Financial crime

Economic crime or financial crime is crime of a financial nature in the context of a company or other business activity. The two most common types are accounting fraud and tax crime. In recent years, money laundering crimes have also become more common.  Financial crimes are often detected by the tax authorities, bankruptcy administrators, auditors or those who examine a company's accounts and transactions. Financial crime differs from other types of crime in that the main question is usually not who committed the crime, but whether the suspect's actions are actually criminal.

Every year, a large number of small business owners are suspected of accounting and/or tax fraud, and in some cases these people are not even aware that they have done anything illegal. There are certain things that are important for anyone running a business or sitting on the board of a company to know in order to avoid being suspected of a crime.

Being suspected of a crime is for most people a very unpleasant experience. If you are suspected of economic crime, you have the right to a public defender and you have the right to choose which attorney you want. Our recommendation is that a person suspected of a crime should always have their attorney with them during questioning.

Are you suspected of a crime? Contact us, we will help you!

What is an accounting fraud?

An accounting fraud occurs when someone intentionally or negligently fails to fulfill their accounting obligations under the Accounting Act, for example by failing to record business events, retain accounting information, or provide incorrect information in the accounting records.

The accounting obligation can be summarized, somewhat simplified, in three main areas:

1. The company's business events should be recorded on an ongoing basis. A business event is an economic transaction that has an impact on the enterprise, for example on the assets of the enterprise. All business events must be recorded both in the order in which they are recorded (basic records) and in a systematic order (general records). There must also be a basis for everything that is recorded, e.g. there must be an invoice as a basis if a revenue is recorded.
   
   
2. All accounting information must be kept for seven years after the calendar year in which the financial year ends (previously it was ten years). This means that all receipts, invoices, etc. must be saved. Today it is also possible to preserve accounting records digitally under certain conditions, for example it is allowed to transfer accounting information such as an invoice from paper to your computer by scanning. If this is done, the original paper invoice only needs to be saved for three years, but the electronic invoice must be saved for seven years. As a general rule, accounting information should be kept in the same condition in which it was compiled. The format in which the invoice is intended to be presented is crucial. If the invoice is prepared and sent electronically, it must be kept electronically for seven years, while an invoice that is printed and intended to be kept in a binder must be kept in printed format for seven years. The reason why everything has to be stored for such a long time is so that it is possible to check a business transaction afterwards, for example in connection with an audit.
   
   
3. The third main area of the accounting obligation is to close the books at the end of the year. This means that everything is put together in a set of financial statements, including an annual report in the case of limited liability companies, at the end of the company's financial year. The annual accounts must be prepared in time to be presented to the annual general meeting of the company within six months of the end of the financial year. Failure to prepare annual accounts in time may constitute an accounting offense.

In simple terms, an accounting fraud is committed when the accountable party fails to keep the accounts, i.e. fails to comply with the above-mentioned obligations, and at the same time this leads to the fact that the course of the business and its financial position cannot be essentially followed and understood (the main criterion).

The following are examples of errors and omissions that may constitute an accounting fraud:

• Records are totally or partially missing, e.g. invoice, receipt or other documents are missing.
• Accounting records are prepared too late.
• The entire year's business events are recorded at one time.
• Recorded 'cash' does not match actual cash.
• Commingling of transactions between the company and the entrepreneur.
• The last business events related to the liquidation or sale of the business have not been recorded.
• Annual accounts are not prepared or are prepared late. Below is a specific section on delayed annual accounts.

Delayed annual report

Accounting offenses consisting of either not preparing annual accounts at all or preparing them too late are a common crime. Delays of more than five months are usually considered to be normal accounting offenses, regardless of other circumstances. In the case of delays of between three and five months, other circumstances are also taken into account, but the starting point is that delays of less than five months should be assessed as minor offenses. The legislator's aim is that isolated and short-term delays should not lead to a penalty.

If an annual report is prepared too late, the assessment should take into account whether the delay results in a lack of information for shareholders, banks and suppliers, for example. The higher the turnover and the more stakeholders the company has, the more serious the delay is. A delay also appears to be more serious if the company in question has financial problems. In such a case, even a delay of less than five months can be considered a normal crime.

Who can be convicted for accounting offences?

In the case of partnerships, the responsibility for accounting lies with the partners personally. The general rule for companies represented by a board of directors, such as limited liability companies and economic associations, is that the board of directors is responsible for the accounts, but it is not always that simple. In this context, it is worth mentioning that an alternate member of a board is not generally responsible for the accounts.

For example, a wife is a member of the board of directors of a company but is not involved in the company beyond that. Her husband is not on the board of the company, but he is the one who actually runs it. Thus, it is the spouse who meets customers, sends invoices, keeps track of the finances, etc. In such a case, the spouse is to be considered as a formal representative and the husband as a so-called de facto representative. In this case, both spouses would basically be held responsible for the accounts and both could be suspected of accounting fraud.

Thus, not only formal representatives of companies can be liable for accounting errors, but there may also be other persons to be considered as representatives of the company.

The Supreme Court issued a judgment in 2017 (NJA 2017 p. 690) clarifying what applies to de facto representatives. The court stated that it is decisive whether the person who is alleged to have been a de facto representative has been the person who has de facto made decisions in such matters that in a limited liability company are the responsibility of the board of directors or the managing director. This means that it is decisive whether the person in question actually exercises a controlling influence over the business. Thus, it is not sufficient that the person in question has the opportunity to exercise influence in the company due to shareholding or other circumstances. Nor is it sufficient that he or she is authorized to enter into agreements with third parties by virtue of the right of signature or power of attorney. This regulation means that, for example, a deputy member of the board could also be liable for a crime.

What if an external company has been hired to take care of the accounting?

Many entrepreneurs mistakenly believe that accounting responsibilities can be completely avoided by hiring an external company to do the accounting. Regardless of what the external company has been commissioned to do, it is important to remember that the ultimate responsibility always lies with the representatives of the company. If there are errors or deficiencies in the accounts, the starting point is that the company responsible for the accounts cannot be blamed under criminal law.

What if the accounting errors are due to carelessness?

If it can be established that an accounting offence has been committed objectively, i.e. that there are deficiencies in the accounting records and that these deficiencies are so significant that they meet the main criterion, it must be examined whether the person responsible has acted with intent to commit the accounting offence or whether he/she has committed the accounting offence negligently (recklessness/carelessness). While negligence/carelessness is sufficient for criminal liability to arise, not all forms of negligence/carelessness reach the level required for criminal liability.

In making its assessment, the court carries out an overall assessment taking into account several factors, such as the defendant's financial knowledge, personal situation (e.g. illness) and whether he or she had used an external firm for bookkeeping. However, other factors that support or oppose the defendant's attempts to manage his or her accounts are also taken into account, such as whether or not this is the first time the person has neglected his or her accounts. Thus, each case is assessed on an individual basis.

What are the different degrees of accounting offences and what are the penalties?

There are three different degrees of accounting offenses, minor offenses, normal offenses and serious offenses.

There are no exact amount limits for when each degree becomes relevant, but generally speaking, a minor accounting offense can be considered if the offense has occurred in a company with a small turnover, the deficiency is less serious, the offense has been committed on isolated occasions and has been committed due to negligence/carelessness. If the prosecutor concludes that the accounting offense is to be considered minor, the starting point is that he should not prosecute unless there are special reasons for doing so. An example of when there may be special reasons is if the suspect has committed the same type of crime before. This means that the most minor offenses will normally not be prosecuted.

A person charged and convicted of a minor accounting offense can be sentenced to a fine or imprisonment for a maximum of six months, the amount of the fine depending on the seriousness of the offense and the financial situation of the defendant.

Serious bookkeeping offenses may be relevant in the case of high amounts, if false documents have been used (e.g. false invoices), if the error has been made repeatedly or has been part of another crime. Serious crime is usually only relevant in cases of intentional crime.

If the crime is serious, the penalty is imprisonment for a minimum of six months and a maximum of six years.

Somewhere in the middle is the normal degree of accounting fraud. These are punishable by a maximum of two years' imprisonment. It is good to know, however, that a person convicted of an accounting offense that the court considers equivalent to, for example, three months' imprisonment is not necessarily sentenced to serve a prison sentence, but can be sentenced to alternative sanctions such as a suspended sentence and probation.

What is a corporate fine?

Corporate fines have become increasingly common in economic crime cases. A corporate fine is not a penalty in the strict sense, but another specific legal effect of crime that can be used in cases of business crime.

A corporate fine is something that the prosecutor can claim in a case of, for example, accounting and/or tax fraud. It is the trader who must pay the corporate fine, which can be said to be a kind of fine for companies. The corporate fine is a minimum of SEK 5 000 and a maximum of SEK 10 million.

A prerequisite for a corporate fine is that the trader did not do what could reasonably be required to prevent the crime or that the crime was committed by a person who held a management position or had a special supervisory or control responsibility in relation to the trader.

Individuals in the company can be prosecuted even if the prosecutor requests a corporate fine. There may also be a case for only imposing a corporate fine on the company without any natural person being prosecuted.

What is a business ban?

Those who seriously mismanage their business activities can also be banned from trading. A business ban is valid for a minimum of three and a maximum of ten years.

 Discontinuation may be necessary if

• the trader engaged in systematic misconduct,
• whether the consequences of the mismanaged commitments led to a higher profit,
• the misconduct has caused damage or was intended to cause damage; or
• if the trader has been convicted of a business crime in the past

It is the prosecutor who brings the action for disqualification and this is tried in the same trial as, for example, the accounting and/or tax offence. In the case of a serious accounting fraud and/or a serious tax crime with a minimum sentence of six months, it is almost mandatory for the prosecutor to also bring an action for disqualification.

A business ban means, for example, that during the period of the ban you may not engage in a business activity, be a signatory of a company, act as a representative of a legal person engaging in a business activity, be a member of the management of a business activity, be employed in the business activity to which the ban applies, or be employed in a business activity run by a related party.

What are money laundering offences?

The crime of money laundering is committed by a person who deals with property in order to conceal the fact that the property is derived from a crime or criminal activity or in order to promote the opportunity for someone to obtain the property or its value. The crime of money laundering thus requires that a financial benefit is first obtained through a crime, a so-called predicate offense. It is the subsequent actions taken with the property that can constitute money laundering. 

Pre-crime to money laundering offenses

In Sweden, theoretically all types of crimes can constitute predicate offenses to money laundering. All offenses that can give rise to proceeds are covered, which in addition to obvious possession and acquisition offenses also includes evasion offenses (tax offenses, customs offenses). This also applies to crimes committed abroad and crimes committed by the offender himself, known as 'self-laundering'. You can therefore be convicted for carrying out money laundering operations with property that you yourself have acquired through crime.

The most common predicate offenses to money laundering are drug offenses and fraud. Other offenses include doping, theft, robbery, extortion, smuggling, fraud and tax evasion.

What is a money laundering measure?

The term 'money laundering measure' refers to the handling of property derived from crime. An action may include transferring, converting, pledging, using or storing the property. It also includes dealing with electronic property, such as allowing a sum to be deposited into an account. Drawing up documents aimed at providing false explanations for the origin of criminal proceeds is also a money laundering activity. An example of this is false promissory notes.

What is the purpose of money laundering?

The existence of a money laundering purpose means that the actions taken with the proceeds of crime must have been aimed either at concealing the criminal origin of the property, or at somehow promoting the value of the proceeds of crime.

A person found liable for money laundering does not have to have intended to launder the property, but someone in the scheme (e.g. a client) must have had a money laundering intent. This can be explained by the fact that, in order to be held liable, the defendant must have had the intent to launder money.

What is the crime of money laundering?

In cases where it is not possible to prove a predicate offense, liability for business money laundering can be imposed instead. This applies when someone in business activities or as part of an activity that is carried out habitually or otherwise on a large scale contributes to a measure that can reasonably be assumed to have been taken for the purpose of money laundering. A predicate offense need not be proven. The offender must have been guilty of so-called reprehensible risk-taking.

The term 'business money laundering' is somewhat misleading as the provision does not only refer to business activities, but to all activities carried out habitually or on a large scale. The scope is therefore very broad. For minor money laundering offenses, there is no requirement at all that the action must have been taken within the framework of a business or similar activity. It is therefore possible to be sentenced for minor money laundering when it is a single action where the activity requirement is not considered to be met.

Classification and penalties for money laundering offences and business money laundering

There are three grades of money laundering offences and money laundering in the economy: minor, normal and serious. The range of penalties for money laundering and business money laundering is the same.

The penalty for minor money laundering offenses (money laundering offense) and minor money laundering offenses is a fine or imprisonment for a maximum of six months. For ordinary crimes, the penalty is imprisonment for a maximum of two years.

Serious money laundering and serious business money laundering are punishable by imprisonment of between six months and six years. When assessing whether the crime is aggravated, particular attention must be paid to whether the offense involved significant values, whether the criminal actions were part of a systematic or large-scale crime or otherwise of a particularly dangerous nature.

When assessing whether the money laundering crime should be considered serious, it is primarily the amount that matters. The benchmark is just over five price base amounts.  In the case of crimes where tax evasion is a predicate offense, the legislator has stated that the money laundering crime can be assessed as serious even though the tax evasion (for which the threshold for serious crime is ten price base amounts) is not assessed as serious.