This article examines the hurdles in the way of the detection and punishment of financial crimes, specifically the evidentiary and jurisdictional hurdles to this. It then goes on to discuss the laws criminalising financial crimes in Singapore and examines the victim's perspective, if any, represented in these laws. Finally, it also looks at the steps that can be taken and lessons that can be drawn from other countries.
Introduction
As Singapore takes its well-deserved place as one of the international financial markets, with the glory comes the unwelcome baggage of increased financial crimes. This process is probably substantially aided by the increased electronification of the city-state, as a large volume of money is transferred electronically everyday.
The spread of financial crime causes heavy losses to the victims, ie companies and individuals. However, it is a minority of these victims that are able to commence legal action against the perpetrator, let alone recover their losses. With globalisation comes the need to seek remedies in international forum, which is another factor responsible for a victim being unable to take legal action against the perpetrator, because of the limits to his resources and influence, when compared to those available to the state. Even assuming that a victim can sufficiently address the evidentiary and jurisdictional hurdles and institute an action, it has to contend with the fact that most of the laws criminalising financial offences do so from the perspective of the state and not the victim. A key factor not taken into account, by most of the legislation criminalising financial crimes, is that the primary need of the victim is compensation for the loss, not prosecution of the offender.
This article looks at the spread of financial crimes from the victim's perspective. A victim, for the purposes of this paper, is an individual or a company who or which has suffered loss by a financial crime committed on him/her or it. Although the state is also frequently a victim of financial crime (specifically, a crime like tax evasion affects a state more than any other entity), it has methodology to recover its losses, in terms of laws (which provide for confiscation of the benefits of the crime as well as fines) and their enforcement (treaties with other countries). Thus, this article only looks at the point of view of a victim who is, most often, a corporation and not the state.
Meaning of Financial Crime
A financial crime may be said to encompass any crime where a direct or indirect financial gain is made or where a direct or indirect financial loss is caused. Defined this way, it is apparent that almost any crime involving the movement of money or fraud could be tantamount to a financial crime. The focus of this article is on securities fraud, money laundering and economic espionage, which are widely perceived (according to Pinkerton, 'Top Security Threats and Management Issues in the Asia-Pacific', October 2000 E-Lawasia 28) as among the most threatening to Asian companies.
Evidentiary Hurdles
The first stumbling block for a victim of a cross-border financial crime is the lack of evidence and the difficulties in accessing any evidence that may be located in another jurisdiction.
The evidentiary hurdles do not come up because of a failure of the legal systems to make provisions for accessing evidence located in another country. There are international conventions (articles 22 to 29 of the EU Draft Convention on Cyber-Crime to name just one), bilateral efforts (in the form of Mutual Legal Assistance Treaties with other countries) and domestic laws (for instance, the powers given to the Monetary Authority of Singapore under Part VIIIA of the Securities Industry Act (Cap 289)) that allow the courts or other enforcement authorities of a country to extend assistance to authorities in other countries.
However, most of these remedies suffer from debilitating defects from the victim's perspective, as they are intended for the state and not the victim. Firstly, these remedies may not be made available to the victim, but to the authorities prosecuting the crime, with the effect that the victim has no control over the proceedings once he has initiated them. The concern of the victim is likely to be the ability to retain some degree of control over the proceedings, as well as to recover his losses rather than punish the perpetrator. Accordingly, most victims are likely to prefer to commence a civil action. The mutual assistance procedures described above are for the benefit of states and/or the prosecutors and are not likely to be made available to a victim suing for compensation.
Even assuming that the issues, with the grant of the remedy to the non-state victim, can be overcome, the process of accessing this remedy is not a straightforward one. For instance, under the Evidence (Civil Proceedings in Other Jurisdictions) Act (Cap 98), a victim in another country will have to make an application to the court or tribunal in that jurisdiction, which in turn must make an application to the Singapore High Court for access to evidence situate in Singapore. This not only involves the courts of two jurisdictions and the complications arising from the disparate procedural rules in both jurisdictions, but it is also likely to be a time-consuming process. This may prove fatal to the case, especially where the evidence is in the form of electronic records that are normally deleted from the server within a few days.
Jurisdictional Hurdles
A victim, who has managed to retrieve sufficient evidence to commence an action against the perpetrator of an international financial crime, still has another hurdle to cross - the choice of the most suitable jurisdiction in which action against the perpetrator may be commenced.
In cases of international criminal proceedings, there is a strong possibility of a court's reluctance to grant extradition of the offender. Similarly, in civil actions, there is the possibility that the court applied to will be reluctant to exercise its jurisdiction on the ground that there is a more appropriate forum (or that it is a forum non conveniens) for the action. Although there are principles of conflict of laws to decide in what circumstances jurisdiction should be exercised, the conflict of law principles also differ from country to country. This could result in the victim going from court to court in search of a suitable jurisdiction, the possibility of which is likely to be a strong deterrent to taking any legal action.
Where the financial crime is committed using the internet, the jurisdictional issues become even more complicated. For instance, if the website of an organisation was invaded and information stolen, is the offence committed where the website was located? Or where the server that supports the website was located? Or where the head office of the company whose information was stolen was located? If these are in different countries, there are potentially three different countries in which jurisdiction may be found to commence an action against the perpetrator. More relevant is the fact that there are two other potential jurisdictions in which to commence the action, increasing the chances that a court will find that another jurisdiction is the more appropriate one.
Inherent Limitations in the Laws Criminalising Financial Crime
The authorities in Singapore are clearly aware of the risk of the spread of financial crime to its ambition as a regional financial hub, and steps have been taken to address this issue. However, most of the initiatives are from the perspective of the state, not the victims. Most of these also fail to take into account the primary need of the victim, ie compensation for the loss, not prosecution of the offender.
Money laundering
Initial legislative efforts to fight money laundering in Singapore focused on proceeds from drug trafficking activities. However, it has become increasingly clear that money-laundering concerns are not limited to ill-gotten gains from drug trafficking but extend to all criminal activities.
However, the primary legislation on the area of money laundering in Singapore - the Corruption Drug Trafficking and Other Serious Offences (Confiscation of Benefits) Act (Cap 65A) - suffers from the fact that like most penal legislation, it was drafted with the state and not the victim in mind. Thus, it is the public prosecutor who initiates a prosecution for the confiscation of benefits of a financial crime from the perpetrator. Although the remedy of confiscation appears to have a civil element, the confiscated benefits and fines go towards the coffers of the government, instead of restituting the victim for the loss suffered by him.
Economic espionage
Theft of confidential information from corporate and even government databases, whether electronic or otherwise, was traditionally more a concern of the West than the Asian region. Accordingly, the laws in the West (including the UK Data Protection Act 1994, the US Economic Espionage Act 1996 and the EU directive based on the findings of the General Data Protection Commission in 1998) are better equipped to deal with this crime. Singapore does not have a law that specifically deals with theft of information - which would probably fall under the definition of 'theft' in the Penal Code. The Penal Code also suffers from the defect that its focus is on the state's aim of penalising the offender rather than on the victim's likely focus on restitution. Again, as discussed in the case of the other penal legislation, after the complaint is made, the victim has little, if any, control or say in how the matter is dealt with.
However, tort law is well developed in this area and there are common law authorities on the tort of breach of confidential information. This provides a possible remedy to the victim of the crime.
Securities fraud
Perhaps the financial crimes legislation that comes the closest to an ideal, from a victim's perspective, is the Securities Industry Act (Cap 289) (hereinafter, the Act), which not only specifically provides remedies for the victim, including compensation, but also establishes a fund to ensure that the victim's loss is recouped, even if the offender is not in a position to restitute the victim.
The Act makes it a crime to create or cause to be created, with the purpose of so creating or causing to be created, a false or misleading appearance of trading on securities on any securities exchange in Singapore. It is also a crime, knowingly or carelessly, to make false or misleading statements which are likely to affect trading on a security. The Act also criminalises insider dealings. The Futures Trading Act (Cap 116) makes it an offence for a futures broker to do certain acts, including dealing against his client and being instrumental in an insider dealing transaction. A victim of any of these offences (likely to be a company whose shares are affected by the securities fraud) may initiate, or cause to be initiated, a prosecution against the offender.
It is also possible for the victim to recover damages for securities fraud once the offender is identified under s 105 of the Act. The amount of compensation, for which the offender is liable under this section, is the amount of the loss sustained by the person claiming the compensation. A similar liability also exists under the Futures Trading Act (Cap 116).
Where the perpetrator is a dealer, an investment adviser or their representative and the offence falls within the Act, a victim can initiate an action before the committee of the securities exchange or the court and have any claim up to a limit of S$200,000 paid from a fidelity fund established under Part VIII of the Act. This makes it reasonably certain that the victim can recover his loss.
Thus, the Act is perhaps the closest to an ideal legislation from a victim's point of view.
Where the perpetrator is not a member of the securities exchange or the nature of the offence is such that it does not fall within the definition of the offences under the Act, the victim may bring an action under the torts of fraud, interference with business or breach of confidence.
Crimes committed electronically
Recognising the influence of the development of electronic commerce in financial crimes, Singapore enacted the Computer Misuse Act (Cap 50A) in 1993, which, inter alia, makes it an offence to obtain or attempt to obtain unauthorised access to a computer system or unauthorised access with the intent to commit an offence punishable with more than two years' imprisonment.
Accordingly, if any of the offences discussed above involve unauthorised
access to computers or databases, they will also attract the penalties under the
Computer Misuse Act
(Cap 50A). More importantly from a victim's perspective, the court may also
order the perpetrator to compensate the victim under s 13 of the Computer Misuse
Act (Cap 50A).
Proposed Reforms
International co-operation for the receipt and provision of information
As discussed in this article, obtaining evidence is substantially more difficult for a person than for national authorities. Obtaining evidence with due speed and care, to ensure that it is held to be admissible and of substantial weight in court, is also fraught with difficulties.
The courts and other regulatory authorities should consider the victim's perspective when an application for assistance is made. It may be possible to consider making the process of a victim approaching an authority for assistance, simpler and more expeditious.
Courts should also be sensitive to the problems in accessing evidence located in another jurisdiction and appropriately accord weight to the evidence made available to them.
Cross-border jurisdictional issues
As financial crimes frequently transcend borders, the issue of the appropriate jurisdiction in which to commence actions is a crucial one for the victim seeking to initiate action against the offender.
The most common method to found jurisdiction is by service of process. This is easy if the defendant is within jurisdiction. In the case of financial crimes, this is not always so. To merely rely on service to found jurisdiction, therefore, may not be sufficient. To this end, it is recommended that jurisdiction may be found so long as the assets, whether morphed off the proceeds of the crime or otherwise, are present within the jurisdiction. Courts should also be sensitive in deciding an application for extradition or of forum non conveniens.
As regards the more recent issue of whether the presence of a server or a website may found jurisdiction, guidance can perhaps be taken from the tax initiatives around the world. The OECD Technology Action Groups have submitted reports on the nature of servers for the formation of permanent establishments. Locally, the tax authorities in Singapore have issued guides to the effect that the mere presence of a server will not constitute a permanent establishment. Translated into jurisdictional terms, this might mean that the presence of a server does not necessarily give a country jurisdiction to try the offence. Although a firm suggestion is not made in this regard, it is suggested that the tax initiatives in determining the legal nature of websites and servers could be adapted to allow for founding jurisdiction to initiate action in an international-financial crime on the basis of the location of the server.
Legislative reforms
The various legislations discussed in this article all clearly look at legal action against financial crime from the perspective of the state. Perhaps this is one of the greatest stumbling blocks in the way of the victim attempting to prosecute, or more often sue, the offender. In this context, it is suggested that the older laws be amended to come in line with what appears to be the current thinking - an emphasis on the victim's perspective. Advertance can be made to the Securities Industry Act (Cap 289) (recently amended to provide for civil liability for an offender) and the Computer Misuse Act (Cap 50A), both of which take into account the victim's right to initiate action as well as the natural focus on restitution rather than the punishment of the perpetrator of the crime.
Conclusion
Singapore has the framework for shifting the focus of international-financial crime to the victim's perspective. The laws are in place; what is lacking is political will to address the issues that arise in an international-financial crime and the practical difficulties in the way of a victim obtaining restitution for his loss.
With the Securities Industry Act (Cap 289) and the Computer Misuse Act (Cap 50A), Singapore has already sent a positive message to potential victims of financial crime; the efforts in these legislative steps now need to be reinforced in other areas of combating financial crime as well.
Richa Gautam
Rajah & Tann