In this article, our Business Crime and Regulatory Investigations team consider key developing areas in the regulation of business crime with a focus on: (i) the approach of the regulators themselves; and (ii) recent and anticipated changes to the law.
1. Approach of the regulators
What have the major developments been in business crime regulatory investigations in the past year?
The period after Lisa Osofsky took over as Director of the Serious Fraud Office in late 2018 marked a period of relative quiet for the SFO, as it closed down some of its larger, high-profile investigations (such as Rolls Royce and GlaxoSmithKline) and did not replace them with any significant new matters. This trend has been echoed already in 2021, after the SFO has announced the closure of its long-running investigation into British American Tobacco. There has been a sense that the SFO has sought to streamline its caseload and focus its resources following a period of relative upheaval as it adjusts to working with the National Economic Crime Centre as the coordinator of the UK's response to economic crime.
COVID-19 has placed unprecedented strain on the criminal justice system in the UK and this has impacted the SFO – both in terms of its ability to conduct its investigations and through increased delays and backlog in the court system. 2020 brought some notable successes for the SFO, however. In July (and following resumption of a trial suspended in March after the outbreak of COVID-19), the SFO secured convictions of two individuals for conspiracy to give corrupt payments for pipeline contracts in Iraq. The SFO also secured three deferred prosecution agreements (DPAs) - including one which formed part of the largest ever global resolution for bribery.
Indeed, last year the SFO made a significant public commitment to continued use of DPAs as a tool to penalise corporate crime. DPAs are a method by which prosecutors such as the SFO can reach an agreement with an organisation (approved by a judge) to suspend prosecution on the basis that the corporate meets certain criteria – which typically include the payment of financial penalties and implementation of robust compliance and/or monitoring programmes. DPAs have received criticism in the media that they are too 'soft' and only impose financial penalties for crimes which merit custodial sentences, though such criticism often overlooks that DPAs typically require corporates to cooperate with future prosecutions of individuals. Such criticism has not deterred the SFO. Ms Osfoksy recently publicly confirmed the SFO’s is committed to continue to use DPAs as a means of driving 'better corporate citizenship'. Notwithstanding this firm stance, the SFO will be very keen to secure convictions at the upcoming trials of individuals accused of fraud offences in connection with the Serco and G4S investigations - both of which resulted in DPAs for the corporates - to demonstrate that successful prosecution of individuals can and will follow DPAs in appropriate cases.
The SFO continues to become more assertive in its conduct of investigations. The SFO has indicated an intention to use the powers available to it under Chapter 2 of Serious Organised Crime and Policy Act 2005 (for example, to grant immunity from prosecution) – which mirror powers used by prosecutors in the US - and we understand that cooperating witnesses are being used in some live SFO investigations. In October 2020, the SFO updated its Operational Handbook to include new guidance that waiving claims of legal professional privilege over materials is an indicator of cooperation which the SFO will consider when deciding whether to enter into a DPA with companies under investigation. This is a controversial amendment. While to some extent this simply codifies the SFO’s expectations in practice in recent years, it arguably places undue pressure on companies to waive the long-understood inalienable right to take privileged legal advice (and, in certain circumstances, to conduct internal investigations), without any expectation of disclosure of relevant privileged materials. We can expect to see further legal challenges in relation to privilege and SFO investigations in future.
What regulatory trends should businesses look out for in 2021?
The current disruption and uncertainty created in the UK by COVID-19 has created an environment and opportunities for economic criminality which many will seek to exploit. Fraud schemes through which criminals seek to exploit anxiety and uncertainty related to the pandemic have been well publicised (and discussed previously by Burges Salmon) and changes to trading rules for businesses in the UK following Brexit are likely to create further areas of uncertainty for criminals to target. Ms Osofsky has commented that the SFO is looking very carefully at fraud cases connected to COVID-19 and that, while they don’t typically meet the SFO case criteria, the SFO is watching this area keenly.
More broadly, we expect to see two key trends in business crime regulatory investigations continue to emerge in 2021, which businesses should look out for:
(1) Increasing use of powers by regulators
We have seen an increasing willingness by regulators to employ the full range of powers available to assist in investigations. A well-publicised example is the use of unexplained wealth orders (UWOs) and interim account freezing orders, provided for in the Criminal Finances Act 2017, as a mechanism for pursuing the proceeds of crime. In October 2020, the NCA it secured its first recoveries in a UWO case of property and assets with a combined value in excess of £10m.
On 5 February 2021, the Supreme Court made a significant ruling in the case of KBR v SFO that the SFO cannot use its investigation powers under section 2(3) of the Criminal Justice Act 1987 to compel a foreign company to produce documents it holds outside the UK. This overturned an earlier High Court decision that the SFO could compel the production of documents held overseas if there was 'a sufficient connection between the company and the UK'. This is a blow to the SFO and may hinder investigations, which are increasingly global in nature. There remain other avenues for the SFO to obtain material held overseas, however. The SFO is still able to apply for mutual legal assistance from foreign authorities and may continue to bring pressure to bear on organisations to provide documents held overseas, as an expected part of cooperation with its investigations.
(2) Increasing global nature of investigations
With rapid advances in technology and the globalisation of business, financial crime investigations are commonly cross-border in nature. UK legislation in particular (such as the Bribery Act), often has extra-territorial reach. For example, the SFO's investigations into activities related to the award of contracts in Iraq and Saudi Arabia resulted in convictions of British nationals in 2019 and 2020.
Enforcement agencies across the globe are also more frequently working in conjunction with each other: sharing information, exchanging intelligence and coordinating a response. For example, in 2019, the SFO opened a joint investigation with the Dutch authorities concerning certain aspects of biodiesel trading at Greenergy and in January 2020 concluded a DPA as part of the largest global resolution for bribery, involving authorities in France and the United States.
The UK’s exit from the European Union is likely to impact cross-border criminal investigations, however. The EU-UK Trade and Cooperation Agreement does provide for cooperation between the UK and the EU on criminal matters – including, for example, via the automated exchange of DNA, fingerprints and vehicle registration, and access to EU passenger name records. Following Brexit, however, the UK no longer has access to the full suite of information-sharing systems from which it benefitted as an EU member. Crucially, the UK will no longer have access to the Second Schengen Information System (SIS II) – the 'real-time' alert system and largest information sharing system for security in Europe. The UK’s new system of extradition, which will replace the European Arrest Warrant, also means that states may far more readily refuse warrants for extradition than was previously the case. While the UK Government has sought to downplay the impact of the powers and systems lost to the UK, it appears likely that the SFO and National Crime Agency will experience practical difficulties and delays in international investigations going forwards. The UK may well look to implement additional bilateral data access agreements, as a means of offsetting these challenges (see below).
2. What were the major legislative changes in business crime in the last year and what can we expect in the next 12 months?
It is not unsurprising, given the time spent on Brexit and COVID-19, that there have been relatively few recent major legislative and regulatory changes in the context of business crime.
Notably, however, the UK Crime (Overseas Production Orders) Act became law on 12 February 2019. Difficulties in accessing data from overseas companies continues to be a significant hurdle to effectively investigating global business crime. The purpose of this legislation is to create a mechanism that enables enforcement agencies to obtain electronic data directly from overseas firms – where an international agreement is in place with the country of origin. Progress has been made quickly in this regard: see the US/UK Bilateral Data Access Agreement, for example, which came into force in July 2020. We await the practical impact of this new arrangement with interest. If successful, it could be a model which the UK looks to adopt with other countries.
Particularly noteworthy in the government's Economic Crime Plan 2019-2022 is the review of the Proceeds of Crime Act (POCA) – which will consider what changes to POCA are required to ensure law enforcement agencies have the most suitable powers. The Law Commission's consultation paper on Part 2 of POCA was recently published, with a view to improve the operation and enforcement of confiscation orders to address the billions of pounds worth of unpaid confiscation orders currently in existence. The Law Commission is expected to publish its final report and recommendations for reform in this area in Spring this year.
In the slightly longer term, the government confirmed in November 2020 that, while there will be no immediate legislative reform of the law of corporate criminal liability for economic crime, the Law Commission will undertake a detailed review of the identification doctrine - with a particular focus on economic crime. The review is currently estimated to take between 12 to 15 months. Further discussion of reform in this area can therefore be anticipated later this year or early in 2022. Reform in this area is something which could be highly significant for businesses in future and is a subject which Burges Salmon has considered previously.
How can Burges Salmon help?
If you would like help or advice in relation to any of the matters discussed, please contact David Hall, Sam Aldous or another member of our Business Crime and Regulatory Investigations team.
This article was written by Sam Aldous.