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BetonSports case puts the spotlight on the long arm of US law
Reuters reports that recent events such as the extradition of UK bankers wanted in connection with the Enron case in the USA, and the BetonSports failure to appear at a criminal hearing in St Louis this week have resulted in an upsurge of interest in extradition insurance.
The news agency says that the issues have graphically illustrated to British businessmen how long the arm of U.S. law can reach and prompted firms to rethink the cover they buy to protect their managers against lawsuits, known as directors and officers (D&O) insurance.
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"The 'NatWest Three' case has served as a rude awakening to some companies," said Joe Fernandez, D&O product manager for ACE European Group Ltd. He says that a number of FTSE 100 and FTSE 250 UK companies who had previously not bought D&O cover are rethinking their decision in the light of recent events.
Other firms which had bought cover, but had opted for cheaper cover that excluded the cost of lawsuits from the United States, are now looking to upgrade their policies, as they have been forced to reassess their previous assumption that they had little to fear from the U.S. authorities.
The offence of "wire fraud" -- misconduct committed using the telephone or fax -- means that businessmen don't even have to be on U.S. soil for their actions to come under the scrutiny of the U.S. authorities, Reuters reports.
"There is a rapid learning curve going on in UK boardrooms about wire fraud," said Nick Foord-Kelcey, European D&O Practice Leader for insurance broker Marsh .
Insurers have responded by rewriting their policies in recent weeks to spell out they cover the legal costs in extradition requests.
They have also soothed clients' anxieties, caused by the liklihood of BetonSports former CEO Carruthers' million dollar bail, by reassuring them their policies include the cost of bail bonds. Insurers are bracing themselves for a jump in claims from more extradition requests, following an Anglo-U.S. extradition treaty in 2003, primarily aimed at making it easier to move terror suspects to America, but which has been used by U.S. prosecutors to target suspected white-collar criminals (see previous InfoPowa report).
There are currently 23 British people who are the subject of extradition applications relating to white-collar crime, said Clair Collins, Marsh's UK D&O Practice Leader.
And a surge in the number of extraditions may not only push up the cost of insurance for company executives, but firms may need to buy substantially more cover, insurers warn.
Protracted extradition battles could eat up most of the money available under policies, leaving little, or even nothing, left in the kitty to pay lawyers' fees in the actual trial.
"There's a very real threat the D&O cover could be exhausted by extradition appeals," said Fernandez.
Adding a footnote to the US legal issue was news from the Sportsman newspaper this week that the son of BetonSports chairman Clive Parritt has become engaged to an American girl in Cleveland, Ohio. The report commented that if the wedding is scheduled for the bride's home town there could be a problem in Parritt appearing for the festivities.
"Marriage is an institution but not, Clive hopes, a correctional one!" the journalist pithily commented.
Parritt and other board directors at BetonSports, such as Olympic gold-medallist Lord Glentoran, haven't been indicted. So in theory, Parritt could travel to the US. But in a country that considers an online flutter more sinful that invading a sovereign country, who would take the risk for a wedding? the publication asks.
The US is already muttering darkly about the directors not bothering to show up for this week's hearings. It could mean they're in contempt and risk arrest once on US soil. Asked by the Sportsman newspaper about the wedding, Parritt said: "I don't know the exact arrangements. No wedding date and venue has been set yet."
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