UK: Newcastle United Managing Director Arrested In Football Tax Inquiry (FS Enforcement Express May 2017)

Last Updated: 13 June 2017
Article by Michael Ruck and Elena Elia

UPDATES

Newcastle United managing director arrested in football tax inquiry

  • Earlier this month, Lee Charnley, managing director of Newcastle United, was among a number of senior European football officials arrested as part of an investigation into the tax affairs of several football clubs.
  • Newcastle United and West Ham United were both raided in the operation which involved 180 officers, and relates to suspected income tax and national insurance fraud.
  • HMRC said "several arrests" were made and industry executives said that the arrests included football agents, and were related to payments made in transfer dealings between English and French clubs.
  • HMRC confirmed that the French authorities are assisting the UK investigation and have made arrests and searched several locations in France.
  • Pinsent Masons partner Jason Collins said: "The scale of these raids is dramatic, even for HMRC. Dawn raids are partly undertaken to send a clear message of deterrence. HMRC wants tax evaders and facilitators to be scared."

Former judge appointed to review Lloyd's handing of the HBOS scandal

  • Lloyds Banking Group have appointed retired high court judge, Dame Linda Dobbs, to assess whether the HBOS scandal was investigated and reported properly by Lloyds following its takeover of the bank in 2009.
  • The review, the findings of which will ultimately be passed to the FCA, will cover the period following Lloyd's acquisition of HBOS in 2009 through to the end of the criminal trial on 30 January 2017.
  • This development follows the FCA's reopening of its investigation into what HBOS knew about the fraud.

Ex-Russian bank chief sentenced to nine years imprisonment over fraud

  • The former chief executive of Vneshprombank, Larisa Markus, has been sentenced to nine years in prison for carrying out one of Russia's biggest ever bank frauds.
  • Markus admitted to stealing $2bn from the bank, leading regulators to shut the bank down, in early 2016, after discovering a Rbs210bn hole in its balance sheet.
  • Prosecutors said that Markus and her brother, Georgy Bedzhamov, the former head of Russia's bobsleigh federation, forged documents to siphon off loans to 286 shell companies, with no intention of returning them. Russia's deposit insurance agency estimates that these fraudulent loans made up as much as 23% of the bank's loan book.
  • The collapse made Vneshprombank the largest lender to 'go under' since Russia's central bank began its crackdown in 2013, which has seen it close over 300 banks.

FCA delays decision on probe into Barclays' Qatar ties

  • The FCA has had to delay a decision over its investigation into Barclays' arrangements with Qatar at the height of the financial crisis after the bank handed over thousands of "significant" documents.
  • The discovery of the latest document cache was prompted by a High Court order granted in February 2017, ordering the bank to disclose key evidence.
  • In 2013, the FCA came to an early determination that the bank failed to disclose arrangements and fees it paid to Qatari investors in 2008, and said it would fine Barclays £50m. The deadline for the watchdog to present its case for altering its conclusions and amending the amount of the fine was previously early May of this year, but the recent document disclosure has forced this deadline to be pushed back by at least several weeks.

US DOJ moves to settle 'Wolf of Wall Street' corruption claim

  • Red Granite Pictures, the studio behind the movie "The Wolf of Wall Street" is in talks with the US Department of Justice to settle a lawsuit against allegations that the film was funded with money diverted from 1MDB, the Malaysian state investment fund embroiled in an embezzlement scandal.
  • In this case, US prosecutors are looking to seize $1bn in assets, including profits from the film as part of an anti-kleptocracy initiative, alleging that the film received illicit finance.
  • Red Granite Pictures was co-founded by Riza Aziz, the stepson of Malaysian Prime Minister Najib Razak, who established 1MDB in 2009.
  • As well as alleging that the film received illicit finance, US prosecutors also claim that Aziz used money diverted from 1MDB to buy various properties in the US and London, as well as several pieces of lucrative artwork.

Lloyds to pay redress for structured product mis-selling

  • Lloyds Banking Group is to pay redress to more than 7,000 customers who were mis-sold structured products.
  • The products in question are said to include the Acorn Market Linked Deposit and Protected Capital Solutions funds, which were advertised as low risk, but turned out to be complex and underperforming.
  • In a letter to affected customers of both Lloyds and its investment arm Scottish Widows, Lloyds said: "We have identified that we did not give you sufficient information to make an informed decision before you made your deposit".

FCA secures eight confiscation orders totalling almost £2.2 million

  • The Central Criminal Court has made confiscation orders against the two final defendants who were convicted of offences following one of the FCA's largest investigations into unauthorised activity.
  • The FCA's investigation, known as Operation Cotton, led to eight convictions and this week's orders mean a total of £2,195,496 will be confiscated from all eight defendants. The eight defendants are Scott Crawley, Brendan Daley, Daniel Forsyth, Adam Hawkins, Ricky Mitchie, Ross Peters, Aaron Petrou and Dale Walker.
  • The two final confiscation orders in this matter draw to a conclusion a significant and successful operation for the FCA. Whilst prosecutions such as these often take some time to conclude it must be a feather in the FCA's cap that it has secured some compensation for the victims of this scheme. The key is now to see if the FCA can push on and secure more convictions of this type and increase compensation levels for the victims in similar circumstances. Lessons will have been learnt by the FCA during its investigation and prosecution which will need to be combined with increased resource if the FCA is to continue its increased focus on successful criminal investigations and prosecutions.

CASES

RBS shareholder trial to begin

  • On 22 May 2017, the High Court trial initiated by thousands of RBS shareholders who allege they lost money in the £12bn rights issue launched by RBS in June 2008 was scheduled to begin, however, it was delayed after RBS issued a renewed offer to shareholders in an attempt to settle the dispute.
  • Jonathan Nash QC, for the claimants, told the judge: "The present position is that the majority of claimants have indicated their willingness to accept the latest offer from the defendant."
  • The hearing was adjourned on 23 May to allow settlement discussions between the claimants and RBS to continue.
  • The investors allege that the rights issue prospectus contained misleading statements about the financial position of the bank under the leadership of Mr Goodwin.
  • Although Mr Goodwin was grilled by a parliamentary committee in early 2009, this trial will be the first occasion when a UK senior bank executive will testify about the events of the financial crisis of 2008.
  • RBS and the four ex-directors named as defendants, including Goodwin, deny wrongdoing.

Top 10 takeaways from SFOv ENRC judgment arising from a Q&A with Saaman Pourghadiri, Junior Counsel in the case, from Outer Temple Chambers

Key points

  1. It is the first judgment which has considered litigation privilege in the context of an SFO criminal investigation. Keys point include:

    1. the purpose of avoiding litigation/prosecution during an investigation isn't a purpose which engages litigation privilege;
    2. the relevant purpose of litigation privilege is conducting litigation; which includes preparing your defence but does not include merely advising someone in relation to litigation;
    3. Raids, warrants, etc. don't amount to litigation which trigger litigation privilege; even if you're on the receiving end of an aggressive criminal investigation by the SFO; and
    4. if someone anticipates an investigation by the SFO, you can't then go on to say that you anticipate prosecution. Unless there is evidence this particular defendant knows of which relates to the matter being investigated, or think might be investigated.

Self-incrimination

  1. To claim litigation privilege, you may well have to incriminate yourself by confessing, saying that I know that I did something wrong, or have evidence that I've done something wrong; and that's why I anticipate litigation.

Evidence

  1. You have to go so far as to show that there is evidence that, on the balance of probabilities, there is a reasonable prospect of your being convicted. In the judgment, it refers to substance in the allegations but does not define how much substance is needed to reasonably anticipate litigation.

Civil litigation privilege

  1. Pre-action notification from a potential claimant in civil litigation is enough to trigger a reasonable expectation of litigation but being placed under investigation by the SFO does not. Litigation privilege becomes much harder to claim in a criminal context than in a civil context.

Precedent

  1. As a High Court judgment, the decision is binding precedent (unless another High Court judge is persuaded that the decision is plainly wrong). It should be treated as authoritative.

Steps to take

  1. It depends if you want the privilege tail to wag on the investigation dog. You have to now assume that your interview notes, if they're taken verbatim or near-verbatim, are going to be disclosed. So it's then a matter for a corporate to decide whether they want to proceed taking detailed interview notes, knowing that they will likely be disclosed to the SFO.

    If you want to proceed and have interviews and take notes without it being disclosed to the SFO, you'll have to do something very artificial. For example, the lawyer will sit in the interview, not take a note, remember what the witness said, go away, remember it, write it down, and intersperse that note with legal analysis of the implications of what has been said. So what you're producing is not an interview note but a note of legal analysis, which contains facts from the witness and that document won't be disclosed.

    It is unclear how practical that is in every case.

RBS similarities

  1. In terms of legal advice privilege the ENRC decision doesn't take a position all that different to RBS.

Appeal

  1. In RBS, Mr Justice Hildyard granted permission for a leapfrog appeal straight to the Supreme Court. It is in the public domain that ENRC are going to be appealing this decision.

Adversarial

  1. The rhetoric about the adversarial context of investigations isn't just coming from the SFO. Mark Steward, the FCA Director of Enforcement and Market Oversight, has stated how, in the context of an FCA investigation, he didn't see these as being adversarial proceedings. This may well show a lack of appreciation of what it feels like to be on the receiving end of an investigation.

Be careful what you wish for...

  1. It may seem convenient for the investigators for privilege to be diluted. But these authorities should be careful what they wish for in that, if it is the case that decisions like this deter corporates from conducting internal investigations, or conducting them thoroughly as they might otherwise do, it's the SFO (and ultimately the public good) that loses out.

The summing up

Tune in to listen to our latest Summing Up.

This special international episode features Neil McInnes and Eunice Lim from our Singapore office, as well as Jenny Burton from the London office. Under discussion:

  • Highlights from a recent speech given by US Attorney General Jeff Sessions
  • An analysis of the latest US SEC whistleblower award
  • A summary of recent developments in the corporate crime landscape in Singapore, Indonesia, Australia and China

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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