A number of investment schemes that involve trading in the foreign exchange market used by traders and financial institutions have been deemed by lawmakers to put the stability of the market at risk. In some cases, these trading schemes are deemed fraudulent, attracting criminal liability for those that use and operate them.
Here we provide an overview of foreign exchange fraud: what it is, how it is regulated and the law governing it. The law in this area has been designed to be fairly comprehensive, allowing regulators to spot questionable activities as early as possible. It is therefore important that anyone who operates in this field and concerned that their activities may expose them to legal action seek the advice of expert solicitors as soon as possible.
What is Foreign Exchange Fraud?
Foreign exchange fraud, sometimes known as forex trading fraud, is the use of any kind of trading scheme to defraud currency traders by convincing them that they can expect to gain a high profit by trading in the foreign exchange market.
Who Regulates Foreign Exchange Fraud?
Foreign Exchange Fraud as an illegal enterprise has been the subject of increasing regulation. A number of agencies work in partnership and pool their resources to maintain confidence in, and the stability of, the Foreign Exchange market:
- The Financial Conduct Authority (FCA) is responsible for the regulation of financial services and other types of companies that have an obligation to prevent fraud.
- The Serious Fraud Office (SFO) is responsible for investigating and prosecuting the most serious allegations of fraud, including foreign exchange fraud.
Both of these organisations may work with other agencies, both domestic and international, to prevent abuse of the foreign exchange market.
The Powers of the FCA and SFO
The powers of both the FCA and the SFO are quite broad, and each organisation will exercise these powers differently depending on the circumstances.
The FCA is granted an array of powers to prevent any form of market abuse, e.g. foreign exchange fraud. Technically the FCA is entitled to take any action necessary to prevent market abuse and this can include recovering documents and conducting interviews with individuals to establish the existence of market abuse.
The SFO, should it deem it necessary to investigate allegations of Foreign Exchange Fraud, is entitled to ask that it be provided with information e.g. reports, paperwork or ask that someone attend an interview with them to answer questions surrounding allegations.
Should either the FCA or the SFO find evidence of Foreign Exchange Fraud, both organisations are empowered to prosecute individuals or businesses that are found to have been involved in fraudulent activity.
Foreign Exchange Fraud Offences
There are several different offences that are related to foreign exchange fraud. The most important of these are set down in two different pieces of legislation:
The Fraud Act 2006
This piece of legislation contains a general offence for fraud, which involves making a personal gain or causing, or exposing another to the risk of, loss, which is committed by:
- making a false representation;
- failing to disclose information when under a duty to do so; or
- dishonestly abusing a position of trust that involves the financial interests of another.
Even in the context of trading in foreign exchange currencies, if you are discovered to having taken any of the actions listed above, you will be vulnerable to legal action.
The Theft Act 1968
Under this Act it is an offence to dishonestly do any of the following, in an attempt to make a gain or cause someone else to suffer a loss:
- Destroy, conceal or falsify any kind of documents that are needed for accounting purposes; or
- Use false or misleading financial information when providing someone with information.
Activities related to foreign exchange trading will ultimately involve the provision of some kind of financial information, that will have to have been collated properly. Any attempt to interfere with this information could expose you to legal action under the Act.
The important point to keep in mind is that foreign exchange fraud is regulated under these two different kinds of legislation in the hope that this will deter any would-be participation in carrying it out. The ability for prosecutions to be mounted on evidence of a number of different activities makes the crime easier to prosecute - which is one of the reasons why it is very important to be mindful of your activities if operating in foreign exchange trading.
Foreign Exchange Fraud Penalties
Foreign Exchange Fraud can attract either civil and/or criminal penalties, depending on the basis that the crime is prosecuted:
These will be issued following an investigation by the regulatory authorities, the FCA or the SFO, of the activities of either an individual or an organisation.
The FCA is empowered to issue substantial fines on evidence of fraud, and in some circumstances will be able to stop an individual or organisation from carrying out trading activities.
The SFO, on the other hand, is entitled to recover any monies that are the result of fraudulent activity - whether or not there is a criminal conviction.
It is also important to be aware that there could be an action raised to recover any losses made as a result of fraudulent activity in the foreign exchange market, such as an action in tort.
These are the penalties that can be issued following a successful prosecution of a criminal offence. If an individual is convicted under the Fraud Act, then the maximum penalty is ten years imprisonment and/or an unlimited fine. The penalties that are available under the Theft Act are broadly similar, although the maximum period of imprisonment available to a court to hand down is seven years.
Foreign Exchange Fraud Criminal Defence
At Lewis Nedas, we have a dedicated team of Financial Crime lawyers who have a wealth of experience in handling allegations of misconduct in relation to Foreign Exchange Fraud. We work alongside our clients, and bring our expertise and tenacity to the fore, and will conduct our business with your best interests in mind. If you have any concerns regarding the law on Foreign Exchange transactions, please contact us now.