Private & Confidential. Not for distribution. ©DWF LLP Go further Title needs degree sign (°) added from the “Insert/Symbol” menu. This needs to be added at 28pt compared to the 24pt title. Financial Crime A Guide for Health Insurers Carole Chantler Kate Archer October 2014

Private & Confidential. Not for distribution. ©DWF LLP What is Financial Crime? Definitions A variety of offences –Under statute & common law –Money laundering, –Corruption –Terrorism financing –Fraud or dishonesty offences 2

Private & Confidential. Not for distribution. ©DWF LLP Victim Perpetrator Agent How Financial Institutions/Insurers are Involved 3

Private & Confidential. Not for distribution. ©DWF LLP Very challenging to measure Significant under-reporting to the police Perpetrators reliance on various factors Impact of Fraud 4

Private & Confidential. Not for distribution. ©DWF LLP Estimated loss £5.4bn annually Includes £2.1bn known insurance fraud Organised Crime Groups Financial Impact of Fraud 5

Private & Confidential. Not for distribution. ©DWF LLP Wide definition Increasingly complex transactions Increasingly involving non-bank FIs – EG insurers Money Laundering & Proceeds of Crime 6

Private & Confidential. Not for distribution. ©DWF LLP 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 7

Private & Confidential. Not for distribution. ©DWF LLP Regulates institutions providing financial services to consumers Statutory objectives Eight regulatory principles The Role of the FCA 8

Private & Confidential. Not for distribution. ©DWF LLP Enforcement Guide Open & co-operative relationship Limited resources Civil & criminal enforcement powers (Financial Services & Markets Act 2000) The Role of the FCA 9

Private & Confidential. Not for distribution. ©DWF LLP 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 10

Private & Confidential. Not for distribution. ©DWF LLP 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 11

Private & Confidential. Not for distribution. ©DWF LLP 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 12

Civil v Criminal Civil FraudCriminal Fraud Burden on the ClaimantBurden on the Prosecution Lower standard of proofHigher standard of proof Control rests with the victimVictim has less control (but confiscation & compensation orders possible) Focus on redress rather than public policyIn public interest Powerful remedies availableNo costs recovery Claim determined by an experienced judgeTrail determined by lay jury Settlement is possible Likely that claim attracts less public attentionClaim is in public domain – more publicity

Private & Confidential. Not for distribution. ©DWF LLP 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 14

Why Commit Fraud? The Fraud Triangle OpportunityRationalisationPressure

Private & Confidential. Not for distribution. ©DWF LLP 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 16

Private & Confidential. Not for distribution. ©DWF LLP 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 Creating an Anti-Fraud Culture 17

Private & Confidential. Not for distribution. ©DWF LLP 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 Creating an Anti-Fraud Culture 18

Private & Confidential. Not for distribution. ©DWF LLP Behavioural Financial Procedural Organisational Fraud Indicators 19

Private & Confidential. Not for distribution. ©DWF LLP 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 20

Private & Confidential. Not for distribution. ©DWF LLP Implement systems & processes to detect the early warning signs of fraud Have a fraud response plan which clearly defines roles & responsibilities Detecting Fraud Internally 21

Private & Confidential. Not for distribution. ©DWF LLP 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…. 22

Private & Confidential. Not for distribution. ©DWF LLP 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…. 23

Private & Confidential. Not for distribution. ©DWF LLP Mount vigorous recovery actions –Civil? –Criminal? –Both? Do You… 24

Private & Confidential. Not for distribution. ©DWF LLP 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 25

Private & Confidential. Not for distribution. ©DWF LLP Our firm is driven by its core Values which focus on: 26 Values Our ClientsOur PeopleOur CommunityOur Environment

DWF is the business law firm with industry insight. Our legal experts combine real commercial understanding and deep sector knowledge to help clients anticipate issues, create opportunities and get the outcomes they need. We’ll deliver the results that help you go in the right direction – wherever you are. Go further ° ©DWF LLP 2014 DWF LLP is a limited partnership registered in England and Wales with registered number OC 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.