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  • July 21st, 2016

Fraudulent Trading – Trading Standards

What you say in an interview with Trading standards can have far reaching financial consequences.

Trading standards departments were given increased powers and budgets to prosecute businesses who trade in a fraudulent manner. Complaints from members of the public made to Local police forces are referred to trading standards departments who can restrain assets both business and personal.

What is fraudulent trading?

Directors and officers of companies recognised by the Companies Act 2006 and partnerships or sole traders covered by section 9 of the Fraud Act 2006 can commit the offence of fraudulent trading if the businesses are run with intent to defraud the creditors or other persons.

Defraud – what is it?

The law is drafted to capture a wide range of activity but the accepted definition arising case law is that defrauding means dishonestly ‘putting at risk the property or rights of another knowing that there is no right to do so’.Welham v DPP 1961.

The law set out in section 993 Companies Act 2006 and section 9 Fraud Act 2006 was designed to cover every type of business whether or not regulated by, for instance, Financial Conduct Authority, Solicitors Regulatory Authority or the extensive regulations with have been imposed on specific businesses in recent times. The intention of the legislation is to ensure that there is redress for creditors and consumers who have been ‘lied to’.

Fraudulent trading by it own description refers to a series of business transactions rather than one of business activities. It relates to the method of selling, the description of goods and services and devices used by businesses to avoid paying its creditors. It does not replace existing laws under the Insolvency act 1996 or Consumer Credit Act 1974 etc, it has created a more serious framework of criminal legislation where dishonest business actions can be prosecuted.

Overlap between Trading standards and police powers – Economic crime units

There have been many changes to the criminal law since Human Rights Act 1997 and Proceeds of Crime Act 2002. The demand for results on the resources of police forces, HMRC, DWP and NCA have lead to a reallocation of responsibilities to investigate and prosecute cases. Local authority Trading standards departments have been tasked to prosecute even more serious cases than in the past.

The decision to prosecute a case depends on there being admissible evidence and it being in the interests of justice to prosecute. In practice, the decision to prosecute seems to be linked to the ability for the prosecution to make a financial recovery under Proceeds of Crime Act 2002. The intention of Government has been expressed in general terms that criminal cases should be self funding. Proceeds of Crime legislation allows the court to recover the benefit received from financial crime if there is a finding of guilt.

Government department now communicate with each other with ease and the data collected by government can be accessed by all departments. Complaints from members of the public are generated using hotlines and on line complaints systems. Financial information is easy to access and profiling of business activity, personal taxation or benefits provide intelligence which is used to target businesses suspected of fraudulent trading.

Trading Standards have historically prosecuted regulatory infringements, trademark offences, copyright and trade descriptions related offences but with increased scope to their areas of activity, they are now equipped to prosecute fraudulent trading cases and conspiracies to defraud involving business that may have previously been investigated by police forces or economic crime units.

Don’t underestimate Trading standards officers

If you receive a letter from Trading Standards inviting you to an interview, you need to get legal advice. The interview is covered by PACE [Police and Criminal Evidence Act 1984] rules applicable to all interviews under caution apply if conducted at a police station.
Different funding rules apply if the interview is conducted at a government office.
What you say can be used in evidence against you and if you exercise your right of silence, inferences can be drawn from remaining silent in Court later.

Trade and Crime

The law has been inadequate to the task of prosecuting offences that arise from trading,
whether the trade is in goods or services, there has been adequate laws, but inadequate systems for prosecuting cases. Trading Standards prosecutions are increasing for fraudulent trading cases both in volume and seriousness. The scrutiny of business or trade has never been greater. SME [Small to Medium sized Enterprise] appears to be the target of Trading Standards departments and their stated objective is to protect the public from
business fraud and to enforce legislation such as trademark law and copyright law.

Custodial sentences are the threat to repeat offending businesses but are not the usual result. Recent experience shows that Trading Standards have access to interdepartmental intelligence [HMRC,DWP etc] and are seeking a financial recovery through Proceeds of Crime Act 2002 as their primary objective. Under this legislation, the benefit of crime is recovered for the government on the principle that an offending business should not be allowed to benefit from an unlawful activity.

What you say in an interview with Trading standards can have far reaching financial consequences.

Trading Standards officers may not have all the powers of other investigatory department but working in conjunction with police, HMRC, privately funded investigators [trademark/copyright protection] for instance, they have been equipped with considerable legal power which companies, partnerships, soles traders, sales persons and product designer of all types should not take lightly.

If your product is not authorised by the trademark holder or yours sales team is saying anything that is not factual correct, or creditors are being misled routinely, it could be construed as fraudulent trading.

Get advice – Get it right

If you find yourself facing a fraud investigation or charge speak to MJP solicitors today on 0333 011 0515. MJP solicitors provide legally privileged service for businesses and initial advice one hour free for SMEs

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