INTRODUCTION

The first point I would make is that this is there is not any single solution to the problems posed by cross-border business crime. The approach is necessarily based on experience of previous cases and adapting techniques to new facts and circumstances. Why is this? It is because however global business is becoming and however much criminals disregard national and state boundaries, the law is still local in its jurisdictional effect and application. This is a trend and a limitation emphasised by the advent of the Internet and its widespread use. It is a feature that exists despite limited exceptions, such as the attempts at concertation within the EU and the muscular exercise in some circumstances of "long arm" jurisdiction by various nations including, for example, the US. This is a problem for national authorities trying to fight the spread of money laundering, corruption and fraud. It has been given new urgency by the war on terror.

At the state level, these concerns have led to the establishment of a number of initiatives. The G-8 group of economic powers has set up a senior experts' group on Trans-national Organised Crime. The Council of Europe has issued a draft convention on crime in cyberspace. It is interesting that states which are not members of the Council, such as the US, Canada, South Africa and Japan, have participated in the work of preparation. The European Union has been active too as it seeks to bring together the efforts of the member states, for example in the Corpus Juris proposals. The UN Convention on Trans-national Organised Crime of 15 December 2000 requires member states to ensure that their domestic[Page29:] laws are adequate to combat organised crime. In the United Kingdom, the Government and various other agencies, such as the Serious Fraud Office and the Law Commission, are concerned about the effectiveness of our laws, the resources available to the police and prosecutors and the ability of our courts to cope with the increasing incidence of business crime.

What does this mean, therefore, for an international law firm such as mine, asked to advise and assist a client that is the victim of business crime on an international scale? In discussing this I shall focus for the sake of simplicity on the victims of fraud, but the issues are similar whatever form the business crime takes. The civil law and those working in it have none of the coercive powers available to state agencies, even if those are presently regarded as inadequate. What cannot be achieved by voluntary co-operation can only be obtained very often by long and expensive proceedings in court.

1. AWARENESS

We begin with awareness of the implications internally, amongst our lawyers and other members of staff. This involves training and education in the relevant law. That much is obvious. It is important to extend this however to the sharing of practical knowledge and experience with clients, regulators, the police and private investigators who have case studies to share. In addition, in a firm such as mine, which does not have, nor wish to have, a specialist criminal law expertise and practice, it helps to have good relations with firms that do. Such relationships are helpful for the same purpose and also in having readily available expert help on those occasions when a client's needs are such that they require a different sort of specialist help.

Awareness also involves the education of clients. The subject of this paper is not always one that excites clients. Nor is it one that many feel is relevant to them

- in the same way that some dreadful illnesses always happen to other people.Yet the statistics are truly alarming. According to a European Commission report of July 1998, $3 billion was being lost each year as a result of credit card fraud.

Fraud is reported to cost the UK £14 billion per year. History shows that these sorts of business crime can strike even the most reputable and apparently well run businesses - for example Enron, and Barings, the famous British bank that disappeared a few years ago. [Page30:]

Our experience is that too many clients have little or no knowledge of the issues; they demonstrate a lack of sophistication in dealing with these problems and their reactions to emerging problems are often ones of shock, shame and horror that such things could happen to them.

Against this background, a law firm must demonstrate understanding, sympathy, discretion and the ability to advise and act decisively.

2. THE ENDLESS VARIETIES

Fraud, corruption and money laundering are often hard to recognise. Part of the problem is that to be successful they have to appear as normal, justifiable, plausible transactions. Another part of the problem is that they take many different forms. Whilst there are certain basic types which are repeated again and again, the clever criminal will evolve new schemes to try to hinder detection. I will give three examples of each type of business crime that I have come across recently, just to have them in mind as we go through the topics covered later in this paper. Some of them overlap.

Money laundering:

a company placed a contract to buy currency at a future date at a favourable rate and on favourable terms; it transferred £5 million to the dealer's account, but at the appointed date, no foreign currency was forthcoming. Upon taking this up with the management of the dealer company, a variety of excuses were given. Eventually, and under a lot of pressure, the £5 million was repaid in instalments. On investigation, it appeared that the managing director of the dealer spent a great deal of time in Ukraine. He said that it was because he was providing advice to the government of that country on the banking system. Why such a government would turn to an obscure foreign exchange dealer was never clear. It appeared that he might have links to mafia elements. The matter was reported by the company to the British National Criminal Intelligence Service which subsequently moved in on the dealer and made various arrests. This case was also a fraud in that the client, whilst successful in recovering its capital, was deprived of the use of its money for several months without recompense.

Corruption:

a multi-national company does a great deal of business in countries in Asia. It is the custom in many places for gifts to be offered, and indeed expected, as part of the building of a relationship. When is a gift a bribe or an inducement to do business which would not otherwise be done? On the other[Page31:] hand, to refuse a gift or not make one when it is customary in the local culture to do so can ruin a good prospect. In one case, a handsome watch worth many hundreds of pounds was offered to a senior executive. The solution the company adopted was to tell him to accept, to sell the watch and donate the proceeds to charity all in an open way. To avoid embarrassment in the future, as he would clearly not be wearing the watch when he met the giver, he was transferred elsewhere at an early opportunity. It is not always easy or sensible to do this and the solution here is not a good one, but these are very difficult questions. With the advent of new laws, mirroring the US Foreign Trade Corrupt Practices Act and implementing the OECD Anti Bribery Convention, this is an acute area for international business.

Fraud:

booking fictitious transactions: I have seen this done in banks, insurance, computer leasing, and the fertiliser industry, amongst others.

An alarming new source of financial crime is the Internet. It is estimated that worldwide trade over the Internet will be worth more than $1.3 billion by 2004. In that context, it is frightening that gullible people will do things that they would not do otherwise. For example, I came across the case of a US online bank whose customers received an email telling them that the bank had had some problems with their records. The email asked the customers to reply with details of their accounts by re-registering. It provided a link, which was very similar to the bank's. Of course, it was not the bank's, but 250,000 people still re-registered and lost money.

3. ROLE OF INTERNATIONAL LAW FIRMS

It is necessary to begin by the resources required.

Lawyers experienced in these matters must be available at the client's "home" office. They should be experienced not only in the law and its application to the issues, but also in how to work with the domestic authorities. The police, prosecutors and regulators have different interests amongst themselves and certainly to the client, but co-operation with them can often be useful. To have a difficult relationship with them can often be very damaging.

Such lawyers should also be experienced in knowing that things are different abroad. I will touch on some points later, but it is very easy to think and act as if things must be done the same way abroad as they are at home. If one is faced[Page32:] with a multi-national fraud and a multi- jurisdictional investigation, a keen sense of what needs to be done and by whom is essential.

This leads to the need for a reliable network overseas of lawyers and investigators. The lawyers should be capable of assisting with the civil, criminal and regulatory issues arising. In some countries these are more or less dealt with by one or two bodies; in other countries, for example, the US, there can be a multiplicity of agencies involved at the federal and state level and lawyers experienced in finding a way through the maze are a must.

Lawyers are not all, however.

Today, much business crime is a highly involved and sophisticated affair. Investigators are essential to obtain information, trace witnesses, final assets and generally help with gathering facts and evidence. They come in many different guises, ranging from large multinational organisations like Kroll or Control Risks to one or two person firms. Whatever choice is appropriate in terms of size, one element is essential: they should be people of integrity who will only operate within the law and do what it is proper.

Experts in any number of different fields may be necessary. IT specialists are often required to examine computers and obtain information from them which the suspect had sought to delete but may have done so unsuccessfully. Accountants may be required to help with the accounting trail of suspicious transactions. An expert may be required in the practices of an industry to help gain an understanding of why certain things are done or not done; and so the list goes on.

An international law firm needs to be aware of risks involved. There are two significant areas of risk to bear in mind. The first is that of personal safety. I refer not to threats of violence from criminals, but to the need to observe the law in countries where inquiries are to be made. For example, in Switzerland it is against the law, so I have several times been advised, for a foreign lawyer to enter that country and interview prospective witnesses. That is regarded as being exclusively a matter for the police and judicial authorities. There are ways around this with a willing witness or informant - basically it involves him or her travelling outside Switzerland to be interviewed. If the person is unwilling, then it may be necessary to seek the help of the courts through letters of request[Page33:] under the Hague Convention. In many countries that is a less than perfect solution, because even if the courts will help, it is often not possible to ask questions other than those set out in the request. Even where it is possible to ask more than this, the topics are usually limited to those specified and it is difficult to go into areas that arise unexpectedly.

The second area of risk arises from the need to check that a law firm abroad is in a position to help and does not have a conflict of interest. In providing the information that the foreign firm needs to confirm this, the risk is run that it is indeed acting for the person the subject of the inquiry who may then be tipped off about what is happening. If that happens, he might be able further to cover his tracks. There is not much that can be done about this. In many parts of the world, where lawyers are plentiful it is unlikely to be a major risk. In small states, where there are only a small number of lawyers, the risks are considerably greater. Indeed, these are more than proportionately increased in cases of sophisticated business crime. In such instances, the criminals may have used vehicles in so-called offshore locations and retained local lawyers to set them up and run them. For example, some years ago I was involved in a big insurance fraud case in the City of London, in which premiums had been siphoned out of a well known group of insurance companies to the benefit of a small number of senior executives. The vehicles used were companies set up in countries like Bermudas, sheltered behind Anstalts set up and run in Liechtenstein. In such circumstances, caution is required in approaching law firms in small places to ensure that they have no links to those under investigation.

4. OBJECTIVES

In setting out to help clients who have suffered from one of the forms of business crime, a lawyer needs to know what objectives his client has in mind. This will vary from client to client. It is often the recovery of compensation. Equally important for many is the protection of reputation and the integrity of the brand. For others it might be to know what has happened in order to learn the lessons and put in place new procedures and policies to prevent a recurrence. For some it will be a combination of all of these, and maybe other considerations will play a part too.

If the objective is to recover compensation, how far is the client prepared to go? Does the client want a quick settlement? Is it prepared to go all the way to trial[Page34:] and judgement? Many are the times when in the heat of the moment clients say things like "It doesn't matter how much it costs". Yet after a few months or even years, and after the expenditure of tens, if not hundreds of thousands of pounds, senior executives begin to have second thoughts. Although it is not the easiest time to do so, it is important at an early point to help a client understand what is going to be involved in dealing with a major piece of business crime. It is not just the financial cost involved, but also the commitment of time and attention on the part of senior management and directors, the disruption to the normal business and duties of colleagues in the company and the risk of claims and counterclaims of responsibility - passing the buck. It is worth noting here the example of Wickes plc. This company was the victim of a fraud a few years ago. Indeed the trial of those alleged to be responsible is still running. At an early stage the new management and directors decided that they would not pursue civil claims for damages because, taking all the circumstances into account, they considered it was not in the company's interests to do so. Often, suing and letting things take their course through the courts is the easy option.

Whatever the objectives, the first task of the lawyer is to obtain information. What has happened? Who did what, when, where, why and how?

Information is not the same as evidence. How to obtain evidence is the subject of a separate paper, but the firm must always be alive to the need to collect evidence to support its client's case or damage the opponent's.

To this end steps need to be taken urgently at the beginning of an investigation into money laundering or fraud to preserve documents and all computer generated or stored material especially emails, audio tapes and video tapes. Any document-destruction policy must be suspended immediately. Bearing in mind, in an international case, the differences in time zones, co-ordination of such activity so that it happens simultaneously can be of vital importance to avoid tipping off accomplices and giving them time to destroy evidence.

Assets which may be the product of the crimes need to be identified and preserved

- if necessary by going to courts in the relevant countries. Similar considerationsof timing apply as to the preservation of evidence. Otherwise the risk is run that assets will be moved on and disappear[Page35:].

These are areas where effective management and co-ordination of cross-border legal work is at a premium. Lawyers in different states need to work to a common plan, taking into account the different jurisdictional and procedural rules of their respective countries. They must be consistent in the actions they take and the pleas and arguments made.

In some countries a complaint to the local prosecutor can lead to the authorities taking swift action to restrict the movements of suspects and "freeze" their assets

- much more quickly and cheaply than is the case in England, where this invariablyrequires an application to the court by the aggrieved person. Some years ago, I was involved in a case in which a bond dealer employed by a leading bank had committed a significant fraud. He fled to Switzerland where it was believed he had transferred his ill-gotten gains. A complaint to the Swiss police led to his arrest for questioning and the freezing of his Swiss bank account. All of this was more done quickly and effectively - and certainly more cheaply - than the clients and their UK and US lawyers could have managed unaided.

In some countries, court procedures at this stage are private, whilst in others they are public. Is publicity welcome or unimportant? Whichever the case, there may be options to be pursued elsewhere. Sometimes, it is an advantage to let the suspect know he is being chased. On other occasions the opposite is true, especially if more time is needed to build the case against him. One important consideration will be whether there is a continuing risk of further criminal activity.

5. LIAISON WITH AUTHORITIES

I have touched already on the possibility of enlisting the help of the authorities, but there is a need to spend a little more time on the question of liaison.

The first and most important question is whether there is a duty to make a report to the police or a regulator. In the UK, as part of the nation's response to the threat of money laundering, it is the duty of certain professionals to report suspicion of money laundering to the police. The class of people affected by this duty is to be extended following the second EU money laundering directive. This, however, is an exception to the rule. It is not generally the case that there is a duty to report crime to the police in the UK. Other countries have different rules and this needs to be considered in each case. [Page36:]

Even if there is no duty to report, is it advisable to do so? Can the authorities help? I have already given the example of the help the Swiss police gave in a fraud case. One of the considerations is that they have a different set or priorities and interests. They may as much hinder as help.

What of others? A publicly listed company may have an obligation to make an announcement if what has happened if sufficiently material. Banks, bond holders, and other creditors may need to be informed too. In the case of an international business, that could be a formidable task and lawyers in a number of countries might have to be consulted as to the nature of any report and its content so that this is correct in local terms. There may be a need to reconcile what it is appropriate to report to third parties and what it is in the interests of the investigation and later prospects of achieving the company's objectives to reveal. Lawyers do not like to reveal their hand before they have to in case they give their opponents an advantage.

Finally, it will be necessary to see if there is any applicable insurance cover, for example, fidelity insurance. If there is, then before anything is done, insurers should be informed of what has happened so that their interests are not prejudiced and action may be co-ordinated with them.

In any case, there may be a question about the responsibility of third parties, for example, colleagues within the business who have not done what they should have done to protect the company's position and assets. The auditors may have been negligent. There may be insurance cover available to such third parties and, if so, there may be a need to give notice of a possible claim so that it is reported to insurers and they are thereby put on notice. This may be especially important if there is a risk of cover no longer remaining available when insurance markets are in turmoil, cover is increasingly hard to get and most policies apply on a claims-made basis.

6. REPUTATION AND PR

We have seen only too graphically in the last 12 months what can happen to global corporations of apparent solidity and success when business crime is seen to have occurred within them. Nor is this phenomenon new. In Britain several years ago, Barings Bank was destroyed by a fraud. Personal reputations and livelihoods are broken too. [Page37:]

Not all businesses which are affected by fraud, corruption or money laundering are destroyed utterly, but they may still suffer grievous harm. Legal steps can only do so much to help and in any event the legal process is usually a long one. Other things may have to be done - new management brought in a visible demonstration to stamp out previous bad practices given, and press and PR management implemented.

There is often a need to co-ordinate the legal activities with what needs to be said publicly to explain to investors, suppliers and customers what has happened and what is being done. Neither line of activity should impede the other, and this requires close working together and exchange of information - within the limits of what is legally possible.

7. MULTI-JURISDICTIONAL ISSUES

As already stated, there are different ways of doing things in each country. The first starting point is usually to decide in which court to bring the main case. There may well be other courts in other countries where interim measures will be sought to protect and preserve assets and evidence. Such matters are regulated in the European Union and the European Economic Area by a regulation and by the Brussels and Lugano Conventions. In respect of other countries there is no similar multinational solution, and it needs close work with lawyers in the local states to work out what is possible and advisable.

This needs to be done - and the whole inquiry managed - in the knowledge that there are different rules governing professional secrecy, or legal professional privilege, in each country. What may be withheld from disclosure in one country may not be in another. This is not only a difference between civil and common law approaches. There are significant variations between the US and UK on such issues.

These points are also clear in respect of disclosure of documents or discovery as it is often known. This is a process that is hardly known in civil law countries. In them, the notion that a party to litigation has to disclose documents which are adverse to his interest is greeted often with incredulity and dismay. In the US the scope of discovery is even wider that in England. It extends to the interrogation of witnesses on deposition and is regarded by many as extremely intrusive, burdensome and costly[Page38:].

Finally, on this section, there is the need to observe the law in each place where information and evidence is being sought. This may appear an obvious point, but it is overlooked from time to time deliberately or by inadvertence.

A few years ago, the English High Court was presented with an issue about reports on a suspect's bank accounts obtained in breach of Swiss banking laws and the English Data Protection Act. The court was asked to order that the reports, which were in the hands of the plaintiffs' lawyers and privileged, be produced to the defendant, because they had been obtained as part of a criminal or fraudulent act. The court agreed. The law report does not disclose whether the court permitted reliance on the reports after that, but it illustrates the importance of behaving properly in each country or state concerned.

The law that is relevant in the UK for this purpose and the type of which is likely to be repeated in many countries includes: the Data Protection Act 1998, the Protection from Harassment Act 1997, the Computer Misuse Act 1990, the Regulation of Investigatory Powers Act, the Human Rights Act 1998, and the common law relating to breach of confidence, trespass, nuisance and copyright. Some countries have, unlike the UK, laws giving a right of privacy which will have a significant impact on the ability to garner information.

8. CLIENTS' OBJECTIVES AND STRATEGY

I have already mentioned the need to establish objectives and strategy at an early stage. It is worth making the point that once fixed it should not be assumed that they remain good for ever. They should be re-evaluated when new information of importance comes to light and as the inquiry progresses. Directors and management have their own legal responsibilities and need to keep these in mind. In England they are said to have fiduciary duties, i.e. to act in the best interests of the company of which they are directors. Lawyers can help directors discharge those duties. Such help is particularly useful if a director is possibly subject to conflicting duties. In addition, and as one aspect of this, there will be occasions when a director occupies that function both in the holding company and also in a subsidiary which has been the victim of some form of business crime. That director must act in the best interests of the subsidiary, especially if there are other interests involved, e.g. banks. If he cannot satisfy the requirements of both companies, then he must resign. The company's lawyers can help him see what he must do, although clearly they cannot advise him personally. [Page39:]

9. THE LAWYER'S DUTY

As in the discussion above about the director's position, it is to act in the best interest of the client and not to take advantage of the client or to put his own interest first. That means that however much he becomes interested and enthusiastic about the work on the case, he must remain objective and independent about the effect of the evidence, the prospects of success, the value of what is being done and achieved, weighed against the costs of getting thus far and likely to be incurred. If that means that he concludes that a particular line of inquiry is unsuccessful or likely to be so; or, that the objective sought by the client (for instance, a quick settlement) is unlikely to be achieved, then he must not hesitate to advise the client accordingly.

The lawyer must always act within the law and with propriety. This is so not only for his own sake, but because of the consequences for the client if he fails to do so.

Finally, the lawyer must not forget that he has his own legal responsibilities, not just professionally under his bar rules. I refer in particular to the duties under the money laundering rules in the United Kingdom, which may have now or shortly their equivalents in other countries. A British lawyer has an obligation to report suspicion of money laundering even if his client does not or does not wish him to. It is a criminal offence for him to fail to do so if he has reasonable grounds for suspecting that a money laundering offence has taken place. This is an objective standard, so that even if he did not form the suspicion, because he was negligent in not realising that he had grounds for so suspecting, he has still committed an offence. In the money laundering example I gave earlier, both lawyer and client would have had independent obligations to report their suspicions.

Care also needs to be taken over who is told that a report has been made. This is because there are legal prohibitions about "tipping off " a suspect. It is a criminal offence for someone to tell another that, for example, a report has been made about him to the National Criminal Intelligence Service. A lawyer cannot therefore do anything which may have the effect of warning a client that a report has been made about him. The safest course then for the lawyer is to act in accordance with the directions of NCIS - not the happiest basis for a lawyer-client relationship, but regarded by Parliament as a necessary consequence of the fright against crime and terrorism. [Page40:]