All posts by Henry Stewart

Associate in Cooley's Commercial Litigation team in London.

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.

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

Asset recovery

What states should know about breach of fiduciary duty

This week’s tip-sheet covers claims for breach of fiduciary duty which can be brought against public officials who have been involved in conduct contrary to their duty to act in the state’s best interests. We detail potential defendants and explain the principles that need to be established at court (and those that do not). We also look at the alternative methods of calculating damages. The tip-sheet is available here.