White collar crime

UK/European crime-fighting coordination post Brexit “a priority”

As anticipated in our blog last June, the impact of Brexit on how the UK’s crime-fighting agencies will interact with their European counterparts is now firmly on the agenda.

On 6 March, the Home Secretary, Amber Rudd, announced that remaining in the European Arrest Warrant (EAW) system will be “a priority” in the Brexit negotiations. The following day, Europol’s director, Rob Wainwright, declared that the UK will be heading into “unchartered territory” should it wish to continue to have access to Europol’s shared platforms post Brexit.

Ms Rudd’s statement will cause some controversy. Remaining in the EAW system does not sit with the Government’s determination to extract the UK from the influence of the European Court of Justice.

However, as demonstrated in the 2014 Commons debate about the UK’s membership of the EAW system, there are mixed views on it. There is significant unease about there being no opportunity for UK judges to review the evidence underlying the warrant but during the debate in 2014, Theresa May, then Home Secretary, was an advocate of the system and argued that opting out would make the UK “a honeypot for all of Europe’s criminals on the run from justice”. The fact that over 7,000 individuals suspected of serious crimes have been extradited from the UK under the EAW system since 2010 is a strong reason to stay in it.

In contrast, the need to secure the UK’s continued access to the EU’s criminal intelligence network is uncontroversial. The UK is one of the most active users of Europol’s various platforms. How exactly that will be achieved and at what cost is not yet clear. Europol now has agreements with 19 non-EU states, which include access to a communication system and arrangements for the exchange of information. However, new regulations coming into force in May 2017 give the EU significant supervisory power over Europol and prevent it from entering into operational agreements with non-EU states. As a result, a direct agreement between the UK and Europol will not be an option. The alternatives are yet to be fully explored but if the arrangement is similar to those with the non-EU states currently in place, the UK is unlikely to have immediate access to the intelligence network.

These are significant issues and it is important that they are prioritized by the Government for the safety of both Remainers and Brexiteers alike.

Anti-corruption

UK Government responds to International Development Committee’s Fourth Report 2016/2017

In October 2016, the International Development Committee put forward 13 recommendations for the improvement of the UK Government efforts to tackle overseas corruption. Last month the UK Government published its response.

The Government agreed with seven recommendations:

  • assess the extent of money laundered through the UK and continue to lobbying the UK’s Overseas Territories and Crown Dependencies to apply the same level of transparency and accountability;
  • develop a cross-government Anti-Corruption Strategy;
  • continue prioritisation of anti-corruption efforts during Brexit negotiations and afterwards;
  • apply research into the effectiveness of different anti-corruption methods;
  • include foreign parliaments in DFID’s anti-corruption country strategies;
  • work with foreign governments to increase protection for whistleblowers; and
  • DFID to monitor progress of anti-corruption programmes.

The Government partially agreed with the following four recommendations:

  • reappoint the anti-corruption “Champion”;
  • further work on the inclusion of developing countries in discussions and decisions on international tax matters;
  • develop DFID rolling strategies with a 10 year horizon; and
  • DFID’s publication of anti-corruption country strategies.

The Government disagreed with the following proposals:

  • lobby the UK’s Overseas Territories and Crown Dependencies to create public beneficial ownership registers; and
  • publish country by country reporting of profits and payments to governments by multinationals.

The two areas where the Government declined to follow the Committee’s recommendations appear to reflect a concern that although the UK should be seen as a leader in the fight against anti-corruption, it should not go too far ahead. The Government emphasises that the UK’s Overseas Territories and Crown Dependencies already go further than other jurisdictions as they allow law enforcement to access the information. In respect of the publication of profits and payments to governments by multinationals, the Government expressly states that this should be a multilateral effort.

White collar crime

Government considering reform to hold companies more accountable for economic crime

The Ministry of Justice has announced that it has commenced a consultation with businesses on the introduction of legislation aimed at tackling corporate economic crime and is seeking views on the extent to which reform is required. This follows on from the Prime Minister’s anti-corruption summit on 12 May 2016 and the Attorney General’s 5 September 2016 announcement of the commencement of such discussions.

Currently, in order to establish criminal liability on the part of a corporate body, prosecutors in the UK must show that the individuals involved in the wrongdoing represent the “directing mind” of the company. It has, however, been argued that this high hurdle has prevented the successful prosecution of companies, particularly in the financial sector, and the Government is asking for views on potential alternatives. The proposals under consideration (as set out in a Consultation Paper published with the Call for Evidence) include a ‘vicarious liability’ offence under which the corporate entity could be liable for the acts of its employees irrespective of whether it was complicit in them and a ‘failure to prevent’ approach, so that companies which cannot prove they have taken steps to prevent offences such as fraud, money laundering and false accounting will be held liable. This initiative follows on from The Section 7 Bribery Act ‘failure to prevent’ offence, and the UK Government’s more recent initiatives to consult on a ‘failure to prevent fraud’ offence and the launch of the ‘failure to prevent tax evasion’ offence under the Criminal Finances Bill.

The implications are potentially very significant for corporations as the reverse burden of proof and increased risk of being found liable for the acts of individuals will result in the need to incur further expense on corporate governance. The Call for Evidence will remain open until 24 March 2017 and views can be submitted here. Unsurprisingly, there is a range of opinions on this issue but we will continue to monitor developments in this area as the Government appears committed to strengthening the UK regulatory regime in its efforts to repair trust in businesses and improve corporate accountability.

Asset recovery

The new Criminal Finances Bill setting out new anti-money laundering powers has had its first reading

On 13 October 2016 the Criminal Finances Bill (the “Bill”) had its first reading in the House of Commons. In addition to introducing Unexplained Wealth Orders (described in our blog below), the Bill sets out a number of new anti-money laundering powers. The Bill will:

  1. enable the seizure and forfeiture of the proceeds of crime that are stored in the UK, extending the current provisions to include value stored in bank accounts and high-value property, such as precious metals and jewels;
  2. enable the sharing of information between regulated companies, helping to ensure that they provide the best possible intelligence for law enforcement agencies to investigate;
  3. create new powers to assist investigations, including a power to extend the moratorium period in which Suspicious Activity Reports (SARs) can be investigated (originally 31 days) with extensions of 31 days (with a cap of six extensions equating to 186 additional days) and giving the National Crime Agency new powers to request information from regulated companies; and
  4. permit disclosure orders for money laundering investigations, requiring someone suspected of possessing information relevant to an investigation to provide information (bringing disclosure powers in money laundering investigations in line with corruption and fraud investigations).

The introduction of the Bill progresses the legal changes outlined in the UK Government’s Action Plan for Anti-Money Laundering and Counter-Terrorist Finance that was published in April this year and its Response to the Consultation on the Legislative Proposals, published on 13 October 2016. The Bill shows that, despite the change of prime minister and much of the cabinet, the Government remains determined to tackle financial crime.

Asset recovery

New crime bill to introduce Unexplained Wealth Orders

The Government is due to publish a new proceeds of crime bill tomorrow, which will introduce Unexplained Wealth Orders (UWOs), as reported in The Times (paywall).

UWOs would allow the police to apply for an order to require individuals to explain their source of wealth where it exceeds their lawful income. They will be an useful antidote to foreign public officials on low salaries and no other obvious source of legal income who hold valuable UK property, as reported  following the release of the Panama Papers.

Our James Maton was a member of the Transparency International panel that developed a detailed proposal for UWOs (see summary here). We will publish our analysis of the Government’s proposal once it is published.

Anti-corruption

Home Affairs Select Committee concludes UK needs to do more to address money laundering and corruption

The House of Commons Home Affairs Committee has published a report entitled ‘Proceeds of Crime’ in which it is highly critical of the efforts being made and systems in place in the UK to prevent money laundering and to recover the proceeds of crime. Chair to the Committee, Rt Hon Keith Vaz MP, was keen to stress on the UK Parliament Website that: “At least a hundred billion pounds, equivalent to the GDP of Ukraine, is being laundered through the UK every year. The Proceeds of Crime legislation has failed to achieve its purpose. London is a centre for money laundering, and its standing as a global financial centre is dependent on proactively and effectively tackling money laundering[1]. The report lists various statistics to demonstrate how ineffective current efforts are especially against criminals increasingly sophisticated at concealing the proceeds of crime.

The Committee, who consulted various stakeholders and experts in the course of its inquiry, highlighted the inadequacy of the key tool for detecting suspicious financial activity across the financial services sector and connected industries as an ongoing and serious issue. The report concluded that the ‘ELMER’ database (which captures Suspicious Activity Reports (SARs) on behalf of the National Crime Agency (NCA)) is overloaded, rendering it “completely ineffective”. This is perhaps unsurprising if the NCA report to the Committee, that ELMER was currently processing 381,882 SARs, despite having been designed originally to cope with just 20,000, is correct.

However, the Committee concluded that more is needed than simply an upgrade of the SAR processing database highlighting the regret expressed by many of those providing evidence that the recovery of criminal assets was often only an afterthought after a conviction. The report also highlighted an inconsistent and seemingly unenthusiastic approach to the recovery of the proceeds of crime at both prosecutor and court level and confirmed its agreement with the National Audit Office that the Asset Recovery Incentivisation Scheme (ARIS) was flawed and unfit for purpose.

In addition, as Mr Vaz emphasised: “Investment in London properties is a major route which tarnishes the image of the capital. Supervision of the property market is totally inadequate, and poor enforcement has laid out a welcome mat for launderers and organised criminals[2] and yet, of the 1.2 million property transactions in the UK last year, only 355 suspicious activity reports were actually generated. According to Transparency International, who were themselves consulted in the preparation of the report, 36,342 properties in London are held by ‘offshore’ companies and that, while in many cases there may be nothing untoward in that, 75% of properties owned by people under criminal investigation for corruption are held through secret offshore companies[3].

The Committee called for much tougher oversight of the market, including stronger supervision of agents, buyers and sellers and for full responsibility for tackling money laundering, which is currently fragmented between different authorities, to be handed to the NCA. The Committee also proposed various other specific measures to be taken to address the issues it highlighted in general including:

  • The freezing of assets simultaneously with criminals becoming aware of the investigation against them for the first time – often at the time of arrest.
  • Initial and ongoing financial investigative training to be given to police officers.
  • An overhaul of ARIS.
  • The replacement of ELMER with a robust system for handling SARs by 31 December 2016.
  • The creation of a specialist ‘confiscation court’ designed to hear complex cases featuring cross-border financial transactions, use of corporate vehicles or very high value proceeds to combat the current lack of interest and expertise in confiscation orders among prosecutors and judges.

The report comes just a couple of months after the Government published its new anti-money laundering Action Plan[4] and the new Prime Minister, then Home Secretary, emphasised the importance of sending a clear message that such behaviour will not be tolerated and announced that the Home Office was reviewing its anti-money laundering rules. She also announced that it was considering a number of new policies, including “unexplained wealth orders (UWO), requiring those suspected of money laundering to declare their wealth”, as well as tougher powers for the NCA[5]. However, the report also comes at a time of distinct uncertainty following the Brexit referendum which, with a weakened pound and cuts to law enforcement budgets that have been reported to have increased the attractiveness of London to those who wish to launder their money through property, should make the Government’s response to the report of even greater significance.

 

[1] http://www.parliament.uk/business/committees/committees-a-z/commons-select/home-affairs-committee/news-parliament-2015/proceeds-of-crime-report-published-16-17/

[2] http://www.parliament.uk/business/committees/committees-a-z/commons-select/home-affairs-committee/news-parliament-2015/proceeds-of-crime-report-published-16-17/

[3] http://www.transparency.org.uk/publications/corruption-on-your-doorstep/

[4] https://www.gov.uk/government/publications/action-plan-for-anti-money-laundering-and-counter-terrorist-finance

[5] https://www.gov.uk/government/news/biggest-reforms-to-money-laundering-regime-in-over-a-decade

Anti-corruptionBriberyWhite collar crime

UK’s Serious Fraud Office secures second deferred prosecution agreement – this time with the UK Subsidiary of US Corporate

Lord Justice Leveson has approved the Serious Fraud Office’s (“SFO’s”) second application for a Deferred Prosecution Agreement (“DPA”). The Agreement is with a company which cannot be named because of continuing related legal proceedings. The first DPA was with ICBC Standard Bank in December 2015. Further agreements under the DPA system have been keenly awaited, and this second DPA sends a strong message to UK Plc and international companies that the DPA model is here to stay.

The DPA involved a small to medium sized (“SME”) UK company and allegations of overseas bribery in a number of countries with bribes paid through third parties in Asia. The agreement encompasses financial orders totalling £6.5m, and continuing co-operation by way of an annual report to the SFO on third party intermediary transactions, and the company’s anti-bribery controls, policies and procedures. Charges laid under both pre Bribery Act and Bribery Act law have been suspended and will be discontinued within 5 years as long as the company is compliant with the DPA.

The judgment is interesting to companies from all sectors, including financial services, in a number of respects:

  • The SME company is of limited means and the question of sentencing and the potential consequence of a company insolvency is addressed. SFO Director David Green has stated, “This case raised the issue about how the interests of justice are served in circumstances where the company accused of criminality has limited financial means with which to fulfil the terms of a DPA but demonstrates exemplary co-operation.” The fine was lower than the recommended guideline amount because of the risk of insolvency.
  • The bribery was discovered as a result of the SME’s US parent company implementing a global compliance programme.
  • The fine will be paid by the UK company but £2m of the disgorgement payment will be met by the US parent which is not accused of any misconduct, as a repayment of a significant proportion of the dividends that it received from the SME over the indictment period.
  • The judgment gives useful commentary on the meaning of co-operation, including the company providing comprehensive information on the initial self-report, and oral summaries of first accounts of interviewees. It also facilitated interviews, and responded promptly and completely to SFO requests for information.

UK and international corporates will follow this decision with interest. The entity and the amount involved may be modest, in this case but the guidance on several important DPA issues given by Lord Justice Leveson is crucial to any company which has any jurisdictional nexus with the UK, discovers it is affected by criminal conduct, and considers availing itself of the UK self-reporting regime.

Louise Delahunty, a partner in our White Collar Crime & Regulatory Defense practice, can provide more information if you need it.