False Accounting Cases under Section 17 of the Theft Act 1968

fraud solicitors

Our fraud solicitors are specialists in a crisis

False accounting has become more and more significant firstly with the industrialisation of society. While it has been said that in business ‘cash is king’, it is increasingly true that without accurate financial records, modern business and government operations flounder. False accounting cases are high on the priority list of the CPS and FCA, especially given the post financial crisis political climate. But just being accused of a criminal offence is not the same as being guilty. You have the right to expect a proactive defence from a specialist fraud defence solicitor if you are unlucky enough to find yourself in the firing line of an investigation or prosecution.

Our criminal solicitors often find that when this type of activity takes place, it can be a result of naivety or weakness, against the background of personal or business difficulties, rather than out of personal greed. We are non-judgmental, and our job is to help the client navigate his or her way through this ordeal.

We are regularly instructed in cases in which fraudulent misrepresentations occur in financial records, often involving many millions of pounds of benefit or loss. Some of our recent experience includes a case involving allegations of large scale, multiple defendant conspiracies. Examples of such cases include the embezzlement of funds from one of the World’s largest management consultancies, another case involving false financial declarations by the Vice President of one of the largest technology and media companies in the world, and many cases of wrongdoing by significant members of institutions in the City.

We have included a free guide below to how the law in this area works, and some of the practical aspects of this type of case that a client should be aware of.

What is False Accounting?

False accounting is the dishonest altering, destroying, hiding, or fabricating of accounts records with a view to gain for oneself, or cause loss to another. It also includes providing misleading or deceptive documents, or omitting relevant documents when accounts information is requested.

This activity can arise in numerous situations, often to cover up something that had happened before: for example, in an attempt to cover up a theft or financial losses, the classic example being the use of the famous ‘five eights’ account by ‘Rogue TraderNick Leeson to conceal losses from unauthorised trading resulting in the £800 million collapse of Barings Bank in 1995. It also occurs in circumstances where the accounts are falsified in order to give a false impression; for example, to obtain credit, to inflate the price of shares, or to make a business seem more profitable than it actually is.

Concurring in the above practices, i.e. having knowledge that it is going on and allowing it, is also covered by the law.

Someone involved in making an entry in an account which could be misleading, false or deceptive in a a significant way, or who leaves out something relevant from an account or other document, is treated as having falsified the document (or account).

A record or account does not have to be a document. A turnstile meter at a football stadium and a taxi meter may be records. A document or record need not be an account, as long as it has an accounting purpose. Loan proposal forms, for example, could be considered accounts.

Falsification can include the preparation of false accounts as well as the alteration of existing ones, and this is often a feature of false accounting cases.

The omission of material information from an account or equivalent can amount to falsification. So an employee whose task it is to record transactions, such as a till operator, may commit the offence. It is always necessary that the records were omitted dishonestly.

Sentencing in False Accounting Cases

These cases can be heard in the Magistrates Court or the Crown Court, although cases with any complexity will always be heard in the Crown Court. The maximum penalty in the Crown Court is 7 years imprisonment. For offences in the tens of thousands, prison sentences of over 2 years are typical. However, offences where there has been a loss of several hundred thousand pounds may result in sentences of around 3-4 years.

In one reported case the defendant had dishonestly obtained a book of Inland Revenue vouchers and used them, causing a loss of £50,000. In that case 30 months’ imprisonment was upheld on appeal. In another case a building society manager took £394,000 over a seven year period placing the money in a false account. His sentence of 4 years imprisonment was reduced on appeal to 3 years and six months.

False Accounting by Company Directors, Company Secretaries, and Other Staff

Liability can extend to officers of a company for an offence committed by the company. This means that if officers of a company consent (or ‘connive’) in the activity going on in the company, they may be guilty of the offence themselves. This can include managers and secretaries if the facts support it.

Evidence and Strategy in False Accounting Cases

The first port of call in the preparation of false accounting cases must be to work out the true position of the accounts. In any complex case, a forensic accountant is usually necessary. The defence solicitors should request the accountant to conduct an investigation into the accounts. A report should then be prepared for the defence team which may be served on the prosecution and the court, depending on its contents.

The prosecution version of the true accounts position may be exaggerated and look worse for the client than it in fact is. By commissioning a proper analysis of the income, deposits, and outgoing payments in an accounts record and any corresponding bank accounts, a fraud defence solicitor will be in a much better position to advise the client properly. In some circumstances it is necessary to include the client in this process, as there may be aspects of the accounts which do not make sense at first but can be easily explained and proved to be accurate with the client’s help.

Just because in alleged false accounting cases entries may be missing from a record, misleading items are present, or key accompanying documents are missing, this does not always mean that the defendant or defendants are guilty. The ‘errors’ must be dishonestly carried out. Sloppy accounting is not and never will be criminal, and nor is incompetent accounting. Where genuine mistakes have been made, even if those mistakes may have benefited the defendant at someone else’s expense, this does not mean that the defendant is legally guilty.

If the client says that he or she has made a mistake, it will usually be a matter for the jury to decide whether to give that person the benefit of the doubt that this was the case. The defence team’s job will be to show all the circumstances surrounding the mistake or mistakes so that the jury can understand how it happened.

If a number of people are charged, and the allegation is that they all consented or were part of the falsification of accounts, then the prosecution must prove that each defendant had knowledge of the falsification for that person to be proven guilty. Of course, the managing director of a company might not know about all the workings of an accounts team. Similarly, a rogue manager may be acting on his or her own to win a deal through deceiving a customer or investor regarding the accounts position, and this doesn’t mean that all other managers or even accounts staff know that something dishonest is going on.

A good criminal defence solicitor may want to look in close detail at the nature of knowledge sharing in a company structure, the responsibility for different duties held by staff and company officers, and how the company was being run in reality on a day to day basis. This information, for which the client will often be the best resource, could prove invaluable in showing that the client could have been ignorant of any accounts discrepancies, and therefore innocent of any association with criminal behaviour.