Fieldfisher's Commercial Crime Round-Up

As we emerge from the COVID-19 pandemic, the outlook for businesses is a challenging one. Regardless of the company's size, the effects of global geopolitical instability witnessed in 2022 will be keenly felt across the business community throughout the coming year.

Geopolitical risk is no longer a peripheral emerging market concern. From understanding the prohibitions and requirements stemming from sanctions imposed on Russia, through to tense Sino-British relations and wider Chinese discord with the West impacting supply chains and allegations of bribery by Middle Eastern entities seeking political influence in Europe, geopolitics is a core consideration for businesses, particularly when considering commercial crime matters.

With this in mind, our review focuses on the three cornerstones of commercial crime – anti-bribery and corruption ("ABC"), sanctions and money laundering – and how geopolitics will likely shape their development in 2023.

ABC

ABC remained front and centre in the global conversation on commercial crime last year. Multijurisdictional investigations, aided by cooperation between the Serious Fraud Office ("SFO") and its international counterparts, helped the SFO secure its most high-profile conviction to date against Glencore. Working in parallel with the US and collaboratively with Dutch and Swiss prosecutors, the SFO fined Glencore £280m following a guilty plea for 7 counts of bribery to gain preferential access to oil in Africa.

Despite this significant win, 2022 will go down as a difficult year for the SFO. Disclosure failings by the SFO which resulted in a collapsed trial in 2021 and prompted an independent review into the SFO arose again in 2022. With multiple individuals having their convictions quashed, questions abound unanswered as to the SFO's ability to successfully prosecute individuals.

Towards the end of 2022, the publication of Transparency International's report entitled "Exporting Corruption 2022" dealt a further blow to the SFO's reputation as the top enforcer of commercial crime behind its counterparts in the USA. In it, the UK was downgraded from an active enforcer of foreign bribery laws to moderate. While this reflects a global downturn, and a probable hangover from the pandemic, it will add fuel to the fire for those seeking a merger between the SFO and the National Crime Agency. 

Our predictions: Looking ahead to 2023, scrutiny of multijurisdictional investigations into corporates is likely to increase, in particular for human rights abuses and environmental, social and governance ("ESG") issues.

Companies looking to market sustainable investment products should be aware of potential new FCA rules aimed at protecting consumers from Greenwashing, as set out in its first ever ESG Strategy, which is also a clear focus for other regulators such as the Competition and Markets Authority, and criminal law enforcement agencies, where it involves fraud. The Securities and Exchange Commission in the US is also already active in this area.

This means that companies must look to adopt a holistic approach to ethics and compliance programmes, so that they are reviewed to include risks associated with broader ESG topics, such as Greenwashing.
 
Sanctions

The impact of escalating geopolitical tensions on businesses globally in the form of sanctions has been one of the dominant talking points of the past year. Following Russia's unprovoked invasion of Ukraine, businesses of all sizes have found themselves scrambling to learn about sectoral sanctions and their implications.

Indeed, the pressure to deal with the implications of widespread Russian sanctions was not restricted to businesses. The Office of Financial Sanctions Implementation ("OFSI"), whose stated aim is to ensure that financial sanctions are properly understood, implemented and enforced in the UK, found its resources quickly stretched as licence applications queries and challenges to sanctions began to roll in. 

In the first test of the post-Brexit UK sanctions regime, complaints at inconsistent licencing decisions and long waits for responses to enquiries were common place. Inevitable teething problems, you might argue, exacerbated by an unanticipated, seismic geopolitical event.

It was certainly not all doom and gloom. A big positive was how quickly the UK and other key jurisdictions acted to take a coordinated approach to imposing sanctions. Also, to OFSI's credit, it has actively engaged with the legal community to address their concerns and maintained an open dialogue to ensure OFSI delivers on its aims. OFSI is on a recruitment drive to address staffing levels and, following an announcement of a new enhanced partnership with the Office of Foreign Assets Control, they are taking shape to be one of the world's leading enforcement bodies. 

Our predictions: As the Ukraine conflict continues into 2023, we can expect the continued use of sanctions as an important national security and geopolitical tool. Enforcement action on Russian sanctions is likely to increase, with the potential for parallel investigations by the FCA and OFSI, as well as OFAC. OFSI has already shown willingness to issue civil penalties for sanction breaches. This is now a strict liability offence so we can expect an increase in these over the coming months.

With businesses being largely reactive in 2022 owing to the unexpected nature of the scale of the invasion of Ukraine, regulators and prosecutors will not hold sympathy for those who are not fully compliant with the applicable sanctions regimes. For UK businesses, this means understanding that they may be subject to multiple sanctions regimes, even where they may have a minor or no presence in that jurisdiction at all (e.g. US secondary sanctions).

Businesses should prioritise conducting renewed risk assessments and being fully conversant on their risk exposure. A review of their sanctions policies and procedures should follow, ensuring they are robust and comprehensively address the identified risks.

Money Laundering

Alongside sanctions, tackling money laundering and those that have shown poor management of their anti-money laundering ("AML") systems has remained high on the agenda for UK enforcement agencies throughout 2022.

Following on from high-profile fines for money laundering failures by HSBC and NatWest at the end of 2021, Santander is in the spotlight for similar behaviour. The FCA fined them in excess of £100m after it found serious and persistent gaps in its AML controls dating back to 2012.

Bricks and mortar financial institutions are not the only ones under the spotlight. Cryptocurrency exchanges are now being scrutinised for failures in their anti-money laundering systems and controls. Most recently in the US, Coinbase had to pay a $50million penalty and spend a further $50million improving its compliance programme for persistently failing to adequately monitor transactions, run due diligence on its customers or promptly report suspicious activity.

Our predictions: Looking ahead to 2023, the uncertain global geopolitical landscape will continue to pose a significant challenge for compliance teams across EMEA. KYC concerns abound, particularly on the identification of politically exposed persons and ultimate beneficial ownership identification.

In the UK, a potentially helpful tool comes in the form of a new register of overseas entities. Its purpose is to assist in the identification of beneficial owners of UK property and set a new standard for global transparency in the process. There are also plans for future legislation regarding Companies House Reforms, as addressed in the recently published Corporate Transparency and Register Reform White Paper.

FATF and regulators will continue to target threats and vulnerabilities posed by digital assets and look to strengthen financial safeguards. It is expected that investigations and enforcement actions will continue into the ongoing cryptocurrency collapse as well as AML and sanctions evasion attempts using digital assets.

Conclusion

Commercial crime remains a hot topic for businesses. In a volatile market, it is vital that you are up-to-date on what risks your business is facing and proactively address them. 

For regular updates on commercial crime matters, please follow Fieldfisher's Fraud & Commercial Crime Blog.

With thanks to Trainee Solicitor Alexandra Basford, who contributed to this article.