FINANCIAL CRIME: An Introduction

There are signs that the forthcoming year is to be a year of changes in the sphere of financial crime – some proposed, some effected. Some are welcome; some are to be greeted with a degree of circumspection.

There is certainly an appetite for change, albeit with inevitable variance as to the precise changes sought. As ever, such hope as exists for change must be tempered by a corresponding insistence that the changes afoot will, in practice, result in real justice being delivered to all concerned in financial crime cases, and not merely create a short-term impression of enhancement, at the expense of true fairness and efficiency.

Nowhere is this truer than in the case of disclosure, a long-burning issue across the financial crime sector.

Very recently, the government announced an Independent Review of Disclosure and Fraud Offences (“the Review”), with recommendations to be made by the summer of 2024. The context is not hard to divine. Investigating and prosecuting authorities have been increasingly vocal in recent years about the challenges faced in meeting their disclosure obligations in large-volume digital material cases. It is similarly well known that both the courts and each of Sir David Calvert-Smith and Brian Altman KC’s own reviews of the methodologies of the Serious Fraud Office (SFO) in the Unaoil and Serco cases identified fundamental deficits in the approach to disclosure that are, in reality, very likely replicated at other law enforcement agencies.

Each of these existing reviews (like the courts in the cases that triggered them) re-underlined the fact that false efficiencies leading to disclosure failures can and do result in miscarriages of justice (even when relating to a single document), so it is of note that the government’s inaugural press release states that the forthcoming Review “has been launched to speed up criminal investigations and prosecute more fraudsters” and “make it quicker and easier to bring criminals to court, delivering swifter justice to victims”. This, it might be thought, is a curious framing for a discussion about a regime that is a central tenet of the presumption of innocence. Ultimately, however, the Review will be conducted independently of government by King’s Counsel, no doubt with great care and a broad range of input.

Better resourcing and use of technology are undoubtedly part of the answer here (as the civil litigation sector amply demonstrates), but it remains to be seen whether legislative amendment, including a downgrading of prosecution disclosure obligations, will be seen by government (if not the Review) as an easier fix.

The Review is not limited in scope to disclosure: it also encompasses a discussion regarding stiffer sentencing for economic crime and the potential for a “new fraud specific civil power”.

As regards the former, it will be interesting to see whether the government’s recent and shocking announcement that the entire prison estate is at capacity may alter demand for extended incarceration.

As regards the latter, however, civil powers seem likely only to become of greater interest to government, notwithstanding its publicly stated desire to place more economic criminals “behind bars”.

Increasingly in recent years, all government organisations with responsibilities in this area (not least the National Economic Crime Centre and the National Crime Agency) have looked to options other than criminal prosecution for the disruption of financial crime and the recovery of its proceeds, especially where those options are easier and cheaper to achieve.

In reality, a very large proportion of significant financial crime matters are ultimately fought on a number of fronts, often with staggered and unhelpful timing. Those practitioners who advise clients from the early pre-charge stages of significant financial crime cases are usually engaged in a 360 review of the issues, often having to meet the challenges inherent where the civil and criminal spheres intersect. Financial crime practitioners must continue to meet the challenges of this dispersal of enforcement activity, and it is likely that the demand for practitioners with such experience will only increase as government agencies favour civil “remedies” more frequently (notwithstanding any debate as to whether they achieve deterrence).

As regards cases where the liberty of the subject is at stake, practitioners will have noted with interest the changing of the guard in the posts of Director of the SFO, Director of Public Prosecutions and the Executive Directors of Enforcement and Market Oversight at the Financial Conduct Authority (FCA). All these new leaders will consider and set their priorities for the investigation and prosecution of financial crime, as well as the other enforcement tools available to them. Each brings something new to these roles with their diverse prior expertise and perspectives, yet all will be significantly constrained by the inherited workload and resource limitations.

Juggernauts do not turn quickly, however skilful or committed the driver, and given the inordinate length of many large-scale investigations, putting a firm foot down on the pedal may well prove to be a priority. In that regard, there are signs that some pre-charge SFO matters are progressing at a faster pace than in recent years, in the cases of both individuals and corporates.

The SFO’s first charging decisions will be of considerable interest to practitioners, and not merely due to their signalling the end of a period of perceived inertia and/or “paralysis by analysis” on the part of the SFO. Given the corresponding absence of recently concluded Deferred Prosecution Agreements (DPAs), those individuals liable to be charged over the coming year are apt to be individuals whose cases will not be coloured by the “agreement as to the facts” struck by the SFO and the corporate with which they were associated. As demonstrated by a string of cases, not least the outcome of the prosecution of individuals associated with G4S in 2023, corporate “settlements” of criminal cases have been known to drive the scope, direction, manner and bottom line of recent SFO investigations, with significant adverse consequences for the individuals affected as well as the credibility of the SFO once matters proceed to trial. Forthcoming charging decisions may therefore afford the SFO itself, as well as its Director, a new start.

The FCA, His Majesty’s Revenue and Customs (HMRC) and the Insolvency Service have remained relatively active in the prosecution of individuals over recent years, and this seems set to continue. With regard to individuals, HMRC’s recent prosecution of Bernie Ecclestone to a plea of guilty accompanied by a GBP652 million civil settlement may well be presented as a sign of willingness on their part to challenge significant targets. A question remains, however, as to whether Mr Ecclestone’s case truly represents an appetite on the part of HMRC to take on so-called “big business” in the criminal courts where the trial of a large corporate would be the prospect.

At this point in time, the question of how to tackle alleged financial crime on the part of large corporates has loomed large for 15 years, since the financial crisis.

At the time of writing, the government’s Economic Crime and Corporate Transparency Bill (“the Bill”) is at its final stage of review prior to receiving Royal Assent, meaning that 2024 seems likely to witness the largest step-change in corporate criminal liability in the half century since Tesco v Nattrass was decided.

The effects of the Bill’s dilution of the identification principle so as to enable corporate liability to be ascribed on the basis of the acts of a “senior manager” will not take long to become known. The new formulation will apply across a wide range of long-enacted fraud, money laundering and other financial crime offences of the type that commonly come before the courts.

However, the effects of the Bill’s new wide-ranging offence of “failing to prevent fraud” may take longer to reveal themselves. If the approach to enforcement adopted is the same as that adopted in respect of the last novel and crowd-pleasing “failure to prevent” offences (failure to prevent the unlawful facilitation of tax evasion, contrary to the Criminal Finances Act 2017), there might be no sign of any charging activity for over six years. Should this happen, the greatest challenges will likely be faced by those who advise corporates as to what constitute reasonable procedures to prevent fraud, given the breadth of the potential for offending.

However, given that investigators and prosecutors have been calling for the enactment of such an offence for years, and given that it applies to a broad scope of prevalent conduct in the financial crime sector, it seems probable that practitioners may find themselves grappling with this new offence sooner rather than later. Whether prosecutors’ use of this new “failure to prevent” offence will repeat the pattern of DPAs followed by individual prosecutions remains to be seen.

It is said that change is inevitable whereas progress is not. That theory seems likely to be tested on many fronts in the sphere of financial crime over the year to come.