Senior executives in the spotlight

As complex financial frauds will undoubtedly emerge in the wake of the current economic crisis, we are sure to see prosecutors shifting towards using the flexible and wide-ranging charges available under the Act in more serious cases.

However, prosecutors will not just be focusing on the obvious types of fraud where company assets are stolen by employees or investors are duped out of their savings, the activities of senior executives will face greater scrutiny than ever before. In the current financial climate, individuals and companies will come under increased pressure in relation to many day to day activities as they struggle to explain failures to meet forecasts and expectations, think of ways to gloss over bad news, face the temptation to keep quiet about a sudden downturn in financial performance or try to make loan applications more attractive to lenders - all activities which could be caught by the Act.

Particularly relevant to senior executives is the new offence of fraud by abuse of position. A person commits this offence if he occupies a position in which he is expected to safeguard, or not to act against, the financial interests of another person, dishonestly abuses that position, and intends, by means of the abuse of that position to make a gain for himself or another, or to cause loss to another or to expose another to a risk of loss. Furthermore, a person may be regarded as having abused his position even though his conduct consisted of an omission rather than an act. This charge could prove particularly useful to prosecutors in cases where there are allegations that senior executives have acted dishonestly and to the detriment of their company and its stakeholders, while protecting their own position by taking large salaries, pension contributions, share allocations and bonuses.

Company boards and individual directors need to ensure that they are fully aware of their obligations and responsibilities and that the company has in place appropriate policies and procedures to deal with the risk of fraudulent activity. For example, areas of increased risk include:

• manipulating tenders, quotes and contracts to secure work;
• creative accounting;
• not being completely open and transparent with auditors;
• failing to correct representations which are no longer true;
• senior managers using inside information to protect their own position.

The new offences are wide ranging in scope and can apply to board members, senior executives, employees and the company itself.

The Act has filled many of the gaps which existed in previous legislation, and many types of behaviour which, previously, were difficult to charge and successfully prosecute could now be prosecuted with greater speed and ease. Everyone needs to be aware of the risks as the effect on business and individuals can be devastating. The maximum penalty on conviction is 10 years in prison and/or an unlimited fine. Directors can be disqualified and companies can be barred from procurement contracts across Europe.

How can we help?

This is an unprecedented time of financial pressures and market volatility and the authorities are more determined than ever that everyone will play by the rules. If they are to avoid costly and disruptive investigations, reputational damage and the possibility of prosecution, corporates need to ensure that there are adequate systems and procedures in place to detect and prevent fraud.

DLA Piper's Corporate Crime & Investigations team aims to help our clients avoid regulatory intervention wherever possible. We can provide valuable advice and assistance - whether that be training your staff, running risk and compliance audits, managing negotiations and self-reporting, providing advice and assistance during raids, or defending you in court. We can also give our clients a unique insight into the way prosecutors approach their cases because we employ a number of lawyers who have worked in senior positions for the regulators and prosecuting authorities, including the former director of the SFO, Robert Wardle.

Contact Us

For further information, please contact:

DLA Piper Regulatory & Government Affairs Group

Find out more about DLA Piper's global Regulatory & Government Affairs group.