FINANCIAL CRIME: An Introduction to London (Firms)

CHAMBERS OVERVIEW: FINANCIAL CRIME (INDIVIDUALS AND CORPORATES) 2020 Contributed by John Binns and Richard Sallybanks of BCL Solicitors LLP

Introduction 

What is the UK’s strategy for tackling financial crime? Surprisingly perhaps, the Economic Crime Plan of the recently-formed Economic Crime Strategic Board does suggest an answer, though probably not the one it was trying to convey.

Controversially, the members of the Board include representatives of several major high street banks (by now, of course, seasoned veterans at submitting Suspicious Activity Reports on their customers), alongside the Home Secretary and the Chancellor of the Exchequer. They seem at pains to suggest in the Plan that the prevention and detection of these crimes is now largely a private-sector enterprise, with the state providing little more than a framework for their efforts (and, no doubt to encourage vigilance on their part, criminal penalties for them should they fail).

Strikingly meriting barely a passing mention in the Plan are the efforts of the Serious Fraud Office under its new Director, Lisa Osofsky, or indeed those of other agencies to pursue criminal investigations and prosecutions through to conviction. Sending people to prison for financial crime is, it seems, at risk of going out of fashion.

Financial Crime: Corporates 

Part of the reason for that is an increasingly hostile environment for corporates that ‘fail to prevent’ financial crime, coupled with high-profile recent cases and guidance that have stressed the advantages of cooperation and self-reporting, perhaps with the aim of agreeing a Deferred Prosecution Agreement (DPA). Both the SFO’s guidance on corporate cooperation, and HMRC’s on the new corporate offences of failing to prevent the facilitation of tax evasion (which suggests that a self-reporting policy should itself form part of the ‘reasonable procedures’ necessary to avoid convictions for those offences), are clearly aimed at driving home that message.

The prospects for a broader corporate offence of failure to prevent economic crime (or, perhaps, to prevent money laundering, as required by the EU’s fifth Directive on that subject) are not made clear by the Plan, which instead promises a separate proposal (already long in gestation) in the near future. But the task of drafting such an offence and driving it through Parliament will not be as easy as some imagine. The benefits to a corporate of paying bribes to secure business, or facilitating tax evasion to help out a client, are relatively clear, and thus is the merit for criminalising the corporate’s failure to prevent such crimes; the merit of making corporates strictly liable for the failure to prevent other crimes by its personnel, rather less so.

Thankfully, meanwhile, the SFO’s own goal in its High Court victory against ENRC, drastically restricting the ambit of legal professional privilege, was reversed on appeal, restoring to some extent the freedom of corporates to investigate the conduct of their own personnel (and ‘associated persons’). The SFO’s insistence in its corporate cooperation guidance that 'if the organisation claims privilege, it will be expected to provide certification by independent counsel that the material in question is privileged', however, suggests a lingering hostility towards LPP in general.

With respect to DPAs in particular, the announcement that the first one, entered into by Standard Bank back in 2015, had been completed successfully in 2019 seemed to herald the coming of age of this new tool in the armoury of law enforcement. And the detail of the agreement for Serco Geografix Limited – in particular, that much of the cooperation and mitigating measures had come not from the defendant company but from its parent, Serco plc – showed the willingness of the SFO and the courts to adopt creative solutions, where the path to a just outcome is less than clear.

Financial Crime: Individuals 

The results of criminal investigations for individuals connected with other DPA cases, however, suggest that the outcomes involved may not in fact be as just as they first appear. The SFO’s decision not to prosecute individuals in connection with Rolls-Royce, and its failures to secure convictions against individuals prosecuted in connection with Sarclad (the company formerly named as XYZ in its DPA) and Tesco, are hard to square with the findings of the court in each of the DPAs (as prompted by the parties thereto). It is hard to escape the conclusion that the SFO is prioritising securing DPAs and that companies may be tempted to admit guilt (or, more to the point, the guilt of the directing minds or associated persons involved) for reasons of commercial certainty and pragmatism, while the fate and reputation of the individuals concerned seem to be afforded a somewhat lower priority.

Ms Osofsky, meanwhile, drew headlines in April 2019 for her interview with the Evening Standard that suggested criminals could avoid prison sentences for 20 years in fraud cases if they were to assist an investigation by ‘wearing a wire’. There are of course a number of reasons why this might not be the best advice either for an individual suspect or for the SFO itself, including the admissibility issues of covert surveillance evidence, the prosecutor’s lack of power to guarantee a particular sentence (illustrated, of course by the SFO itself a mere decade or so ago in the Innospec case), and the much lower levels of sentence for fraud offences in the UK than in Ms Ofosky’s native US.

However, it is true of course to say that individuals remain at risk. The effect of a criminal investigation can be ruinous, even where it does not lead to a conviction or even a charge, while the scope for the state to pursue assets, even outside the criminal process, is ever increasing. The latter point is illustrated by the example of Zamira Hajiyeva, who was not only made subject to the first Unexplained Wealth Order, but also saw a diamond ring belonging to her seized under similarly modern civil recovery powers.

It is worth noting too the rise of private prosecutions, which are an increasingly important part of the landscape of criminal litigation, and arguably find their most appropriate utility in cases of financial crime. Much as a victim of fraud might prefer to see their case adopted with competence and vigour by an agency of the state, the reality for some years now has been that this is often not the result. Instead, a victim with the financial resources to take on the task of prosecuting is likely to have to do just that, or else fall back on civil remedies, or simply shrug off their losses and move on.

The flipside of this for a defendant of course is that they may face not the dreaded machinery of the state, but a modern, nimble private firm straining to do their best for their client. In this context the need for such firms to play that role well, not only with the utmost professionalism but with the broader interests of justice firmly in mind, is both obvious and vital. The publication of the Code for Private Prosecutors, a creature of the Private Prosecutors’ Association, is a welcome step forward in addressing that need.

The reality then is that the UK’s strategy for tackling financial crime, while not completely neglecting the prosecution of individuals by the state, is frankly much more focused on the other alternatives that are increasingly available: targeting corporates for failure to prevent offences (and thereby avoiding the difficulties created by the UK’s ‘directing mind’ principle for establishing corporate criminal liability); agreeing DPAs with them, often involving stringent financial penalties; and pursuing civil recovery. For the individual, shrinking the resources of the state agencies involved has lessened the risks of being arrested by the police, taken promptly to a court and convicted by a jury, in the time-honoured, old-fashioned manner. While these risks remain part of the landscape, they are often now overshadowed by more modern risks of asset denial, corporate reporting, outsourced investigations, and private prosecutions. These are the features of the criminal justice system in the twenty-first century, effectively designed and operated as a public-private partnership.