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Dispatch (UK/ROW edition)
| by Paul Gosling 22 Dec 2006 Topic: News |
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Fraud may be costing UK businesses more than £40bn a year, the Government has admitted. Speaking at a conference at Cambridge University, Solicitor-General Mike O’Brien said that fraud was now committed using “unparalleled levels of sophistication”. The comments by O’Brien follow the completion of a review of fraud by the office of the Attorney-General, Lord Goldsmith – the Government’s most senior law officer. The cost of fraud was estimated at £16bn only in July, with the cost in 2005 standing at a comparatively modest £2bn. Such a spectacularly fast increase in the estimated cost of fraud suggests that the problem is becoming very severe and is probably led by organised criminal gangs. Stronger measures to tackle fraud were recommended in the fraud review. A Financial Court jurisdiction is proposed that would bring together into one court the different proceedings that might arise from serious fraud cases. The court would be given extended sentencing options and allow plea bargaining as an alternative to a full criminal trial, where acceptable punishment can be agreed between prosecution and defence lawyers and approved by the court. A National Fraud Strategic Authority would be established under the review’s proposals. This would be set-up as a Public Private Partnership (PPP), to devise and implement a national fraud strategy. The authority would not have a role in setting policy, but would be required to overcome policy conflicts between relevant departments, ensure that there were no gaps in policy or practice and promote an anti-fraud culture across society. While the authority would be sited within government and be accountable to ministers, the review says it is “essential” that it be constituted as a PPP in order to recruit private sector skills into tackling fraud. It is also proposed that a national lead police force be formed, based on the City of London Police Fraud Squad (LPFS), to advise or direct complex fraud investigations and act as a centre of excellence, disseminating best practice across regional police forces. Within LPFS, a National Fraud Reporting Centre would be created to receive and analyse reports of fraud and channel information to investigators and ring-fence police fraud squad resources. The proposals are currently out for consultation. Newly qualified ACCAs in the UK can expect to earn salaries of £43,000 – an increase of 14% over last year, according to analysis conducted by recruitment advisers ECHM. Salaries for newly qualifieds are predicted to rise further to £45,000 next year. Not only is the current market “extremely favourable” for newly qualifieds, says ECHM, but firms are increasingly “buying-back” staff intending to leave – offering improved pay packages to employees seeking jobs elsewhere. A shortage of candidates along with high levels of demand have led to the high rate of salary inflation. Demand is particularly strong within public practice firms, including the Big Four. This reflects firms’ expansion and diversification in activities such as management consultancy and risk management. John Hunter, chief executive of ECHM, said: “Accountancy firms are working hard to retain key talent within their businesses and we have started to see a growing trend in ‘buy backs’, particularly at the newly qualified level. This is not a tactic that practice firms have previously utilised and is indicative of the tightness of the talent pool. The Big Four have offered some individuals payments of between £5,000 and £10,000 to stay, while one Top 50 practice gave a newly qualified accountant a 50% pay rise to ensure he remained with the business.” ECHM warned that the highest pay was on offer to candidates who have first time passes, with strong academic qualifications and solid experience alongside their professional qualifications. The perception of strong income growth for accountants was confirmed by a second survey, conducted by recruitment consultants Morgan McKinley. It found that newly qualifieds working for investment banks in financial control attracted average salaries approaching £60,000. Those moving into internal audit averaged salaries of £54,000. Bonuses of up to 30% of salary were also available for those working for the banks, reported the survey. The World Bank launched a major new campaign against public sector corruption in a presentation to world financial leaders meeting in Singapore. The “Governance and Anti-corruption Strategy” is intended to penalise both politicians and businesses involved in corrupt practices. Paul Wolfowitz, the controversial US-nominated appointment who became head of the World Bank last year, has made the tackling of corruption a top priority. The bank calculates that more than $1 trillion is paid out in bribes each year. “We want to make sure that resources go to buy medicine and books and not into the pockets of an intermediary or a public servant,” World Bank managing director, Juan Jose Daboub, said. “We cannot afford to be silent when there is a misuse of resources.” Much of the focus of World Bank officials has been on obtaining evidence of corruption, seen by Wolfowitz and the US administration as a key factor in holding back free trade and international development. A World Bank disclosure programme has already led to many companies admitting paying bribes, the bank claims. Bribes have included not only cash, but also gifts of luxury holidays, expensive sports utility vehicles and private schooling for officials’ children. Companies that fail to take part in the Voluntary Disclosure Program and which have made bribes face heavy sanctions, including being blacklisted for public contracts sponsored by the bank and being named both to the relevant government and publicly. Businesses that admit past failings must hire an auditor or other respected professional to act as a compliance manager to oversee improved behaviour. Transparency International, the anti-bribery lobbying group, said that it was essential that the World Bank backed up the governance and anti-corruption strategy with a determination to strengthen civil society in countries where bribery is endemic. “Assisting countries to curb corruption needs to continue to be a central pillar of global anti-poverty efforts and the World Bank needs to be encouraged to work with an expanding range of partners in this area,” said Huguette Labelle, chair of Transparency International. Labelle added: “Without effective anti-corruption strategies in coming years, involving bilateral and multilateral aid agencies, the Millennium Development Goal of halving the number of those in absolute poverty by 2015 will not be achieved.” Ernst & Young has announced its sponsorship of Transparency International, helping to develop its corruption measurement tools. ACCA calls for pensions “fair deal” ACCA has called on the UK Government to protect existing occupational and personal pension schemes, while moving towards a system of pension support that provides a fair deal for all. ACCA warns that the introduction of the Government’s proposed new system of personal pension accounts could encourage employers to end occupational schemes and push their staff towards the new scheme instead. ACCA added that with employees free to opt-out of the proposed new scheme, many are likely to do so unless they are persuaded they will be better off by staying in. ACCA says that for many employees at the bottom end of scheme enrolment – which starts at earnings of about £5,000 – it will not be in their financial interest to pay small contributions into a pension scheme. Employer obligations to pay into the scheme risk being seen as an extra tax on employment, warns ACCA. A recent ACCA survey of 200 SMEs found that more than half said that the proposed requirement for all employers to contribute 3% minimum of workers’ pay to the new scheme would result in them freezing recruitment or pay increases. A third expected businesses to increase charges to customers. Chief executive Allen Blewitt said that ACCA fully supports the principle of individuals saving for retirement, with tax and benefits systems incentivising people to do this. “But we must also face reality,” he said. “Not everyone in society will be in a position to invest sufficient amounts of money in a long-term savings scheme to create a fund which will produce a decent level of retirement income at the end of the day.” He added that any comprehensive plan for the long-term future of UK pensions must be based on a better basic state pension provision, backed by encouragement for people to save more. FSA “relaxes” money laundering rules Financial services firms should concentrate on simpler and more robust identity checks to prevent money laundering, the UK’s Financial Services Authority (FSA) has told them. The move should see an end to banks and other firms demanding duplicate proofs of current address before they will open a current account or conduct a share transaction. A spokeswoman for the FSA admitted that it was partially to blame for problems that have been encountered by firms’ customers, with firms often seeking multiple paperwork to protect themselves in the event of an FSA investigation into their control procedures. “We fully accept that one reason why firms asked for reams of documents has been the money laundering regulations,” she said. “But firms hadn’t been doing identity checking properly. We have done a lot of work with the industry to overcome what we call the ‘fear factor’. We have [now] stressed that we are only really interested in taking up enforcement action if there are serious failures, or disregard of our rules. We have also been promoting a risk-based approach so that firms focus on where the risks really are.” The FSA’s new regulatory framework includes the abandonment of any requirement for proof of address through the production of utility bills. These bills are easily stolen or forged and the police have advised the FSA they represent unreliable evidence of identity and address. Instead, they can provide false comfort to firms, encouraging them to overlook more reliable forms of identity confirmation – passports and other official photo ID. But the move may not lead to an end to a bureaucratic approach to ID proof. Firms are not required to relax their organisational rules, and some of the most demanding companies are mobile phone retailers whose core business is not regulated by the FSA. The FSA’s spokeswoman said that it was, though, urging regulated firms to take a proportionate and rational view to seeking ID proof. “ID is just one tool [against money laundering and fraud],” she said. “Knowing your customer is what is really important.” European Union governments cannot treat offshoring to low tax economies as tax avoidance where companies are conducting genuine economic activities, the European Court of Justice (ECJ) has ruled. The decision is likely to undermine the tax policies of the UK and other EU governments, including Germany, France and Italy. The decision came in a judgement on the Cadbury Schweppes case, which ruled that the company could base its international financial services operations in Dublin, taking advantage of Ireland’s lower rate of corporation tax, without the UK’s tax authorities having grounds to regard this as a tax avoidance strategy. “The fact that a company was established in a member state for the purpose of benefiting from more favourable legislation [benefiting from a favourable tax regime] does not in itself suffice to constitute an abuse of the freedom of establishment,” the court said in a statement. But the court added, in clarification, “that a national measure restricting freedom of establishment may be justified where it specifically relates to wholly artificial arrangements aimed solely at escaping national tax normally due, and where it does not go beyond what is necessary to achieve that purpose”. Domestic courts will have to decide, in the first instance, what constitutes an “artificial arrangement”. It is thought that the ruling could lose national exchequers in the largest EU member states billions of euros a year, including more than £400m in the UK alone. Newer member states, such as central and eastern European countries, are likely to gain by the decision, which could provoke more transfer of operations away from the major economies in western Europe. Bill Dodwell, a tax partner at Deloitte, said: “This is a clear decision that the UK’s CFC [controlled foreign companies] rules go far further than they should. As long as a CFC has genuine economic activities, it should be able to benefit from the tax regime in place in any EU member state, regardless of the corporation tax rate there. “What will be most interesting to see is how the UK seeks to react to this case. There is now the potential to re-assess the UK’s international tax provisions to ensure that the UK offers a competitive tax regime for multi-nationals.” The Treasury issued a statement saying: “The Government welcomes the fact that the ECJ has endorsed the appropriateness of rules to counter tax avoidance through artificial profit shifting. The Government is studying the detail of the judgment carefully and will announce as soon as possible what, if any, changes to the UK’s Controlled Foreign Companies rules are needed to sustain their effectiveness in protecting tax revenues. The Government intends to continue the constructive dialogue with business on the international aspects of corporation tax.” in brief...
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