Mark Jenner & Co – Forensic Accounting Services

These days confiscation cases seem to outnumber the predicate fraud cases that Mark Jenner & Co assists with.  They are self funding for the authorities who will not be cutting back on this area – even if they are forced to make financial cutbacks elsewhere.  According to the CPS, targets for confiscations will increase to some £1 billion – revenue which will be split between those with a vested interest – e.g. the police, CPS and the courts.

HOW CAN MARK JENNER & CO HELP?

To address the balance, the defence must be prepared for more POCA cases and high quality forensic accounting services should form a key part of the team.  More cases being brought may threaten the quality of the Crown’s financial statements and the defence must be ready to counter with their own financial expertise.

If the pressure on public funding continues to increase this will mean additional challenges for all parties of the defence team.  As forensic accountants specialising in fraud matters we are finding that confiscation and money laundering assignments seem to be filling much of our time.  In order to maintain the very high quality of response required and continue to be a valuable and readily available part of the defence team we are continuing to develop our approach to confiscations with funding constraints in mind.  Mark Jenner & Co was established to work within the increasing constraints of public funding while providing a very high proportion (sometimes all) of the work being undertaken by the expert – to provide defence responses that are robust and can be supported when it boils down to the inevitable negotiations between prosecution and criminal defence teams.

Our approach to confiscations

The recent legislation has never been crystal clear and its application seems to be evolving all the time. Such a dynamic framework means that a measured application of common sense very often prevails in many courts.  The prosecution seem to be getting more consistent with the preparation of their S16 statements latterly but even they admit they still adopt a rather “scattergun” approach.  This allows us to work through the underlying assumptions supporting the components of the benefit figure together with the amounts themselves with somewhat more finesse resulting in a critique that addresses a number of areas:

Arithmetical accuracy

Identifying arithmetic errors will result in the Crown making adjustments without much comment – but major blunders can result in cases being substantially watered down or dropped.

Double counting

As a result of the Crown’s rather blunt approach there is often substantial double and even triple counting that goes unnoticed in its financial cases resulting in benefit figures that are overstated.  This can result from a failure to identify inter-bank account transactions or reversals or, more alarmingly, failing to include all records that can be used to identify sources of funds and so eliminate unknown receipts within the benefit figure.

Legitimate sources of income

If the Crown is assuming a criminal lifestyle then the defence must prove the legitimacy of any funds that have been received.  This often requires tracing income through many different sets of bank account statements and recreating business activity from often incomplete accounting records.

False Assumptions

Every fraud is different introducing novel issues and different approaches are required. However, confiscations generally follow similar themes – components of benefit and realisable assets.  Our experience with generally recurring issues means we approach each case with a high level of efficiency that allows us to continue to undertake this work on a highly competitive basis.

For example we may question how much merit there was in our focusing on the defendant being a minor beneficiary in a fraud by directing our work to the business of others.  In R – v – May joint and several liability was decided for co-conspirators.  Instead, we might ask if it would be better if there was any way the financial activity of the defendant could be presented as simply being courier or custodian activities, as decided in R – v – Allpress?

Our view of these and other issues is that an application of common sense is required based on a general understanding of confiscation rulings.  We find counsel often appreciates our financial input early on to assist with his legal strategy.

We assisted in a confiscation following the case of a landlord who had built up a size-able property portfolio worth some £25 million.  He was caught assisting the illegal entry of asylum seekers into the UK and obtaining around £200,000 benefit on their behalf, which he kept towards their food and keep.  As a pillar of the local community, he immediately pleaded guilty and was sentenced to around 4 years in prison.

Then came the confiscation.  Of course the Crown wanted the whole £25 million for lifestyle offences.  Our report took the view that the defendant’s benefit was based on the £200,000 from particular criminal conduct and that the isolated illegality did not represent a criminal lifestyle. The Crown continued to press for lifestyle sanctions and began to introduce the idea of tax evasion – getting their own expert accountant to attempt to quantify how much tax had been evaded over some 30 years.

Eventually the lifestyle assumptions were quashed, but the prosecution argued that because illegal funds had been paid into the bank and mixed with several millions of other transactions – all funds had become tainted.  I recall the Judge’s response – “so you are saying if I stole £1 on Monday – then won £1 million on the lottery the next day and put both sums in the bank – I would lose the lot?” Prosecution counsel muttered “yes my lord” .   However, the Judge made a confiscation order equal to the sum we had proposed, commenting on our common sense approach in his summing up.  Following the recent decision in R – v – Waya the issues surrounding proportionality and the use of mixed funds have become much clearer.

Getting the benefit as low as possible

The benefit order stays with a defendant for the rest of his life, yet we have seen defence teams more focused on doing a deal with the Crown in relation to the realisable assets figure.  We aim to reduce the benefit figure as far as possible and even where a bigger figure than the agreed settlement remains, try to leave areas of doubt or disagreement within our reports should there be further recoveries pursued in the future.

Applying a bigger proportion of expert time

We prefer to increase our efficiency through the utilisation of our extensive confiscation experience rather than reducing the amount of input by the expert delegating large proportions of any assignment to junior staff.

By Mark Jenner BSc MA CFE FCA– Mark has been a forensic accountant for over 16 years specialising in fraud and money laundering for most of that time. He heads up a dedicated fraud advisory service line focusing on expert witness assignments and fraud investigation. Regularly attending court to give oral evidence, his portfolio includes criminal fraud prosecutions, proceeds of crime and money laundering offences, corporate enquiries (including insolvency investigations) and asset tracing assignments.

Mark can be contacted at: mail@mark-jenner.com

There has always been a significant use of tax legislation in the fight against serious and organised crime.  Al Capone was a raketeer, an extortionist and a murderer, yet was put behind bars for tax evasion.  Since the Proceeds of Crime Act 2002 this has become a common place theme and many criminals large and small who think they are in for an easy option by pleading to the seemingly lesser charges of tax fraud may be in for a a rude awakening when confiscation proceedings kick in.

So long as the tax authorities pursue a civil route with their investigations, a tax ”avoider” or “evader” may look forward to paying the tax and penalties but escape the wrath of the criminal courts.  Once the criminal route is taken all bets are off!

I was involved in a case a couple of years ago involving a Hawala banker being investigated by NCIS in association with HMRC – such collaborative investigations are commonplace especially these days.  NCIS were investigating a gang of suspected drug traffickers and HMRC were looking at the unpaid tax by those suspected of laundering the money.

This Hawala banker had 40 bank accounts through which some £40,000,000 of funds were transferred over a four year period. Yet his tax returns showed that he was earning next to nothing!  HMRC decided to calculate his likely profits by considering two different ways in which the Hawalador might be making a profit:

• The difference between income and expenditure – thus giving an overall profit or margin
• As a % of money taken in for onward transmission

Both are very valid ways of roughly estimating levels of profit – on their own - only HMRC decided to add the results of both methods together and claim double the tax was owed!

That was one big clanger – then my examination of their workings showed that even in their actual calculations they had made 70 different and material arithmetical errors.

HMRC originally suggested that £1,000,000 was owed in tax.  I said it was likely to be around £30,000 to £100,000, at least £30,000 of which had already been paid by the Hawalador (i.e. it was possible that nothing was owed).  HMRC promptly dropped the claim within the criminal proceedings.

The Hawalador pleaded guilty to money laundering on the basis that subsequent confiscation proceedings would be limited to the meagre assets that he currently owned.  NCIS accepted this and the defendant went to prison for a short while.

Meanwhile HMRC passed the files to another of their departments who promptly put in a claim for the top level figure I had calculated (£100,000) in the full knowledge that the defendant had already had all his available assets confiscated.  The only outcome that could be obtained would be a judgement for the debt resulting in bankruptcy.

Now the defendant had been jailed and had lost everything – a good thing too – in a proportionate outcome as an unwitting and unexcusable negligent participant in crime.  What purpose was served in bankrupting him after the fact is not easily answered and the overall cost to the public purse should have been considered.

Two main lessons can be taken from this case that I was involved in:

1. It pays to examine and investigate any tax assessment raised by HMRC if they are using estimated means

2. HMRC can be quite tennacious in pursuing a result – it may pay to argue with them but please ensure that you are polite, reasonable, timely and measured in all your responses!

The cases listed below represent the following areas of forensic accounting work carried out by Mark Jenner & Co:

CRIMINAL DEFENCE EXPERT WITNESS – Forensic accountancy and litigation support services for white collar criminal defence lawyers and their clients.

PROCEEDS OF CRIME & CONFISCATIONS – Expert analysis of the Crown’s S16 reports with the production of a defence expert forensic accountant report.

MONEY LAUNDERING – Expert accounting reports on money laundering indictments and advice on implementing money laundering regulations for organisations.

FRAUD INVESTIGATION – All aspects of fraud investigation, from managing major corporate fraud investigations to seeking asset recoveries or means for safe dismissal of errant employees in smaller frauds.

INSOLVENCY ASSET RECOVERY & ASSET TRACING – Tracing assets in civil fraud and helping victims of fraud to recover losses. Assisting Insolvency Practitioners recovering assets on behalf of creditors that have been taken by directors and bankrupts prior to insolvency.

FRAUD REGULATORY ASSISTANCE – Experienced in helping Police forces present their financial case to the Courts. Expert accounting assistance to the major fraud regulators including the Serious Fraud Office and the Department for Business Innovation and Skills.

FRAUD PREVENTION & FRAUD RISK ADVICE – The most cost effective way to deal with fraud is to prevent it happening and a few simple precautions can reduce the risk of fraud substantially.

A Selection of Recent Assignments

Below is a selection of cases from the portfolio of work where Mark Jenner has acted as accounting expert witness, specialist fraud investigator or fraud case controller:

• 2011 – Higher education providers accused of establishing a “Visa” shop to aid illegal immigration.
• 2011 – Smuggler accused of running adult media distribution company to cover up drug importation.
• 2011 – Support publishing companies pretending to support good causes.
• 2011 – A former career sportsman who invested in loan sharking without a licence.
• 2011 – Car dealers who upset Trading Standards by “clocking” vehicles – the Crown wanted £3 million but took £45 thousand.
• 2011 – £10 million of fraudulent claims for income tax self assessment repayments from HMRC.
• 2011 – A individual who obtained housing benefit on a property – while buying other properties with false mortgage applications.
• 2011 – A man who stole £10,000 but faced a benefit of £half million.
• 2011 – A gangster groupie who pleaded to drug dealing – was able to walk away with half his assets!
• 2010 – Criminal defence forensic accountant in confiscation proceedings involving £35 million benefit assessment. Asset tracing and business reconstruction exercise involving multiple businesses and both local and offshore jurisdictions.
• 2010 – Joint report for two defendants in drug trafficking confiscation proceedings. Presentation of business activities and reduction of benefit assessed due to double counting and inclusion of legitimate receipts.
• 2010 – Allegations of drug trafficking. Forensic work for the defence team showed that defendant did not have a criminal life style and this aspect of the case was dropped in response to my report;
• 2010 – Regulatory Investigation under S447 & S453 of the Companies Act 1985 (as amended) on behalf of Companies Investigation Branch of the Insolvency Service – into corporate collapse and allegations of Insolvency Act offences;
• 2010 – Confiscation hearing against defendant convicted of money laundering for a gang of organised criminals involved in drug trafficking and VAT fraud. Benefit assessed at over £10,000,000 but the forensic report prepared on behalf of the defence was able to show 60% of this either inappropriately included or double counting;
• 2010- Fraud Investigation examining allegations by disadvantaged shareholder of fraudulent trading, asset stripping and diversion of trade prior to a pre-pack administration resulting in phoenix follow on company;
• 2010- Forensic Accountant’s report for Humberside Economic Crime Unit tracing financial activities of a nursing home manger accused of stealing funds from a resident – a number of similar forensic reports have been prepared for police forces around the UK including Northumbria, Cleveland, Merseyside, North Yorkshire and Humberside forces – this case concluded with oral evidence being presented in Grimsby Crwon Court;
• 2010 – Expert accounting witness report for defence in a case involving alleged negligence by a professional accountant and money laundering in relation to a large Ponzi style fraud being committed by a group of organised fraudsters;
• 2009 – Acted for lead defendant in a major prosecution brought by the Serious Fraud Office (SFO) alleging serial asset stripping using the “Whitewash Procedure”;
• 2009 – Regulatory Investigation (S447) into asset stripping by a shadow director of a series of insolvent companies;
• 2009 – Expert Report for the defence in a case of profiteering from running a brothel;
• 2009 - Regulatory Investigation (S447) into Companies Act offences by director of a series of insolvent companies;
• 2009 – Expert Report for the defence in a case of money laundering brought by the police against a money transmission bureau;
• 2009 – Asset tracing exercise undertaken for the defence team in a major prosecution following the 2006 Securitas robbery of £53,000,000;
• 2008 – Expert Report for the defence in a major West Yorkshire Police case against a group of business men involved in a variety of activities including hand car wash businesses, restaurants, property dealing and various offshore financial activities.
• 2008 – Confiscation proceedings brought by Thames Valley Police under the Criminal Justice Act 1988 of £25,000,000 of Defendant’s assets – matter concluded with evidence successfully being given in Reading Crown Court.  Included tracing exercise involving contact with financial institutions in Pakistan;
• 2008 – Money laundering allegations brought by HMRC – defendant accused of laundering money by way of a gambling habit over a number of years – matter concluded with evidence being successfully given in Birmingham Crown Court;
• 2008 – Tracing exercise involved funds derived from Europe and the Middle East;
• 2008 – Allegations brought by Post Office of theft of around £50,000 against a Sub Post Master;
• 2007- Allegations of unpaid tax and NIC and other money laundering indictments by NCS and HMRC relating to £45,000,000 funds moving through (and being transferred between) numerous Defendant’s bank accounts connected to a “Hawala” money transmission business.  Tracing exercise involved explaining assets moving through Dubai and Hong Kong including contact with institutions in these locations;
• 2007 – Regulatory Investigation (S447) into £100 million turnover property group.
• 2007 – Forensic Report for the defence in a case brought by the DTI against an accountant accused of assisting fraudsters strip assets from company acquisitions using the “Whitewash” procedures.
• 2006- Confiscation following London Underground corruption trial leading to attendance at Guildford Crown Court for ongoing assistance in reducing level of benefit being sought;
• 2006 – Regulatory Investigation (S447) into £35 million turnover trading group involved in VAT fraud (Missing Trader Inter Community MTIC or “Carousel Fraud”).
• 2006 – Fraudulent trading indictments brought by the SFO against directors of a computer company involving “ fresh air” invoicing, cheque cross firing and transactions amounting to around £25,000,000, being funds circulating between connected companies;
• 2006 – “Long firm” UK based fraud where £600,000 credit was allegedly obtained illegally from international suppliers;
• 2006 – Fraudulent trading indictments by DTI (now BIS) where £500,000 was allegedly obtained by factoring fictitious debts using cross firing techniques.

Other recent instructions (2006 – 2011)

• Specialising in a number of fraud investigations to assist smaller businesses and individuals where losses can often be relatively small and not seen as a priority for the fraud regulators or are too small to merit expensive legal assistance pursuing recovery through the civil courts.

• A number of enquiries are carried out each year on behalf of Insolvency Practitioners where fraud has been discovered or is suspected and involve asset tracing and recovery exercises carried out in situations where directors or bankrupts have hidden assets.  Recovery work has included dealing with banks and other institutions in Europe, USA, Middle East, Russia and Asia.

• A range of criminal fraud defence and confiscation work as expert accounting witness is undertaken each year for criminal defence solicitors on behalf of defendants in criminal matters – ranging from small employee thefts of a few £1,000s to multi-million frauds investigated and prosecuted by the SFO.

• Around 30 authorities since 2004 granted for enquiries carried out under Section 447 and 453 of the Companies Act 1985 as external investigator for the DTI (now BERR/BIS)

Confiscation Proceedings and POCA indictments within fraud cases impact a large proportion of the work carried out at Mark Jenner & Co. We see case after case involving anything from a few £1000 being stolen from the DWP to confiscations following major organised attempts to defraud government agencies of £millions.  However, in all cases the initial amount of benefit and hopeful level of realisable assets figure usually bear no relation to the severity of the crime committed, and in most cases after lengthy and expensive proceedings the Crown accepts much more modest terms…

There is no doubt of the commitment of the present Conservative and previous Labour Governments to the Proceeds of Crime Act 2002 and its intended use to cripple organised and career criminals. Criminal lifestyle (no obvious income) cannot always be linked easily to a specific offence – however the recent legislation moves the burden of proving innocence firmly over to the criminals. It has been applied in the field now for a number of years and is becoming a routine process in many cases.

Sometime the process is so routine that prosecutors do not bother to prepare a comprehensive Section 16 Statement, using the freedom they have to make certain assumptions to the extreme! However, this does often lead to a robust defence that can result in more lenient orders for sums being confiscated.

The Section 16 Statements are statements of information that provide the reasons, but not necessarily all the evidence, for applying criminal lifestyle assumptions to the source of a defendant’s assets. The Statement will set out the level of criminal benefit based both on the specific crimes that have been committed and also on the assumptions that other activities are also criminal (i.e. the defendant has a criminal lifestyle). The Statement may also indicate the assets that the defendant owns 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 in relation to the defendant. This is on the basis that they are hopefully covering the level of the actual criminal activity and challenging the defendant to explain everything else. In effect they are often seeking to do just enough to ensure that the defendant loses all he currently owns.

This approach does happen in practice. Unfortunately, although it may deliver draconian but deserved justice for some, it creates a somewhat unfair situation for some 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 (and indeed the rest of us as well) will accept that justice has been served.

However, 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 through subsequent confiscation proceedings. If he is technically deemed to have a criminal lifestyle because he has stolen more than £5,000 over a six month period, the prosecutor will have the opportunity to 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 has ever transacted – going back 6 years from the time of arrest or charge. 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 defence 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 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 a big part of its annual operating budget. It is reducing its spend on expert witnesses, including the forensic accountants, by a disproportionately large amount – 20% was initially swiped of the annual bill with promises of even more cuts. This is around £20 million less being spent on defence experts in the coming year.

The mechanics for doing this were proposed in a consultation paper regarding levels of experts’ fees. It is proposed that a forensic accountant would 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 real 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 sees 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 several 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.

The most recent news is that from 3 October 2011 a new payment framework for expert witnesses is to be implemented by the LSC. A London based firm may charge between £50 – £144 for its forensic staff:

£50 – general staff

£80 – accountant

£108 – manager

£144 – partner

The regional firms are not much different – being allowed rates of between £50 and £135.  At the end of the day, the payments will depend on the competitive tendering nature of the assignation of cases – but composite average rates of £100 seem to be what the LSC are expecting to pay experts on all but the biggest of cases.

Mark Jenner & Co provides specialist forensic accounting services to criminal defence lawyers throughout the UK.