Fraud, White Collar Crime and Asset Recovery: A Time to Re-Calibrate
By Andrew Bodnar
Posted: 10th February 2014 08:43
Fraud, “white collar crime”, corruption and asset recovery – areas which increasingly overlap and which are increasingly an integral part of business, rather than being something to be thought about only when there is a problem, or as part of a company’s regulatory obligations. There have been significant developments in the law, but also significant developments in the way that businesses think about these issues, either voluntarily or involuntarily.
In the field of asset recovery perhaps the most important development of the last 12 months came in family law. In June 2013 the Supreme Court handed down its judgment in Petrodel Resources Ltd v Prest ( UKSC 34). This was a divorce case in which the wife succeeded in persuading the Judge at first instance to order various companies owned and controlled by the husband to hand over various properties owned by them. Some of those companies appealed to the Court of Appeal, which held that assets owned by a company were not, without more, available to the owner of that company. The Supreme Court considered the question of “piercing the corporate veil”, and questioned whether this doctrine, used for decades to get behind a corporate façade and fix wrongdoers with liability, even existed. Lord Sumption emphasised that a court could only ignore the corporate identity where it was set up in order to evade a liability or restriction to which the person behind it was already subject, a simple example being where a person is subject to a non-compete clause in their employment contract and tries to evade it by setting up a company to do that which he is prohibited from doing personally. He also recognised something which he termed the “concealment principle”, which he defined as a principle that where a company is interposed simply to hide the reality of what is going on. In such cases the court is entitled to continue to investigate the facts to get to the truth. A simple example is where a fraudster creates a company through which he carries out the fraud; concealing his actions by creating a company through which he acts will not avail the fraudster. In all other respects the Court built on its earlier judgment in VTB Capital Ltd v Nutritek International Corp  UKSC 5, in which it was held that the individual behind a company could not be held liable for that company’s breach of contract, even if it was set up for the purpose of facilitating the fraudulent scheme of which the breach of contract was a part.
However, the Supreme Court went on to point out that in the vast majority of cases it would be unnecessary to “pierce the corporate veil” in order to attack assets held by a company in order to satisfy an individual’s liabilities. Where a company is set up purely as a vehicle to hold assets, and the owner or controller of that company can be shown to be able to deal with those assets as his own, it may well be that the court will be prepared to hold that the company holds its assets on trust for its owner, so that they can be pursued on that simple basis. The full consequences of this for the effectiveness of holding structures have yet to be litigated.
The judgments in VTB Capital and Petrodel were clearly intended to be read together, and should be. They have been applied to refine the circumstances in which the owner or controller of a company may be made liable to a confiscation order following a criminal prosecution (R v Sale  EWCA Crim 1306), and have been given their full effect in the commercial context (Antonio Gramsci Shipping Corp v Lembergs  EWCA Civ 730, Pennyfeathers Ltd and Others v Pennyfeathers Property Co Ltd and Others  EWHC 3530 (Ch)).
Perhaps the most important development in the field of “white collar crime” in the UK is the implementation of Deferred Prosecution Agreements. The legislation enabling such agreements came into force in April 2013 (section 45 and Schedule 17 to the Crime and Courts Act 2013). A great deal has been written about what they may mean in practice, but they finally become available to prosecutors on 24 February 2014. At the time of writing the final Code of Practice which UK prosecutors will apply has yet to be published, but a consultation document issued in June 2013 indicates that, whilst prosecutors will take many factors into account in deciding whether to enter into a DPA, a recurrent theme is that the extent to which a company or partnership has been proactive in bringing the wrong-doing to the attention of the prosecutor, identifying individuals responsible, and providing information and documents concerning the wrong-doing, will be very important indeed. Shutting one’s corporate eyes and hoping the problem will go away is no longer an option.
In early 2012, and again in early 2013, there was anticipation that the first substantial prosecution under the Bribery Act would soon take place. In early 2014 there is anticipation that the first substantial prosecution under the Bribery Act will soon take place. This apparent lack of activity belies two important developments; the fear of prosecution has led companies and their advisers to consider the implications of the Bribery Act for their actions – indeed practitioners around the world have started to speak of “FCPA/UKBA” issues as a single concept. Secondly, and in the long term very likely much more significantly, corruption has begun to be discussed on the international stage not as a “white collar crime” issue, or a regulatory issue, but as a CSR issue – the World Bank, the UN’s development agencies and leaders in the African continent in particular have all discussed corruption as a development issue. When the Bribery Act was first passed concern was expressed in some quarters that it would render British business uncompetitive in the global economy. It seems increasingly likely that within the next year or two having an effective anti-corruption culture in place, and showing that the policies behind it are applied, will be a marketing advantage for international companies rather than a regulatory obligation to be addressed for fear of prosecution.
Andrew Bodnar is a barrister at Matrix Chambers practicing in all areas of asset recovery, fraud, corruption, insider dealing and corporate criminal liability, in both criminal and civil contexts. He regularly appears for and advises third parties, both corporates and individuals, caught up in proceeds of crime-related proceedings. He often provides advice to professional services firms and companies as to their obligations under anti-money laundering legislation and potential criminal liability arising from the acts both of employees and of third parties. Over the last five years he has been involved in cases involving over 25 jurisdictions.
Andrew can be contacted on +44 (0) 20 7404 3447 or by email firstname.lastname@example.org