Fraud Advisory Services

There is no doubt of the commitment of the present UK Labour Government to the Proceeds of Crime Act 2002 and its intended use to cripple organised and career criminals. It has been applied in the field now for a number of years and is becoming a routine process in many cases.

So routine in fact that prosecutors do not bother to prepare a comprehensive Section 16 Statement anymore it seems! The Section 16 Statement are statements of information that provide the reasons, but not necessarily the evidence, for applying criminal lifestyle assumptions to a defendant’s assets. The Statement will set out the level of criminal benefit based on the crimes that have been committed and on the assumptions that other activities are also criminal. The Statement may also indicate the assets that the defendant has to satisfy any confiscation order and even give an indication, again not necessarily with evidence, of any assets thought to be hidden away.

With such a broad remit for indicating what is benefit and what may be available as realisable assets to satisfy the order it is clear that the prosecutors are simply setting out some of the information they have, regarding the defendant. This is on the basis that are adequately covering the likely scale of any order. In effect they are seeking to do enough to ensure that the defendant loses all he has, but are not bothering to be comprehensive in their approach.

This approach does happen in practice. Unfortunately, although it may deliver draconian but possible deserved justice for some, it creates a somewhat unfair situation for other defendants. For example take the case where a defendant has been convicted of trafficking drugs, has not kept details of any financial transactions and in all likelihood has not paid any tax on any legitimate work he has been undertaking as a cover for his drug dealing. If only one or two of the defendant’s bank accounts are analyzed and demonstrate adequate transactions to ensure the ensuing confiscation order is large enough, then the defendant will lose everything and no doubt the prosecution will argue justice has been served.

Compare the last case to another, where a businessman has been caught defrauding his employer by substantially inflating his corporate expense account for a number of months running, by several £1000s. He is caught, convicted and must serve a prison sentence as punishment for theft. Of course he will also have to pay back the money though subsequent confiscation proceedings. If he is technically deemed to have a criminal lifestyle, the prosecutor will throw the book at him, preparing a Section 16 Statement that will seek recovery of not only the money that he stole, but everything he owns and ever transacted going back 6 years. When all the receipts into the bank accounts over 6 years are totted up, this “benefit from general criminal conduct” can reach huge sums. The scale of such an assumed level of benefit, if awarded against the defendant as a confiscation order, can never be paid back. The unfortunate defendant would have to serve a default sentence having more years added to his original penalty.

Of course it is possible to defend such a situation. The defendant’s legal team would realise that whereas it would be necessary to repay the level of money stolen, it would be somewhat unfair to have to repay income earned legitimately over recent years. This is what an uncontested confiscation order would involve in such a case. Therefore, the defence must show to a civil standard of proof that his income other than the actual proceeds of crime was from legitimate sources.

This is where the forensic accountant would be called in. He will examine the Section 16 Statement together with all the defendant’s financial evidence (such as bank statements, business records etc) and demonstrate the legitimate nature of the income. This usually means that he must go further than the prosecutor because he will need to undertake a comprehensive review of everything – it is up to the defence to demonstrate the legitimacy of income or assets. To do this may mean examining accounts that the prosecutor has not bothered with, to show the source of all inter company transfers for example.

The big problem arises because the public funding of such cases is under threat. The public sector is having its budgets cut drastically by the Government in an attempt to redress the fiscal measures put in place to counter the pressure on banks over the past year or so. As an example the Legal Services Commission is losing some 5% of its current annual operating budget. It is reducing its spend on expert witnesses, i.e. the including the forensic accountants, by a disproportionately large amount – 20%. This is around £20 million less being spent on defence experts in the coming year.

The mechanics for doing this are being proposed in a current consultation paper regarding levels of experts’ fees. It is proposed that a forensic accountant will be paid between £47 to £100 per hour with the upper rate unlikely to be ever paid. For those that think that £100 per hour is a lot, remember this is the total cost – out of which must be paid pension, sickness, disbursements and the high cost of running a business. To put the rate into comparison, my work for my Masters Degree in Fraud Management showed that the average cost of a forensic accountant and of a police officer or member of the Court (clerk/manager etc) or of the Criminal Prosecution Service were broadly comparable. In fact the cost of putting an officer on the beat is a lot more than £100 per hour, let alone the cost of a detective in an economic crime unit.

If a well trained and experienced forensic accountant were to be paid £100 (assuming he or she can achieve this top rate) then they would be unable to remain in even a small firm of accountants as they would be unable to earn enough to fund their firm’s overheads. There is evidence that the Legal Services Commission see the solution as forcing the forensic accounting services into the hands of retired practitioners and “one man bands” who can survive (albeit barely) on the rates that are proposed. In a previous consultation paper about four years ago this very outcome was mooted as the way forward. At that time all that came out of the consultation perhaps was more determination by the public sector funding body to restrict and delay payments for experts.

As a fraud investigator who occasionally accepts the opportunity to tender for a white collar criminal defence case, I am finding that I no longer achieve the already low hourly rates I was using 10 years ago. Not only that, but many other forensic accountants who previously specialised in other areas such as business valuation and matrimonial disputes and turned their noses up at criminal defence work, are forgetting their scruples and tendering against those of us that have been carrying out the work for many years. When I do win work, I am not able to undertake such a broad review as in the past or undertake a fishing type investigation to see where an evidential trail leads, which may mean that aspects of a defence may be missed or at least not be as robust as they should.

The question being asked is where will it all lead? Will the good forensic accountants get priced out of the market? It is unlikely that they will leave regular employment in their droves to set up the sole practitioner firms envisaged by the Legal Services Commission. Will the mid tier and top tier firms return to their previous position of disdain for criminal defence work – finally being priced out the market completely? Will the white collar worker who gets caught with his hands in the till be able to defend himself from a totally unfair confiscation order?

Personally I see my work on criminal defence cases over the past decade or more being valuable experience. As an expert accountant specialising in fraud it would be hard to achieve the desired level of credibility before a court if all I had done is investigate and prosecute fraud. So now even if I focus more on catching the fraudster, defending a business against fraud and recovering stolen assets, when called to give evidence I can still draw on my past experience of criminal defence work when establishing my independence before the court.