Sunday, July 19, 2009

Lawyer's fraud, partners' sorrow


Zulkifli Amin was a law firm partner who disappeared in November 2007 allegedly with more than $6 million of clients' monies missing. Often, law firms hold on to clients' monies pending payment to sellers and developers of property. For one transaction, the monies held by a law firm may be from ten thousand dollars to millions of dollars.

Unfortunately for Sadique Marican and Anand Kumar, they were partners in the same law firm as Zulkifli Amin. All partners are fully liable for partnersip debts. What are partnership debts? Debts incurred in the course of partnership business will fall into this category. It looks like monies taken by Zulkfli Amin as law firm partner will probably be found by the courts to be partnership debts.

A recent report stated that the 2 partners of Zulkfli Amin will have to pay about $380,000 taken by the latter as the monies were paid by our client to the law firm in the course of a property transaction.

It is understood that many law firms are now converting to Law Corporations or Limited Liability Partnerships because of risk of fraud by law partners. When these 2 types of vehicle are used, it is much more difficult to hold the other partners or directors (in the case of a Law Corporation) personally liable for any fraud of one partner.


Thursday, July 16, 2009

Preventing employee fraud

Many cases of fraud involve insiders like employees who steal money or forge cheques.

How to prevent this? Overseas, it is common for employees in sensitive positions to be covered by fidelity bonds. These are in fact of form of insurance to cover losses from employee fraud. I understand that this is not common in Singapore. The Law Society has professional indemnity insurance which protects law firms against negligence suits and fraud by employees but in the past, it did not cover fraud by the partners of the law firm. Not sure about the situation now.

So what should you do as HR manager? One possiblity, which is also quite novel, is to require a potential employee to obtain a guarantor who is a close friend or relative. This guarantor will promise to be liable for losses caused by the employee's dishonesty. This measure will face some resistance from employees. Also, whether the guarantee works in the end depends on many factors, including the guarantor's financial capability at the time of the claim.

Accountant jailed for embezzlement

Accountant Lim Seow Kok was jailed for 5 1/2 years for embezzlement of over $500,000. He admitted to 74 counts of forgery and criminal breach of trust.

He worked at 11 different organisations (including charities such as Hougang Care Centre) between 2007 and 2009. His method was to join the company for a while, forge cheques to withdraw his employer's monies and then to disappear.

It is unclear whether or not any employer could have stopped him before he took their money. Human Resources departments should, before hiring someone, check his employment history. If the person claims to have had no employment, perhaps a check of his CPF statements will confirm this. To preserve the employee's privacy, the non-essential parts of the statement can be covered up before the statement is shown to the company.

Organisations should also take good care of their cheque books. Although it could be argued that forged cheques are invalid and the banks should bear the loss, avoiding the costs and uncertainty of legal disputes is far preferable.

Car importer jailed and fined

Tay Kien Chuan, parallel car importer, was fined $10.8 million for tax evasion. He under-declared the value of over 2,500 cars, thus resulting in cheating the government of taxes such as import duties and Goods and Sales Tax. These taxes are based on the Open Market Values (OMVs) of the cars, which is the cost of the car overseas, plus the cost of insurance and freight to Singapore. He was sentenced to 42 weeks jail, in addition, for furnishing false information to Customs Officers regarding imports from the United Kingdom. As for his huge fine, as he is unable to pay it, he will serve 354 weeks jail in default (about 7 years).

Reports suggest that Tay was caught because he used electronic means to communicate to his Japanese suppliers to tell them to under-declare the value of the imported cars., and these messages were found by investigators He had arranged with his suppliers to meet them in person to pay them in cash for the under-declared amounts.

Others also convicted for similar offences were Tan Chi Beng and Toh Chee Wee.

In some of these cases, the companies involved were also punished by the courts.

Credit card holders' response

The previous post referred to what we can do as consumers regarding loss credit cards and liability for all charges incurred on them.

Another step that might assist sometimes is to ask for full information regarding the use of the stolen cards. What we might want to find out is whether the retailers whose customers used the stolen cards have followed proper procedure. Some examples where this is not done -

a) the name on the card is obviously female but the only person using the card is a male;

b) the photo on the card (I believe Citibank and some other banks issued such cards) obviously does not match the spender;

c) the signature on the credit card slip is totally unlike that found on the back of the card;

An argument can be made that the retailer has been negligent, and perhaps should bear some of the loss. Consult your lawyer especially if the loss is major.

$17000 shock for credit card owner

Ms Tan Shock Ling had her credit cards stolen and ended up with a bill for $17,100. Her card was used by the thieves to buy luxury goods such as 3 Rolex watches.

Under the terms of agreement with the various card issuers, UOB, Royal Bank of Scotland, and Citibank, she was liable for all losses before she reported the loss of her card. This is a matter of contract law - she agreed to it and she now has to bear the losses.

What can we do as consumers? We should pay attention to the loss provisions of the credit card issuers. We should think carefully about taking the credit cards issued by banks with harsh loss provisions on overseas trips where the risks are higher. Even better, support those issuers who protection limits for loss cards and don't do business with those issuers who have no loss limits.

I understand that American Express has a low loss limit. If any reader knows of other issuers with loss limits, do let me know and I will share this knowledge on this blog.

Card issuers will of course claim that having a loss limit will in the long term lead to all customers sharing the losses of careless customers. To some extent, it is true but perhaps, the card issuers should learn from the insurance companies. All customers should have loss limits at the start but after the loss of the first card, then no loss limits are offered to them. Furthermore, all customers when applying for cards will be queried on their loss history. This would be fairer to all parties concerned.

Sunday, July 5, 2009

Techniques to stop casino fraud

Casinos are well known places for carrying out money laundering and major fraud because of the large sums of money involved in their operations.

In Singapore, with a major casinos set to open soon, a special body, the Casino Regulatory Authority, has been sent up to police the 2 casions to ensure no fraud and to ensure that the casinos are not linked to organised crime.

The Authority has recently announced some measures to stop fraud at the casino. These are -
a) the destruction of cards used in card games after their use in one game - to ensure that players do not mark the cards and thus cheat the casino or other players;

b) mechanical shuffling of cards - magicians are well known for sleight of hand tricks. In fact, anyone can master them with practice. To stop such moves, cards used in games like baccarat will be shuffled by machines, instead of manually; and

c) all jackpot payouts will be in the form of coupons and not coins or tokens. The coupons will be bought to the cashier for payment. This is probably to prevent one player from transferring large amounts of coins or tokens to another person for money laundering purposes. Depending on the information stated on the coupon, money laundering may be made much harder. However, from the customer experience point of view, there is nothing like the sound of thousands of coins falling into a winner's tray to create excitement. Maybe there should recorded sounds to simulate this.

Fall guys and the law

The term "tua pek kong" (actually the name of a Chinese god) is local jargon for a fall guy - a person who takes the rap for another's offence.

Under Singapore law, most cases of paying someone else to take the fall for your offence is caught by the laws relating to corruption under the Prevention of Corruption Act. Another alternative that may be used, but still is rarely seen, is the offence of perverting the course of justice under section 204A of the Penal Code. This is a comparatively new section. It appears that looking at Part XI (False Evidence and Offences against Public Justice) of the Penal Code under which section 204A is found, that this section is meant to be a catch-all or miscellaneous section for tactics that are not clearly offences under the other sections in this part.

Wikipedia states that perverting the course of justice under English law covers 3 types of acts - threatening a witness or juror, intimidating a witness or juror, and fabricating or disposing of evidence. It appears that most of these would be covered by existing Singapore provisions. The Ministry of Home Affairs takes the view that the new section covers bribery of witnesses before trial which may not be caught by existing provisions.

Jail for lying to get permanent residence

The tag "government fraud", as used here, refers to cases or issues relating to making false statement to the government or regulatory authorities.

A China national, Lin Shuliang, was recently jailed for 2 weeks for lying about his educational qualifications in his application to obtain permanent residency. He had used fake documents showing that he had graduated from a China Middle School when he applied to the Immigration and Checkpoints Authority.

Despite his lack of education, he is the owner of 2 building companies who are involved in some 10 construction projects. He is possible that his sentence will lead to his permanent residency status being revoked.

Fake performance bonds

Jasons Lim Hua Tong, a former insurance agent, who is alleged to have run Love Foundation while a bankrupt, was jailed 8 months for misleading a client,Dynasty Industrial and Construction , into thinking that he had obtained a performance bond for it. He was jailed for 8 months for the offence. He had faxed a quotation to his client showing that the performance bond would be issued by Mayban Assurance when this was not true. He took $7,000+ for the bond fee and another $2,000+ for its renewal. However, he argued in court that the money that he took was still available to repay the client. However, the court took into account that he abused the client's trust and took steps to fabricate documents.

Performance bonds are issued usually by banks, insurance or finance companies. They are contain promises to pay, usually on demand. These bonds allow the named party on the bond (the beneficiary) to obtain cash more or less immediately. The function of such bonds is to allow the beneficiary to obtain compensation for contract breaches without having to spend time and money suing in court. These type of bonds are used in large scale projects such as construction jobs or major information technology contracts. Often, the bond amount is for 10% of the contract sum.

It should be noted that Lim deceived not only his client but also the customer of the client who required the bond for the latter's protection.

Fake vouchers used to evade tax

As readers may know, tax evasion is illegal but tax avoidance is not. Tax avoidance refers to tax planning, while tax evasion refers to dishonest statements and documents and dishonest concealment of income.

Seah Boon Huat, a director of a construction company, was recently sent to jail for 8 months for tax evasion. He had created fictitious payment vouchers amounting to over $1 million. These were used to show that his company, Project Building Construction, had made these payments to sub-contractors. The company was also fined $60,000 and ordered to pay a penalty of over $1 million.

As for Seah, his financial penalty was the same, and all this for a tax saving of $265,000.