Failure to prevent fraud and other business crime can prove

costly to companies. Ben Ticehurst and Aziz

Rahman consider what can be done to identify wrongdoing and the options

available when it is found.

The costs of failing to prevent business crime can be

numerous. Legal, financial and reputational problems can follow; often all at

the same time. This can pose a real threat to the company at the centre of the

allegations – no matter how large it is. Just ask Western Union.

The American company has had to pay

a $586M settlement over allegations that up to 2,000 of its agents were

involved in assisting money laundering and fraud between 2004 and 2012. Faced

with such a huge problem, Western Union was left with the option of reaching a

settlement or facing prosecution. Either outcome was always likely to lead to

huge financial penalties being imposed – not to mention loss of business,

falling share price and difficulties finding future trading partners.

Investigations

When such cases do happen, we can safely assume that

measures to prevent business crime were not adequate. Just as we can assume

that compliance may now be on the company’s agenda.

This case is one that indicates we are in an era in which it

is no longer possible to turn a blind eye to business crime. In the UK alone,

recent years have seen the introduction of the Bribery Act, increased measures

to tackle money laundering, a greater onus on financial institutions to report

their suspicions and tougher legislation regarding tax offences, not to mention

increased funding being made available to the Serious Fraud Office (SFO) and

the creation of the National Crime Agency (NCA) and the Financial Conduct

Authority (FCA).

It is fair to say that if business crime is being

perpetrated in your company and you fail to investigate, it may only be a

matter of time before an outside agency starts looking into your affairs. And that, as Western Union discovered, can be costly.

Expertise

Some in business may feel they have no need to investigate

any suspicions of wrongdoing because information about such activities will

never “leak out’’ to anyone else. For the reasons we have just listed, that

would be a huge mistake. Others may have suspicions but feel that they lack the

relevant expertise to investigate.

As a firm whose corporate fraud lawyers regularly initiate

and conduct detailed internal investigations on behalf of clients, we can say

that expertise is available to any company that needs assistance when it comes

to seeking evidence of wrongdoing and following the evidence trail.

Such an investigation is the only genuine course of action

open to companies that need to establish the facts regarding suspicions of

wrongdoing by staff or trading partners. It also provides the person or company that

commissioned the investigation with a number of options once the facts have

been established.

Options

If an investigations indicate that fraud has been

perpetrated, a company can:

*Report the matter to the police or other agency; for

example, the SFO. That organisation will then decide whether there is enough

evidence to make it worth bringing a criminal prosecution.

* Initiate civil proceedings against the person or persons

believed to have committed the offence, in order to recoup what the company

believes it has lost due to the criminal activity.

* Bring a private prosecution, under the Prosecution

Offences Act 1985, against the person or persons that the company suspects of

wrongdoing.

If an investigation has identified wrongdoing, a private

prosecution can be a swift response. It can be less expensive than civil

proceedings, gives you greater control of proceedings than if you let the

police or other agency handle the prosecution and it has deterrent value.

It is possible to initiate civil proceedings while, at the

same time, reporting the matter to the police or bringing a private

prosecution.

Liability

What a company also has to determine, however, when

wrongdoing is suspected, is the issue of corporate liability as opposed to

personal liability.

Prosecuting authorities often find it difficult to establish

corporate criminal liability. But that is certainly not the case with the UK’s

Bribery Act. The Act makes it a strict liability offence – no intention needs

to be proved – for a company to have any connection to bribery via its staff,

representatives or third parties. The company commits an offence under the Act

if a person associated with it bribes another person intending to obtain or

retain business for the company or gain an advantage in the conduct of business

for the company.

If a company is found to have committed an offence, it is

almost inevitable that individuals associated with it have committed an

offence. It is worth noting also that just because a company is not prosecuted

for its wrongdoing, this does not mean that the individuals allegedly involved

will not be.

But both a company and its individuals have to be alert to

the possibility of, and the need to investigate, wrongdoing.