FINANCIAL CRIME: An Introduction
Amidst a year of pandemic disruption, the financial crime landscape has remained busy and a source of continued interest. With, on the one hand, the Bribery Act moving into its second decade, and, on the other, the Law Commission squaring up to the inevitably knotty and contentious issue of corporate criminal liability reform, the last year has provided opportunities to take stock of some fundamentals in the field.
On 1 July 2021 the Bribery Act 2010 had been in force for ten years. Whether this anniversary provides an opportunity to reflect on success or failure is a question of both perspective and degree. Its introduction, overhauling outdated bribery and corruption legislation, nearly 13 years after the United Kingdom signed the OECD Anti-Bribery Convention, was undoubtedly a necessary step and one expected to result in welcome change. But the number of prosecutions brought over the last decade has remained notably low; prosecutors having been slow to charge the available offences, particularly in relation to individuals. However, where the legislation has undoubtedly had an important effect is its clearly defined extraterritorial reach, enabling prosecutors to target foreign based companies conducting business or with a subsidiary in the UK, where a person “associated” with that company engages in bribery anywhere in the world. The undoubted utility of this extraterritorial reach, although not evident in prosecutions, has continued to be visible in Deferred Prosecution Agreements reached with the SFO and approved by the court. Of course, whether DPAs are a desirable route to take in these cases is a separate question and, as we note below, one to which the affected companies, SFO and the court have resoundingly answered ‘yes’ for the time being. It is also right to acknowledge that, quite apart from DPAs and prosecutions, the introduction of the section 7 “failure to prevent bribery” offence ushered in significant and now well embedded changes to the approach companies in the UK and beyond take to their bribery and corruption compliance measures. So, at ten, the Bribery Act is here to stay. Whether it is to become the model for corporate criminal liability in respect of other types of financial wrong doing is part and parcel of more fundamental changes under consideration in the realm of corporate criminal liability.
In June 2021, the Law Commission published its discussion paper, ahead of a consultation process, on the potential reform of the basis upon which corporates can be found criminally liable, paying particular attention to liability in the context of financial crime and the liability of directors and senior managers for offences committed by their corporations. In doing so, the Commission acknowledged concerns that the key principles (including the central ‘identification principle’) make dealing with misconduct carried out by and on behalf of companies particularly difficult and “does not strike an appropriate balance”– a point repeatedly made by the SFO when seeking to explain its various high-profile failures. It is already clear from the consultation process that the Commission is going right back to basics. As well as surveying the approaches adopted in other jurisdictions, it is posing questions at the very roots of corporate financial crime, such as “[w]hose acts should count as the acts of the company? For whose conduct should the company be criminally liable? How should elements which the criminal law treats as fundamental to liability – such as intent, recklessness, knowledge and dishonesty – be applied to non-natural persons?” The breadth of the Law Commission’s review, and the context in which it is taking place, creates the prospect of real, and potentially seismic, change on the corporate criminal liability horizon.
In addition to inviting consideration of landmark past and potential future changes in financial crime, the last year has also been one of continuity in key areas, in particular, recourse to DPAs. In July 2020, nearly seven years on from the commencement of the SFO’s investigation, G4S entered into a DPA relating to allegations of fraud committed against the Ministry of Justice, bringing with it a £38.5m penalty (in addition to £121m already paid by G4S as part of a civil settlement). This high profile DPA was soon followed in October 2020 by Airline Services Limited entering into a DPA for failing to prevent bribery. Most recently, in July 2021 the SFO entered into its tenth DPA, resulting in the levying of a £103m penalty on AMEC Foster Wheeler Energy Limited (as part of a larger global settlement) in connection with the corrupt use of agents within the energy supply sector: it therefore appears that the SFO’s preference and the courts’ willingness to resolve complex and long running investigations of corporates, even involving substantial allegations of wrongdoing, by way of DPA rather than prosecution is unaltered. The spotlight remains on the SFO’s prosecution policy in relation to individuals, particularly in investigations resulting in a corporate DPA. In last year’s edition, we noted that, in contrast to the lack of any prosecutions of individuals following the Rolls-Royce DPA, it was expected that the recent Airbus DPA might result in charges being brought against subsidiary GPT and GPT company individuals for bribery concerning Ministry of Defence contracts in Saudi Arabia. The SFO has indeed now opted to take this course, having indicted GPT (which subsequently pleaded guilty) and a number of individuals. Indeed, following acquittals after the collapse of the trial of two individuals arising out of the Serco (Geographix) Ltd investigation and corporate DPA, the SFO’s criminal trial competence will be firmly under scrutiny in 2022 with the prosecution of a number of G4S individuals in January, followed immediately by the trial of three individuals the subject of the GPT investigation.
Elsewhere, the last year also saw the FCA break new ground by commencing a criminal prosecution for alleged breaches of the Money Laundering Regulations 2007; its first criminal prosecution under the MLR and the first criminal prosecution under the MLR of a bank. In the context of a range of substantial regulatory fines recently imposed for breaches, this represents a further step in enforcing the anti-money laundering regime by recourse to criminal prosecution powers. The FCA’s target, NatWest, is charged with having failed to prevent money laundering by maintaining inadequate controls and oversight of a corporate client account. The FCA alleges that increasingly large cash deposits were made into the customer’s accounts amounting to a total of £365m of which approximately £264m was in cash. The recent changes to Crown Prosecution Service’s Guidance in respect of charging a section 330 Proceeds of Crime Act 2002 offence may be a further hint to practitioners that anti-money laundering issues will continue to be in ascendance in this area of practice.
In short, whilst practitioners may have found themselves constrained by multiple lockdowns, the field of financial crime has certainly not been standing still. The landscape for those facing allegations of financial wrongdoing or criminal failings is as complex as ever. The potential developments ahead promise to make it no simpler. Both for corporates and individuals who face investigation and possible prosecution, early guidance to plot the right course will continue to prove critical to obtaining successful outcomes.
Alison Pople KC & Aaron Watkins Cloth Fair Chambers