White Collar Crime, Regulators of Criminal Behaviour in the UK - Essay Example

Business Crime (White Collar Crime) Customer Inserts His/her Name Customer Inserts Grade Course Customer Inserts Tutor’s Name 08, 11, 2010 Outline Introduction Nature of Business crime Adequacy of the law in handling business crime Fraud Act 2006 Impact of D.T.I and S.F.O on Insider dealing, fraudulent and Wrongful trading Money laundering Statutory protection against Business criminals Conspiracy offences Company Directors – misdeeds, disqualification issues, remedies Regulators of criminal behaviour in UK Conclusion Introduction Business crime entails all forms fraudulent activities undertaken against the business of organisations mostly through non-violent means but involves illegal financial or personal gains. Business crime (sometimes referred to as white collar crime) is mostly perpetrated by people in the middle class and mainly in the course of their professional work. Business crime therefore is a larger term referring to corporate crime, economic crimes and even financial crime. White collar crime though seen as a modest criminal activity is one the crimes that has been on the rise in the recent past. It has caused corporations and even government agencies lots of financial losses consequently making it one of the most serious crimes in the UK. A business crime includes bank fraud, counterfeiting, forgery, insider trading, money laundering, tax evasion and even bribery. All these crimes do not involve application of physical force but ultimately an individual is illegally acquiring ownership on property of another individual or organisation. The impacts of the business crime are far reaching and touching on the foundations of economic growth and employment. It leads to the reduction in employment, regional development and economic growth. The UK government has been very proactive in their response to crime by establishing several agencies to handle crime especially where specialised knowledge is required and the crime activity is rampant. This report analyses various white collar crimes which have been affecting various business enterprises in the UK. The report also analyses the responsibilities of various agencies that enhances the rule of law and minimize the prevalence of the same offenses. The report also recognises several legislations that assist in the prevention and control of various business crimes while addressing also their weakness. Adequacy of the law in handling business crime Business crimes having non-violent attachments have been perceived as being in the domain of the intelligence related criminal activity consequently being treated almost like a civil cases. Most of the legislations do give civil remedies to business crime convicts because some crimes like money laundering do not have a specialised piece of legislation handling it. This has made several loopholes for the perpetrators of the same crime to easily manipulate the law to their advantage. In the case of limited liability companies, the disqualification of directors may not provide sufficient remedies especially where several creditors have suffered losses and even the shareholders losing their investment. Without tangible solutions and remedies, business crime victims would not be reinstated to their original status, this makes criminal law approach to solving business crimes wanting. Business crimes should be looked at as special crimes which require convicts on the same domain to be given measures which are not only punitive but also given responsibility to compensate the victims of his/her actions. Loss of millions by organizations through fraud may impact negatively on the performance of the organisation and even the economy as a whole. This requires that the legal remedies provided by the courts should be able to compensate them of the losses and at the same time punish the perpetrators. Nature of white collar crime White collar crimes are mainly carried out by insider professionals and consequently falling under occupational category of crimes. The perpetrators of these crimes are people in the course of their duties and therefore abusing their positions of trust. These crimes are usually invisible since they do occur in the workplaces and they may not even be discovered since the perpetrators may conceal any trace. White collar crimes and especially fraud involves use of technical knowledge and therefore requiring an insider participation to facilitate it. This kind of crime is an abuse of professional knowledge and technical expertise in particular area of trade, making it a complex crime since experts are involved. The expert knowledge involvement also makes the crime highly organized therefore determining who is responsible for the fraud might be a taunting task. Some of the white collar crimes are victimless or the victims are not aware that their rights have been infringed on. Crimes like sale of less weight goods and corruption do not have direct complainants. The case of Polly Peck International Plc v Nadir and the collapse of Maxwell Communications Corporation are classical examples of a business crime by a domineering board member entrusted with the leadership of a public corporate entity. Major business crimes have an ambiguous legal and criminal status. This is because most of the crimes have an apparent lack of intent by the perpetrators especially where diffusion of responsibility is very tight. Some of the players in this form of crime were honestly discharging their responsibilities and this makes them lack the intent to commit crime which is an important moral consideration. Fraud Act 2006 This Act came into effect in January 2007 but received assent on November 2006. It is one piece of legislation designed to limit fraud as one of the major white collar crime in the UK. The act has handled the external fraud mostly inherent in public limited companies. The Act categorises fraud into three; a) False representation b) Failure to disclose corporate information c) Abuse of position Other crimes under the Act include the following; Possession of an article for use in a fraud Making or supplying articles for use in a fraud Participating in a fraudulent business carried on by a sole trader Obtaining services dishonestly This definition of fraud has fit into the nature of most white collar crimes and it has enabled a clear isolation between theft and fraud with the later being hazardous to the overall economy. The Act further elaborates the various categories of fraud to ensure that there is a clear definition of each giving limited loopholes to the defendants under this act. A representation is false if it is untrue or misleading and the person making it is aware. False representation occurs when a person; I. Dishonestly makes a false representation, and II. Intends by making false representation to make a gain for him/her self or another or to cause loss to another Failing to disclose information is commonly a fraud that occurs in organisations mostly perpetrated by the reporting officers and the directors of public limited companies. This fraud is committed when a person; I. Dishonestly fails to disclose to another person information which he is under legal duty to disclose, and II. Intends, by the non disclosure to make a gain for him/her self or another cause a loss to another person. Abuse of position being a fraud occurs when a person in position of trust fails to uphold the stature of his/her position but instead serves his/her selfish interests. A person breaches this Act and commits fraud by abuse of position if he/she; I. Occupies a position which he/she is expected to safeguard, or not to act against the financial interest of another person, and II. Dishonestly abuses that position, and III. Intends, as a result to make a gain for him/her self or another. Fraud Act 2006 has therefore assisted in isolating and enhancing the prosecution fraud cases and other white collar crimes which initially had been placed under the theft Act and other legislations. From the overall summary of the Act, most of the fraud categories are mens rea offences and actually have no statutory defences (Simpson & Weisburd, 2006).With this at hand and the punitive measures, fraud convicts will feel weight of the punishment. This implementation will deter repetition of the offense. Impact of D.T.I and S.F.O on Insider dealing, fraudulent and Wrongful trading Department of Trade and Industry- D.T.I currently Department of Business Innovation and Skills -B.I.S, is a UK government agency for promoting business growth and success. The department ensures that there is a level playing field for all entrepreneurs to do their business and also safeguard the interest of the stakeholders. The Department also ensures the existence and adherence to the regulations governing companies and business setups as vehicles for investments. The department also ensures adherence to corporate governance regulations thereby enabling a clear accounting, audit and reporting for companies in order to protect the interests of various stakeholders. In the process of ensuring fair playing field for businesses and business stakeholders, the department has a responsibility to investigate and prosecute on a number of business crimes. The department mainly deals with crimes like; Misdeeds of a bankrupt before and after a bankruptcy order has been issued Abuse of office by company officers before and after the liquidation process, Breach by directors on bankruptcy restriction orders and their subsequent disqualification, Fraudulent trading Non compliance to the accounting, audit and reporting regulations by company directors. The department is therefore a critical agent in the process of curbing business crimes like fraudulent and wrongful trading that undermines the fair market for all entrepreneurs. The evidence from the investigations done by the DTI are very authoritative since they are from a regulatory authority especially with regards to wrongful and fraudulent trading, therefore the contribution of BIS ( formerly DTI) is invaluable in the fight against business crimes. DTI is responsible for the disqualification of directors of public limited companies which have engaged in misdeeds. The performance of DTI was wanting since even though it had its warning on the undertakings in Maxwell Communications Corporation in the UK, they did not safeguard several stakeholders who suffered in the Maxwell fraud. Serious Fraud Office- SFO is a UK government agency created in 1988 under the Criminal Justice Act 1987. The role of the agency is to detect, investigate and prosecute serious fraud cases which include; bribery and corruption, corporate fraud, public sector fraud and extortions. The agency therefore has the objectives of reducing fraud and corruption and its applicable costs. SFO also has an objective of delivering justice and the rule of law while maintaining confidence in the UK’s businesses and financial institutions. For a fraud to meet the threshold investigated by SFO it must have the potential of creating negative impacts on the financial market and also affect a large number of stakeholders. SFO deals with complex frauds involving multiple countries and complex financial transactions. SFO has therefore eased investigations into complex financial crimes and corruption scandals which could not be handled by the normal police department due to the nature of transactions. The team of experts involved with the SFO has enabled faster and efficient prosecution in the areas of corporate scandals and fraud. It has also proved to be a success in the fight against corruption in the public offices. The nature of crimes handled by SFO is complex and involving different nations and corporations. In the case of Polly Peck International Vs Nadir & others Money laundering Money laundering is a business crime against legitimate businesses involving transfer of illegally acquired funds and even use of the same funds by fraudsters. Business laundering transfers have concealed identity of the owners of money in transit and even the source of the same money. Any organisation facilitating the exchange of illegally acquired money shall be held responsible for money laundering under the money laundering regulations 2007. Organisations under the same regulations have been given an obligation to establish anti laundering controls in their establishments. Money laundering affect almost all sectors of the economy but mostly financial, credit and estate agents do suffer much of the plight. Money laundering has many associations with other crimes like drug trafficking, terrorism, possession of stolen properties and even corporate fraud (Lilley, 2006). This makes the crime very complex and requiring concerted efforts of all law enforcement agencies. UK government’s fight against money laundering has been seen in various legislations and establishment of several regulatory agencies. Legislations handling money laundering are; Drug trafficking Act 1994, Theft Act 1968 and Prevention of Terrorism Act 1989 among others. The anti money laundering legislations in the UK has not yet been harmonised therefore making vulnerability of UK financial institutions to money laundering very high. Money laundering has several offences bundled together and they include; a) Assisting another person to retain the benefit of crime b) Acquiring, owning and further use of proceeds from criminal activity c) Concealing and facilitating the transfer of crime to avoid prosecution or against a confiscation order. d) Non-disclosure of money laundering activity or just mere suspicion. e) Tipping off money laundering criminals Money laundering as a business crime has a number of intricacies since it is victimless and is facilitated by intricate network of organisations. Statutory protection against Business criminals The statutory protection against business criminals is founded on the cardinal principles of criminal law. The business criminal suspects do have the following rights based on the principles; a) Considered innocent until proven guilty, criminal justice system of the UK upholds that a suspect charged with a criminal offence will always be considered innocent until the courts prove beyond any reasonable doubt that he/she can be acquitted or convicted. b) Burden of proof For the courts to decide upon the case, it must prove beyond reasonable doubt that the defendant is guilty of an offence. The responsibility of giving evidence to confirm the suspects’ guilt is with the prosecution and in most white collar crimes in the UK, the prosecuting agencies are also expertise in the domain of the offence and the law. The prosecution always have a weighty responsibility to prove that the suspect is guilty and therefore it is not the role to the suspect to prove that he is innocent. c) Right to remain silent A suspect in a criminal case has a right to remain silent during interrogation by police officers or any other investigating agencies. d) Double Jeopardy A person suspected of a crime and convicted by the courts on the same cannot be further punished by the same courts or any other authority for the same offence. A criminal suspect can only suffer once for the same offence where he/she is found guilty. The UK legislation however has been changed for some serious crimes like murder and manslaughter where new reliable and compelling evidence can cause a convict to be retried in the courts of law. Other constitutional privileges which business criminal do have include bail, appeal and legal representations. These are privileges accorded to a suspect before the courts begin hearing of the case. Bail Suspects in a business crime cases have a right to be given bail by the prosecution team after being read the charges against him/her unless there is a reasonable requirement to enforce further detention. The bail given to the suspect should be reasonable so that the suspect can afford to pay. Funding and legal representation A person charged with a serious crime has right to legal representation. The legal representation has to be funded from the exchequer. Every suspect has a right in the constitution to have a representation in any criminal case and where the state will not provide the necessary representation then it must provide funding for to the suspect to hire a private counsel. Appeal A convict in a business crime case has the right to appeal against the verdict of the magistrate courts but where he/she had pleaded guilty; the appeal will only be against the sentence. The convict in criminal case has a 28 days appeal period under which he/she has to submit his appeal. Conspiracy offences Conspiracy offences usually occur when two or more parties agree to commit a particular crime or fraud. Conspiracy is an inchoate offence implying that the offence is dependant more on the agreement to commit the crime rather that the commission itself. The conspirators also do not need know each other but rather understand that they are party to the conspiracy. Conspiracy offence will therefore depend much on the prosecutions’ prove that there was intent by the conspirators to enter into the conspiracy. Conspiracy under the common law had infinite application area and this made it possible to define conspiracy as any threat to the society. Currently conspiracy to defraud is the most common conspiracy crime affecting business organisations and even public institutions. Conspiracy to defraud is a common law conspiracy that involves dishonestly depriving another person of his property or something which might be used for the perpetration of fraud. Statutory conspiracy involves agreement between two or more parties to a course of conduct which if implemented; a) Will necessarily amount to or involve the commission of an offense by one or more of the parties to the agreement; or b) Would not be practical to accomplish a fraud. In the UK most conspiracies occur in major corporate frauds, corruption and money laundering crimes. The parties are mainly the insider of the victim organisations and external agents. The conspiracy offence can include a conspiracy to undertake an impossible crime. Parties to a conspiracy can be awarded different sentences depending on the evidence before courts. Company Directors – misdeeds, disqualification issues, remedies Company directors are people who occupy position of responsibility and dictate the direction of a company. The directors’ position is that of stewardship and control of a company. A director is an agent of the shareholders who are the owners of the company. In most cases the position held by the directors is that of trust and therefore thus required to be people of integrity and operate within the provisions of the law in order to protect the interests of the various stakeholders. The collapse of Companies like the Maxwell communication corporations and Polly Peck International are solely attributed to directors’ misdeeds and this has brought lots of focus on corporate directors’ conduct and actions by different watchdog organisations and regulatory authorities. The director’s misdeeds are omissions or commissions that they undertake in their course of managing a company. They include the following; Wrongful trading against the insolvency Act-This is where the directors continue to allow a company to trade yet they are aware that the company’s going concern is in jeopardy, in this case they are liable for the offense. Fraudulent trading- This is where the directors trade deliberately to exploit fraudulently their creditors. Preferential trading by directors occurs where the directors acts much in the interest of an outsider rather than the company. Manipulating or doctoring of the company records especially accounting records. Non-submission of the accounting and audit reports to the relevant authorities. Directors of a company are therefore the responsible officers for the actions of the company that are outside the articles of association of the company and also illegal. The remedies available for such misdeeds of the directors are as follows; Unveiling the company and extending the liabilities of the company to directors as individuals. Company director’s disqualification. Company director’s disqualification is undertaken under the Company Directors Disqualification Act 1986. The disqualification is not only for the current official directors but also de facto directors and the shadow directors. This disqualification is designed to maintain playfield in the business environment and ensure that the agency role of the directors is without blemish. If the shareholders interests are not protected, the investors will shy away from the UK market and this may lead to serious economic problem like inflation and unemployment. The disqualification of directors entails being banned from; Acting as a director of any other company Being a promoter; either directly or indirectly of a new company Being a liquidator of a company during winding up Being a reliever of a company Regulators of criminal behaviour in UK Criminal activities are varied and very diverse in the UK. This has lead to the establishment of several agencies to fight crime either directly or indirectly. Special crimes are usually investigated and prosecuted by specialised agencies. With the uniqueness of the white collar crime and also the intricate networks involved, there are numerous state agencies also handling it. Agencies like Serious Fraud Office- SFO, handles corporate fraud that are serious and complex and also corruption cases. In the case of Polly Peck International, SFO has been able to unearth several fraudulent undertakings by Nadir who was the chief executive officer and a major shareholder. Financial Services Authority- FSA is a regulatory organisation in the financial services marker. It makes laws and regulations that ensure that the financial services sector of the UK are operating in an orderly manner. The organisation also ensures that all the regulations especially on insider trading and money laundering are adhered to and where necessary investigates its member organisations. Serious Organised Crime Agency- SOCA handles organised crimes in the domain of drug trafficking, human trafficking, gun crime, fraud, computer crime and money laundering. The other regulators include the police and other agencies like office of fair trading and drug enforcement agencies. With all these agencies having prosecutorial powers and sometimes interdependent, it is necessary for some of the agencies especially handling the same roles be merged so as to enhance their capacities. Conclusion Business crime is one of the most intricate of all crimes since it involves application of expert knowledge in its implementation. The collaboration of business experts and external criminals in conspiracy to rip business organisations has made the investigation into this crime a tedious responsibility. The cardinal principles of criminal law, innocent until proven guilty, burden of proof, right to remain silent and double jeopardy do also apply in most business crimes. With the scattered and diverse legislations handling the same domain of a business crime in the UK, there are tendencies of the defendant finding loopholes in them that will ensure his/her acquittal. The intricacy of some of the business crimes like money laundering needs harmonisation of legislations and wider public awareness of what constitutes the crime since initial association of the same crime with drug trafficking limited its definition. The world wide coordinated closure of Bank of Credit and Commerce International by Bank of England in the UK indicates the necessary approach to curb an intricate business crime involving falsification of records, drug trafficking and money laundering. Had it not for the coordination of regulatory agencies, Bank of Credit and Commerce International could still be flouting the corporate governance rules and putting the investors and clients efforts at risk. With the establishment and empowerment of various agencies to handle business crime by the supporting legislation, the UK government has been tackle white collar crime satisfactorily. The Serious Fraud Office – SFO, Serious Organised Crimes Agency- SOCA, Financial Services Authority- FSA and Department of Business Innovation and Skills -B.I.S among other agencies have mitigated on the gravity of the effects of business crimes to the overall economy. Bibliography British and Irish Legal Information Institute, Polly Peck International Plc v Nadir [1992] EWCA Civ 3 (19 March 1992), London, 2010, Viewed 11th November 2010< http://www.bailii.org/ew/cases/EWCA/Civ/1992/3.html > Department of Business Innovation and skills, Department of Business Innovation and skills London, 2010, viewed 10th November 2010 . Simpson, S & Weisburd, D., (2009), Criminology of White Collar Crime, Springer Publishers, London. Lilley, P., (2006), Dirty dealing: The untold truth about global money laundering, international crime and terrorism, Kogan Page Publishers, New York. Read More