James McMillan: Scotland has become a financial crime hotspot
James McMillan, director at law firm Anderson Strathern, warns that Scotland has become an international hotspot for financial crime.
In the UK context when you think about white-collar crime over the last couple of decades, names like Barings Bank, the Bank of Credit and Commerce International (BCCI), and Polly Peck come to mind. While we haven’t seen bumper cases like these in more recent times, white-collar crime continues to make the front pages and statistics have revealed that corporate fraud has increased during the pandemic. From a legal point of view, it remains a thicket when it comes to the processes in place.
The recent postponement of a trial against three former G4S executives accused of defrauding the taxpayer on prisoner tagging contracts raises questions about the length of time taken to prosecute financial crime.
The trial is accordingly likely to take place approximately 10 years following the initial Serious Fraud Office investigations. The SFO began investigating G4S in 2013 and agreed a £44 million plea deal with the company to settle three fraud offences against the Ministry of Justice between 2011 and 2012. G4S accepted responsibility for a fraudulent scheme regarding the true extent of profits it was earning on a contract to tag prisoners. The company was able to avoid criminal prosecution in return for paying a substantial fine.
The prosecution of financial crime is in the public interest but creates a number of difficulties for the Crown Office and Procurator Fiscal Service in Scotland when faced with a complex fraudulent scheme. Procedural failings in relation to the Crown’s disclosure obligations (often thousands of documents) are not unknown.
Resources and expertise dedicated to the prosecution of financial crime in Scotland are often underwhelming as the prosecution of a number of professionals and companies has highlighted. As a result, Scotland has to an extent become a financial crime hotspot for those seeking to perpetrate money laundering and fraud. An online investment scam across Europe which turned over €10 million a month between 2017 and 2020 involved a Scottish company named by German prosecutors as Remini Consulting.
NatWest Bank pleaded guilty last month to charges of failing to prevent money laundering of £400 million and a substantial fine is expected to be handed down by the court next month. The newly introduced UK Government’s economic crime levy will be paid by entities subject to the Money Laundering Regulations. The purpose is to fund new Government action to tackle money laundering however whether such a levy will assist in tackling the route problem remains to be seen.
Fighting economic crime requires substantial resources and the recruitment and training of investigators in order that they have the skillset to assist in the prosecution of such crimes. In one recent case, prosecutors were faced with a potential review of 300,000 WhatsApp encrypted messages. The sending of ephemeral messages by employees raises a number of issues for businesses attempting to ensure they are following all relevant protocol around regulatory compliance.
Audits and continuous improvement within the compliance function of any business can assist in the detection and disruption of financial crime. However, in Scotland we will require initial detection and prosecution of such crimes to increase and this can only occur with significant investment and training.