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.