious Fraud Office (SFO) commenced a criminal investigation into accounting practices at Tesco in respect of an estimated £326 million missing from the supermarket group’s accounts. Although the investigation is still underway, the SFO has decided to prosecute three former executives in respect of their roles in the scandal. Last week, their trial date was set for next September, when they will each face charges of fraud by abuse of position and false accounting.

In this blog post, we take a look at these two offences and our approach to defending against allegations of serious financial misconduct. At Lewis Nedas Law, our solicitors have been successfully defending clients against allegations of fraud and other financial crimes for over 30 years. We are particularly well-known and respected for our work helping individuals and companies deal with regulatory and criminal business investigations, such as those conducted by the SFO. Our aim is to take action early on, to help mitigate the consequences. For more information on how we may be able to assist you, please contact us.

Fraud by abuse of position

The offence of fraud by abuse of position is one of three classes found in the Fraud Act 2006 (the other two offences being fraud by failing to disclose information (section 3) and fraud by false representation (section 2)). Although it shares some elements with the other two offences, such as the need for dishonesty and an intention to make a gain or inflict a loss, it is a distinct offence that is committed where someone:

  • • occupies a position in which they’re expected to safeguard another’s financial interests, or at least not act against those interests, such as a director in respect of a company or a trustee in respect of a beneficiary;
  • • dishonestly abuses that position, either by act or omission, by failing to safeguard another’s financial interests; and,
  • • intends, by means of that abuse, to: make a gain for themselves or another; or, cause loss or expose another to a risk of loss. This final element, i.e. there being no need for actual loss or gain and the risk being sufficient, is common across all fraud offences.

Because ‘abuse’ is not legally defined in the act, it can cover a wide range of acts or omissions. Further, there is no need for an individual to know that they are in a position where they’re expected to safeguard another’s financial interests – a conviction is highly likely to follow if the prosecution can prove that abuse was dishonest and there was an intention to make a personal gain or cause another loss. If an accused is convicted of fraud by abuse of position, the maximum penalty is imprisonment not exceeding ten years, an unlimited fine or both.

False accounting

The offence of false accounting is found in section 17 of the Theft Act 1968. It is committed where someone:

  • • dishonestly, coupled with a view to gain or with intent to cause another loss;
  • • destroys, defaces, conceals or falsifies any account, record or document made or required for an accounting purpose; or,
  • • furnishes information that produces or makes use of any account, record or document which, to their knowledge, is or may be misleading, false or deceptive.

This offence also covers a wide range of scenarios, including both the act of making a false entry and the omission of material particulars (where the omission may have the effect of significantly misleading), as well as covering someone who does not actually make a false entry or material omission but only concurs with the false entry or material omission. Further, a company will be guilty of the offence if it is committed by an officer of the company whose conduct can be attributed to the company.

Although the act doesn’t shed any light on the required degree of knowledge an accused must have in order to be guilty of the offence, the courts have clarified that the accused must have acted deliberately in making or concurring with a false account, i.e. they knew the account to be false or capable of being misleading. As such, the prosecution does not need to prove that there was an intention for any specific person to be misled. If an accused is convicted of false accounting, the maximum penalty is imprisonment not exceeding seven years.

Our approach to serious fraud defence

Our partner-led Serious Fraud team has vast experience defending complex fraud cases, many with a large international dimension. We employ our experience of working across jurisdictions in all cases being investigated by the SFO. Our multifaceted approach of involving specialist professionals to assist our client’s marks our Serious Fraud team out as a distinctive and progressive law firm that takes special care to protect our clients’ interests. We structure our approach to SFO investigations and prosecutions in a way that insulates our client’s from the majority of the administrative and logistical issues, allowing them to concentrate on working directly with our specialist solicitors to formulate a strategy to deal with the investigation. Find more information on SFO investigation and prosecution defence, and the approach of our pragmatic, practical and effective team here.

Lewis Nedas Law – Specialist Fraud Defence Solicitors London

Lewis Nedas Law have over 30 years’ experience successfully defending clients against fraud prosecutions. We are ranked in Chambers and the Legal 500 for the high quality of our fraud work. Our fraud solicitors are described as 'precise', 'steely determined' and 'always mindful of securing the best outcome for our clients'. Our specialist financial crime & fraud solicitors in the heart of London have extensive experience of preparing successful defences to fraud prosecutions including corporate fraud, whether these are brought by the Crown or a statutory body such as the FCA or the Department of Business innovation and Skills. Please contact Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or contact us online.

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NOV
09

Lewis Nedas Law ranked in Chambers UK 2017, for both Crime and Financial Crime

chambers logoWe are delighted to announce that once again we have been ranked by Chambers and Partners UK for both Crime and Financial Crime.

The 2017 official rankings have described Lewis Nedas Law as "holding their own and shining through".

Jeffrey Lewis has been singled out for particularly high praise in both areas and described as "hugely experienced, creative and tenacious". 

  

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JUN
28

Risky Business - US Consider Banning Incentive-Based Pay to Rein in Risk Taking

One of the contributing factors to the financial crisis was the excessive level of risk banks and other financial institutions were willing to take, in order to reap the rewards offered to individuals as part of incentive-based pay packages. However, this could be coming to an end in order to create greater long-term economic stability. Financial industry regulators in the US have now invited comment on a proposal which would implement Section 956 of the Dodd-Frank Act, and also amend compensation structures and bank incentive schemes. But how will this rule work, and will it lead to better-behaved banking?

End of Incentive- Based Pay in Financial Institutions?

The newly proposed rule is actually a revision of a rule put forward in Aprill 2011. The rule was developed by six federal regulatory agencies in the US : the Office of the Comptroller of the Currency, the FDIC, the Federal Reserve Board, the Federal Housing Finance Agency (FHFA), the SEC, and the National Credit Union Administration (NCUA).

The rule implements Section 956 of the Dodd-Frank Act, which requires that federal regulating agencies issue together guidelines -

 (1) prohibiting incentive-based payment arrangements that the Agencies determine encourage inappropriate risks by certain financial institutions by providing excessive compensation or that could lead to material financial loss;

(2) requiring those financial institutions to disclose information concerning incentive-based compensation arrangements to the appropriate Federal regulator

Under the Dodd-Frank act, the law will apply to institutions which have $1 billion or more in assets, and are one of the following:

Fannie Mae (Federal National Mortgage Association) 

Freddie Mac (Federal Home Loan Mortgage Corporation)

  • Depository institutions or depository institution holding companies
  • Investment advisers
  • Broker-dealers registered under section 15 of the Securities Exchange Act of 1934
  • Credit unions
  • Any other institution the regulators jointly decide should be caught under the law

Comptroller of the Currency Thomas J. Curry said:

“By requiring proper alignment of compensation incentives with an organisation’s risk appetite, the rule calls on lending officers and other employees to put the interests of their institution above their own, The rule will play an important role in helping safeguard financial institutions against practices that threaten safety and soundness, or could lead to material financial loss for the institution.”

Will the proposed rule be effective?

The incentive-based compensation rule is designed to ensure that those working in the financial sector are not being incentivized to take action that requires a great deal of risk or unnecessary risk. Initially, for banks with assets of $1-$50 billion, incentive schemes will need to be reviewed and adjusted to ensure that pay is not greatly aligned with factors that lead to risk-taking.

Banks with over $50 billion in assets, will feel the biggest strain as executives may have to defer 50 percent of their incentive-based compensation for up to three years. This system is designed to assist executives in considering longer term goals as opposed to making decisions that will affect their short-term finances.

Representatives from come of the largest financial organisations JPMorgan Chase, Citigroup, and Bank of America declined to comment on the proposals. Furthermore, analysts of the industry have doubts about how effective the implementation fo these new rules will be.

Some industry analysts were not too sure about how effective the rule will actually be. Eric Chader, SVP of the business advisory firm The Collingwood Group said:

“This rule has the 'Duh' factor of ATR (Ability to Repay) by requiring corporate boards to 'conduct oversight' of the incentive-based compensation programs for its executives and significant risk-takers,”

“The risk, however, appears to be a pass-through to those executives, who are subject to clawbacks, deferrals, and forfeitures within the plans that had been approved by a compensation committee to begin with. This seems like misplaced accountability to me. Applied across all financial institutions, it probably won't have the effect of shrinking the talent pool for executive positions—there are many other more substantial risks for potential candidates that would do that—like putting executives at the GSEs on the GS scale.”

Taking into account this opinion it seems as if incentive based schemes already benefit from a stringent framework, where those executives in positions with great ability to take risk are subject to stricter rules. However, the proposals may send a message to executives about the appropriateness of risk-taking more generally following the economic downturn.

It will be interesting to see whether the proposals for kerbing incentive-based compensation schemes will have an impact on business in the UK, and also whether US companies operating in the UK will be subject to similar rules internally.

Contact our Financial and White Collar Crime Lawyers in Central London, North London

At Lewis Nedas, we have a specialist team of lawyers who are routinely sought to advise on the rules applicable to banks and bankers in the UK. Our solicitors are highly experienced in assisting both individual and institutional clients that are facing investigations by the FCA on allegations of market manipulation. Our service places the needs of our clients at its core. We will handle every aspect of your dealings with regulatory bodies: our team will advise on how best to facilitate regulatory requirements; we will represent your interests in any negotiation or court appearances, and provide you with practical advice that has been tailored to reflect your circumstances. At Lewis Nedas we have a thorough appreciation of the law and how it applies to those working in financial services. We pride ourselves on being the trusted advisor to many working in this complicated and demanding sphere, where the rules are often difficult to understand. If you are concerned about the law or are perhaps involved with the FCA already, contact our team today

To speak to one of our solicitors, please telephone us on 020 3131 5891 or complete our online enquiry form.

With offices in Camden and Fleet Street, we represent and advise businesses in Central London, West London, North London and across the UK.

 

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Accreditations
and Awards

legal 500 uk leading firm 2016 chambers leading firm 2017