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Being arrested for fraud can turn the life of you and your family upside down. For many accused of white-collar crimes, knowledge of the criminal law system is limited at best, non-existent at worst. This can lead to a willingness on the part of the accused to fully co-operate with investigators, believing that the truth will prevail. Unfortunately, what often happens is the person under suspicion severely jeopardises their case due to their lack of understanding of the motivations and tactics used by authorities in fraud cases.
The other all present danger of complex fraud investigations and trials is media interest. Take the case of Patisserie Valerie. The company collapsed into administration in early 2019. According to information sent to potential bidders for the stricken cafe chain, accounts dating back to at least September 2014 contain erroneous figures. In 2018, a £40 million hole was found in the organisation’s accounts. This has led to the arrest and bail of the former finance director, Chris Marsh. The accountancy firm Grant Thornton is under investigation for its role as the auditor. The investigation is likely to take around two years to complete.
The allegations of fraud, shareholder frustration at the lack of information, and the fact the business ultimately fell into administration has resulted in critical damage to the Patisserie Valerie brand, not to mention Grant Thornton. To mitigate the risk of severe reputational damage it is imperative to call in expert legal advice the moment a suspicion of wrongdoing comes to light.
In December 2018, two former Tesco executives were cleared of fraud after Sir John Royce threw the case out of court for lack of evidence.
Chris Bush, former UK managing director, and John Scouler, former UK food commercial director, were accused of manipulating figures that resulted in Tesco’s profits being overstated by around £250 million.
Both denied the charges.
In R v Scouler and Bush (unreported), the Court of Appeal upheld the Court’s ruling that there was “no case to answer”. The judgment came after Tesco Stores Ltd accepted responsibility for false accounting practices through a deferred prosecution agreement (DPA) in March 2017.
In January 2019, a third director was cleared of wrongdoing.
R v Scouler and Bush illustrates the value of instructing an experienced fraud barrister who can quickly spot weaknesses in the SFO’s evidence, resulting in the regulatory body losing a submission of no case to answer.
Having an understanding of what occurs during an arrest for fraud and your legal rights will ensure you are empowered to protect the best interests of you and your business.
To deprive a person of their liberty, there must be:
If either of these requirements is not met, the arrest may be invalid and the detention unlawful under Article 5 of the European Convention on Human Rights.
Section 24(1) of the Police and Criminal Evidence Act 1984 (PACE 1984) gives the power of arrest to an HMRC officer in respect of tax offences. They can arrest a person who is about to commit an offence, in the act of committing an offence, or who the arresting officer has reasonable suspicion is about to or is committing an offence, without the need for a warrant.
To make a lawful arrest, the HMRC officer must believe that arrest is necessary for one of the reasons stated in section 24(5) of PACE 1984. An experienced barrister or solicitor will carefully examine the circumstances of your arrest and challenge the HMRC on the necessity of their actions.
If you are arrested, you must be brought to a police station straight away. After opening the custody record and informing you of your rights, which includes the right to contact a legal representative, the officer must determine whether there is already “sufficient evidence” to charge you.
If you are charged, you will either be released on bail or remanded to be brought before the Magistrate’s Court.
At the police station, your barrister or solicitor’s role is to “protect and advance” your legal rights. One of the main forms this takes is ensuring that you refrain from giving evidence which strengthens the prosecution’s case against you. This is especially important if you are interviewed under caution – an action the HMRC is highly likely to take to further their investigation.
The SFO has no power to arrest a person; however, they can carry out interviews under caution and surveillance and will work with the police if an arrest is required.
SFO investigations take around five years to complete. There are several reasons for this including the amount of evidence and its complexity, the fact that evidence often must be obtained from other jurisdictions and the process of forensic investigation on the evidence collated.
Having an experienced barrister/solicitor working with you from the start of an SFO investigation is essential. Serious questions were raised regarding the fact that Tesco entered into a DPA consisting of a £129 million fine and £85 million compensation for investors, despite the fact the prosecution was dropped because the SFO’s case was “so weak” there was no case to answer. The DPA documented that the three executives did partake in wrongdoing, stating they were “aware of and dishonestly perpetuated the misstatement [of figures]” leading up to market statements in August and September 2014, “thereby falsifying or concurring in the falsification of accounts or records made for an accounting purpose”.
Tesco entering into a DPA which specifically ascribed wrongdoing to their directors, who then had their cases thrown out of court because the evidence against them was so weak, demonstrates serious flaws in the process. To avoid such a situation occurring, it is vital that all legal advisors communicate effectively, with a senior barrister leading the team to ensure a clear, logical strategy is mapped out which considers the possible results of the regulatory investigation and individual director prosecutions.
The fact the DPA and the court in the Tesco fraud investigation/trial contradicted each other in their findings shows how complicated a case of corporate fraud can become following years of investigation and analysis of mountains of complex evidence.
If you have been arrested for fraud, or are being investigated by the SFO or HMRC, experienced legal advice is critical. Having no experience or support when dealing with regulatory enforcement officers or the criminal justice system could result in the destruction of your company, career, and reputation.