Fraud alert: risk to independent schools

The recurring theme of my recent articles has been the need for resilience in the face of Covid-19.

Individuals, business and institutions will need to draw on all their, doubtless, abundant levels of resourcefulness and resilience to meet the challenges we face in the weeks ahead.

Schools will need to ensure that, from Monday 8^th March (or subsequently), risks connected with the re-opening of the school, namely to pupils, staff and visitors, are reduced to a level that is as low as reasonably practicable.

We have worked closely with schools considering how to most effectively reduce the risk of transmission of the virus and how to ensure the premises are 'Covid secure'.

However, we cannot lose sight of other risks posed to independent schools.

Fraud/Economic Crime

The Home Office published the third of its Newsletters on Economic Crime in December 2020.Within this document is highlighted the Independent Schools Council (ISC), the Independent Schools' Bursars Association (ISBA) and the National Crime Agency sharing of the Joint Money Laundering Intelligence Task Force's threat alert on bribery and corruption risks to UK independent schools.

"Laundromats"

A number of money laundering schemes know as 'Laundromats' have highlighted where independent schools have been used as a destination for funds linked to bribery, corruption and other criminality. On occasions, the payment of school fees through complex arrangements have been used to evade sanctions.

In the money laundering scheme known as "The Azerbaijani Laundromat" funds were reported to have passed through several companies before being used to pay fees for independent schools in the UK. The schools in question would not have immediately known that there was any cause for concern around the ultimate source of these funds.

Understanding payment sources and knowing parents are therefore of paramount importance.

Risk

The 'alert' highlights several ways in which an independent school may be at risk and features several case studies.  The 'alert' is helpful in that specific 'red flags' are identified in respect of each area of risk. 

Schools are advised to pay close attention where they receive unexpected third-party payments (particularly from those in different jurisdictions).

Third-party payments received in settlement of invoices may be considered a "red flag" and the school should consider further enquires. Through an enhanced due diligence process the rationale of the transaction can be better understood. For example, the school fees may be settled by the parents' employee or grandparents.

Independent schools should also note the following areas of risk:

• Donations
• Use of intermediaries
• Payments being received from overseas accounts or from jurisdictions listed as 'non-co-operative'
• Franchising arrangements
• Fundraising efforts.

Our view

Independent schools will likely have procedures in place detailing how they will handle monies and what steps they should take to satisfy themselves about where the money has come from and that the purpose is a legitimate one.

Indeed, the Bribery Act 2010 creates a non-fault, or 'strict' liability offence of failing to prevent bribery. A commercial organisation will be liable if anyone acting under its authority commits a bribery offence; this can include employees, consultants, agents, subsidiaries and joint venture partners. There is no requirement for the prosecution to establish that the corporate entity had any knowledge of the acts being carried out. The offence is related to a lack of systems to prevent such activity.

This 'alert' should not cause widespread alarm across the sector; instead in our view this represents an opportunity to review and, if necessary, revise relevant procedures to make sure that they are as all-encompassing and detailed as they need to be in order to safeguard the school's reputation, uphold the regulatory framework and ensure compliance with material legislation.