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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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Hewlett-Packard Accuse CEO of Autonomy of Fraud

Hewlett Packard Accuses Autonomy CEO of FraudThe latest scandal in the ongoing legal battle between computer giant Hewlett-Packard (HP) and British company Autonomy, has seen HP accuse founder of Autonomy, Michael Lynch, of fraud in HP's 2011 takeover of the company.

A spokesman on behalf of Mr Lynch described the comments as a "personal smear".

Autonomy was one of the greatest companies in the British technology industry, built by some of the brightest minds to have emerged from Cambridge University.

The company was in the FTSE 100, sponsored Spurs, and its chief executive Mike Lynch was a non-executive director of the BBC, on the British Library board and an advised the Prime Minister on scientific policy.

In 2011, HP took over Autonomy in the biggest ever takeover of a British technology firm. HP paid $11.1 billion (£6.8bn) for the company Autonomy but only a year later it was worth $8.8 billion less. Since this discovery, HP and it’s shareholders have been engaged in a legal battle with Autonomy accusing them of fraudulently misleading HP as to the value of the company.

The most recent court document in the case singles out the chief financial officer at Autonomy at the time of the takeover, Sushovan Hussain, with HP saying he was "one of the chief architects of the massive fraud on HP".The court filing also said that shareholders and management of HP are in agreement "that Hussain, along with Autonomy's founder and CEO, Michael Lynch, should be accountable for this fraud".

Shareholders originally were intending to sue the management of HP over the disastrous takeover of Autonomy. However, the latest accusations confirm will stand with HP to pursue who they believe to be the true perpetuators of the fraud.
A spokesperson representing Mr Lynch and Mr Hussain said;

"This breathless ranting from HP is the sort of personal smear we've come to expect. As the emotional outbursts go up, the access to facts seems to go down."

Contact Lewis Nedas Specialist Corporate Fraud Solicitors

If you are affected by a corporate fraud investigation, please contact our experienced solicitors by calling 020 3432 6608 or completing our  online enquiry form.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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Fraud on the Increase

bank fraudEconomic crimes such as fraud are on the rise, if recent reports are anything to go by. The first, by industry group Financial Fraud Action UK (FFA UK), looks at the levels of card and online banking fraud, while the second, by PwC, assesses economic crime, including fraud, against financial services organisations.

Card & Online Banking Fraud

The FFA UK figures reveal that:

  • Fraud losses on UK cards in 2013 increased by 16% on the previous year to £450.4 million, although this is still 26% lower than 2008’s peak fraud figure.
  • Total spending on all debit and credit cards increased by 6.1% over the year to £532 billion.
  • Losses on remote card purchases (those made online, over the telephone or by mail order) increased by 22% to £301.1 million in 2013, from £246.0 million in 2012.
  • Online fraud against UK retailers totalled an estimated £105.5 million in 2013 – up 4% on the previous year.
  • Fraud against online retailers based overseas increased by 48% to an estimated £57.8 million.
  • Online banking fraud has increased by 3% to £40.9 million from £39.6 million in 2012.
  • Telephone banking fraud has fallen 8% to £11.6 million from £12.6 million in 2012.
  • Cheque fraud losses fell 22% to £27.5 million from £35.1 million in 2012.

Crime Against the Financial Services Sector

According to PwC, economic crime as a whole is on the rise. The assurance, tax and advisory group recently published a report, based on its Global Economic Crime Survey 2014, looking at the impact of crime on businesses in general (see our earlier blog). It has now issued a further report looking specifically at the financial services sector.

This reveals that 45% of financial services respondents to the survey said they were victims of fraud, compared with 34% across all other industries. Of these, 21% had been affected by accounting fraud. The most common type of economic crime perpetrated against financial services firms was, however, theft, which was reported by 67% of respondents. Other reported crimes were:

  • Cybercrime (39%)
  • Money laundering (24%)
  • Bribery and corruption (20%)

Tackling EU Budget Fraud

Given the apparently increasing incidence of economic crime, it is not surprising that countries and organisations are taking coordinated action to tackle the problem.

In Europe, for example, plans are gathering pace to prevent fraud taking place against the EU budget. Action is needed, says the European Commission, because conviction rates for fraud offences against EU resources greatly vary across the EU. Only around 45.7% of cases transferred to Member States are apparently followed up by national judicial authorities and the conviction rate of of these is on average just 42.3%.

European Public Prosecutor’s Office

The European Commission has therefore proposed the creation of a European Public Prosecutor’s Office, which would have the exclusive task of investigating and prosecuting crimes affecting the EU budget.

The proposals were originally put forward in July last year, and have recently received the backing of the European Parliament. However, the UK, Denmark and Ireland have indicated that they will not be participating in the European Public Prosecutor's Office.

Contact Lewis Nedas’ Criminal Lawyers in London

For specialist legal advice in defending a charge of fraud please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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Businesses Hit by Increase in Staff Fraud

fraudDespite 64% of small US businesses experiencing theft by employees, only 16% of them ever reported this crime to the police, according to an interesting study by the University of Cincinnati.

This is surprising when you consider the potentially serious consequences of these thefts - one third of bankruptcies amongst small businesses are apparently the result of employee theft, according to figures from the United States Chamber of Commerce.

In the study, University of Cincinnati criminal justice researcher Jay Kennedy found that cash was the item most commonly stolen by staff, with amounts ranging from $5 to $2 million, with an average amount of $20,000. Most of the thefts (61%) were committed over a period of time rather than in one incident, with an average duration of 16 months before the staff member concerned was caught.

Lack of action by employers

When Kennedy investigated why the reporting rate of these crimes was so low, he found four main reasons why businesses owners did not go to the police:

  • The crime was not seen as serious enough to be worth doing any more than firing the employee.
  • Being advised that the time and effort involved in securing a successful prosecution would outweigh any benefits the business owner would gain.
  • Emotional obstacles – many of the guilty employees were long-serving members of staff or even family members.
  • US business owners see the police/criminal justice system as ineffective.

UK companies continue to be targeted

Although interesting, the experiences reported in this study are by no means a uniquely American phenomenon.

In its latest Global Economic Crime Survey, PwC found that UK companies are continuing to be victims of economic crime, with employee theft being a particular problem. The survey defines economic crime as “the intentional use of deceit to deprive another of money, property or legal right”.

It found that there has been a rise in the number of frauds committed by employees, from 34% in 2011 to 41% in 2013.

The survey also found changes in the profile of the average employee who commits such a fraud. Staff at middle-management level used to be the most common culprits, but now economic crimes are most likely to be committed by employees at a junior level, who usually have a length of service of less than five years.

Frauds become more high-tech

According to PwC, there has been a drop in UK businesses reporting suffering economic crime - down from 51% in 2011 to 44% in 2013. However, this is still higher than the global average of 37%.

It also appears that the nature of economic crime is changing, with a move away from accounting fraud to more high-tech methods.

No matter how the frauds are committed, the financial cost to business continues to be high, with 52% of survey respondents reporting that the financial impact of economic crime had increased over the past two years, compared to just 42% globally. However, there were less high-value financial losses in the UK than were recorded globally, with only 15% suffering losses over $1 million, compared to 20% worldwide.

Impact of the Bribery Act

The survey also comments on the impact made by the Bribery Act on tackling economic crime, highlighting the fact that 87% of British organisations have now changed their policies and procedures, and 37% have conducted a major overhaul of their anti-bribery policies.

“With little or no growth in the UK in the last few years, many British companies have looked overseas, to some high-risk markets. But they need to be on the alert for the potential bribery risks they may face when operating in these markets,” commented Ian Elliott, PwC Forensic Services partner.

Contact Lewis Nedas’ Criminal Lawyers in London

For specialist criminal defence advice please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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Attempted Football Transfer Fraud Foiled

footballFraud comes in all shapes and sizes – as shown by the BBC’s report last week that Premier League football club Tottenham Hotspur had been the victim of an apparent fraud attempt in the run up to the transfer deadline.

According to the BBC, the club was approached by a Croatian man who presented a document that purported to be from Dutch football club FC Twente, authorising the sale of Holland under-21 player Luc Castaignos. The document appeared to have been signed by FC Twente’s chairman but when Spurs contacted the Dutch club, it was found to be a forgery.

The Dutch Football Federation and international football association FIFA have been informed.

The offence of fraud takes many forms, although the core of every offence is some form of deception which is knowingly perpetrated with the intent of deriving some unfair or unlawful advantage or material gain.

From simple employee fraud to detailed multi-jurisdictional corporate fraud, Lewis Nedas has the experience and expertise to plan, prepare and strategise a defence, and to represent you in what may be a lengthy and complex fraud trial.

Contact Lewis Nedas’ Criminal Lawyers in London

If you have been charged with fraud and require specialist criminal defence advice, please contact our solicitors Jeffrey Lewis or Siobhain Egan on 020 7387 2032 or complete our online enquiry form here.

This blog post is intended as a news item only - no connection between Lewis Nedas and the parties concerned is intended or implied.

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