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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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Another SFO Investigation Success for Siobhain Egan & LNL

SFOWe were instructed to advise and represent an individual who was the subject of a huge SFO investigation following allegations concerning a property SIP investment fraud which is alleged to have taken place in four jurisdictions and involved the loss of £63 million and subsequent money laundering.

Siobhain took detailed instructions and advised the client to give a fully commented interview, and as a result of his answers and detailed representations made on his behalf by Siobhain (after the interview in written correspondence), the SFO revoked his bail (he had been on bail for many months) and he has now been dropped from the investigation.

This emphasises the importance of instructing genuinely experienced fraud lawyers, who know their way around an interview situation. Interviews are the most important part of the whole criminal investigation process and it is vital that the arrestee/interviewee has a team that understand how the investigative authorities work and how they react.

We have been defending SFO investigations and prosecutions since the SFO was first set up and have a very successful track record.

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Civil Recovery Orders Back On the Table for the SFO – by Siobhain Egan

It seemed from last autumn’s comments made by David Green QC, the Director of the SFO, that he was bringing back the prosecuting authority to its prosecutorial roots. However, he has recently stated, “… in the case of a genuine self-report, where, say, a new board had discovered previous misconduct under previous management, had investigated it and reported it to SFO and put in place measures to avoid repetition, then obviously the fact of self-reporting would weigh heavily in the public interest against prosecution.”

This of course makes complete sense, particularly with the advent of Deferred Prosecution Agreements (DPAs) looming. Additionally, there was a fair amount of grumbling and confusion in the City legal press after he made his initial statement last year, and many were wondering whether it would be in any company’s interest to self-report if the SFO were only looking to prosecute.

The SFO have had plenty of successful civil recovery proceedings issued in the High Court over recent years, e.g. Balfour Beatty PLC, Amec PLC, M.W. Kellogg Limited, Macmillan Publishers Ltd, and Mabey & Johnson. It is not difficult for them to be so successful; pt.5 Proceeds of Crime Act 2002, gives the prosecuting body enormous and draconian powers to focus purely upon the property in question. The standard of proof is the lower standard, and they do not need to prove unlawful conduct.

So for a company, self-reporting and the timing of the report are crucial. In reality, to receive the full benefit, the report should be one that the SFO would not have learned of through any other source other than the company. It should be within weeks of the criminal offending coming to light. There has to be full disclosure of the offending behaviour (it’s vital that the company comes with ‘clean hands’) and with proof that such behaviour would not occur again (e.g. better compliance systems, supervision etc).

It is a huge decision to make, and the collateral damage for any company would be enormous, e.g. the effect upon shareholders (see Mabey & Johnson), reputational management, and other contracts/suppliers etc, and so the decision has to be made very carefully. Look to see if the action/event really amounts to a reportable offence.

Which brings us neatly to the current possibility that the government may re-visit aspects of the Bribery Act 2011 e.g. facilitation payments which cause SMEs (and the necessary expensive compliance systems) such concern.

We can advise and represent any individual or company in the High Court facing civil recovery (we successfully resisted such proceedings against an individual recently). We can negotiate with the authorities with a view to reaching a good settlement, if necessary.

We can also help to advise companies who are considering self-reporting to the authorities (based on our 30 years of experience successfully dealing with the authorities) to ensure that all aspects are covered.

We also advise companies regarding compliance systems at reasonable costs.

Contact Jeffrey Lewis or Siobhain Egan, if you are facing any of these issues.

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SFO: Perhaps the Phoenix Will Rise from the Ashes, After All?

A quick analysis of the SFO’s recent activities shows that the SFO director David Green does mean business and has secured additional funding in order to do so.

Finally, the SFO have lost patience with ENRC and all that has gone on with that company regarding an investigation into African bribery and corruption. This is a good example of a potential civil settlement going badly wrong and it looks likely that a criminal inquiry will now get underway since the SFO have served a s.2A notice.

The SFO also want to draw a line under the Rolls Royce corruption allegations originating in Indonesia, and are apparently considering a Civil Recovery Order. Presumably, this case would have been an ideal candidate for a Deferred Prosecution Agreement, however these will not come into effect until February 2014. They also seem to have BUMI and the alleged missing £48 million within their sights, and finally perhaps some movement on the Libor criminal inquiry. The SFO are currently advertising for a lawyer to assist with their endeavours in this regard.

It seems that the SFO have secured additional funding after having had their budget slashed in the Government’s recent austerity drive. They have increased income to a new high of £6.6 million in 2011/12 as a result of asset seizures, secured £3.5 million for the Libor criminal inquiry from the Treasury, and also ‘blockbuster’ funding for any investigation deemed to cost more than £1.5 million.

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Are SFO Bribery Act Policies Likely to Change?

Siobhain Egan has written a blog article regarding possible changes to SFO’s bribery and corruption guidance/policy. Read the article here.

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