Financial professional – how to avoid the risk of suspected crime
Every day, a financial administration professional carries out tasks whose omission and certain types of mistakes are punishable as accounting offences. In addition, a financial administration professional may be guilty of offences against debtors, money laundering, or abetting or inciting the commission of the above offences.
Tax fraud is the various forms of prohibited tax evasions punishable under the Criminal Code of Finland. It may involve, for example, failure to declare information or false declaration. Liability is increased if an accountant has agreed with his or her client to report information to the tax authorities as a part of his or her services.
Debtor’s offences are about the debtor’s position being undermined, often in insolvency, i.e., inability to pay. The protection of the creditor in relation to the debtor is particularly important in limited companies. There are several types of debtor’s offences in the Criminal Code of Finland. In practice, these are situations where the rights of the creditors are violated in an insolvency for the benefit of the debtor or others.
Money laundering as a criminal offence involves concealing the origin of money or property obtained by criminal means and concealing the proceeds of the crime.
It seems that accountants are more often than before involved in preliminary investigations as suspects when their client is suspected of a financial crime. Seems that the willingness of the preliminary investigation authority, the police, to suspect and investigate the role of the financial administration professional has become more common, as has the willingness of the prosecutor to prosecute. However, no official statistics on this are available.
In which situations might a financial administration professional commit a criminal offence?
It is good to understand the situations when a financial administration professional might be guilty – even unintentionally or without understanding – of an act or omission for which a penalty can be imposed. Acts or omissions that are not expressly criminalised cannot be punishable.
When assessing the potential criminality of an act, it does not matter whether the financial administration professional obtains or seeks any financial gain from his or her actions. There is also no liability of damages for an accounting offence. In the case of offences committed by a debtor, the liability of damages is often significant.
In addition to the Finnish law, case law and legal literature can help to understand what is and what is not punishable. When investigating a crime, the court, the prosecutor, and the police are bound by the law – not by their own interpretations of the law.
Accounting offence is included in the Criminal Code of Finland as follows:
Criminal Code of Finland, Chapter 30, Article 9: Accounting offence
If an accountant, his/her representative, the person who has effective control over the legal person required to keep the accounts, or the person to whom the accounts have been entrusted,
1) fails to record transactions or to prepare financial statements in breach of the obligations imposed on him/her by accounting legislation,
2) enters false or misleading information in the accounts, or
3) destroys, conceals, or damages accounting records,
and thereby makes it difficult to obtain a true and fair view of the results of the operations or the financial position of the reporting entity, shall be liable to a fine or to imprisonment for a term not exceeding two years.
For an act or omission to be punishable as an accounting offence, the law requires both the constituent elements of the act to be met and the constituent elements of the consequence to be met. Basically, the article states that also an accounting professional may be convicted based on an accounting assignment.
The constituent elements of the offence states three alternative acts or omissions that are required for a crime to be punishable:
- Failing to record transactions or to prepare financial statements in breach of the obligations imposed on him/her by accounting legislation.
- Entering false or misleading information in the accounts.
- Destroying, concealing, or damaging the accounting records.
For an act or omission to be punishable, at least one of the constituent elements of the offence listed above must have been present and the prosecutor must be able to prove it in court. The consequence must also have occurred (the constituent element of the consequence). In practice, this means that the balance sheet or profit and loss account in the financial statements must be incorrect or incomplete to such an extent that it does not give a true and fair view of the company’s results and financial position.
If the financial statements are correct but one or more of the constituent elements of the offence are met, the act or omission should not be investigated, prosecuted or convicted as an accounting offence: “…and thereby makes it difficult to obtain a true and fair view of the results of the operations or the financial position of the reporting entity, shall be liable to a fine or to imprisonment for a term not exceeding two years.” If this condition is not met, no offence has been committed.
Accounting offence has also an aggravated form (Chapter 30, Article 9a of the Criminal Code of Finland). The grounds for this are:
- failure to record transactions or to prepare financial statements in whole or in substantial part,
- the amount of false or misleading information is significant, the information concerns large amounts of money, or is based on substantively incorrect supporting documents, or
- the accounting records are destroyed, concealed in whole or in substantial part, or are damaged in substantial part
and the accounting offence is also, taken as a whole, an aggravated offence.
Negligent accounting offence by a financial administration professional
An accountant may also be guilty of negligent accounting offences, which require gross negligence to be punishable. A negligent accounting offence means carelessness, i.e., failing to act with due care in a given situation. The requirement is different for a professional and a lay person. Care and negligence are therefore compared to a person in the same situation and in the same position.
The act may be punishable if the accountant, among others:
- fails, in whole or in part, to record transactions or to prepare financial statements; or
- destroys, loses, or damages accounting records
and thereby substantially impedes a true and fair view of the financial performance or financial position of a reporting entity.
There is not much case law on cases where a financial administration professional has been convicted. However, there are many cases where an accountant’s alleged accounting fraud has been investigated and prosecuted in court.
For example, in the case KKO 2016:2 of the Supreme Court of Finland, both the accountant and his client were acquitted – albeit only in the Supreme Court. The accountant was charged with abetting an accounting offence.
Why is a financial administration professional suspected of a financial crime when his client is also a suspect?
Why is an accountant accused and convicted of a financial crime in the same context as his/her client is finally convicted? In an accounting fraud, the accountant is often considered to be the perpetrator. When the person in charge of a company is accused of financial crimes, it may be about the debtor’s crimes and often also about money laundering.
Aiding and abetting an offence are also punishable. This may also apply to the activities of a financial administration professional. In case law, people who had been giving financial advice have been convicted when they had advised to make an act that later turned out to have been for example a tax fraud committed by their client.
An accountant was acquitted in the case KKO 2016:2 of the Supreme Court of Finland. The question was whether certain transactions should have been recorded in the company’s accounts, and whether non-accountable transactions were recorded in the accounts.
In many cases where the accused is suspected of an accounting offence, there are also suspicions of money laundering. Money laundering as an offence requires a predicate offence and an attempt to hide the money obtained from the offence.
There is also case law that suggests that in some cases it is advisable for the financial administration professional to end the accounting assignment altogether. This should be done if the task proves too difficult and the accountant would be forced to neglect accounting and the preparation of financial statements. If the engagement contract is in force and the accounts are not kept or the financial statements are not prepared, the accountant risks criminal liability.
Carry out financial administration tasks in accordance with laws and regulations and good accounting practice.
The best way to avoid criminal liability is to carry out financial administration tasks in accordance with laws and regulations and good accounting practice. Doing so should give confidence that there will be no criminal penalty, although other sanctions may come.
If you are being investigated of a suspected crime, contact an attorney with knowledge of the field and the legal practices of financial administration. He or she will advise you on how to proceed during police questioning and how to submit the requested documents. The suspect does not have to tell anything during the questioning that would support the presumption of guilt.
We assist members of boards, companies, corporate executives, and financial administration professionals, as well as other entities and foundations, in criminal investigations and litigations of financial crimes, money laundering, tax and accounting offences and debtor offences.
This article is based on an article previously published in the Tilisanomat-magazine of the Finnish Financial Management Association.
