Financial crimes come in many different forms and include classic pump-and-dump schemes, market manipulations and fraudulent practices or even stealing and blackmailing, tax fraud, cyber-hacking in relation to crypto-currency trading, including inducing people to invest in financial products that are unsuitable given their trading history and other factors.
A few examples of recent large-scale financial crimes include the:
- Royal Bank of Scotland LIBOR-manipulation scandal in which the bank was fined £208m by the US Commodity Futures Trading Commission for hundreds of attempts to manipulate the rates in the United States, the European Union and Asia-Pacific regions (and succeeding on a number of occasions),
- Madoff Ponzi scheme in the U.S. which left Bernard Madoff and many of his victims bankrupt, and
- recently-decided case against Deutsche Boerse AG which was fined $12 billion in an insider trading case.
As evidenced by these few examples above, financial crimes have the potential to impact (and often do impact) investors on a global scale.
Unfortunately, there are instances in which victims of financial crimes may not even be aware that they are victims- often being led to believe that they were at fault for “investing unwisely”. Although there is a thriving investment environment in Cyprus, there have been some instances in which forex companies have been accused of making unsuitable investment suggestions to inexperienced investors which include for example, making highly risky trades (such as trading on margin), and making false and misleading false and misleading representations as a necessary condition for the activation of trading accounts. There have even been instances in which banks made wrongful recommendations to inexperienced investors which lead to investment losses. In such cases, these entities have been sued in the courts of Cyprus which are well-equipped to adjudicate complex financial fraud matters.
While it is true that investing is inherently risky, financial industry experts should abide by financial regulations. Victims of financial crimes should know that there are regulations that protect them from such crimes.
Latest E.U. Initiatives for Tackling Financial Crime:
All victims of financial crimes can sue either in court or through arbitration. Although each case differs, it is possible to recover losses stemming from financial crimes either in part or in whole. Knowing what your rights are and what cause of action to bring in which forum is half the battle.
The Council of the European Union has published legislation (and continues to do so) regarding the financial crime of money laundering. On June19, 2018, the EU adopted the 5th EU Anti-Money Laundering Directive (5AMLD) establishing jail sentences and sanctions for money launderers and terror financiers. 5AMLD addresses inter alia the potential risks associated with the latest financial products such as virtual currency and the associated virtual currency exchange service providers and electronic wallet providers. It also provides more transparency by giving the public greater access to beneficial ownership information. All EU Member-States are required to implement 5AMLD into their national legislation by January 10, 2020.
On November 12, 2018, the directive 2018/1673 on combating money laundering by criminal law, a.k.a. the 6th Anti-Money Laundering Directive (6AMLD), has taken 5AMLD a step further by (i) harmonising the definition of money laundering and the predicate offences, (ii) imposing minimum sanctions and (iii) extending criminal liability to legal persons. The 6AMLD entered into force on December 2, 2018 and it has to be transposed by Member States into their national legislation by December 3, 2022, evidences the EU’s determination to create greater transparency in the financial industry and protect the public from financial crimes.
Aside from such legislation, each EU Member-State has its own national legislation to help combat financial crimes and assist victims in recovering their losses. For example, in Cyprus, under Section 32 of Court of Justice Law (14/60), victims may obtain from the courts interim orders such as freezing orders and prohibitory injunctions aiming at blocking funds or assets held by the wrongdoers not only in Cyprus but at an international level (known as the Mareva Injunctions under common law) or discovery orders and Norwich Pharmacal orders issued against third parties (i.e. banks) for the discovery of information or documents to assist fraud victims in tracing their assets and identifying wrongdoers.
The U.S. Securities Legislation:
The U.S.’s legislation is similar to the E.U. legislation and equally imposes criminal and/or civil penalties for financial crimes committed. The U.S. legislation which addresses financial crimes and imposes criminal/civil penalties include (but is not limited to) the Securities Exchange Act of 1934, the Securities Act of 1933, the Securities and Exchange Commission (SEC) Rules 10b-5 and 14a-9, sections 4b, 6(c), and 6c of the Commodity Exchange Act (7 U.S.C. §§ 6b, 9, 13a-1) and the Commodity Futures Trading Commission (CFTC) Rule 180.1 (17 C.F.R. § 180.1).
The U.S. Department of Justice and the U.S. Securities Exchange Commission typically look into financial crimes cases and the Financial Industry Regulatory Authority serves the arbitral tribunal for financial disputes. Interestingly, there are circumstances under which victims of financial fraud with a U.S. component may seek relief and compensation under the U.S. laws even if the victims are not U.S. citizens or residents.
Obtaining Justice in Courts & Arbitral Tribunals:
Being armed with knowledge of which laws may aid in the recovery of lost capital, victims of financial crimes can sue in the courts of the jurisdiction in which there is a nexus between the jurisdiction and either themselves or the crime/tort committed. Alternatively, one may also resort to arbitration which typically leads to a faster resolution. Depending on the relationship between the victim and the entity that allegedly committed the financial fraud, arbitration may be imposed by contract. In the U.S., for example, investments made with broker-dealers usually have contracts which impose arbitral hearings at the Financial Industry Regulatory Authority (FINRA) for dispute settlement. Given the options available, it is important to consult an experienced financial lawyer for the most cost-effective way to recover your losses.
Harmonized financial-crime legislation will help in protecting the public on an individual level and help prevent systemic risk. Whilst it may be difficult to completely eradicate the occurrence of financial crimes, the implementation of legislation with harsh penalties for violators allows victims to seek justice in courts and tribunals. Therefore, global legislation on financial crimes only serves to strengthen the integrity of the financial system.