STRANGER THAN FICTION · as normal as any other non-blockbuster film release. But instead of the supposed £20M budget, the five cobbled their moment of silver screen glory together

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As frauds go, it apparently had all the ingredients of a cracking film – talk of A-list stars, supposed big, overseas financing and a plot that relied heavily on shady dealing. Which is ironic bearing in mind the lengths a group of five went to in a bid to disguise their fraudulent tax activities. The five actually produced and released a film, called appropriately “A Landscape of Lies’’, to cover their trail. But it appears unlikely that there will be a sequel, seeing as the film-loving five have now been given hefty sentences for tax fraud.

“A Landscape of Lies’’ looks, at first glance, to be like many low-budget British films that never really prick the national consciousness. It scores 5.4 out of 10 on the Internet Movie Database ratings and features a former “Eastenders’’ star, a presenter from ITV’s “Loose Women’’ and a gaggle of other faces you may have seen pop up in soap operas and early-evening dramas. The tale of a Gulf War veteran’s challenges on returning to civilian life was released

straight to DVD two years ago; although to its credit it did win an award at last year’s Last Vegas Film Festival. Now, however, a lot more people know about it because it was devised entirely as a tax dodge.

The five men behind it have been convicted of using the film as a way of gaining £2.8M in tax relief from HM Revenue and Customs (HMRC). Southwark Crown Court heard that the five claimed to be creating a British film with A-list actors and £19M funding from Jordan. But it was actually a sham project. There was no film. The whole thing was a ruse, designed entirely to help the five claim nearly £1.5M in tax back for work that had not been carried out on the non-existent film as well as a further £1.3M under a government scheme allowing filmmakers to claim back up to a quarter of their expenditure as tax relief.

HMRC told the court that the five had already received £1.7M back when checks showed that the work had not been done and many so-called suppliers knew nothing of the five or the film they

were supposed to have made. The five were arrested on suspicion of tax fraud in April 2011. They then decided that, at that stage, they would actually have to make a film as quickly as possible as an attempt to evade detection. Neither the cast nor scriptwriter knew the real motive for the film being made. It was promoted in film industry magazines and appeared as normal as any other non-blockbuster film release. But instead of the supposed £20M budget, the five cobbled their moment of silver screen glory together for just £84,000 – roughly 0.4% of the cost they had told the tax man they had incurred. The result was the five making crime rather than celluloid history. They have become the first people convicted for trying to defraud the British Film Commission’s tax relief scheme.

The moral of this tale is, therefore, that tax fraud comes with heavy penalties. Any application on this scale is audited thoroughly. After all, there is no way a government is ever going to be keen to hand back any money it has raised from taxes. That is a fact – not the stuff of films.

Edition 010 / April 2013eBookSerious Fraud, Regulatory and Complex Crime Lawyers

STRANGER THAN FICTION

A multi-million pound tax fraud involving a low-budget film has led to heavy sentences for five people. Here, Aziz Rahman looks at how the failed scheme was carried out and how to defend yourself against tax fraud accusations.

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Recently, HMRC has been keener than ever to chase down tax evaders, avoiders and those suspected of fraud. They want people to know that they have to put their affairs in order or pay a very high price. If the HMRC starts to scrutinise your business affairs, the best defence is to have a fully-documented and recorded accounting system in place. If the tax man has suspicions then having everything in clear, black and white and auditable form will be the clearest indication that everything is above board.

But any accounting system can only be a fi rm defence against prosecution if it is fully legally compliant. To make sure that is the case requires the assistance of a solicitor familiar with compliance issues – only such a legal expert can advise which measures have to be introduced to make sure a company is functioning completely within the confi nes of the law. Taking such pre-

emptive action will be the only way to avoid prosecution, jail or fi nancial punishments, not to mention potentially huge damage to a company’s trading levels or reputation.

Rahman Ravelli represents companies and individuals whose tax affairs are under investigation. To represent someone successfully in such an investigation requires knowing how to deal with investigators and knowing which is the most appropriate course of action. Whenever someone fi nds themselves attracting HMRC’s attention they have to get the right legal representation, gather all the relevant information and documentation and let the legal representative handle the negotiations. HMRC can now use its powers under Code of Practice 9 (COP 9) to force companies to disclose any underpayment of tax; which further highlights the need to act correctly and

seek the best legal representation from the very fi rst hint of an investigation. HMRC wants to track down what it sees as unpaid tax and weed out those it suspects of tax fraud. Yet at the same time, it wants greater transparency from individuals and companies regarding their tax affairs. It believes people should be encouraged to report their own wrongdoing when it comes to tax and yet penalties can vary massively for those who admit or are found to have committed tax offences. This means that deciding if any wrongdoing has been committed and what action should be taken are both issues with major consequences.

Taking the wrong step – which is very possible without the right legal advice – can prove very costly.

Taking the right step, which involves seeking the best legal advice possible, is the only way to protect your interests.

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Vincent Tchenguiz is a busy man and a very rich one. But despite this, he is chasing the SFO for £200M damages over the way he was treated in one of their investigations. The entrepreneur believes he suffered a number of injustices in connection with his arrest and the high-profi le investigation into him in relation to the collapse of the Icelandic bank Kaupthing. Trespass and false imprisonment are alleged in his claim which, if successful, would be the biggest ever pay-out by the SFO and would place in serious jeopardy its ability to keep functioning.

The SFO dropped its investigation into Mr Tchenguiz and his brother Robert in 2012. It followed a lengthy legal battle over whether the correct search warrants were used during raids. Last year, the High Court ruled that the SFO used misrepresentation to obtain search warrants unlawfully for the homes and businesses of the Tchenguiz brothers. At the time of the March 2011 raids, the brothers’ properties were searched by 135 SFO investigators and police offi cers. Since then, the SFO has apologised to the brothers and admitted that it mishandled the case; stating that “serious mistakes were made in connection with the application for search warrants’’. But it

looks set to contest Vincent Tchenguiz’s legal claim for damages, which is at least partly based on him suffering “signifi cant business losses, arising directly from the unlawful actions of the SFO’’, according to papers he has fi led at the High Court. The papers allege that the SFO was guilty of “deliberate acts and/or omissions which were wrongful and brought about by the SFO in abuse of its offi ce.’’ In its defence, SFO lawyers have fi led papers that argue the case for damages is “wholly inadequately pleaded’’ and contains a “level of generality which makes it impossible for the SFO to understand the specifi c allegations which are made, or to investigate the enormous losses

DAMAGE LIMITATION

Property tycoon Vincent Tchenguiz is seeking £200M damages from the Serious Fraud Offi ce (SFO) over a controversial series of raids. The Tchenguiz saga emphasises the importance of knowing the law regarding raids – and the rights it gives you.

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supposedly suffered by the claimants.’’ The SFO accepts that while mistakes were made the investigation was “well justified’’ and rejects what it says are “allegations that the SFO acted with malice and/or bad faith’’.

Vincent Tchenguiz’s case is likely to be heard in tandem with that of his brother, who is seeking damages of £100M. If and when the cases come to court there are sure to be claims made by both sides that will raise a few eyebrows and fill many newspaper column inches. But perhaps the most important thing that the cases will highlight is the vital importance of knowing the law as it relates to raids.

Regardless of which investigating authority plans it, a raid is designed and executed with the intention of finding evidence that can help further their enquiries. The authorities have considerable powers to seize documents and computer data. What is crucial is knowing what powers the raiders have and what powers you have as the person being raided. Only then, as Vincent Tchenguiz would surely agree, will you have a chance of preventing the investigating authority running roughshod over you and your business. Most search warrants for raids are issued in accordance with the Police and Criminal Evidence Act 1984 (PACE) and the conduct during searches is governed by PACE’s Code of Practice B. There are a number of procedural rules to be followed but generally speaking there have to be reasonable grounds for believing that an offence has been committed and that there is material on the premises likely to be of substantial value to the investigation.

Taking the time to recognise the law as it applies to raids and put procedures in place to reflect this may seem tiresome but it can pay dividends should a raid ever occur. If those figures in a company that would come into contact with those carrying out the raid are properly advised and briefed about what action to take, it can go a long way to preventing the raiders taking more than they are entitled to under the legal provisions that relate to a raid. Making sure that senior management, IT staff, accountants and even the receptionist or security guard know exactly what they should do can help reduce the chances of raiders leaving with everything. If that happens,

it leaves those that were raided with nothing that they can use to either keep functioning as a business or defend themselves as an investigation unfolds. For example, if a business is raided it is essential its staff know how to check whether the raiders have valid legal authority to carry out the raid. As many legal challenges as early as possible can help the person being raided stand their ground and defend what is theirs. Everything from checking that the search warrant was issued properly, that raiders have permission to raid that particular premises through to making sure that the raiders are exactly the people named on the mandate can ensure a company is not taken for a ride by overzealous investigators. For example, in R (Cook) V Serious Organised Crime Agency 2011, the seizure of computers and documents was rendered unlawful because raiders failed to leave schedules to the warrant at the premises, as required by law. Requesting a little time for a company’s legal representative to be present also seems like a perfectly logical action to take. But often it does not occur to people in the heat of the moment, as they struggle to come to terms with the fact that they are being raided.

Making copies of documents that are about to be taken in a raid, taking notes of any questions asked and following the raiders as they search a premises are common sense procedures. But it is still vital that they are adhered to if the person being investigated is to defend themself as vigorously as possible against any accusations and charges that may follow. As important is the issue of legal privilege. Only the company lawyer will be sure exactly what documents or data are legally privileged and it is incredibly important that the legal representative makes clear to raiders what is privileged – confidential communications between a client and their lawyer – and what is not. If privileged material is mistakenly taken by raiders it may well be that the owner may be able to mount a legal challenge to have it returned. For example, we at Rahman Ravelli are currently assessing an authority’s right to examine and use as evidence 1.5 terabytes of data that was seized from one of our clients. Yet it would be far less stressful and time consuming – and potentially less damaging to any future defence case – if the raiders were always prevented

from taking them in the first place and given the reasons why they could not take them. Only by using the law effectively from the announcement of any raid – or even before any announcement is made – can a person have any realistic hope of defending their business and the data that relates to it. Without it, a company struggles to keep operating effectively. And with raids often leading to a company losing customers, many face an even bigger struggle if they have to keep limping on while documentation they both need and are entitled to sits in an investigator’s office.

Informed, expert legal advice is the best and the only way to make sure raiders do not abuse their position and take more than they are entitled to when they come knocking. Such advice can be taken at any stage but ideally it should be sought whenever the slightest suggestion of an imminent raid is detected. The right legal advice can help someone recover items that were taken unlawfully in a raid and – as has already happened in the case of the Tchenguiz brothers – challenge the grounds for search warrants being issued by a judge. It can also help a raided person mount the strongest and most appropriate defence to any charges that follow a raid. Such advice, it must be remembered, will make it possible to devise and introduce new compliance procedures to prevent the alleged wrongdoing happening again. It can even help review the evidence and chain of events to determine exactly what drew the authority’s attention to the company that was raided. But such advice is undoubtedly most valuable before any raid has taken place.

The Tchenguiz brothers may have deep pockets and prove more than capable adversaries for the SFO when their cases come to court. There is no doubt that their legal claims could prove a major problem for the SFO. It carried out no other raids for 12 months after targeting the Tchenguiz brothers in raids that a High Court judge has already branded “wholly unsatisfactory’’. The brothers’ approach may not come cheap. They are not the first and will not be the last to sue over a raid. But they are a big-money reminder of how legal expertise can be used to defend a person’s rights in a raid. And that expertise can be more valuable the earlier it is employed in the chain of events that relate to a raid.

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Land has always been a contentious issue. Owning it, leasing it and building on it have always offered the potential for dispute. But in the past decade or so, the issue of land banking has brought its own series of problems.

Insolvency Service fi gures show that 67 land bank companies have gone into

liquidation since 2009, resulting in recorded losses totalling £50M for investors. The past few months have seen the fi rst ever UK convictions for running such schemes. Land bank schemes are estimated to have lost UK investors somewhere around £250M. The sales pitch doesn’t seem to vary a great deal: would-be investors are told

they can buy a small portion of a larger piece of land that is ripe for development and is about to receive planning permission. But all too often the land is in green belt areas, where obtaining planning permission is virtually impossible. The result, as many have found to their cost, is that people pay hugely infl ated prices for small portions

DON’T BANK ON IT

Land bank fraud is on the rise, with many people having lost fortunes to it in the past decade. Here, we look at how it came about and the challenges it poses for legal teams.


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of land which cannot be built on. Meanwhile, the companies who bought the land – probably at a very modest price per acre – make a huge profit on each and every portion. This leaves their investors with land that is worth very little to them; certainly much less than they paid for it. Even if, by some bizarre circumstance, planning permission was granted for building on a land bank site, no developer will want to go to the effort of buying small portions of land from hundreds of individual owners; some of whom may be prepared to hold the scheme to ransom by holding out for a higher price than the others.

Investors are left out of pocket after being given eye-catching “facts’’ such as that their investment will triple in value over a couple of years, that developers were itching to buy the land and that they could pull out of their investment at any time. But when people started to have doubts about the first two facts they often found that the third one was also bogus. Trying to get your money back from such schemes is about as likely as the portion of land you have bought ever being given planning permission for development.

The Financial Services Authority (FSA) has had some success against a small number of people running land bank schemes but it admits that the chances of investors ever getting all their money back are extremely remote. If investors do get cold feet and tell those running the scheme that they want to pull out, it is often the case that they are told that they have to make further investments if they are going to ever get any money out at all. Such threats may go by random names such as “corporate privilege scheme’’ but they are essentially a way of retaining an investor’s money while trying to persuade them to part with even more. And the reason for this is quite simple – land banking is a form of investment fraud.

Land banking can join the same list as bonds, boiler rooms, Ponzi schemes and pension liberation. They all claim to offer amazing benefits to investors in ways that seem too good to be true – and that is because they are – and the only people who really stand to gain are the people at the top. Last year, we wrote an article about investment fraud being driven by dishonesty. Land banking is a perfect example of what we were

highlighting. Dishonesty is central to all fraud prosecutions, whatever type of fraud is being investigated. Whether it is a professional accused of fraud or someone who more easily fits the “wide boy’’ stereotype of a conman, the issue of dishonesty has to be established if any prosecution is to be successful.

At Rahman Ravelli, we represent all manner of people accused of fraud, from chartered accountants and company directors through to sole traders and groups of people. In each and every case, the vital ingredient in any case is whether there was dishonesty as opposed to simple bad judgement. The degree of failure of a scheme, the number of investors, the amounts of cash involved, the number of accused and the commodities being marketed may vary but the issue of dishonesty is always crucial. When it comes to dishonesty, the defendant’s state of mind is what has to be ascertained. In Ghosh (1982), the Court of Appeal ruled that the test was that “according to the ordinary standards of reasonable and honest people, what was done was dishonest’’ and that, if that was the case, the jury must be convinced that the accused “must have realised that what he was doing was, by these standards, dishonest’’.

Proving a person acted dishonestly or honestly is no straightforward task. The prosecution will have their strategy for painting the darkest possible picture of the defendant. But that will never be the full picture. Any defence team worth their salt will have to overcome such an approach by making sure that a jury understands and appreciates every aspect of the defendant, his work and his motivation for acting in the way he did. The investment scheme may have collapsed spectacularly but that alone is not grounds for a conviction. In explaining how and why the scheme went wrong, the defence team can lay out – in simple terms that a jury can understand – the honourable hopes the defendant had when starting the scheme. By explaining in detail the nature of the work he carried out, the reasoning behind his actions and the justification for decisions taken, the defence can challenge the prosecution’s assertions that the defendant did everything for illegal gains. Expert witnesses can be called to give their judgement on the defendant’s actions, other aspects of his

work career can be analysed and explained to provide examples of how he works to the highest standards and previous clients can be called as character witnesses. In short, investment fraud cannot exist without dishonesty. A defence’s task is to prove that dishonesty was not a motivating factor in their client’s behaviour.

Success in this task can depend on disclosure. Defence teams are able to be closely involved with the prosecution in large and complex fraud cases, due to the Attorney General’s Supplementary Guidelines in relation to the disclosure of digitally stored material and Lord Justice Gross’ review of disclosure. A sharp-eyed defence team may find something among the evidence not considered useful by the prosecution to further their argument that their client acted with the best of intentions and had a genuine interest in promoting a scheme he believed could bring decent returns for investors. The issue of land banking is relatively new to the UK courts; with the first convictions only arriving in December last year. It remains to be seen how many prosecutions arise. But the issue of disclosure could prove crucial.

At Rahman Ravelli, our experience of defending a wide variety of investment fraud cases has given us awareness that there is often a tier of people at the top of such a scheme and many more on a lower level. It can often be the case that those at the head of a scheme and the people working for them genuinely believe that they are promoting and carrying out a completely legal activity. If such people are ever prosecuted, any defence team has to be proactive and open to all means of proving that their clients acted in good faith. As we mentioned earlier, the crucial point to be established by a defence lawyer is that the people involved in the scheme did not act dishonestly. They may have exercised poor judgement, they may have suffered an unforeseeable misfortune or even been unable to run such a scheme effectively – but such shortcomings are not criminal.

As more land investment fraud cases come to court, the issues mentioned here are likely to be central to any trial. Land banking may be a recent fraud phenomenon but the questions it raises are the ones that have guided the prosecution and defence cases for years.

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We live in a high-tech age that probably could never have been predicted even 25 years ago. The once cutting-edge mobile phone that emerged in the 1990’s now enables us to do everything from watch fi lms, order our shopping and keep in touch with anyone, anywhere at any time. Impressive stuff.

Such developments have brought rewards for many and great enjoyment for many, many more. Facebook is now used by more than a billion people each month. Just over eight years ago, that fi gure was a far more humble (but still impressive) million. The urge to communicate in an online manner has become the success story of the millennium so far. We are, online at least,

becoming more sociable. Part of the reason is that we can do it just about anywhere. And that looks as if it is going to pose a few problems in the workplace.

Traditionally, the workplace breaks involved a dinner hour, cigarette break or cup of coffee and a chat with a colleague. Thanks to technology, we can communicate with the world during our work breaks, after work and – if we’re

SOCIALLY AWKWARD

The explosion in social media over the past decade has had an effect on the workplace. But for many reasons it’s crucial to keep work and play separate.

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feeling rebellious – when we should be working. There is a chance, therefore, that staff may not be paying full attention to the work in hand because they are busy viewing Facebook pages, tweeting or sending emails that have little or nothing to do with what they should be doing. And the flip side of this is that they may divulge information regarding their work that should never ever leave the walls of the workplace. Social media, it would appear, can deal a double blow to employers: it can lead to their employees becoming less efficient and, at the same time, lead to them letting slip sensitive information.

If the last few lines seem like the grouchy approach of a hard-bitten or slightly paranoid boss then think again. No lesser institution than the tax man agrees. According to “Computing’’ magazine, HM Revenue and Customs (HMRC) has started using its Connect data analytics system to trawl data information sharing websites such as social media to help it uncover tax fraud. HMRC’s Head of Data Analytics Mike Hainey has been quite open about the practice, stating that the information in question is “visible and available legally for HMRC to review’’. Facebook, Twitter and business sites such as RatedPeople.com seem to be among the first ports of call for HMRC’s data analysis team, as well as more traditional business-related data such as that provided by credit reference agencies and Companies House.

So, if even the tax man is keen to have a look at yours and your staff’s social media output, isn’t it about time to take action to reflect this? It’s already known that government agencies share data among themselves and with other foreign investigating bodies. This latest news about “the man’ monitoring social media shouldn’t come as a major surprise. But it should serve as a reminder of the need to have a strict workplace policy on social media.

Noone is saying that a misplaced word or phrase on Twitter is going to prompt a massive investigation by watching authorities who suddenly suspect dodgy activity. But it could happen. And perhaps more likely is the possibility that someone gossiping about their work on Facebook may just let something slip that could cost their employer money or even lay them open

to the risk of fraud.For example, mentioning “The boss

on his way to Brazil to seal the credit software deal’’ may seem like tittle tattle between two people online. But in the wrong hands – or rather, if it is seen by the wrong eyes – it could place the company in an extremely vulnerable position. Could the company be taken for a ride by someone who now knows the boss is out of the country? Could the boss get to Brazil only to find out he has been beaten to the deal by a rival who learnt about his movements via his employee’s Facebook chat? Could the boss even be placed under investigation by authorities suspicious of his movements and talk of issues such as “credit software’’?

Yes, it may sound a little pessimistic. But it is possible. Commercial rivals, professional criminals and others looking to gain an advantage have always targeted companies or individuals in any way possible. Social media is perhaps one of the most direct ways of doing this. Which is why a strict procedure is needed regarding the workplace, employees and social media In short, the policy needs to read something like “No use of social media in the workplace or in working hours and no mention of work on social media at any time or place’’. The most innocent or humorous comment posted on Facebook or in a tweet could be used by someone against the company. There is also the danger that someone could put something online that they misheard in the workplace or heard correctly but misunderstood it or misrepresented it online. Added to these factors is the problem that anyone may then read that comment and misunderstand it; causing further problems.

Most high-profile fraud cases have an element – and usually a large one – of communication between parties. Such communications can prove the backbone of an investigation, condemn a person for their misdeeds or prove that a particular wrongdoing was only part of a bigger picture. At Rahman Ravelli, we are currently handling a case where 500,000 emails are being examined as potential evidence by authorities. The authorities know that a person’s social media can not only tell them much about him or her – it can also take investigators into whole new directions that they would not have previously been aware of. Such a development can place anyone under

investigation and put them and their business under great strain. Most of our serious business crime cases involve conspiracy – or at least an allegation of it – and any online communication can be seen, rightly or wrongly, as a “smoking gun’’ by investigators. Having a strict policy as mentioned earlier can remove the need for such investigation and the turmoil that often results. After all, when the Libor scandal broke last year, the Financial Services Authority started examining hordes of emails with messages including “If you know how to keep a secret I’ll bring you in on it”, “If you breathe a word of this I’m not telling you anything else” and perhaps most tellingly “This is the way you pull off deals like this chicken, don’t talk about it too much, two months of preparation... The trick is you must not do this alone...this is between you and me but really don’t tell ANYBODY.” But it wasn’t, as we now know, as if nobody got to find out.

Such examples are stark reminders of how online communication can provoke investigators’ interest. With this in mind, defence teams have to be familiar with the updated Attorney General Guidelines in respect of Digitally Stored Unused Material. The guidelines recognise both the enormous increase in the volume of digitally stored material – including social media – and the role defence teams have in defining the scope of searches involving such material. In general terms, the guidelines state that: data must not be changed, those accessing data must be competent to do so, an audit trail must exist, the case officer must ensure these principles are followed. A record must be made of all digital material seized or copied. These records must detail the searches carried out, persons involved, search words or terms used and judgements made while making searches. The prosecution has a duty to follow all reasonable lines of enquiry in relation to third parties in the UK or material outside the UK.

The guidelines are detailed and are not repeated in full here. But the fact that they exist is official recognition of how digital evidence is a major component in many criminal investigations. And this not only proves the need to gain an expert lawyer if you find yourself in such a situation – it also highlights the way a few careless words on social media could put someone in a very awkward situation.

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The number of businesses self-reporting white collar crime to the SFO has almost doubled in the past 12 months. And the fi gure for the last fi nancial year is six times that for 2008–09. The fi gures at this stage aren’t huge. The current fi gure is up to 12 from seven the previous year. But it’s fair to say

these fi gures indicate an emerging trend.

Rolls-Royce is among the names that have self-reported recently, following SFO interest in its Far East operations. There seems to be a general acceptance that the issue of bribery is now well and truly on the agenda. As of now, the Bribery Act’s introduction two

years ago has not led to a fl ood of prosecutions. But it has made corporations aware of the need to comply with it. And it has led to companies being aware that if they haven’t or aren’t complying with it then they stand a chance of limiting the punishment if they self report. In this day and age, the SFO and other organisations are capable of

AT THE DOUBLE

Self-Reporting to the Serious Fraud Offi ce (SFO) has almost doubled in a year. Why has it happened? And what benefi t is there in self-reporting?

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sharing a wide range of intelligence. They appear very happy to share it both at home and abroad and seem set to benefit from a whistleblowing culture that is alive and well in the UK. From November 2011 to November 2012, the SFO received 3,265 letters, emails or phone calls alleging financial crime. The US Securities and Exchange Commission has produced figures that show the UK provides more tip offs about financial wrongdoing in the US than any other country. Nowadays, it may not be merely risky to turn a blind eye to your company’s wrongdoing. It is getting near impossible. Self-reporting may be becoming the only logical route for a company that knows it has misbehaved.

The SFO’s Director David Green has stated that non-prosecution can be offered as an incentive for those who self-report. But the SFO is now out to gather more intelligence that is not self-reported, meaning that your chances of being caught are on the rise, whether or not you self report. This more proactive stance has been backed by a tougher approach that states that anyone who does self-report is no longer guaranteed a civil settlement. In a lengthy statement, the SFO recently announced;

“If on the evidence there is a realistic prospect of conviction, the SFO will prosecute if it is in the public interest to do so. The fact that a corporate body has reported itself will be a relevant consideration to the extent set out in the Guidance on Corporate Prosecutions. That Guidance explains that, for a self-report to be taken into consideration as a public interest factor tending against prosecution, it must form part of a “genuinely proactive approach adopted by the corporate management team when the offending is brought to their notice”. Self-reporting is no guarantee that a prosecution will not follow. Each case will turn on its own facts.

“In appropriate cases the SFO may use its powers under proceeds of crime legislation as an alternative (or in addition) to prosecution…If the SFO uses its powers under proceeds of crime legislation, it will publish its reasons, the details of the illegal conduct and the details of the disposal.

In cases where the SFO does not prosecute a self-reporting corporate body, the SFO reserves the right (i) to

prosecute it for any unreported violations of the law; and (ii) lawfully to provide information on the reported violation to other bodies (such as foreign police forces).’’

Taking that statement at face value, it appears that self-reporting is a “relevant consideration’’ when the SFO decides whether to prosecute. But it is clearly not the be-all-and-end-all that it may have previously have been thought to be. The statement goes on to say that the SFO will be looking for a “genuinely proactive approach’’ by management if a self-report is to be taken seriously by its investigators.

Putting it simply, self-reporting is not the stay out of jail card some people may have thought (or hoped) it would be. It is hard to prove either way, as the SFO has made it clear that it is not there to be an advice agency for companies looking to be told what to do. But one factor the SFO may weigh up when considering a prosecution is just how long it took management to self-report once they were made aware of wrongdoing. Did they self-report immediately? Or cough up the information when it appeared the net was closing in anyway? And will a greater amount of weight be attached to a self-report if it includes information of wrongdoing that the SFO would not otherwise have been aware of?

When a company self-reports, it has to go through the SFO’s Intelligence Unit. Hard copy reports have to be provided along with all other relevant data and documents that could be supporting evidence. At this stage, the SFO will give no indication whether a prosecution will result. It will analyse the available evidence and base its decision on whether to prosecute unlawful activity on the Full Code Test in the Code for Crown Prosecutors. The Test basically involves consideration of whether there is enough evidence to give prosecutors a realistic prospect of a conviction and whether it is in the public interest to seek a conviction. If the Full Code Test requirements are not met then civil recovery may be an alternative to criminal prosecution.

Some commentators may argue that because of this hardening of the SFO’s stance, there is nothing to be gained from self-reporting. But it is surely still the case that a self-report made with the best of intentions (and not just tossed out when the game was up) will place a

company in a better light regarding an SFO investigation. The SFO has civil recovery as a tool to be used when it is appropriate. Deferred Prosecution Agreements (DPA’s) are also set to be introduced; giving the SFO another option when it comes to righting wrongs by having a company report, admit and pay a penalty for wrongdoing before subjecting itself to stringent conditions to prevent it happening again. Faced with these options, it seems unlikely the SFO will plough on with criminal prosecutions for every case of self-reporting.

With the right legal advice, a company can defend itself robustly during any investigation. The right legal specialist will know how best to represent a client in negotiations with investigators, how to emphasise certain aspects of a case and how to set in motion workplace changes to prevent such problems occurring again. But perhaps the best way to avoid the dilemma of whether to self-report or not would be to make sure there is no wrongdoing to report in the first place. Robust, responsive procedures to prevent and weed out corruption have to be introduced, promoted and revised from the top down. In many cases, specialist legal expertise is required to advise companies on compliance and help set up and run internal systems that reduce the potential for corruption. Different companies working in different industries or different locations will have differing needs regarding compliance. It is not a one size fits all situation and companies have to realise that what might work for one is unlikely to work for another.

Bringing in legal expertise to tackle workplace corruption will not only prevent it happening, it will go a long way towards proving to the SFO – should they ever come investigating – that you have been genuine in your determination to stop wrongdoing. The earlier legal help is brought in, the quicker it will be able to nip the potential for wrongdoing in the bud…and prevent the company having to join the lengthening queue to self-report. The Bribery Act, the Fraud Act 2006, the Enterprise Act and Money Laundering Regulations are all weapons that the SFO and other authorities have at their disposal. Self-reporting is one of the few that companies have…but it has to be used wisely.

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