London,
17
February
2017
|
12:01
Europe/Amsterdam

Harsh fraud sentencing trend continues— a clear message of deterrence

Corporate Crime analysis: As two City traders are convicted for fraud, Kyle Phillips says that although their sentences are relatively high for financial crime cases they continue a trend of harsh penalties given to defendants in such matters.

Original news

Two City traders convicted over £141m banking fraud, LNB News 26/01/2017 150. [Subscription] 

Two City traders have been convicted of conspiring to defraud a Russian bank of more than £141m in a series of complex frauds. Georgy Urumov was convicted of two counts of conspiracy to defraud, two counts of conspiracy to commit fraud by false representation and one count of conspiracy to commit money laundering. Vladimir Gersamia was convicted of two counts of conspiracy to defraud and one count of conspiracy to commit money laundering. The pair will be sentenced on 27 January 2017.

What was the background to this criminal investigation and conviction?

The first part of the criminal investigation related to a fraud committed in 2011. George Urumov joined the Russian-owned company Otkritie Securities Ltd (Otkritie) and manipulated the firm into paying him a ‘sign-on’ fee of approximately £20m. Urumov falsely misled Otkritie into believing that the fee would be distributed to others also joining the firm. However,Urumov kept the bulk of the money for himself.

The second part involved Urumov committing further frauds by trading financial products called Argentinian warrants. He misled his employer into paying over four times the true value of the warrants and he pocketed the difference. He subsequently transferred his proceeds to bank accounts outside the UK.

Urumov then engaged the services of Vladimir Gersamia, an employee of investment management companyThreadneedle Asset Management, to help him execute the frauds. In an effort to launder the money, the proceeds were moved between numerous accounts worldwide, including the Caribbean, Switzerland and Eastern Europe. They stood to make more than £121m.

George Urumov was convicted of two counts of conspiracy to defraud, two counts of conspiracy to commit fraud by false representation and one count of conspiracy to commit money laundering. He was sentenced to 12 years’ imprisonment.

Vladimir Gersamia was convicted of two counts of conspiracy to defraud and one count of conspiracy to commit money laundering. He was sentenced to seven years’ imprisonment.

Yulia Balk (Urumov’s wife) was acquitted of one count of conspiracy to commit money laundering and one count of entering into an agreement to facilitate money laundering.

Alessandro Gherzi was acquitted of two counts of conspiracy to defraud, two counts of conspiracy to commit fraud by false representation and one count of conspiracy to commit money laundering.

 

There was a previous civil claim and parallel criminal investigations in Russia and Switzerland. What impact, if any, do you think this had on these proceedings?

The existence of the civil claim and parallel criminal proceedings presented some noteworthy challenges to the case management.

The judge had to decide on how to deal with the issue of the civil proceedings and to what extent this could be put before the jury. In the end the jury were informed that there were civil proceedings but they were not informed about the findings for the obvious risk that this would prejudice the trial.

Given the extensive press coverage of the civil case the judge had to give stringent directions to the jury stating in no uncertain terms that they were not to conduct any enquiries on the internet or elsewhere in respect of the civil case.

Furthermore, the majority of the material initially relied on by the prosecution had been provided to them by Otkritie, and this did not include all the material relied on in the civil case. But, following much discussion, it was agreed that all the information used in the civil case should be disclosed in the criminal case, which included all relevant witness statements and transcripts.

The parties also had to consider the related criminal proceedings which occurred in both Switzerland and Russia. Sergey Kondratyuk, a friend and former colleague of Urumov, received a payment from the ‘sign-on’ fraud. He was convicted in a Swiss court but was released in 2013 after serving a relatively short sentence. It is also understood that the Swiss authorities are trying to extradite Ruslan Pinaev, ex-head of eurobond trading at Otkritie, who allegedly also received a kickback from the fraud.

There was careful consideration about what, if any, reference could be made to those proceedings and what material could be obtained and put before the jury. In the end there was some reference to the Swiss proceedings but this was limited. This related to the disclosure of evidence involving another Swiss banker. There was also disagreement between the prosecution and defence about the admissibility of the current Russian investigation. The judge ruled that the Russian investigation was not admissible evidence and consequently this was not put before the jury.

 

What do the sentences imposed indicate about the criminality involved?

The sentences are relatively high for financial crime cases but they continue a trend of harsh penalties given to defendants in such matters. This follows the example set by the courts who sentenced former Libor trader Tom Hayes to 14 years’ imprisonment (later cut to 11 years) for rigging the benchmark rate.

These sentences are surely aimed not only to penalise those concerned but also to increase public confidence in the criminal justice system and to send a clear message of deterrence.

 

What lessons can corporate crime lawyers take from this case?

In cases where there has been lengthy and complex civil proceedings, practitioners will need to bear in mind how such proceedings may impact the trial. They will need to be alive to issues involving cross-admissibility and disclosure.

Both the prosecution and defence will need to familiarise themselves with disclosure regime set out within the Criminal Procedure Rules 2015, SI 2015/1490.

They will also need to be acquainted with the law pertaining to disclosure, for instance understanding the ramifications of section 13 of the Fraud Act 2006 which deals with the admissibility of statements or admissions made by persons in proceedings relating to property.

 

Is this likely to be the last time this matter is brought before the courts?

Maybe not. What is particularly interesting about the sentence Urumov received is the way the judge calculated it. The judge gave him nine years for each fraud and 12 years for the money laundering, to be served concurrently. Given the unusual way the 12 years was calculated we will have to wait to see if Urumov’s legal team launch an appeal on sentence.

Additionally Otkritie made an application against Urumov for contempt, including an application for committal. The application was made on a number of grounds, including giving false disclosure statements and knowingly making false statements in his defence. These proceedings are due to be heard in the High Court later in the year. However, given the 12-year sentence in this case, and the fact that this will far exceed any prison sentence handed out in the civil proceedings, it will be interesting to see if Otkritie decide to continue with this.

Kyle Phillips represents individuals subject to investigation for a range of business crime related issues including bribery and corruption, fraud, money laundering, tax investigations, false accounting and proceeds of crime proceedings. Please get in touch for more information.

This article originally appeared in Lexis Nexis PSL

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