F4​​-​​Corporate​​

Fraudulent​​
and​​
Criminal
Behaviour
Fraudulent​​and​​
Criminal​​
Behaviour

INSIDER​​
DEALING:

Insider dealing - trading on the basis of price-sensitive information before the general public has access to that
information.​​Insider​​dealing​​
is​​a​​crime​
​​under​​
Criminal​​Justice​​Act​​1993​​(part​​5).

Offenses​​of​​insider​​dealing​​
(Criminal​​
Justice​​Act​​1993,​​part​​5,​​s.52):

1) Deal​​in​​price-affected​​securities​​on​​
the​​
basis​​of​​insider​​information;
2) Encourage​​another​​person​​to​​deal​​in​​price-affected​​securities​​in​​relation​​to​​insider​​information;
3) Disclose information to anyone other than in the proper performance of their employment, office or
profession.

Definitions​​by​​Criminal​​Justice​​
Act​​
1993:

a) Securities​​covered​​
by​​
legislation:​
​​shares​​and​​debentures​​(s.54);
b) Dealing - acquiring or disposing of securities, whether as a principal or agent, or agreeing to acquire
securities​​(s.55).
c) Inside​​information​​​(s.65):
- Relating​​to​​
particular​​securities;
- Being​​specific​​or​​
precise;
- Not​​having​​
being​​made​​
public;
- Being​​likely​​
to​​have​​
a​​
significant​​effect​​on​​the​​price​​of​​the​​securities.
Types​​of​​insiders:

Primary Secondary

Those who get the insider information directly
through either being a director, employee or
shareholder of an issuer of securities or having
access to information by virtue of employment,
office​​or​​profession.
Any other person who knew, or ought to have known,
that the information in its possession was inside
information.

In​​case​​of​​conviction:

1) Summary:​​Fine​​
not​​exceeding​​
the​​
statutory​​maximum​​and​​/​​or​​a​​maximum​​of​​6​​months​​imprisonment;
2) Indictment:​​Unlimited​​
fine​​and​​
/​​or​​
maximum​​7​​years​​imprisonment.

Defences: ​No person can be charged if they did not expect the dealing to result in any profit or the avoidance of
any​​losses​​(s.53).

MARKET​​
ABUSE:

Market abuse - any behaviour (action or inaction) anywhere in the world, directly or indirectly affecting
investments traded on a UK market that is likely to be regarded by regular users of the market as falling below
the​​standard​​reasonably​​
expected​​of​​
a​​person​​in​​that​​position.

Should​​be​​at​​least​​
one​​
of​​
the​​
following​​
types:

1) Information​​must​​
not​​be​​
generally​​
available​​-​​insider​​dealing;
2) Information​​likely​​to​​
give​​user​​false​​or​​misleading​​impression​​-​​misleading​​statements​​and​​practices;
3) Information​​distorts​​
the​​
market​​-​​rigging​​
of​​the​​market.

Indirect market abuse occurs if a person requires or encourages by action or inaction another to engage in
behaviour​​that​​if​​done​​
by​​
the​​
defendant​​would​​
have​​amounted​​to​​direct​​market​​abuse.

Legislation:

Financial Services and Markets Act 2000 (FSMA) part VIII gives the Financial Services Authority the power to
impose​​civil​​penalties​​
for​​
market​​abuse.

Previously,​​the​​UK​​
relied​​on​
​​criminal​​sanctions​:

- The​​common​​law​​
crime​​of​​conspiracy​​
to​​
defraud​​to​​cover​​rigging​​of​​a​​market;
- The statutory offences of “misleading statements” and “market manipulation”, re-enacted in FSMA as
“misleading​​statements​​and​​practices”;
- Separate​​legislation​​making​​
insider​​
dealing​​a​​criminal​​offence.

Criminal​​sanctions​​have​​
remained.​​
Financial​​
Services​​Authority​​brings​​prosecution.
MONEY​​
LAUNDERING:

Money laundering ​- process by which the proceeds of crime, either money or property, are converted into
assets,​​which​​appear​​to​​
have​​
a​​
legal​​
rather​​than​​having​​an​​illegal​​origin.

Phases​​of​​money​​laundering:

I II III
Placement Layering Integration

Initial​​disposal​​of​​the Transfer​​of​​money​​from Result​​from​​previous

proceeds​​of​​criminal​​ activity business​​to​​business​​or​​place procedures​​through​​which
into​​apparently​​legal​​ business to​​place​​in​​order​​to​​conceal​​its money​​takes​​on​​appearance
activity​​or​​property. initial​​source. of​​coming​​from​​a​​legal
source.

History​​of​​legislation:

Proceeds of Crime Act 2002 seeks to control money laundering by creating ​three categories of criminal
offences​:
 Laundering: Failure​​to​​report: Tipping​​off:

- Assisting​​of​​carrying​​out​​of - Failure​​to​​report​​suspicion, - Contained​​in​​s.333;

laundering,​​contained​​
in
ss.327-329;
- S.327:​​offence​​to​​conceal,
disguise,​​convert,​​
transfer​​
or
remove​​criminal​​
property;
- Concealing​​refers​​to​​nature
source,​​location,​​disposition,
movement​​of​​property;
- Carries​​maximum​​14​​years​​and - Maximum​​five​​years​​and​​/​​or​​a
/​​or​​a​​fine.
contained​​in​​ss.330-332;
- S.330:​​offence​​if​​a​​person
knows​​or​​suspects​​another
person​​is​​engaged​​in
laundering;
- Relates​​to​​professionals​​in
industry,​​for​​example
accountants;
fine.
- Offence​​to​​make​​a
disclosure​​which​​is​​likely​​to
prejudice​​an​​investigation
under​​the​​act;
- Maximum​​of​​five​​years​​and​​/
or​​a​​fine.

Money Laundering Regulations 2007 implemented the European Union Third Money Laundering Directive and
applied​​to​​different​​business​​sectors​​(for​​
example​​financial​​and​​credit​​business,​​accountants).

Companies​​must​​have​​
certain​​
controls​​
in​​
place:

a) Assessing​​the​​risk​​of​​your​​
business​​
being​​used​​by​​criminals​​to​​launder​​money;
b) Checking​​the​​identity​​of​​your​​customers;
c) Checking​​the​​identity​​of​​“beneficial​​
owners”​​of​​corporate​​bodies​​and​​partnerships;
d) Monitoring your customers’ business activities and reporting anything suspicious to the Serious Organised
Crime​​Agency;
e) Making​​sure​​you​​
have​​the​​necessary​​management​​control​​systems​​in​​place;
f) Keeping all documents that relate to financial transactions, the identity of your customers, risk assessment
and​​management​​procedures​​
and​​
processes;
g) Making​​sure​​that​​your​​employees​​
are​​
aware​​of​​the​​regulations​​and​​have​​had​​the​​necessary​​training.