Fraud and money laundering: the evolving criminalization of corporate non‐compliance
| Date | 09 May 2008 |
| Published date | 09 May 2008 |
| DOI | https://doi.org/10.1108/13685200810867447 |
| Pages | 103-122 |
| Author | John L. Masters |
| Subject Matter | Accounting & finance |
Fraud and money laundering:
the evolving criminalization
of corporate non-compliance
John L. Masters
CPS Fraud Prosecution Service of England and Wales, York, UK
Abstract
Purpose – The Corporate Veil is seen not only as a means of limiting individual civil legal liability
but also criminal liability. This paper seeks to highlight that this philosophy is fast approaching
breaking point, and practices which once may have been considered “just business” are now
considered criminal. Innocuous companies, their directors and officers have all of a sudden become
sitting ducks for criminal prosecution and asset seizure. Corporations potentially risk metaphorical
death sentences: their human controllers being labelled and treated as common criminals and
accordingly disgraced, incarcerated and confiscated of a lifetime of accumulated wealth. This paper
targets the “directing minds and wills” of companies and aims to invoke thought and action on
redefining the notion of corporate compliance.
Design/methodology/approach – An analysis of recent innovations in mostly UK law regarding
fraud and money laundering, with historical comparisons to show the changing community and legal
perceptions – “the evolution”. There is also case study analysis and recent examples of community
attitudes towards recent high-profile commercial prosecutions.
Findings – That there is a definite change in how the public, lawmakers and governments perceive
corporate non-compliance, to the extent that most breaches qualify as criminal offences and that due to
mutual legal assistance and incentivisation schemes, the risks to corporations and its officers are
extremely high and real.
Practical implications – Corporations will need to be genuine about legal compliance beyond
merely espousing platitudes and motherhood statements and more towards reinventing the
compliance paradigm. This means that merely concentrating on strict legal compliance will no longer
suffice. Corporations will need to establish and regularly revisit their values, with more emphasis on
embedding a culture of compliance that is attuned to domestic and international community values. To
choose to ignore these needs, risks the very existence of the company and also its officers being
ostracised both commercially and criminally.
Originality/value – Traditionally, papers on this topic tend to concentrate on strictly legal or
managerial issues. This paper looks at the issue from a more criminological perspective whilst not
compromising legal analysis and business pragmatism, thus allowing an integration of disciplines in a
context that can be appreciated by lawyers, managers and social scientists alike.
Keywords Money laundering,Fraud, Criminology, Litigation,Company law, United Kingdom
Paper type Research paper
Introduction
Fraud accounts for billions of pounds each year in both specific crime and the resulting
money laundering. Governments acknowledged that appropriate legislation had to be
enacted and resources allocated for specialist training and prosecution if there was to
be a serious attempt to address what appears to be an exponential growth in this type
of offending. Furthermore, due to the global nature of the offending, mechanisms had
to be put into place that enabled authorities to pursue offenders to all corners of the
globe and ultimately remove the incentive for committing the crimes.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1368-5201.htm
Fraud
and money
laundering
103
Journal of Money Laundering Control
Vol. 11 No. 2, 2008
pp. 103-122
qEmerald Group Publishing Limited
1368-5201
DOI 10.1108/13685200810867447
The following paper embarks on a discussion of some of the initiatives the UK
Government has introduced to combat this type of crime and of how the creation of new
specialist departments enhanced by both domestic and international legal assistan ce,
has paved the way for effective reform in what is considered by criminals to be a most
lucrative business. It also ventures into predicting how the definition of criminality may
extend to areas traditionally considered civil non-compliance and of how a new industry
may be developing to assist conventional prosecuting agencies in pursuing and
recovering ill-gotten gains from those who choose to throw caution to the wind.
The fraud prosecution service
In September, the Crown Prosecution Service (CPS News, 2007) launched its own
specialist unit known as the Fraud Prosecution Service (FPS). The FPS is a national
unit headed by a director and an assistant director[1]. It is based in both London and
York and has 16 specialist fraud prosecutors: seven of which are higher court
advocates. It intends to rely on its in-house counsel to prosecute wherever possible and
outsourcing, when necessary, to only the most competent of the private bar. It is at the
forefront of the Director of Public Prosecutions Proactive Prosecution Programme.
The creation of such a unit was brought about in the aftermath of the failed Jubilee
Line fraud trial where after £20 millions and 18 months of hearing evidence, the trial
was abandoned. From the resulting review (HMCPSI, 2005) came some major reforms
including acknowledgement that prosecuting fraud required a level of expertise
beyond that customarily possessed by the generalist Crown Prosecutor and that the
nature of the prosecution was such that appropriate resources (including time) would
enable the criminal investigation and ultimately the prosecution to be effective.
Furthermore, there is an increasing tendency for the legal profession to specialise to
such an extent that those who choose to practice in criminal law are becoming more
isolated from the civil law which otherwise could assist in opening options for crimin al
prosecution. For example, it would be rare for a prosecutor to consider a dishonest
appropriation in the context of equitable principles, e.g. constructive trust[2]. Equally, a
commercial lawyer would be more inclined to consider the notion of misleading or
deceptive conduct, or other sharp practices, as falling within the domain of industry
watchdogs and not the criminal law where the consequences tend to have more impact.
Furthermore, it is substantially easier to live with a finding of misleading advertising
where the outcome is usually soft compared to a criminal conviction for fraud. This
will become more apparent when consideration is given to two cases involving the
Barlow Clowes Group “Clowes Case Study” which shows how one fraud resulted in a
criminal prosecution against some and a separate civil action for another.
It should be noted that, the FPS does not handle all CPS fraud cases but aims to
restrict itself to cases that are complex or highly sensitive and involve losses of more
than £750,000 including:
.difficult corruption cases, especially those linked to public bodies and officials;
.cases which may involve the FPS playing a co-ordinating and standard-setting
role to allay widespread public concern;
.substantial and significant fraud on government departments;
.frauds on the governments of other countries;
JMLC
11,2
104
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