ACCA Applied Skills · Corporate and Business Law (Global)

Fraudulent and criminal behaviour: formula sheet

Full chapter guide

Key formulas

Civil v criminal: Civil = claimant sues for a remedy; Criminal = state prosecutes for punishment; Standard of proof is higher in criminal cases (beyond reasonable doubt) than civil (balance of probabilities).
Fraud test: Fraud = dishonest act or false representation + intent to gain or cause loss; No dishonesty means no fraud. Honest error is not fraud.
Company liability: Company liable = offence by directing mind or senior person + in the course of business; Applies to many offences. Some statutes also create offences for failing to prevent wrongdoing.
Individual liability: Officer is personally liable for own offence, even if the company is also liable; Acting for the company is not a defence.
Insider dealing: Inside information + dealing, encouraging or disclosing; Information must be specific, unpublished and price-sensitive.
Fraudulent trading test: Business carried on + intent to defraud creditors (or any fraudulent purpose) + dishonesty = liability; Applies to anyone knowingly party to it. The civil claim (s213 Insolvency Act 1986) arises only in a winding up. Insolvency is not an element, though it usually exists. The criminal offence (s993 Companies Act 2006) needs no winding up.
Wrongful trading test: Company in insolvent liquidation (s214) + director knew or ought to have concluded no reasonable prospect of avoiding insolvent liquidation + director kept trading = liability; Civil only. Applies to directors, including shadow and de facto directors. Negligence is enough. A liquidation where the company can pay its debts in full does not trigger it. Ss246ZA and 246ZB (inserted by the Small Business, Enterprise and Employment Act 2015) extend fraudulent and wrongful trading to administration, but LW focuses on liquidation.
Standard of care for wrongful trading (s214(4)): Reasonably diligent person with (a) the general knowledge, skill and experience reasonably expected of someone carrying out the director's functions, and (b) the director's actual knowledge, skill and experience; The objective minimum in (a) always applies. The standard is raised if the director's actual skill is higher, so it is never lower than the objective minimum.
Defence to wrongful trading: Director took every step to minimise potential loss to creditors once they knew or ought to have concluded there was no reasonable prospect of avoiding insolvent liquidation; The burden is on the director to show it.
Remedy: Court may order the person liable to contribute to the company's assets; The amount goes to the liquidator for creditors generally. Disqualification may also follow.
Three stages of laundering: Placement → Layering → Integration; Placement puts cash into the system, layering hides the trail, integration returns the money as apparently clean funds.
Main offences: Concealing | Arranging | Acquiring, using or possessing criminal property; Each needs a link to criminal property, and usually knowledge or suspicion that the property is criminal.
Reporting duty: Knowledge or suspicion (or reasonable grounds) → report to MLRO → MLRO reports to authority; Exact test varies by jurisdiction. State it in general terms unless the question gives one.
Tipping off: Disclosure that a report or investigation exists + likely to prejudice it = offence; Applies even if the person disclosing was not involved in the laundering.
Firm's compliance duties: Due diligence + record keeping + training + internal reporting procedures; Failure can lead to fines, imprisonment or regulatory sanctions.
Bribe giving (active): Offer/promise/give advantage + intention to induce or reward improper performance; The test is the intention to induce improper performance, not the size of the advantage.
Bribe receiving (passive): Request/agree to receive/accept advantage + improper performance related to it; It does not matter whether the recipient benefits personally or whether a third party receives the advantage.
Bribing a foreign public official: Advantage offered to official + intention to influence them + aim of obtaining or retaining business or an advantage; There is no need to show the official acted improperly. Influence in their official capacity is enough.
Failing to prevent bribery: Associated person bribes + intent to obtain/keep business for the organisation + no adequate procedures = corporate offence; Strict liability style offence for the organisation. The company need not know about the bribe.
Adequate procedures: six principles: Proportionality · Top-level commitment · Risk assessment · Due diligence · Communication and training · Monitoring and review; Use as a checklist when advising on the defence. The burden of proof lies on the company.
Facilitation payments: Small payment to speed up routine action = still bribery; There is no exemption for them. Do not confuse them with proportionate, genuine hospitality.
Corporate liability by attribution: Offence by a controlling mind, acting in that role, with the required intent → company liable; The company is liable as well as the individual. Check the person is senior enough and acting for the company.
Liability for associated persons: Offence by employee or agent for the company's benefit + no adequate procedures → company may be liable; Applies only where the law creates such an offence, as for bribery in many systems. Adequate procedures is the defence.
Individual liability: Individual who commits, assists or authorises the offence → personally liable; Acting for the company is not a defence.
Typical penalties: Company: fine, confiscation, loss of licences. Individual: imprisonment, fine, disqualification; A company cannot be imprisoned.
Whistleblowing protection test: Qualifying disclosure + proper channel + (good faith or public interest) → protection from victimisation; Exact conditions differ by country. Use the wording in the question.
Fraud triangle: Opportunity + pressure + rationalisation; Controls mainly remove opportunity.

Quick revision

Fraudulent trading requires intent to defraud creditors or another fraudulent purpose.
Wrongful trading does not need dishonesty. It looks at whether a director should have concluded there was no reasonable prospect of avoiding insolvent liquidation.
Both types of trading link to insolvency, so they matter when a company is being wound up.
Insider dealing involves inside information: specific, not public and likely to affect the price if made public.
Insider dealing can be dealing, encouraging others to deal, or disclosing the information improperly.
Money laundering is making the proceeds of crime appear legitimate.
Learn the three classic stages of laundering: placement, layering and integration.
Tipping off and failing to report suspicion are separate concerns for professionals.
Bribery involves offering, promising, giving, requesting or accepting an advantage to induce improper performance.
Organisations reduce risk through controls, ethical culture, training and reporting channels.
A company can be criminally liable through the acts of those who represent its controlling mind, as your syllabus notes explain.
In objective questions, identify the offence first, then test each option against its elements.

Common mistakes

Treating every wrong act as fraud. Fix: Check for dishonest intent. A careless or honest mistake is not fraud, though it may be negligence.
Saying the company is not liable because it is a separate person. Fix: The company acts through people. If senior people commit the offence in the course of business, the company can be liable too.
Saying wrongful trading requires intent to defraud. Fix: Remember: fraudulent means dishonest; wrongful means negligent. Wrongful trading needs no dishonesty.
Saying wrongful trading is a crime. Fix: Wrongful trading is a civil remedy only. Fraudulent trading can be both civil and criminal.
Mixing up layering and integration. Fix: Layering hides the trail through complexity. Integration is the final step where the money looks legitimate, such as sale proceeds or business income.
Saying an accountant must be certain before reporting. Fix: Knowledge or suspicion triggers reporting. It is not for the accountant to prove the crime.
Thinking the company must know about the bribe to be liable for failing to prevent it. Fix: Remember that the corporate offence is about the failure to have adequate procedures. The company's knowledge is not required.
Treating facilitation payments as lawful because they are small. Fix: State that facilitation payments are still bribery. Only genuine, proportionate hospitality is acceptable.
Saying the company is not liable because only an employee acted. Fix: Ask whether the person was a controlling mind or whether the law uses an adequate procedures test. If so, the company can be liable.
Saying a company can be imprisoned. Fix: Companies face fines, confiscation and loss of licences. Imprisonment applies to individuals.

Exam tips

In objective questions, find the one fact that shows dishonesty or knowledge. It often decides the answer.
Learn the one-line trigger for each offence in the chapter so you can label it quickly.
In written answers, use a clear order: offence, elements applied to facts, who is liable, consequence.
Do not claim the company is liable unless the facts link the act to the business.
No marks are lost for a wrong answer beyond zero, so always choose an option.
Look first for the word 'dishonest' or 'intent' in the scenario. It signals fraudulent trading. Its absence points to wrongful trading.
In multiple-choice options, reject any that call wrongful trading criminal or say it needs intent.
When asked for defences, name 'every step to minimise potential loss to creditors' and link it to specific facts in the scenario.