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Further Reform of Corporate Crime?

Rebuilding trust and confidence in business and markets has put tackling corporate criminality high on the Government’s agenda. To this end, it’s considering whether to reform economic crime, including corporate fraud, money laundering and false accounting, to make it easier to prosecute companies for criminal activity. 

In this blog, we take a brief look at the Ministry of Justice’s proposals for extending corporate criminal liability beyond bribery and tax evasion in its call for evidence, Corporate Liability for Economic Crime, which closed on the 24th March. These proposals go beyond the corporate compliance requirements contained in the Bribery Act 2010 and Criminal Finances Bill, representing what could be a major shift in the law with potentially major consequences for companies and the wider corporate landscape. If you require more information, please contact us. Our specialist corporate crime team can help you resolve any corporate compliance or criminal issues your business may have. 

Proposals to extend corporate criminal liability

The issue of corporate criminal liability comes to the fore every so often. Most recently, it’s been highlighted by recent court approval of a Deferred Prosecution Agreements (DFAs) between the Serious Fraud Office (SFO) and ‘XYZ Ltd’ under the Bribery Act 2010 concerning bribery in order to obtain contracts overseas. Yet, while DFAs represent a useful tool in combating corporate criminality, they also draw attention the difficulty prosecutors face when seeking to hold large modern multi-national businesses to account for criminal wrongdoing committed by their employees, agents or representatives in areas of economic crime other than bribery and tax evasion. 

Prosecutions for corporate wrongdoing are usually sought under common law rules known as the identification doctrine. Under this principle, a corporation is only criminally liable if prosecutors can prove that individuals who can be regarded as ‘the directing mind’ of the company knew about, actively condoned or played a part in the offending. This is a very hard thing to do, and there have been many cases in which evidence of wrongdoing was insufficient to sustain a criminal prosecution. The Government has therefore sought views on a number of proposals aimed at improving effective criminal enforcement against companies in a way that will complement the regulatory regime.

Amend the identification doctrine 

As the common law rules are considered to be a principal hurdle faced by prosecutors, the Government has sought views on whether legislating to amend the identification would be possible and desirable. For instance, legislation could amend the doctrine by broadening the scope of those regarded as a directing mind of a company. In putting forward this proposal, the Government emphasised that: ‘retaining the identification doctrine in any form would perpetuate the notion that a company can commit a criminal offence. It would encourage corporate efforts to limit potential liability through the adoption of evasive internal structures. It would not promote the prevention of economic crime as a component of corporate good governance’.

Create a strict vicarious liability offence 

Vicarious liability, where a company is automatically responsible of the actions of its employees, representatives or agents, without the need to prove any fault, is well established in UK civil law. A form of vicarious liability also governs corporate criminal liability in the US. The Government asked whether such an offence should be subject to a due diligence type defence, so as to be an effective way of incentivising economic crime prevention.

Create a strict direct liability offence 

Unlike vicarious liability, direct liability focuses on the responsibility of a company to make sure that offences are not committed in its name or on its behalf. It’s a separate offence akin to a breach of statutory duty, and when coupled with a due diligence type defence mirrors the corporate offences contained in the Bribery Act. The Government proposed that such a model, based on a failure to exercise supervision, could more accurately target the real nature of corporate culpability. It also sought views on whether such an offence should include the concept of a failure to prevent, which places a burden on the prosecution to prove that the company had not taken adequate steps to prevent unlawful conduct occurring.

Greater regulatory reform on a sector by sector basis

Finally, the Government noted that ‘strengthening deterrents to misconduct through regulatory reform in sectors where it is less developed must always be regarded as a possible alternative to the extension of the criminal law’, citing the reform of the financial services sector as a way of improving conduct through an increased focus on personal accountability for wrongdoing. It therefore sought views on the co-existence of regulatory and criminal law enforcement as a means of holding companies to account. 

The Government is currently reviewing the information it has received following its call for evidence on these proposals. If it determines that a new form of corporate liability for economic crime is needed, a full consultation will be launched on detailed proposals and draft legislation. As ever, our specialist corporate crime lawyers are closely watching developments and keeping clients informed of relevant changes. 

Lewis Nedas Law – Specialist Business & Financial Crime Defence Solicitors London

Our expert corporate crime defence team has over 30 years’ experience successfully defending clients against fraud and financial crime allegations. We are also ranked in Chambers and the Legal 500 for the high quality of our fraud work, and our expert solicitors are described as 'precise', 'steely determined' and 'always mindful of securing the best outcome'. Our specialist financial crime & fraud solicitors, based in the heart of London, therefore have extensive experience of preparing successful defences to corporate crime prosecutions, including corporate fraud, whether these are brought by the Crown or a statutory body such as the SFO, FCA or the Department of Business innovation and Skills. For more information, please contact Jeffrey Lewis or Siobhain Egan on 02073872032 or contact us online.

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HMRC Strikes at Construction Sector VAT Fraud

In its war on tax evasion and fraud, HM Revenue & Customs (HMRC) tends to focus investigations on specific trades or businesses, such as doctors, dentists or plumbers. More recently, it’s turned its attention to the construction sector, specifically businesses that supply labour. On-going investigations have highlighted a growing problem of supply chain fraud – businesses are being set up with the intention of fraudulently failing to pay VAT and making incorrect income tax deductions.

 In this blog, we provide a brief overview of the arrangements HMRC is seeking to address and the options its proposing to target and prevent them. VAT & Tax investigations are lengthy and stressful. It is also important to remember that any information uncovered by the Revenue will be passed to other investigating authorities and could lead to criminal prosecution. It is therefore imperative that anyone who finds themselves coming under the scrutiny of a revenue investigation consult specialist tax investigation accountants and solicitors as soon as possible. Please contact us for more information.

Tax Evasion in the Construction Industry

In its consultation, Fraud on provision of labour in construction sector: consultation on VAT and other policy options, HMRC identifies two principal ways that the supply of labour can result in fraud. The first involves a legitimate business with gross payment status (GPS) under the Construction Industry Scheme (CIS) being taken over. The second involves ‘a new ‘off the shelf’ company fronted by a ‘puppet’ director with a clean compliance record’, that passes the test for GPS and registers for VAT. 

Both arrangements follow a similar pattern of artificially lengthening supply chains in order to evade direct taxes by misdeclaring or not declaring CIS remissions and VAT liabilities. The aim is to delay the time it takes HMRC to identify mismatches between the main contractor’s CIS declarations with those of all the sub-contractors below it by making checks more difficult. By the time these mismatches are identified, the misdeclaring business may have folded or gone missing, while the workforce is usually moved to another business to carry on the fraud. The effect is that these businesses, and their workforce, are deliberately not paying VAT and income tax. There are also failures to make National Insurance Contributions (NICs) that create further risk of benefits fraud and illegal working. 

As HMRC notes in its consultation, ‘overall, the losses from this type of fraud are significant’. Such cases are estimated to cost the Revenue tens of millions of pounds. Although it has sought to tackle the issue by increasing its compliance response and making businesses at the top of supply chains aware of the fraud, the number of contractors often involved makes effective real time checks onerous.   

VAT & CIS Options for Tackling Supply Chain Fraud

‘HMRC is improving its compliance responses by breaking up fraudulent supply chains through civil and criminal interventions. Although effective and reducing fraud, such interventions are responses to the fraud and do not prevent it.’ 

HMRC is therefore exploring its options for stamping out missing trader supply chain fraud in the construction industry by looking to other sectors that have suffered VAT losses, such as the telecoms and energy sectors. The introduction of domestic reverse charges has proved effective at removing VAT fraud in these and other sectors. However, there are concerns that the scale of the construction industry, estimated to amount to around 250,000 VAT registered businesses and encompassing a wide variety of customers, could have a disproportionate effect on honest, small traders as well as private developers, public authorities and voluntary organisations. The consultation therefore seeks views on how best to remove additional risks and complications for both providers and customers from any VAT changes. 

HMRC is also looking at tightening the rules around GPS status and VAT registration to prevent misuse and abuse of CIS. Again, it is keen to avoid smaller sole traders or partnerships from suffering disproportionately and therefore looking to take a targeted approach. It asks, amongst other things, whether changes should be restricted to companies, or if changes should be made to the turnover test to make it more difficult for fraudsters to establish that they are a legitimate business with a trading history. It also asks if contractors or customers should be required to inform HMRC when they become aware of a change to shareholding or ownership of labour provider business. 

Our approach to Tax & Vat Investigations

Tax and VAT is a fast moving area of law that is growing increasingly important for individuals and businesses. You need proactive advice and representation, and our negotiation skills, acquired during our long history of dealing with HMRC and defending prosecutions brought by them and other agencies, give us that vital edge over our competitors. We take action to protect your interests, working with leading tax counsel and specialist tax accountants in order to give multidisciplinary advice.

Lewis Nedas Law – Specialist Tax & VAT Investigation Defence Solicitors London

Our expert Tax Investigations team has over 30 years’ experience successfully defending clients against tax fraud and financial crime allegations. We are also ranked in Chambers and the Legal 500 for the high quality of our work, and our expert solicitors are described as 'precise', 'steely determined' and 'always mindful of securing the best outcome'. Our specialist solicitors, based in the heart of London, therefore have extensive experience of preparing successful defences to tax and VAT investigations and prosecutions, whether these concern HMRC, the Crown or the SFO. For more information, please contact Jeffrey Lewis or Siobhain Egan on 02073872032 or contact us online.

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Laura Saunsbury profiled in the leading CPSA shooting magazine, Pull!

cpsaLaura Saunsbury, who heads our specialist firearms law department, has been profiled in the April 2017 edition of Pull!, the magazine for members of the Clay Pigeon Shooting Association, which is distributed each month to its 24,000 members. In the article Laura talks about her work as the Honorary Solicitor to the CPSA and what led her to specialise in firearms law. To read the article in full, click here.



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Cash seizure and restraint - latest developments

We are increasingly instructed to represent individuals who have had cash restrained which they had in person , or in their bank accounts .

The monies (over £1000.00) are seized and restrained by the authorities such as HMRC , NCA, the Met police , City of London Police and Customs & Excise  to name but a few , if they suspect that the monies are the Proceeds of Crime .

The definition of proceeds of crime is very wide ... it includes Terrorism Financing , fraud , sanction offences , Modern Slavery Act, fraud , tax evasion, money laundering  and people trafficking .

Their powers to do so are contained within the Proceeds of Crime Act 2002( ss289 and following )  POCA ,and are often used by the authorities to 'disrupt ' what they believe to be criminal activity ... frankly it's quicker and more effective than pursuing  expensive and lengthy criminal prosecutions .

Additionally ,perhaps stung by criticism of their approach to money laundering  by various international authorities ,they have become more pro- active in their approach . As a result they work closely with the banks and leading international financial institutions ,to report suspicious activity ( SAR reports ) movements and transactions on accounts .

It was recently reported that a number of people traffickers were identified to the NCA because of activities on their bank accounts .Apart from reporting information to the authorities the banks will also work closely with them when it comes to freezing accounts or moving suspicious monies .

Further it seems that the authorities are scrutinising the activities of money exchangers or brokers and bureaux who transfer funds , usually from abroad , and very often using Islamic Financial systems .

Some leading money broker agencies have been investigated and closed down by the authorities over the last two years in the U.K.

They are of the view that the involvement of money exchangers( Hawala brokers )gives rise to the suspicion of money laundering .

The Hawala system involves the transfer of monies based on a system of trust ,without any movement of monies .

We have successfully argued against this in a number of cases on behalf of clients .

Some jurisdictions simply do not have safe , independent , reliable banking systems and people living here will want to transfer monies to relatives living in those jurisdictions and who are dependent upon those monies .

What can the authorities do ?

Initially they can within 48 hours of the seizure of monies apply to the relevant Magistrates Court for an initial Restraint period of up to 90 days .

They can restrain the monies for an overall period of up to two years , and at any time during that period apply to formally forfeit the monies .

These are civil proceedings heard in a criminal court and the burden is on the individual ,in original possession of the cash ,to prove to the court upon 'the balance of probabilities ' that the monies are completely legitimate and not the proceeds of crime .

There will be a number of intermediate  hearings before the final hearing when the issue will be determined by the Court .

What can you do ?

If you find yourself in the position of having funds restrained , it will fall upon you to prove that the monies are legitimate .

It can mean that you will have to overcome significant hurdles particularly if the funds have come from abroad .In essence you will have to provide an immaculate paper and money trail to the satisfaction of the Court .

In a very recent case , we represented an academic living in the U.K. Who had received over £800,000 in his account , which represented the proceeds of sale of an inherited property in Pakistan .

The purchaser insisted upon using money exchangers to process the monies which arrived in several lesser amounts in our clients account , against his who had asked for a bank to bank transfer .

When the £800,000 finally arrived in his account and was immediately transferred to a secret escrow account by the bank without notice . After the monies were moved , our client received a call from HMRC demanding an immediate interview .

We were instructed to act , asked for a weeks reprieve in order to enable us to work with our client to prove the complete money trail , with supporting paperwork that had to be officially translated and stamped as authentic by the British Consulate and all the relevant banking institutions in Pakistan  .Additionally , that paperwork had to be supported with sworn affidavits by those involved.

It took a great deal  of work and long hours (not least because of the time difference between here and Pakistan ) Our client was interviewed at length by HMRC who were served with a complete bundle of documentation by our client and ourselves .

At the end of a tough interview HMRC agreed to refund the full £800,000 and not restrain the monies .

This is just one example of a successful resolution that we have dealt with  and how we have helped an individual secure the return of his monies .

We have dealt successfully with many of these cases , e.g. Over 100 clients whose monies and assets were seized as a result of Operation Rize , all of who had their monies returned by the Met .

Please note that there is no state or legal aid funding for such legal work , legal fees have to be met privately .

It's important before you decide to instruct lawyers to assist you , that it will be cost effective for you to do so .

If you need advice and assistance convening the seizure and restraint of monies please contact us at Lewis Nedas Law , either telephone us on 02073872032 or email us using our online contact form.

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Paul Mason interviewed by French television channel

press conferencePaul Mason, a Senior Consulant Solicitor here at Lewis Nedas, has been interviewed by a French television channel who are investigating the prosecution of child pornography and grooming offences in England and Wales. Of particular interest to the French investigative journalists was the role of self styled vigilantes in these types of offences.

Paul had recently successfully defended a client facing such allegations which were discontinued by the CPS because of the role played by such vigilantes, entrapment and the tainting of evidence. 



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and Awards

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