Is the case of the NatWest three, extradited to the US to face charges of ‘wire fraud’, an isolated case, or should finance directors be concerned about the broader implications?

Certainly, GC100, the body that represents general counsel in FTSE-100 companies, is sufficiently concerned that it is in talks with the Home Office about the wider extradition threat to business people.

Moreover, lawyers say there are around 20 other extradition cases in the pipeline based on alleged white collar crimes. Not all of these are likely to bother the corporate world, but the case of Ian Norris, former managing director of Morgan Crucible Company, could have even wider implications than the NatWest case. He is wanted in the US on alleged price-fixing charges. But these related to a cartel, which was dealt with by the European Union in 2003. And, anyway, the activities the US complained of weren’t illegal in Britain at the time they were carried out.

If Norris fails to halt his extradition, US authorities could start targeting a string of new victims. The risk of extradition for business people has increased exponentially in the past two years as the result of a number of factors, says Alistair Graham, partner at law firm White & Case, which is representing Norris.

“First, the US has been becoming visibly more extra-territorial in its pursuit of perceived white collar crime that appears to affect US citizens.

“Second, the new extradition regime between the UK and the US has removed the protections previously given to UK citizens, with the most important change being that a prima facie case no longer needs to be proven against them.

“Third, in an attempt to secure the extradition of UK executives for offences that were previously not a crime here, US prosecutors are using the tactic of recharacterising specific US offences that did not exist as crimes in English law at the time the offences were alleged to have been committed. They are trying to shoehorn them into broader English law offences, which bear little resemblance to the original US charges. UK executives are rightly fearful of the potential consequences.”

CBI warning

The trend is certainly sufficiently worrying to have prompted CBI director general Richard Lambert to issue a blunt warning to the government about the impact of the current extradition arrangements between Britain and the US. “If the government does nothing to correct the imbalance, it risks damaging the UK’s position as a leading financial capital market,” he says. “Already UK firms are examining their US links with a view to minimising their risk exposure.” Lawyers also report that more companies are scrutinising the small print in their directors and officers’ insurance to see whether it covers the cost of defending extradition hearings and, indeed, legal proceedings overseas.

All this is likely to make FDs even more paranoid than they already are when it comes to investigating potential internal frauds in their companies. “Most finance directors take a very jaundiced view of involving the police and starting a criminal prosecution,” says Simon Bevan, head of fraud services at BDO Stoy Hayward.

“If they are part of a group with US operations, or if the incident involves an American group, they are even less likely to want to instigate criminal proceedings if they see it as making even the remotest chance that they, or someone else from their company, will be extradited to the US.”

Bevan says that research he has undertaken into FDs’ requirements, and extensive personal experience, is that confidentiality is paramount when a fraud is discovered. “Their priorities are, first, to identify the fraudsters. Second, they want to get the money back, which is done through the civil courts. Third, they then want to improve their systems to prevent it happening again and move on,” he says.

Prevention is better than cure, and FDs might want to step up their risk management programme. “Somebody needs to go in and look at what the business is doing, how it touches upon the US and where that may expose them,” advises Jeremy Cole, a litigation partner at law firm Lovells. “It’s important to ensure overall awareness internally of the risk of potential exposure.”

FDs may want to be more rigorous about due diligence to ensure there is no current breach of US law. Some companies are said to be looking at how they can restructure to reduce their vulnerability to legal challenges from overseas. “For instance, if a company has subsidiaries in the US, it may want to think about the exposure to the parent company and to ensure that the American enterprises are genuinely discrete corporate entities,” says Cole.

“If the employees have the authority to take their own decisions, you may reduce the risk to the parent company. You need to look at training arrangements so that individuals understand the scope and reach of US legislation,” says Cole.