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Private & Confidential. Not for distribution.

©DWF LLP 2014 www.dwf.co.uk

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Financial Crime

A Guide for Health Insurers

Carole Chantler

Kate Archer

October 2014

Private & Confidential. Not for distribution.©DWF LLP 2014 www.dwf.co.uk

What is Financial Crime?

• Definitions

• A variety of offences

– Under statute & common law– Money laundering,

– Corruption

– Terrorism financing

– Fraud or dishonesty offences

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• Victim

• Perpetrator

• Agent

How Financial Institutions/Insurers are Involved

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• Very challenging to measure

• Significant under-reporting to the police

• Perpetrators reliance on various factors

Impact of Fraud

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• Estimated loss £5.4bn annually

• Includes £2.1bn known insurance fraud

• Organised Crime Groups

Financial Impact of Fraud

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• Wide definition

• Increasingly complex transactions

• Increasingly involving non-bank FIs – EG insurers

Money Laundering & Proceeds of Crime

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• Primary offences – POCA – ss327-9

• Secondary offences – ss330-2

• Five key obligations on the regulated sector

• Penalties imposed on individuals & institutions involved

Money Laundering & Proceeds of Crime

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• Regulates institutions providing financial services to consumers

• Statutory objectives

• Eight regulatory principles

The Role of the FCA

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• Enforcement Guide

• Open & co-operative relationship

• Limited resources

• Civil & criminal enforcement powers (Financial Services & Markets Act 2000)

The Role of the FCA

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• Civil Fraud

– False representation has been made knowingly, or without belief in its truth, or recklessly, without caring whether it is true or false – Deek v Perry (1889)

– Not a cause of action per se

– Examples: fraudulent misrepresentation, tort of deceit, conspiracy, breach of fiduciary duty, breach of trust, dishonest assistance

Civil & Criminal Fraud Offences

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• Criminal Fraud

– The Fraud Act 2006

– Applies when a person dishonestly:-– Makes a false representation – s2

– Fails to disclose information when under a legal duty to do so – s3

– Abuses a position of trust – s4

– … with an intention to make a gain or cause a loss or risk of loss to another

Civil & Criminal Fraud Offences

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• Other offences under the Fraud Act 2006

– Obtaining services dishonestly – s11

– Possession of articles for use in fraud – s6

– Making, adapting, supplying articles knowing it is designed or adapted for use in fraud – s7

Criminal Fraud

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Civil v CriminalCivil Fraud Criminal Fraud

Burden on the Claimant Burden on the Prosecution

Lower standard of proof Higher standard of proof

Control rests with the victim Victim has less control (but confiscation & compensation orders possible)

Focus on redress rather than public policy In public interest

Powerful remedies available No costs recovery

Claim determined by an experienced judge Trail determined by lay jury

Settlement is possible

Likely that claim attracts less public attention Claim is in public domain – more publicity


• Identify all parties involved

• Establish any relationship between fraudster & victim (essential if an insider fraud is suspected)

• Retain all documentation & preserve any equipment used by suspected fraudster (computer, laptop, Blackberry etc)

• Attendance notes of all telephone conversations & meetings to be maintained & filed by encryption

• Instruct lawyers to establish legal privilege

Gathering & Preserving Evidence

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Why Commit Fraud? The Fraud Triangle


• Key elements

– Creating & maintaining a culture of honesty & integrity;

– Evaluating the risk of fraud & implementing processes, procedures & controls to mitigate the risks

– Developing an appropriate oversight process

Creating an Anti-Fraud Culture

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• Strong, ethical & anti-fraud culture is essential to identify & deter internal fraud;

• Communicate the organisation’s anti-fraud policy

• Put in place & implement whistleblowing policy

• Ensure recruitment checks & disciplinary procedures are suitable to detect & address potential problem employees


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• Operate & implement controls & procedures effectively & act when breaches occur;

• Review controls & procedures routinely to ensure they are fit for purpose;

• Ensure good communication within organisation to create a positive working environment to remove threat of “rationalisation”

• Ensure employees feel comfortable in approaching managers with concerns & problems


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• Behavioural

• Financial

• Procedural

• Organisational

Fraud Indicators

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• Use the fraud indicators, consider how they apply to your organisation & use them with broader risk management strategies;

• Take account of new business activities &/or control procedures which may open up potential new fraud risks

• Involve staff in identifying & discussing fraud risks & how to prevent fraud occurring

Detecting Fraud Internally

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• Implement systems & processes to detect the early warning signs of fraud

• Have a fraud response plan which clearly defines roles & responsibilities

Detecting Fraud Internally

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• Developing strategies for information sharing?

• Scrutinising policy wording with underwriters to protect at front end?

• Educating policyholders as to processes when making a claim?

• Educating staff for awareness of trends?

• Raising fraud awareness with providers, members & staff?

Are You….

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• Have a process of sharing information with other insurers to map trends?

• Have a process for dealing with fraud?

• Invest in training of staff to:

– Spot abuse of policy?

– Initiate process when fraud suspected

– Ensure appropriate gate keeping of claims across all domains?

Do You….

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• Mount vigorous recovery actions

– Civil?

– Criminal?

– Both?

Do You…

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• Cost of investigation – internal wasted costs & spend on external advisors

• Effect on staff morale (particularly if internal fraud)

• Involvement of the regulator/authorities

• Publicity

• Effect on Board, shareholders, share price

Consider the Impact

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Our firm is driven by its core Values which focus on:

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©DWF LLP 2014DWF LLP is a limited partnership registered in England and Wales with registered number OC328794. The content of the Regulatory and Licensing Insert does not constitute legal advice and should not be relied on as such. Specific advice should be sought about your specific circumstances.

private & confidential. not for distribution. ©dwf llp 2014 go further title needs degree sign...

Documents

dwf llp

fraud s7 criminal fraud

fraud act

fraud s6

financial crime

civil v criminal civil

dishonesty offences

variety of offences