THE FIRST OF MANY?
Transcription
THE FIRST OF MANY?
www.rahmanravelli.co.uk eBook Edition 028 / January 2015 Serious Fraud, Regulatory and Complex Crime Lawyers THE FIRST OF MANY? The Serious Fraud Office (SFO) has secured its first convictions under the Bribery Act; four years after the legislation came into effect. Is this a sign of things to come? It is doubtful whether the champagne corks have been popping at the SFO. Despite it successfully prosecuting three people for a £23 million fraud and, in the process, achieving its first convictions under the Bribery Act 2010, the SFO has yet to convince many of its abilities when it comes to this much-heralded piece of legislation. The Act, although passed in 2010, could only be applied to conduct taking place from July 2011 onwards. This effectively meant that there would be no swift rush to the courts by the SFO – or any other agency – looking for Bribery Act convictions. Factor in the amount of investigation, evidence gathering and pre-trial negotiation involved in bribery cases and it would have been clear from the start that it was likely to be some time before Bribery Act prosecutions and convictions became a reality. This, however, did not prevent the occasional criticism of either the SFO or the Act when it came to the need to tackle bribery. Now, at last, the SFO has its first successful prosecutions under the Act. The case involved the selling of investment products linked to biofuel operations a company ran in Cambodia that were funded via self-invested pension plans. The chief executive officer (CEO) of the company and the chief commercial officer (CCO) of a subsidiary company were convicted of fraudulent trading and conspiracy to commit fraud. –1– The CCO was also convicted of accepting bribes totalling £189,000 to approve false invoices submitted by the director of a sales agency involved in unregulated pension and investment products. This director was convicted of conspiracy to furnish false information and two counts www.rahmanravelli.co.uk The Bribery Act has been with us a number of years. Whether this first conviction will be the first of many remains to be seen. What is already clear, however, is the need for everyone in business to be aware of the risk of prosecution under the Act and the need to tackle those risks. of bribery. The CEO, the subsidiary company’s CCO and the sales agency director were jailed for nine, 13 and six years respectively. Each was disqualified from being directors for at least 10 years. The SFO is also set to bring assets confiscation and compensation orders against the trio. The prosecution was based mainly on the fraud offences but the trial judge emphasised that the bribery was an aggravating feature in a “thickening quagmire of dishonesty” that took the life savings and homes of 250 victims. The judge highlighted the significance of the bribery and there’s no doubt that these convictions can be viewed as a red letter day for the Bribery Act. Yet this case may have greater significance. If anything, this case indicates clearly how the authorities can and will use the Bribery Act wherever and whenever they can to take on corruption. The bribery was only one element of this case but the SFO showed it was more than willing to use the Act as one part of a prosecution rather than the be all and end all. At present, the authorities area gearing up more than ever before to tackle corruption. Bribery, like fraud, money laundering and tax evasion, is increasingly in the spotlight. The SFO, National Crime Agency, the police, HM Revenue and Customs and the Financial Conduct Authority are all increasingly on the look-out for any evidence of business crime. They are working closer together than ever before, have strengthened ties with their foreign counterparts, can call on more advanced technology to help them obtain the necessary evidence and, perhaps most crucially, have the benefit of harder hitting legislation, such as the Bribery Act, the Money Laundering Regulations and the Proceeds of Crime Act 2002. It would be misleading to read too much into this first Bribery Act success for the SFO. The case did not hinge entirely on the Act and it was a prosecution of individuals rather than one brought against a corporate defendant. There was also little evidence in this trial to help us fully understand what the courts will accept as a defendant having taken adequate procedures to prevent bribery. Guidance from the Ministry of Justice states that “The question of adequacy of bribery prevention procedures will depend in the final analysis on the facts of each case.’’ The six principles outlined in the guidance – proportionate procedures, top-level commitment, risk assessment, due diligence, communication and training, monitoring and review – are useful pointers to anyone wanting to ensure they comply with the Act. Yet it will not be until a good number of Bribery Act cases have been through the courts that we will know what can be viewed as the real acid test of adequate procedures. What we can say, however, at this early stage is that the Bribery Act gives the authorities the potential for successful prosecutions in instances involving complex evidence and events in a number of countries. The global reach of the Act effectively means that any company with a UK connection will find it increasingly difficult to escape the law –2– if it is involved in bribery anywhere in the world. Ignorance of bribery, negligence regarding it or the turning of a blind eye towards it are simply not options any more. Unless you want to run the risk of unlimited fines, compensation and confiscation orders and being barred from bidding for public contracts – all of which are provisions of the Act. As solicitors who specialise in business crime cases, we help companies of all sizes to assess how they can remove their possible exposure to bribery. It may be early days for the Bribery Act in terms of prosecutions and precedents but it is already clear that not adhering to the Act can lead to prosecution – and that merely paying lip service to it will not be enough to prevent a company or individual being prosecuted. Anyone wishing to reduce – or, ideally, remove – their potential risk of prosecution under the Act has to conduct a thorough risk assessment of just how they, their staff or other representatives could be exposed to bribery. Only then can they devise and implement thorough and appropriate anti-bribery policies. Such policies have to be backed up with the right training, monitored and regularly reviewed and be embedded in the company’s culture, from the top down. The Bribery Act has been with us a number of years. Whether this first conviction will be the first of many remains to be seen. What is already clear, however, is the need for everyone in business to be aware of the risk of prosecution under the Act and the need to tackle those risks. It may well have taken a while for the SFO to achieve their first Bribery Act convictions. It may even take a fair amount of time before the SFO can celebrate their next ones. But it will find it increasingly easy to secure future convictions if those who come under investigation have not taken the time and effort to comply with the Act. www.rahmanravelli.co.uk DOES IT DO WHAT IT SAYS? The dangers of being lured into tax avoidance schemes. Aziz Rahman examines the legal pitfalls that can accompany attempts to minimise the tax that individuals and companies pay. Twenty one years ago, a certain brand of wood stain started advertising itself with the slogan “It does exactly what it says in the tin.’’ Not the most exciting catchphrase, admittedly, but it worked. It caught on with the public and became a commonly used phrase to indicate something that was straightforward, dependable and worth spending money on. The product is still strong, people still use the phrase and it is still a signal that something is reliable if not especially exciting. Unsurprisingly, however, it is not a phrase that is used very often in financial circles. There may be many reasons for this. I would suggest that one is that financial products are usually a more complex package than a tin of wood stain. Another might be that financial schemes by their very nature don’t lend themselves to glib slogans and phrases; as the potential outcomes are likely to be more varied than those involved in treating your garden fence. And a third reason, unfortunately, is that a number of financial schemes that have come to light in recent years have done so because they are doing the complete opposite of what they are supposed to be doing. As a result, HM Revenue and Customs and other state bodies are taking an especially close look at anything that does not seem to be what the tin might indicate. Cases are working their way through the courts involving hundreds of millions of pounds while investigations continue into many other investment projects that have aroused suspicion. Investigators are putting the schemes, their creators, promoters and investors under the microscope. At Rahman Ravelli, we have accumulated many years of experience and chalked up an impressive record of success in the full range of tax fraud cases. Whether it has been cases involving hundreds of millions of pounds or the most high-profile prosecutions, we have approached them in the same methodical, proactive manner in order to build the strongest possible defence for our clients. We are fully aware that financial advisors who persuade people to invest in tax schemes increasingly have to justify their judgement to the authorities. For some, the mistakes of the past are catching up with them. But those working in the financial advisory sector that wish to avoid the fate of some of their unfortunate colleagues must start doing their homework before they recommend any schemes to any potential investors: Does the scheme under discussion make sense? Is it genuinely doing what it says on the tin? Is there proof of real investment in the scheme? If so, is that investment actually being used for what it is supposed to be used for? Can anyone produce evidence of how the investment is being used? Or is it all a paper exercise designed to reduce people’s tax liabilities? To some financial advisors, such questions may seem unnecessary. They will argue that they have invested in schemes that have provided steady rewards for years and they will see no need to start making enquiries so late in the day. It is an understandable argument but, as recent court cases have shown, many schemes that have functioned for years without any problems have been judged illegal. Just last month, MP Margaret Hodge, chair of Parliament’s spending watchdog, the Commons public accounts committee, fired a warning shot against such schemes. “It is crazy that only those who put their money into tax avoidance schemes are properly punished, and not those who design, promote and sell them,’’ she said. –3– “It is a whole grubby industry from which shameless tax advisers and promoters are making big bucks.’’ The MP called for the government to punish those who create and advise on tax avoidance schemes, adding that there needs to be “a powerful deterrent that says if you are involved in designing or selling these products you will face criminal prosecution.’’ The veteran Labour MP’s call is not an isolated one. The 2015 Finance Bill includes tougher civil sanctions for those with taxable accounts offshore and measures to strengthen the disclosure of tax avoidance schemes. It remains to be seen whether the Bill will eventually include a strict liability offence for those who fail to declare taxable offshore income. Last October, 51 countries promised to pass on financial data to each other after signing an agreement to crack down on tax evasion. This agreement is seen as a major attempt to tackle the elaborate scheming that is carried out to ensure people do not pay the tax they should. “It is crazy that only those who put their money into tax avoidance schemes are properly punished, and not those who design, promote and sell them,’’ In December 2014, EU states and the European parliament agreed to update anti-money laundering rules in a bid to stop anonymous organisations or shell www.rahmanravelli.co.uk companies being used to help people evade taxes, finance terrorism or launder money “Creating registers of beneficial ownership will help to lift the veil of secrecy of offshore accounts and greatly aid the fight against money laundering and blatant tax evasion,” said Krisjanis Karins, an EU lawmaker involved in putting the agreement together. The effectiveness of such developments remains to be seen. But in the UK we have already seen a series of cases coming to court and stern words from the Chancellor of the Exchequer about the “scourge’’ of tax evasion and the need to treat anyone involved like “a common thief’’. Whether such words are pre-election tough talk to please the taxpayers will not be known for some time. But regardless of whether the aforementioned initiatives are successful or the politicians back their words with actions, the issues of both tax avoidance and tax evasion are high on the authorities’ agenda. It would be wise for advisers to carry out the due diligence checks we outlined earlier – both on financial schemes they are currently involved in and on those they are considering recommending to clients. In recent years, HMRC has been given tens of millions of pounds in extra funding to track down tax that is owed. By the end of the last financial year, the number of new tax avoidance schemes registered had fallen by almost 75% on the figure from four years earlier. Two years ago, the government introduced the General Anti-Abuse Rule (GAAR) to tackle abusive tax avoidance schemes that could have been judged acceptable under existing legislation. From April 2010 to March 2014, HMRC prosecuted 2,650 individuals for tax crimes; including high-profile financial and legal experts in their fields. HMRC likes to make the most of its successes. But there is no doubt that it does not always “get its man’’. The rhetoric coming out of HMRC, however, shows that the issue of tax and its non-payment is being taken very, very seriously – and it is casting its net very wide to prosecute those it believes are responsible. Prosecutions are up in –4– recent years, as the tax man is favouring the criminal rather than civil route, and this is a trend that is unlikely to be reversed in the near future. With this in mind, anyone whose role involves creating or promoting such schemes needs legal guidance to ensure they are acting within the law. Not making sure of this means running the risk of prosecution, conviction, loss of assets, damage to reputation and a total collapse in your client base. With HMRC out looking for more and bigger convictions over non-payment of tax, the financial advisor has to tread incredibly carefully. Due diligence, an ongoing commitment to compliance and access to appropriate legal representation at the earliest possible stage are essential if you are to avoid the suspicions of HMRC. HMRC is increasingly keen to know what is in the tin when it comes to financial schemes. All those involved in them need to be able to lift the lift the lid on their affairs without fear of finding something unpleasant. www.rahmanravelli.co.uk PAYBACK TIME? The mortgage industry is in a healthy state. But mortgage fraud is still very common. What can those in the industry do to avoid falling victim to what is a widespread problem? The last year or so has been healthy for mortgage lenders. According to the Council of Mortgage Lenders, gross mortgage lending for the third quarter of 2014 was an impressive £55.5 billion. This was an 8% rise on the previous quarter and 13% up on the same period a year earlier. So it’s all good news, then? Well, yes and no. On the good side, borrowing is clearly buoyant. On the bad side, mortgage fraud is still proving very attractive to criminals. This is a situation that carries significant financial and legal risks for mortgage brokers and all other financial experts who are involved in the mortgage industry. As a firm with years of experience in representing mortgage industry professionals in some of the country’s most high profile prosecutions, you may expect us to emphasise the risks. But what we would also like mortgage professionals to remember is the need to act promptly as soon as anything arouses suspicion. Seek expert legal advice as early as possible; as it is the only way to nip problems in the bud and avoid problems later on. Statistics for mortgage applications show that over the last two years around 0.8% of applications have been identified as fraudulent. This does not, admittedly, seem like a huge percentage. But it is worth considering a couple of points. Firstly, this is only the amount of mortgage applications that have been recognised as being fraudulent. We do not know for sure the precise number of fraudulent applications. Many more may have been successful and yet not have been identified as fraudulent. Secondly, any single successful mortgage fraud can create a huge amount of financial hardship and finger pointing between the lender and the other parties involved. If we take that 0.8% figure, it means that at least one in every 125 mortgage applications is fraudulent. And if we take figures from last year that show the average mortgage being taken out by first-time buyers is £121,500 then it’s clear that one successful fraudulent application can involve very large sums of money. –5– Increasing demand for mortgages and rising house prices have led to lenders scrutinising applications more closely. But it would be surprising if this has not simply led to those attempting mortgage fraud becoming more devious in their attempts to obtain the five-figure sums they are seeking. It is clear that the authorities are aware of the problem - as more than 100 people associated with the mortgage industry have been banned since 2006 – but it is in the best interests of the mortgage industry as a whole if everyone involved does everything they can to make sure they do not fall victim to fraud or become unwittingly involved in it. It is no secret that lenders have, in recent years, made some incredibly risky loans without carrying out adequate checks. The US saw the bundling up and selling on of mortgage debt with disastrous consequences while all involved somehow retained their AAA ratings from the major ratings agencies. In the fall-out from the economic crash, mortgage fraud cases have been coming to court here and in the US. Some have www.rahmanravelli.co.uk involved tens of millions of pounds and the involvement of people in all parts of the mortgage chain: mortgage advisors, brokers, valuers and solicitors. While some have been elaborate cases of property over-valuation, with the relevant professionals fully aware of what is being perpetrated, many more have seen such people unknowingly involved in huge mortgage frauds. When people accused of mortgage fraud state that they knew nothing about any illegality, the prosecution will often react with disbelief. Such a response is often unfair. It should be remembered that if a fraud was detailed enough to dupe the lenders then it could just as easily have fooled some of those who became involved in it. But as this is rarely a view taken by the likes of the Serious Fraud Office (SFO), professionals involved in all stages of the mortgage process need to make sure that they are doing everything they can to reduce the chances of them becoming involved in such a criminal operation. Whatever the size and precise nature of the mortgage fraud, the central issue in any prosecution will be dishonesty. Can the accused justify their actions? Did they carry out adequate research prior to becoming involved in the application? When working on this application, did they do anything differently from the hundreds or thousands of other applications they have handled? With the right solicitor making appropriate use of relevant documentation, expert witnesses and the client’s professional pedigree, a prosecution case can be challenged vigorously; no matter how strong the accusations may appear at first glance. But what about trying to prevent matters ever reaching that stage? We live in an era in which the authorities have a keener sense of the need to seek prosecutions – and many of these organisations have more resources and more useful legislation at their disposal than they have had before. Legislation such as the Fraud Act places a huge responsibility on companies and individuals to comply. As a result, anyone looking to prevent – or, at the very least, detect – mortgage fraud has to be introducing some form of compliance procedures into their activities. Bodies such as the SFO, the police, HM Revenue and Customs, the Financial Conduct Authority (FCA) and their foreign counterparts are all working closer together than ever before; aided by technological advances and an increased awareness of the potential international dimensions of financial crimes such as mortgage fraud. The obvious outcome of this is that more wrongdoing is being uncovered. As a result, it is imperative that anyone in the mortgage application chain is able to show that they made a thorough and carefully prepared attempt to prevent any wrongdoing being carried out in their name. The chances of mortgage fraud being uncovered and prosecuted are far higher than they were even a decade ago. Whatever the size and precise nature of the mortgage fraud, the central issue in any prosecution will be dishonesty. Ignoring the importance of compliance or throwing together a quick compliance policy so it looks like you have “done your bit’’ will cut no ice with investigators who suspect wrongdoing. If they are to be of any value whatsoever, compliance procedures need to be strong, thorough and introduced after careful study of the way the company, its staff and representatives work with any other organisations or individuals. And introducing well thought-out procedures is not enough: they must be properly –6– publicised, routinely monitored, reviewed and revised when necessary and seen to be followed by all staff of all ranks. Finding the time, effort and funds to make sure a company is fully legally compliant may seem like a chore in the fast-moving financial world. Mortgage brokers, financial advisors, lenders and everyone else with a stake in the multibillion mortgage market already have their days full enough as they strive to gain and maintain a slice of the business. At Rahman Ravelli, we advise companies and individuals on compliance. We understand that compliance may not be viewed as the most dynamic part of the workload for anyone in the finance industries. Many will consider it something to be avoided or, at best, paid lip service to. Yet nothing can be more damaging to anyone’s prospects than being investigated, charged or convicted of fraud. When it comes to an area of business such as financial advice, the merest hint of wrongdoing could prove devastating. Anyone found to have been involved in mortgage fraud or especially vulnerable to it will find it extremely difficult, if not impossible, to keep attracting the all-important stream of clients necessary for a business to survive and prosper. Anyone suspecting wrongdoing in their operation has to speak to experienced, specialist lawyers immediately. But in reality it is far better to be proactive rather than reactive when it comes to tackling fraud. As we mentioned earlier in this article, just one successful fraudulent mortgage application can be hugely damaging – far more costly than the price of compliance. www.rahmanravelli.co.uk THE LAW AND LIBYA In 2011, we predicted that bribery prosecutions could follow the collapse of the Gaddafi regime in Libya. That prediction has now come true…and is a stark reminder of how bribery anywhere in the world can be identified and acted upon. When, in 2011, Libya overthrew the dictator Muammar Gaddafi, many people said the consequences could be wide ranging. Political stability in Libya, the effect on neighbouring states, the price of oil and the consequences for his relatives living abroad were all mentioned as issues to watch. As Rahman Ravelli is a firm specialising in commercial fraud and business crime cases, we looked at what was happening in Libya from a different perspective. We took the view that one result of Gaddafi’s overthrow would be the prosecution of companies from the UK and elsewhere and the confiscation of their assets for their use of bribery to woo business from figures within the hated Libyan regime. In 2011, few – if any - people seemed to be voicing the same opinion as we were. But it does now appear that events have unfolded in the way we believed they would. At the time of writing, there are no UK companies in the dock yet because of their relationships with Gaddafi. But the biggest criminal trial of Western corporate executives accused of bribing Gaddafi-era Libyan officials for –7– contracts has begun. It is a fairly safe bet to say that business figures in the UK who did business with Libya prior to the revolution will be watching very closely as events unfold in the trial of senior figures who were working for Norwegian fertiliser company Yara International. In the years before the revolution and after the Tony Blair-led reconciliation with Libya, there was scope for doing business in Gaddafi’s dictatorship. The issue now for Yara and many other companies is just how scrupulous western business figures were in securing deals. Yara has already paid fines for its www.rahmanravelli.co.uk behaviour in Libya. Prosecutors have claimed that Yara executives turned a blind eye as large payments were made to officials, including the oil minister’s son, and a company that was created in a tax haven. Four senior Yara figures have pleaded not guilty at an Oslo court in a case that is expected to last up to three months. The charges carry sentences of up to 10 years in prison and it is fair to say that it is not only Yara that is anxious about its dealings in Libya. There is now the distinct possibility that companies who have had unblemished reputations for decades will end up in court to answer for their actions. As international business crime specialists, we know that such cases can be long, drawn out and complex. Two civil cases are being prepared in London against Goldman Sachs and Société Générale; with both banks being sued by the Libyan Investment Authority (LIA). The LIA accuses the banks of coercing Libyan officials into investing the financially impoverished country’s wealth with them. In the Yara case, executives are accused of allowing or overlooking the large payments to Libyans to secure deals. It is alleged that they ignored claims of wrongdoing that were made by whistleblowers. Some of Norway’s most senior business figures are to give evidence in the Yara case. But its importance is recognised far beyond Norway’s borders. For example, US investigators are examining the actions of a London-based hedge fund that persuaded Libya to invest in it and the role of at least one middleman. The City of London Police is reported to be examining sleazy allegations relating to how London-based executives at a financial services company treated Libyan officials to lavish parties in Morocco. Further afield, Canadian and Swiss investigations into a Canadian engineering company, ANC Lavalin, led to the conviction of its former head of global construction for bribing Gaddafi’s son Saadi in order to gain major contracts. The locations of the companies involved and the nature of their work may vary but one theme runs through the allegations: the bribing of people in Libya in order to do lucrative business in that country. Some of those accused have said they did not know what was going on, others have blamed it on rogue former employees. Their arguments follow a train of thought that says they cannot be held liable as they were not aware of the wrongdoing. In this day and age, such an argument is becoming less and less successful in court. In the UK, the Bribery Act 2010 makes it an offence to bribe someone, receive a bribe, bribe a foreign official or fail to prevent bribery. The Act applies to all UK-based organisations and individuals and covers any activities carried out anywhere in the world by them, their staff, representatives or trading partners. As the Act only came into effect in July 2011 – by which time the Libyan uprising was already underway – it is unlikely it will lead to any prosecutions of UK-based companies because of their dealings with the Gaddafi regime. But the Act is part of a wider worldwide awareness of the need to investigate and prosecute bribery and corruption. The multinational flavour of the first generation of legal actions being brought against those alleged to have improperly curried favour with the Gaddafi regime indicates this. Authorities around the globe are now looking closer than ever at how companies conduct business around the globe. UK companies could find themselves being prosecuted for –8– activities carried out in far-flung parts of the world many years ago. Rolls-Royce is a clear example. Legal freezing orders could become a more common occurrence, as countries such as Libya, as well as aggrieved individuals and organisations, look to the law to put right previous wrongs. There is now the distinct possibility that companies who have had unblemished reputations for decades will end up in court to answer for their actions. As international business crime specialists, we know that such cases can be long, drawn out and complex. Anyone who does become the subject of such an investigation must seek legal advice from solicitors who are both experts in dealing with the authorities concerned and capable of putting together a case that crosses international borders. And those under investigation must seek such advice at the earliest possible stage Authorities around the globe are now looking closer than ever at how companies conduct business around the globe. if they are to benefit from the best protection available under the law. As Libya is starting to show, it would be a mistake to believe that any business wrongdoing will never come to light, regardless of when or where it happened. While a strong, proactive legal defence may be the best remedy for anyone facing such problems it is well worth remembering that prevention is better than cure. Taking strong action to develop an anti-bribery culture in a company from the top down is the best possible way to prevent future problems. By assessing a company’s risk of exposure to bribery and then devising, implementing and monitoring measures to “design it out’’ any organisation or individual can go a long way towards making sure that what happens now is done in a way that can cause no major legal headaches in the future. www.rahmanravelli.co.uk PAYING ATTENTION TO PENSIONS In next month’s newsletter, we will examine major pensions issues facing independent financial advisors (IFA’s). Here, Aziz Rahman summarises some of those issues and their legal implications. Pensions have not traditionally been thought of as an area where controversy reigns. But in recent years the pensions industry has commanded increased attention from the authorities, the government and even the general public. Last year, the Financial Conduct Authority (FCA) was lambasted for the way it announced an investigation into closed book pensions. Many in the industry were critical because the announcement caused share prices of some insurers to drop sharply. The incident showed the sensitivity of pensions as an issue: in this case, the regulators, the pensions providers and pension holders all stood to be affected. And yet this was just one in a series of changes to the pensions industry this millennium. As we enter a new year, there are a number of factors affecting pensions that IFA’s have to be both aware of and able to respond to appropriately. Our next newsletter will examine –9– many of these issues in detail, from a legal point of view and from the perspective of the IFA. Here, I just want to flag up some of those concerns that can prove problematic for IFA’s who are closely involved in the pensions industry. One of the most obvious is, of course, pension liberation. Call it liberation, busting, unlocking or whatever else people know it as; it involves an investor taking their money from their pension early and is not usually a wise move. People are tempted to do it when they www.rahmanravelli.co.uk realise the low returns they will receive on retirement. This has stimulated a mini industry of people who “liberate’’ a person’s pension – but only for a large fee. This may seem a sharp practice but it isn’t illegal. The question of dishonesty – and, therefore, fraud – arises if investors are persuaded to put their liberated pension cash into a proposition far riskier than where it was previously. In such situations, it is essential that an IFA is able to take steps to prove that they acted honestly and with the best of intentions. Specialist legal help can assist in building such a case should the authorities indicate they are looking to prosecute. But it may even be worthwhile seeking legal advice before taking any action with clients’ money that could bring such problems at a later date. IFA’s can clearly play a vital and effective role in pension liberation. However, the pension liberation industry is not regulated, there is no compensation to the individual if promised returns fail to appear and, for these two reasons alone, it is an area that attracts those looking for fraudulent gains. Such people may use completely legitimate IFA’s, who are regulated by the FCA, to give the fraud an air of respectability. In these situations, an IFA may be able to show they acted honestly and were not, therefore, part of any fraud carried out, thus saving themselves from any possible prosecution. Yet the damage to such a person’s professional standing, not to mention the time, cost and stress, will do little to enhance their future career prospects. At Rahman Ravelli, we are strong advocates of due diligence and the need for compliance. Pension liberation is an area where such an approach is vital; especially as the Chancellor’s Autumn Statement ushered in huge freedoms from April 2015 for the over-55’s looking to spend their pension money how they wish. From April, pension liberation could grow rapidly in size in the UK. It is important that IFA’s are aware of the risks that go with this. Before anyone can liberate their pension they do, of course, need to have purchased one some years earlier. IFA’s are ideally placed to advise on such schemes and have done so for decades. What has changed in recent years, however, is the approach of the regulators. As any IFA knows, anyone wanting to sell a pension has to be authorised to do so by the FCA; under s19 of the Financial Services & Management Act. Since replacing the much criticised Financial Services Authority (FSA) in 2013, the FCA seems keen to take a far more aggressive approach when it comes to IFA’s and pensions selling. Its handbook replaced the FSA’s and carries in it a wide range of standards and principles. Its high level standards section refers to 11 over-arching general principles. Treating the customer fairly is just one of these principles – this principle alone sets six requirements of those selling pensions. There is not enough space in this article to examine them all. The point that needs to be made that IFA’s have to know where they stand with the FCA before, during and after any pensions transactions they are involved in. If they do not, or they are unsure, then immediate, expert legal help must be sought. HMRC, the FCA and even the Regulator can choose the civil or criminal route for their cases. In most instances, an IFA under investigation will prefer a civil settlement. That we have reached halfway in this article without even mentioning the Pensions Regulator indicates the amount of regulation facing IFA’s who sell pensions. But that does not mean that, as it comes up to its tenth birthday, the Regulator can be ignored. It is yet another body that any IFA has to take clear legal steps to comply with. Since replacing OPRA (the Occupational Pensions Regulatory Authority) in April 2005, it has been proactive in ensuring regulation and has taken a particular interest in the potential risk of any – 10 – pensions products being sold. In its role of registering every pension scheme and protecting investors, anyone running a pension scheme (a trustee) has to be formally recognised by the Regulator. This recognition can require intense scrutiny by the Regulator, whose need to see evidence of real investment, Relief at Source (RAS) tax relief being properly claimed and proper money management systems used by trustees are the types of enquiries that can protect investors. In the current pension liberation climate, the Regulator’s diligent approach is as likely as anyone’s to uncover illegality. The onus is on IFA’s to make their own investigations into potential investment to make sure they are not implicated in wrongdoing. Anyone familiar with the allegations of fraud made by HM Revenue and Customs (HMRC) last year at Birmingham Crown Court as part of the major pension fraud case (Operation Cactus Hent) that saw a number of IFA’s in the dock will be aware that pensions are targets for tax fraud – and IFA’s can quite easily become embroiled, knowingly or unwittingly. The Cactus Hent case did eventually fail to gain the convictions HMRC was seeking; due mainly to the pension scheme in question ticking all the statutory boxes. But it is a clear indicator of HMRC’s increasingly aggressive approach to pensions. Cases that would previously been taken on by the Pensions Ombudsman or HMRC using the civil law are now more likely to be prosecuted. HMRC, the FCA and even the Regulator can choose the civil or criminal route for their cases. In most instances, an IFA under investigation will prefer a civil settlement. But without taking on specialist business crime lawyers at the earliest possibility, the chances of securing a civil outcome can be remote. As this article has indicated, pensions selling and management is a lively legal area at present. Our next newsletter will examine the issues outlined here and others that are on the horizon for IFA’s working in this sector. It is vitally important that those operating in it use their financial expertise to stay on the right side of the authorities – or seek the appropriate legal expertise to help them do this. www.rahmanravelli.co.uk Head Office Roma House 59 Pellon Lane Halifax West Yorkshire HX1 5BE United Kingdom Tel: +44 (0)1422 346666 Fax: +44 (0)1422 430526 enquiries@rahmanravelli.co.uk DX 16001 Hx1 Rapid Response Team 24 Hour Emergency Contact Tel: 0800 5593500 London Office One Fetter Lane London EC4A 1BR Tel: +44 (0)203 4405 515 enquiries@rahmanravelli.co.uk Rapid Response Team 24 Hour Emergency Contact Tel: 0800 5593500 – 11 –