H1 2023 - Fieldfisher's Commercial Crime Round-Up

Businesses are already operating in a very challenging environment due to the unprecedented global focus on sanctions compliance. With new legislation offering prosecutors new routes through which to attach liability to corporates and for a broader range of offences, it is becoming markedly easier to prosecute companies for commercial crime. This is likely to remain the status quo for some time to come so in-house teams ought to capitalise on the fact that there is a heightened awareness of the risks of white-collar crime to take steps now to fully understand their risk profile. With major changes afoot that are expected to make it easier to prosecute corporates, investing now in preventative controls and procedures will help protect businesses in an increasingly regulated and pro-enforcement landscape.

 Legal Developments and the UK Government's emphasis on corporate crime

If nothing else, 2023 is proving to be a year of big announcements. From a new director of the UK's Serious Fraud Office (the "SFO") through to pivotal legal developments in the form of the failure to prevent fraud offence and the overhaul of the Identification doctrine, they signal a serious declaration of intent by prosecutors to change how they pursue corporates for criminal wrongdoing. 

This sentiment is echoed in the UK government's new Economic Crime Plan (the "ECP"), published in April 2023, which highlighted the damage that economic crime inflicts, including over £100 billion pounds laundered in the UK each year, and the fact that fraud accounts for over 40% of all crime in the UK. With this in mind, businesses should take note that the emphasis on enforcement of commercial crime is a high priority in the UK, and will remain so for the foreseeable.

This update considers a number of important legal developments across the primary areas for corporate liability comprising fraud and corruption, sanctions and money laundering.

Fraud & Corruption

The last 18 months have been turbulent for the SFO. The organisation has been battered by collapsed prosecutions, reviews and multiple instances of adverse judicial comment. With hopes of improving its current image, Nick Ephgrave QPM will become the next director of the SFO later this year. The appointment is significant for a number of reasons, not least that Mr Epgrave, a former senior police officer is the first non-lawyer to be appointed to the role.  His tenure will also road test several new, albeit long promised legal developments.

The first is the introduction of a new corporate "failure to prevent" offence focused on fraud.  The offence is contained in the Economic Crime and Corporate Transparency Bill (the "ECCT Bill"), which is expected to be approved by Parliament and entered into law later this year. The exact scope of the offence is still being debated but its current iteration includes fraud by false representation, fraud by failing to disclose information, false accounting and money laundering.

Similar to the existing failure to prevent offences involving bribery and tax evasion, this will be a strict liability offence. This means that the corporate does not have to be aware of the fraud in order to be liable.  The crime simply must have been committed by an associated person for the corporation's benefit. The only defence available will be for the corporate to demonstrate that it has in place 'reasonable fraud prevention procedures'. Although the government will publish guidance on what it considers are reasonable fraud prevention procedures in due course, we anticipate it will mirror the existing guidance for the other failure to prevent offences which include risk assessment, proportionality, top level commitment, due diligence, communication, including training and monitoring and review.

Another major reform contained in the ECCT Bill is the proposed overhaul of the 'identification doctrine'. The 'identification doctrine' is the legal test for determining whether the dishonest actions of individuals can be attributed to a corporate, which is a separate legal personality. Prosecutors have long called for changes to enable them to prosecute companies whose corporate structure make it extremely difficult to link employee misbehaviour to 'the directing mind and will' of the business.

It is expected that the proposed changes will significantly widen the number of employees whose criminal conduct could be attributed to the business, focusing instead on the potential involvement of senior managers, described as any employee who has a “significant” decision-making role in “a substantial part” of the company’s activities.

Sanctions

Since Russia's illegal invasion of Ukraine last year, many businesses have had to navigate the complex web of sectoral sanctions, understand their implications and in some cases take swift remedial action to bring themselves into compliance. This year has seen the continued cooperation and collaboration of Western powers to harmonise their efforts in cracking down on sanctions evasion. This is unsurprisingly, enshrined explicitly as an action point for the UK in the years ahead in the ECP. 

The G7 has established the ‘Russian Elites, Proxies and Oligarchs (REPO) Task Force’ for coordinating the enforcement of Russia sanctions, chaired by the US in the first year. It seeks to improve information sharing and sanctions enforcement directed at countries and firms suspected of helping Russia in Ukraine through circumvention of sanctions. On 9 March 2023, the task force (made up of representatives from the EU, UK, US, Canada, France, Germany, Italy, Japan and Australia) made a Joint Statement and issued a Global Advisory on Russian Sanctions Evasion.

Outside of its role within the G7, the UK has continued to ramp up its domestic efforts on sanctions.  In March, the UK government announced a £50 million Economic Deterrence Initiative (as part of the new UK Integrated Security Fund) to strengthen the implementation and enforcement of UK sanctions, including by tackling sanctions evasion and in May, it added a further 86 individuals and entities to its sanctioned list.  To date, the UK has sanctioned over 1,500 individuals and entities, frozen more than £18 billion of assets and sanctioned over £20 billion of UK-Russia goods trade. 

For a detailed analysis of the developments surrounding Russia sanctions, please visit our dedicated Insight page.

Anti-Money Laundering ("AML")

There has been a great deal of AML enforcement activity during the first half of 2023 across all sectors. Following similar action against NatWest, HSBC and Santander last year, Guaranty Trust Bank (UK) Limited began 2023 with a fine in excess of £7.5m by the FCA for weaknesses in its AML systems and controls. A key complaint was its failure to take appropriate action following repeated alerts from the FCA and others.
 The SFO has also been very active in pursuing those accused of money laundering across other sectors, evidenced by the fact it has recovered in excess of £140m in proceeds of crime over the past two years. Earlier this year, it secured its largest ever seizure from a single bank account after recovering $7.7m from one of the architects of the Operation Car Wash bribery scandal involving state-owned oil company Petrobras.

Both the FCA and the SFO have consistently shown an appetite to prosecute both corporates and individuals for AML offences. However, they are not the only enforcement agencies to take note of in this space. The National Crime Agency (the "NCA") is the primary agency for tackling high-end and sophisticated money laundering operations. The NCA, FCA and SFO share information and adopt a collaborative and multi-agency approach to tackling sophisticated money laundering schemes and, in the case of the FCA, pursuing those in the regulated sector who have poor systems and controls.

The government has left no room for doubt that addressing money laundering in the UK is a priority and this is clearly reflected in government policy.  The ECP has provided the green light for the recruitment of 475 financial crime investigators who will be tasked with tackling money laundering and asset recovery in the UK.  The ECP also aims to expand the Combatting Kleptocracy Cell ("CKC"), which sits within the National Crime Agency so that it can more easily target corrupt elites and kleptocrats, and help coordinate international efforts to target efforts to evade sanctions through money laundering.

At the end of June, HM Treasury published a consultation document seeking views on reform of the UK’s AML supervisory system. There are three consultation objectives: better supervisory effectiveness; improved system coordination; and practical feasibility. The consultation will close at the end of September and it is expected that this will herald the beginning of major changes in how the money laundering issues are addressed in the UK, and the onus that falls on businesses to help achieve this.

Leveraging in-house teams to address commercial crime risks

In-house compliance and investigations teams have been operating through a period of sustained pressure, alongside challenging economic conditions. The continued enforcement action, and expected expansion of offences that corporates can be held liable for, necessarily require a resource allocation to ensure internal policies are fit for purpose and the related procedures operate effectively to identify any bad actors and associated wrongdoing at an early stage.

At first blush, this may feel overwhelming. However, the work done to date, particularly to address sanctions risk, can be leveraged to address wider commercial crime concerns such as fraud, corruption and money laundering. If steps are taken now to understand the risk businesses are exposed to, appropriate systems can be implemented, or existing ones can be finessed, to ensure they are safeguarded against future criminal enforcement. With the increasing criminal and reputational risk that businesses are facing in 2023, the time to act is now. 

The contents of this update are for information purposes only and do not constitute legal advice. If you have any questions regarding the topics discussed in this update, please contact the authors and Fieldfisher's Commercial Crime Team to discuss further.

With thanks to Trainee Solicitor Kurt Shead, co-author of this article.