If your company has been the victim of fraud, you will want to take action against the perpetrators via civil or criminal prosecution, or perhaps both. Before reaching your decision however, there are a number of points to consider.
If there is sufficient evidence, the authorities will pursue a criminal conviction. Criminal convictions are based on an evidential standard that is “beyond a reasonable doubt”, whereas civil findings of fraud are based on a lower burden of proof than that applied in criminal cases, although still higher than the usual civil standard of the “balance of probabilities”. It is usually easier, therefore, to obtain a civil judgment than a criminal conviction.
If the authorities do proceed with a criminal prosecution, it is still possible to pursue a civil case; there is nothing to prevent simultaneous civil and criminal actions as long as those pursuing the civil claim also cooperate with the relevant authorities. There may, however, come a time where a civil trial has to be delayed to enable a criminal trial to take place first.
If the relevant authorities do not think that the evidence will hold up in court, or if the crime does not have sufficiently high priority for the authorities, then the fraudster will not be prosecuted. In the current climate, where law enforcement resources are being cut, it is likely that we will see a decrease in the number of fraud cases that are accepted for prosecution.
In the United Kingdom, the recovery of assets in criminal proceedings is normally pursued using the Proceeds of Crime Act 2002 (POCA) under which, if a defendant has been convicted of a criminal offence, a Confiscation Order may be made by the judge, ordering the criminal to pay the amount of his benefit from the crime. This is paid to the Crown, not to the victim of the crime, although there may also be a compensation order granted in favour of the victim.
The victim of the fraud has no control over criminal proceedings, other than being called as a witness.
Civil Recovery Proceedings
Civil remedies concentrate on recovering funds for the victims of fraud. Such actions need not prejudice criminal investigations and evidence gathered in the course of civil proceedings is often used in a subsequent criminal prosecution. It may be possible to obtain summary judgment on a fast track if the evidence is sufficiently compelling.
There are a number of civil recovery tools, such as Asset Freezing Orders and Disclosure Orders, which restrict the dissipation of assets and compel third parties such as banks and solicitors to provide information about the defendant. There are serious consequences for non-compliance.
Which Is the Most Appropriate Course: Criminal or Civil Proceedings?
To determine which options to pursue, the following questions should be considered.
- Do you want to obtain a criminal conviction?
As a high standard of proof is required and resources are limited, the authorities will need to be provided with a comprehensive record of evidence and assurance of continued practical support in order to persuade them to adopt the case. If you are adamant that you want to pursue a criminal conviction, it may be easier to do so after all the evidence has been gathered for a civil case.
- What would be the benefit to your company of a criminal conviction?
-Do you want the proceedings to act as a deterrent?
Both civil and criminal procedures have elements of deterrence. Removing a fraudster’s assets is a major deterrent. Being incarcerated will also be a deterrent to some, although organised criminals may see it as an occupational hazard. Consider who the fraudster is and what type of person is likely to defraud you in the future; what deterrent would work best on them?
-Is your ultimate aim the recovery of funds or assets?
If recovery is the principal consideration then civil remedies are the preferred option as they concentrate on a commercial result for the victim.
In criminal convictions, a Confiscation Order may be granted by the judge if the criminal conviction is successful and victims of the fraud may then apply to the court for a Compensation Order. However, just because a Confiscation Order is made does not mean assets will be recovered; there is over £1.5 billion in fines and confiscation orders outstanding currently in the United Kingdom. Additionally, it is very difficult to repatriate assets from overseas in criminal cases.
- Do you wish to have control over the proceedings and any investigation?
Civil remedies will provide more control over the proceedings when compared with the criminal route where decisions are in the hands of the prosecutors.
- Are you concerned about publicity?
Criminal investigations can create media speculation and unwanted interest. Civil proceedings can be discreet and, if handled well, conducted without adverse publicity.
- Do you have the funds to pursue recovery?
There are various methods of funding available whether on a fully funded, partly funded, or contingency fee arrangement. This applies to both civil and insolvency claims.
The Insolvency Act 1986 gives office holders wide ranging powers to recover assets and carry out investigations. These include the power to compel property and records to be handed over and the cooperation of all former directors and employees of the company, and legal and financial advisors to the company.
If any parties refuse to cooperate, the liquidator can question them in court. There is no right of silence and failure to appear can result in an arrest warrant being issued.
The Liquidator/Trustee has a number of weapons to recover the proceeds of fraud from directors/bankrupts. These fall into two categories:
- The reversal of transactions that took place prior to the company/individual entering into insolvency.
- Claims against directors for the restoration of assets or for them to make compensation payments to the company.
Whichever route you choose will of course depend on your circumstances and the facts of the case.