FINANCIAL CRIME: An Introduction

This year has witnessed several developments in the financial crime landscape: some heralded, others less so. These developments may well presage trends for the future, although – as ever – change is slow to arrive when it comes to the financial crime sector, the effect of changes slower still. 

Review of the Disclosure Regime

Nowhere is this truer than in the case of disclosure. The Independent Review of Disclosure and Fraud Offences published its Preliminary findings and direction of travel in April. The Review seeks to deal with the vexed question of how a fair and effective disclosure process ought to work in fraud and financial crime cases involving vast quantities of material. The scale of the challenge will be familiar to financial crime practitioners, but the statistics cited by the report are illustrative: the average Serious Fraud Office (SFO) case has around 5 million documents, with the largest case on the SFO system having 48 million (the Review has done the maths: if printed, the average volume of material in an SFO case would stack “considerably higher than the Shard”).

The tone of the preliminary findings at least provides reassurance that the intentions of the Review are in the right place. The government’s inaugural press release in 2023 said that the 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”. A curious framing perhaps for a discussion about a regime that is a central tenet of the presumption of innocence. The preliminary findings recognise the gravest symptom of failures in disclosure: miscarriages of justice, citing Andrew Malkinson and the sub-post office managers scandal as to why disclosure is important in criminal cases.

No regime change to the Criminal Procedure and Investigations Act 1996 (CPIA) appears likely: “there seems to be a consensus that the structure and the architecture of the CPIA is sound”, but changes to the flagship legislation are likely to be recommended – “I would like to consider where there may be scope for the legislation to be modernised to simplify some of its provisions to support greater consistency of application and to enable better use of technology”. Among proposals on the table is the possibility that the test for relevance may be reconsidered – “I shall be exploring the definition of relevant material and whether there is scope to narrow and/or clarify its application”. A nod is made to the “keys to the warehouse” approach to disclosure in some cases, albeit with express reservations about how data protection and privilege might be preserved.

It has also been suggested that there was a case for “simplifying the procedures relating to disclosure by consolidating the Code of Practice, the Attorney-General’s Guidelines and various judicial protocols and practice directions into a single document”. And, as has long been suspected, technology may provide at least part of the answer. The Review promises to “explore the full range of capabilities of the technological and AI solutions which may be available”.

These are all laudable objectives: but it remains to be seen how the Review will seek to cut the various Gordian Knots cited in the preliminary findings. The final Report (for Part 1 of the review) is expected soon.

ECCTA

The other seismic recent addition to the financial crime landscape was the Economic Crime and Corporate Transparency Act 2023 (ECCTA) with its eagerly awaited and wide-ranging “failing to prevent fraud” offence. The wait appears likely to continue into next year given the current absence of official guidance and a subsequent grace period to allow organisations to prepare. In real terms, when the day arrives, much will depend on the approach to enforcement. The last “failure to prevent” offences to enter the statute book (failure to prevent the unlawful facilitation of tax evasion, contrary to the Criminal Finances Act 2017), did not result in a flurry of new charges. If enforcement authorities take a similar approach to the new offence, 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, the fact it applies to a broad scope of prevalent conduct in the financial crime sector, together with the SFO already publicly stating it wishes to prosecute the first such case, it seems probable that practitioners may find themselves grappling with this new offence sooner rather than later.

A New Director (and New Tactics) at the SFO

In September 2023, Nick Ephgrave started his tenure as director of the SFO. His first year has been energetic: four new investigations began with dawn raids and 15 arrests. His rhetoric has been similarly aggressive: in a speech in February 2024, he pledged to “look them in the eye and start asking questions… search the house, crack the evidence. Why wait?”.

Recently, he described deferred prosecution agreement (DPAs) as also being a “really helpful and useful tool in the armoury”, which are likely to come back with “a vengeance” once the new fraud prevention offence takes effect next year. This has been accompanied by high-profile charging decisions in respect of former employees of the commodities giant Glencore, the charging of two former Petrofac senior executives with bribery and expanding the SFO bribery probe into defence contractor Ultra Electronics. About the same time, it was announced that a multi-agency investigation into whether former fund managers at Home REIT misled the market was under way. This multi-barrelled approach of the SFO and Financial Conduct Authority, reported to be working together, is consistent with the recently announced SFO five-year strategy.

Freya Grimwood (interim SFO CCO) spoke, in September, of the need for the SFO to adapt to the ever-evolving economic crime landscape in which “we must use new tactics and techniques to fight back”. These “techniques” are to include machine learning for disclosure reviews, making better use of whistle-blowers and co-operating offenders. The former referring to the announcement by Ephgrave in February that the SFO was already “piloting” something called a “technology assisted review”. The use of the latter inspired by their prevalence across the Atlantic.

But despite the rhetoric, Mr Ephgrave and his organisation are haunted by the ghosts of the past. At the time of writing, it has been reported that the SFO and ENRC have agreed a legal settlement – the SFO had set aside GBP238 million to cover the damages (nearly three times its annual budget). The last DPA was in 2021, whistle-blowers and co-operating witnesses have fallen in and out of vogue in many guises over as many years. And March 2024 saw defeats in SFO v Cook, a high-profile bribery trial in which the jury returned not guilty verdicts on corruption charges.

New energy at the SFO, an armoury of new offences and the prospect of a refined disclosure process. These all promise, at least, interesting times ahead.