All posts by Louise Delahunty

Louise Delahunty has more than 30 years of experience advising individuals, corporations and financial institutions on business-related crime issues, including in relation to The UK Bribery Act, SEC and FCA enforcement and compliance, Anti-money laundering compliance, White-collar criminal investigations, Mutual legal assistance, cross border investigations & extradition and EU sanctions. She has been engaged in numerous investigations by the Serious Fraud Office and Financial Conduct Authority in the UK, the US Department of Justice and other overseas agencies and law enforcement bodies. Louise is internationally known as an expert on UK & EU anti-money laundering law,risk mitigation, interpretation and defense. She has represented financial institutions, hedge funds, energy, and healthcare around the world.

White collar crime

Failure to Prevent Criminal Facilitation of Tax Evasion

The new UK “failure to prevent criminal facilitation of tax evasion” domestic and overseas offences will almost certainly become effective in or before September 2017. What does this mean for companies and firms? The offences threaten criminal liability in connection with policing the acts of others. Strict liability is imposed on firms and companies worldwide for the criminal acts of their “Associated Persons”. The offence incorporates a reverse burden of proof, meaning that to defend itself, the firm or company must show that it put “reasonable prevention” procedures in place.

European and UK financial services firms, accountants, and lawyers have been here before. When they were brought into the anti-money laundering regulatory world they were transformed into “gatekeepers”. A big cultural shift had to follow, as organisations and professionals, (some under protest), eventually subscribed fully to the notion of being responsible stakeholders with government in the international fight against terrorism and organised crime. This time though, the net is wider. This offence is not just for regulated firms in the EU/UK. All corporates and firms in all sectors, and potentially anywhere in the world, will be affected.

Section 7 of the UK Bribery Act (“UKBA”), upon which this new offence is modelled, brought in strict liability for UK and international corporates, making them responsible for the acts of their “Associated Persons”, so this concept is familiar. Compliance procedures are in place, with the UKBA being perceived as the new post “FCPA “gold standard”. International firms and partnerships must in the same way pay attention to this new law. Both the UK and the foreign tax evasion offences could affect them.

The law first creates a corporate offence of failure to prevent UK tax evasion by an entity’s “Associated Persons”. The one available statutory defence is that reasonable procedures were in place to prevent the facilitation, or at the time it was reasonable not to establish additional procedures. A second offence, the “foreign tax offence” is also created, effective as long as the “foreign tax” and facilitation crimes would be recognised as offences in the UK. The UK Government ostensibly plans to prosecute, or encourage overseas governments to prosecute foreign tax evasion by international companies which have a link to the UK. Potentially this offence has enormous scope. It could cover foreign tax evasion facilitation by an employee of an overseas company, which has no links at all with the UK but which sends an employee on a flying UK visit, if such visit plays a part in foreign tax evasion. Will this actually happen, and will foreign governments support the UK in this initiative?

Is this new law a positive step in the right direction, to discourage “professional enablers” from aiding and abetting criminals, or does it go too far in imposing yet further regulatory and criminal risk burdens on UK and international entities which are already incurring substantial costs for regulatory compliance?

Whatever the pros and cons of this legislation, it is crucial for firms and corporates to undertake a risk assessment for this offence now. How will you draft your procedures after your risk assessment? The UK Government draft guidance (incorporating core principles as in the Bribery Act), is now being scrutinised by the various sectors, who will want to assist their members with some specific guidance. Such guidance can be submitted to Government for approval.

For the UK legal profession, Louise Delahunty is chairing the group that is assisting the Law Society of England and Wales to draft such guidance. The group includes Natasha Kaye and other Cooley lawyers.

White collar crime

Tesco announces Deferred Prosecution Agreement

It was announced last week that Tesco PLC’s subsidiary, Tesco Stores Ltd, has finalised the terms of a Deferred Prosecution Agreement (DPA) with the SFO (subject to court ratification on 10 April 2017). The DPA concludes the SFO’s two-year investigation into accounting practices in 2014 that left a £326 million hole in Tesco’s accounts.

Under the agreement, Tesco is to pay a financial penalty of £129 million plus costs. The precise terms of the DPA will not be revealed until it has received court approval, so it is not yet known what discount Tesco received as a result of its cooperation. The standard discount is 33%, which is what ICBC Standard Bank received in 2015 in the first DPA to be concluded. However, the subsequent two settlements, with “XYZ Limited” in 2016 and Rolls Royce in January 2017, both involved a 50% discount for reasons including ability to pay and “extraordinary” cooperation. Tesco announced the discovery of the irregularities in September 2014, after a whistle-blower approached the newly appointed CEO, David Lewis, regarding improper accounting practices.

Unlike the fates of Rolls Royce executives, which are yet to be decided by the SFO, it was announced in October 2016 that three Tesco executives would face trial for fraud and false accounting in September 2017. This does not include the chief executive at the time, Philip Clarke, who was interviewed under caution as part of the investigation but is not to face further action.

It was also announced that Tesco has agreed with the FCA to a finding of market abuse in relation to a trading update published on 29 August 2014. The FCA is not imposing an additional financial penalty but Tesco has agreed to establish a compensation scheme for those who purchased Tesco shares and bonds on or after 29 August 2014 and still held those securities when the statement was corrected on 22 September 2014. It estimates the cost of this to be approximately £85 million (before interest). It is the first time the FCA has used its section 384 powers to compensate losses, rather than fine, which will be of interest to listed companies considering future self reports.

The total cost to Tesco of the penalty, the compensation scheme and associated costs is estimated to be approximately £235 million.

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-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.