The FCA – Transformation to Assertive Supervision
Charities are not immune to financial crime, fraud or other wrong-doing, and as we discussed in the last Guidance for Charities newsletter there are a number of ways in which charities may be exploited by criminals. Forewarned is definitely forearmed: if for example financial wrongdoing comes to light and concerns arise that the proceeds of crime may have been laundered through your charity, do you know what steps your organisation should take in response? The organisation needs to move quickly to ensure the necessary reports are made to the appropriate bodies, to understand what has happened, to prevent any future misconduct, and to best protect the charity’s assets.
Identifying and stopping any misconduct is paramount and the charity must take immediate action to prevent or minimise any further harm. The Charity Commission requires Serious Incident Reports to be made promptly and as soon as is reasonably practicable after the event (or after the charity is first made aware). Financial crimes, suspicious financial activity and other significant financial losses are included in the list of reportable activity, and where the incident involves actual or alleged criminal activity, the charity must also report to the police and/or other relevant agencies. Where there are suspicions of money laundering the charity commission requires that the police be informed, and a report should be made to the charity's Money Laundering Reporting Officer to consider whether a Suspicious Activity Report to the National Crime Agency is also necessary. Communications, both internal and external, should also be considered.
The charity will want to scrutinise the background to the allegations and to ensure that any future misconduct is prevented. There will likely be lessons to be learned and recommendations to improve governance in the future. The integrity of the evidence and any investigatory process that follows should be maintained. An internal investigation is the most effective way of addressing these issues and can inform the next steps.
Where the Charity Commission and/or law enforcement are involved it is wise to inform them of the intention to conduct a fact finding investigation, and steps should be taken to minimise the risk of ‘tipping off’ those potentially implicated. As well as investigating such matters, advice should be sought on related employment issues and disciplinary processes, on potential liability and any regulatory concerns, and any civil claims that may follow.
An internal investigation is conducted either in house, or by external counsel or investigators. Whilst no one investigation is the same, there are a number of key stages to consider. Confidentiality and legal privilege are important factors that should be kept under regular review, and investigatory steps should be properly recorded and conducted in a way to ensure the evidence obtained remains reliable.
We summarise the key stages below:
The structure of the investigation team and client group should be established at the outset and a clear investigation plan produced and kept under regular review. Early scoping interviews may be necessary to help inform next steps.
Potentially relevant evidence should be identified and secured at an early stage. All possible sources of evidence should be considered, from electronically held data and devices to hard copy documents, and a broad approach should be taken to make sure that important evidence is not missed. All routine deletion and destruction programmes should be stopped. A data protection risk assessment is advisable to ensure that the data is transferred and processed lawfully, and privacy notices should also be reviewed and (if necessary) updated. If necessary, evidence can be captured remotely and covertly, and should be done so in a way to ensure its integrity.
There is likely to be a raft of electronic material to consider. Data management platforms, data analytics and machine learning assimilate vast quantities of information and can focus on relevant material. A clear and forensic strategy with appropriate parameters in place can ensure a thorough and proportionate review so as to identify and examine the material which is most likely to be of relevance.
Interviews are an important part of an investigation, and timings need to be considered. It is often best to conduct interviews after most, if not all, the relevant material has been reviewed to ensure that all pertinent issues are covered. Questions to consider include how the interview should be recorded, what material should be provided in advance, and confidentiality of the process. For individuals implicated in wrongdoing, particular care should be taken.
How the matter is to be reported should be agreed at the outset, along with issues of confidentiality and privilege. A compliance review and recommendations for the future are also important steps.
Kingsley Napley LLP has extensive experience conducting internal investigations on behalf of organisations and provides a multi-disciplinary service, drawing on expertise from our employment, criminal, dispute resolution, public law, regulatory and company commercial teams. We advise on all aspects of an investigation and are well versed in liaising with the authorities to achieve the best outcome for our clients.
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