ICAEW BL · Chapter 13
Criminal law relevant to business: fraud, bribery, money laundering and insider dealing MCQs with Answers
10 multiple-choice questions on Criminal law relevant to business: fraud, bribery, money laundering and insider dealing for ICAEW BL Business Law. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
Under the Fraud Act 2006, the general offence of fraud can be committed in three ways. Which of the following is NOT one of them?
- A) Fraud by false representation
- B) Fraud by failing to disclose information which there is a legal duty to disclose
- C) Obtaining property by deception
- D) Fraud by abuse of position
Show answer & explanation
Answer: C) Obtaining property by deception
Section 1 Fraud Act 2006 creates a single offence of fraud that can be committed by false representation (s2), failing to disclose information under a legal duty (s3), or abuse of position (s4). 'Obtaining property by deception' was an offence under the Theft Act 1968, which the 2006 Act repealed and replaced.
Question 2
Callum, a purchase ledger clerk, creates a false invoice from a fictitious supplier and submits it for payment, intending to divert the money to himself. The finance manager spots the fraud before any payment is made. Has Callum committed fraud by false representation?
- A) No, because no gain was made and no loss was caused
- B) No, because the representation was made to his own employer
- C) Only if the company reports the matter to the police within a set time limit
- D) Yes, because the offence is complete when he dishonestly makes the false representation intending to make a gain or cause a loss, even though no money was paid
Show answer & explanation
Answer: D) Yes, because the offence is complete when he dishonestly makes the false representation intending to make a gain or cause a loss, even though no money was paid
Fraud by false representation under s2 Fraud Act 2006 is a conduct offence. It is committed when a person dishonestly makes a false representation intending to make a gain or to cause loss or a risk of loss. No actual gain or loss is required. A representation can be made to anyone, including one's employer, and there is no reporting time limit that determines whether the offence was committed.
Question 3
Several years after his criminal profits were first deposited and moved through a chain of offshore accounts, Rourke uses the funds to buy a restaurant, runs it as an ordinary business and pays himself a salary and dividends from it. Which stage of money laundering does the purchase and running of the restaurant represent?
- A) Integration
- B) Placement
- C) Layering
- D) Structuring
Show answer & explanation
Answer: A) Integration
Money laundering is usually described in three stages. In placement, criminal cash first enters the financial system. In layering, complex transactions, such as transfers through offshore accounts, obscure the audit trail. In integration, the laundered funds re-enter the legitimate economy in a form that appears legitimate, such as investment in a business and income drawn from it. Buying and running the restaurant is therefore integration. 'Structuring' describes splitting cash deposits to avoid reporting thresholds, which is a placement technique.
Question 4
Ruth, a trainee at a firm of accountants, learns that her firm's MLRO has submitted a suspicious activity report to the National Crime Agency about a client. Which of the following disclosures by Ruth would NOT amount to tipping off under the Proceeds of Crime Act 2002?
- A) Telling the client's finance director, 'Be careful, my firm has reported you'
- B) Telling a partner in her own firm, who is working on the same client, that a report has been made
- C) Telling a friend who works in the client's accounts department that her firm has reported the client
- D) Posting on social media that her firm has just reported a named client to the authorities
Show answer & explanation
Answer: B) Telling a partner in her own firm, who is working on the same client, that a report has been made
Under s333A POCA 2002, a person in the regulated sector commits tipping off by disclosing that a suspicious activity report has been made, where the disclosure is likely to prejudice any investigation that might follow. Under s333B, a disclosure to an employee, officer or partner of the same undertaking is permitted, so telling a partner in her own firm is not an offence. Telling the client's finance director, a friend at the client or the public is likely to prejudice an investigation and is tipping off.
Question 5
Harwell Ltd, a UK company, engages Marco, a self-employed sales agent, to win contracts for it abroad. Without the knowledge of Harwell's board, Marco pays a bribe to a manager of an overseas customer to secure a contract for Harwell. Harwell Ltd is prosecuted under s7 Bribery Act 2010. Which argument, if proved by Harwell Ltd, provides a defence?
- A) Its board did not know of, or consent to, the bribe
- B) The bribe was paid outside the United Kingdom by a person who is not a UK national
- C) It had adequate procedures in place designed to prevent persons associated with it from committing bribery
- D) Marco was a self-employed agent rather than an employee, so he was not associated with Harwell Ltd
Show answer & explanation
Answer: C) It had adequate procedures in place designed to prevent persons associated with it from committing bribery
The s7 offence is one of strict liability, so the board's lack of knowledge is no defence. The only defence is for the organisation to prove that it had adequate procedures designed to prevent associated persons from bribing (s7(2)). An associated person is anyone who performs services for or on behalf of the organisation, whatever the capacity, so a self-employed agent is included (s8). Section 7 applies to a relevant commercial organisation even where the bribe is paid abroad by a person with no close connection to the UK (s7(3)).
Question 6
To speed up customs clearance of a delayed shipment, an employee of Saltmarsh Ltd hands a foreign customs officer a small cash payment that the officer has requested. There is no legal entitlement to the payment. What is the position under the Bribery Act 2010?
- A) It is lawful, because facilitation payments are expressly permitted by the Act
- B) It is an offence, because the Act makes no exception for facilitation payments
- C) It is lawful if the payment is recorded accurately in the company's books
- D) It is an offence only if the payment exceeds a specified minimum amount
Show answer & explanation
Answer: B) It is an offence, because the Act makes no exception for facilitation payments
The Bribery Act 2010 contains no exemption for facilitation ('grease') payments. Paying a foreign public official to influence them in their official capacity and obtain or retain business or an advantage is an offence under s6. The payment may also give rise to corporate liability under s7. Accurate record-keeping does not make it lawful, and there is no minimum amount.
Question 7
Victor, the procurement manager of a hospital trust, emails a supplier saying it will win the next catering contract if it pays for him to have a holiday abroad. The supplier ignores the email and pays nothing. Has Victor committed an offence under the Bribery Act 2010?
- A) Yes, an offence of being bribed under s2, because requesting an advantage intending to perform his function improperly is enough
- B) No, because no advantage was actually received
- C) No, because only the person offering a bribe commits an offence
- D) Yes, but only the corporate offence of failing to prevent bribery
Show answer & explanation
Answer: A) Yes, an offence of being bribed under s2, because requesting an advantage intending to perform his function improperly is enough
Under s2 Bribery Act 2010, a person commits an offence by requesting, agreeing to receive or accepting a financial or other advantage intending that a relevant function should be performed improperly. A request alone is enough, even if it is ignored. Both giving bribes (s1) and receiving them (s2) are offences. The failure to prevent offence under s7 applies to commercial organisations, not to individuals.
Question 8
Ines, a director of Rookwood plc, learns of an unannounced profit warning that will cause the company's share price to fall sharply. Under Part V of the Criminal Justice Act 1993, which of the following would NOT be an insider dealing offence by Ines?
- A) Selling her Rookwood shares through the stock exchange before the warning is announced
- B) Urging a friend to sell his Rookwood shares on the stock exchange before the announcement, without telling him why
- C) Telling her brother, who she knows holds Rookwood shares, about the forthcoming profit warning
- D) Selling her Rookwood shares after the profit warning has been properly announced to the market
Show answer & explanation
Answer: D) Selling her Rookwood shares after the profit warning has been properly announced to the market
The CJA 1993 creates three offences: dealing in price-affected securities on a regulated market while holding inside information as an insider, encouraging another person to deal, and disclosing inside information other than in the proper performance of one's employment, office or profession (s52). Encouraging is an offence even if the reason is not given, and disclosing to a shareholder relative is unlikely to fall within any defence. Inside information must not have been made public (s56 and s58), so once the warning has been properly announced it is no longer inside information and dealing afterwards is not insider dealing.
Question 9
Wynne, an audit senior, learns during an audit that her client Tidewater plc is about to announce a large unexpected loss. The information has not been made public. She tells her brother about it. He knows she audits Tidewater and realises the news has not yet been announced, and he immediately sells his Tidewater shares on the stock exchange before the announcement. Under the Criminal Justice Act 1993, who has committed an insider dealing offence?
- A) Only Wynne, because her brother is not employed by the company or its auditors
- B) Only her brother, because Wynne did not deal in the shares herself
- C) Both: Wynne by disclosing the information otherwise than in the proper performance of her employment, and her brother by dealing as an insider who knowingly obtained inside information from an inside source
- D) Neither, because selling shares to avoid a loss is not dealing for profit
Show answer & explanation
Answer: C) Both: Wynne by disclosing the information otherwise than in the proper performance of her employment, and her brother by dealing as an insider who knowingly obtained inside information from an inside source
Wynne is an insider because she knowingly has inside information through access by virtue of her employment or profession (s57(2)(a)(ii)). By passing it on other than in the proper performance of her work she commits the disclosure offence (s52(2)(b)), and the s53 defence that she did not expect anyone to deal is unrealistic when she told a shareholder. Her brother is also an insider: he knows the information is inside information, and he knows he has it from an inside source, since its direct source is a person with access through her profession (s57(2)(b)). By selling on a regulated market he commits the dealing offence (s52(1)). Avoiding a loss counts as much as making a profit, and the dealer need not work for the company or its auditors.
Question 10
Under the Proceeds of Crime Act 2002, a person working in the regulated sector commits the offence of failing to disclose if they do not report money laundering as soon as practicable. Which test of knowledge or suspicion applies?
- A) They have actual knowledge, proved beyond reasonable doubt, that the funds came from a specific crime
- B) They have been specifically instructed by their employer to investigate the client
- C) They personally received some of the criminal property
- D) They know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering
Show answer & explanation
Answer: D) They know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering
Under s330 POCA 2002, the regulated sector failure to disclose offence has an objective element. It is committed where the person knows or suspects, or has reasonable grounds for knowing or suspecting, money laundering and fails to report it to the nominated officer (MLRO) or the NCA as soon as practicable. So negligently failing to recognise obvious red flags can be enough. The person need not know the specific underlying crime, have been told to investigate, or have handled the property.