United States: White Collar Crime Year In Review

2023 has been a year of change at the SFO with a new Director, enhanced investigatory powers and new statutory regime that will make it easier to prosecute corporate criminal offenders. Dropped investigations and acquittals of individuals following trial remain recurrent themes, however, the new Director has already brought an improved dynamism and speed of decision making to the organisation and there are early signs of a positive change in approach. Meanwhile, the UK's less heralded law enforcement agencies such as His Majesty's Revenue & Customs (HMRC) and others have displayed their own willingness and ability to investigate and resolve corporate wrongdoing.

Widening the Crosshairs of Corporate Criminal Liability

In October, the UK Government passed legislation that significantly altered the means of attributing corporate criminal liability in the UK. The Economic Crime and Corporate Transparency Act 2023 (ECCTA 2023) includes a new offence of failure to prevent fraud,¹ and expands the "identification doctrine" through which criminal liability is attributed to companies in respect of economic crime.

The new failure to prevent fraud offence has been gestating for a considerable period since it was first mooted as part of a consultation into a broader offence of failure to prevent economic crime launched by former Prime Minister David Cameron in May 2016.² The Government will hope that the new offence fulfils its promise of making it easier to hold large organisations to account for fraudulent acts undertaken for the benefit of that company.

In line with existing 'failure to prevent' offences for bribery and facilitating tax evasion, a company will have a defence if it can demonstrate that it had "reasonable procedures" in place to prevent persons associated with it from committing fraud. The new offence will come into force after the publication of Government guidance on what might constitute "reasonable procedures", anticipated in the first quarter of 2024 at the earliest.

As we noted back in January, the failure to prevent fraud offence will be welcomed by the SFO and CPS in the expectation that it will make corporate prosecutions easier to pursue. Its biggest impact however is likely to be cultural, i.e., as a means of incentivising companies to review and enhance their anti-fraud controls, policies and procedures such that the company can avail itself of the statutory defence of having reasonable anti-fraud procedures in place.

The new legislation also expands the long-standing method of attributing criminal liability to an organisation under UK law. Previously, the "identification doctrine" required prosecutors to demonstrate that criminal conduct was carried out by a person representing the "directing mind and will" of the corporation. The principle now extends to "senior managers" where they are acting within the actual or apparent scope of their authority and commit a relevant offence.³

New Direction for the SFO

In September, Lisa Osofsky left her role as Director of the SFO. The final nine months of her tenure brought mixed fortunes for the SFO with positive steps overshadowed by a number of high-profile aborted investigations, dropped charges and acquittals.

In February, the SFO secured the convictions of two Balli Steel plc executives, following a 20-week trial, on multiple counts of conspiracy to defraud. The former CEO of Balli Steel, Nasser Alaghband, pleaded guilty to one count of fraudulent trading ahead of the trial. Alaghband received a six and half year prison sentence.⁴

In March, after reporting restrictions were lifted, the SFO announced its first conviction of an individual following a Deferred Prosecution Agreement (DPA). Roger Dewhirst pleaded guilty in May 2022 to two counts of accepting bribes from Bluu Solutions Limited and its sister company Tetris Projects Limited in exchange for office refurbishment contracts between 2014 and 2016. On June 5, 2023, Dewhirst was sentenced to nine months imprisonment, suspended for 18 months.⁵ The conviction follows two DPAs entered into in July 2021.⁶ Although this marks the first conviction of an individual linked to a corporate DPA, it does not come with the satisfaction of a conviction following a trial. Three of Dewhirst's co-defendants were acquitted following trial in January 2023 and charges were dropped against the fourth, Dewhirst's wife.

A week after the SFO announced Dewhirst's conviction, another salient example of the difficulties encountered by the SFO in securing post-DPA individual convictions emerged when the SFO informed the court that it was offering no evidence in its prosecution of three former G4S executives, causing the trial to be abandoned.⁷ G4S entered into a DPA relating to fraud offences in July 2020.⁸ At the point the charges were dropped, the investigation had been ongoing for nearly 10 years.

A month before the Director's departure, the SFO closed its investigations into two international mining companies, effectively mirroring Osofsky's early months in the role, when, in February 2019, the SFO closed its investigations into GlaxoSmithKline and individuals at Rolls-Royce PLC. The SFO's investigation into one of the companies, ENRC, was launched in April 2013, making it one of the longest running cases in the SFO's history. After more than a decade, the SFO announced the investigation was being closed due to "insufficient admissible evidence to prosecute".⁹

The closure of these high-profile cases cleared the decks for Osofsky's successor, Nick Ephgrave QPM, former Assistant Commissioner of the Metropolitan Police Service. His has been an energetic first few months in charge , with the arrest of seven people in November in connection with an investigation into the alleged misappropriation of £66m of client funds from the collapsed law firm Axiom Ince.¹⁰

Perhaps influenced by his policing background, Ephgrave has been keen to make early use of all the investigatory tools at his disposal. In December, the new Director authorised a raid at a London address, resulting in the arrest of one individual as part of an investigation into fraud at the aircraft parts supplier AOG Technics Ltd.¹¹ The investigation is Ephgrave's third, following the earlier launch of an investigation into suspected fraud at funeral plan provider Safe Hands Plans Limited and its parent company SHP Capital Holdings Limited.¹²

Ephgrave's efforts to galvanise and refocus the SFO will be assisted by the expansion of the SFO's pre-investigation powers of compulsion pursuant to section 2 of the Criminal Justice Act 1987. Previously, the SFO's power to compel parties to provide information at the pre-investigation stage was limited to cases involving international bribery and corruption. The new legislation makes the SFO's compulsory powers available in all cases. This should allow the SFO to identify criminal conduct more promptly and progress through the early stages of investigations with greater speed.

FCA Continues Crackdown on Inadequate AML Controls

The Financial Conduct Authority (FCA) continued to target firms that failed to have in place adequate anti-money laundering (AML) systems and controls. In January, Guaranty Trust Bank (UK) Ltd. was fined £7.7 million for serious weaknesses in its AML systems and controls and Al Rayan Bank Plc was fined £4 million for failing to "manage the risk that it might be used to facilitate money-laundering".¹⁴ In October, the FCA fined ADM Investor Services International Ltd. £6.5 million for inadequate AML systems and controls.¹⁵

None of the firms disputed the FCA's findings that they were in breach of Principle 3, which requires firms to "take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems".¹⁶ To impose a penalty for a breach of this Principle, there is no requirement for the FCA to prove that any money laundering had in fact occurred.

As we noted in August, the FCA has become increasingly proactive in its efforts to prevent financial crime, including through the establishment of a permanent fraud team, which has put an internal fraud framework in place to assess firms' anti-fraud systems and controls. The FCA is also keeping a watchful eye over developments in the crypto sphere and has set a very high bar for the authorisation of crypto firms, with only 7% of authorisation applications being successful. However, the FCA's remains constrained by its growing caseload and lengthening investigation timeframe.

Other Law Enforcement Agencies Flex Muscles

Deferred Prosecution Agreements (DPAs) have recently become relatively rarer beasts in recent years; the SFO did not enter into any DPAs in 2022 or 2023. However, DPAs are not the sole preserve of the SFO and it is now clear that other UK law enforcement agencies are willing and able to take up the mantle.

On 5 December, Dame Victoria Sharp DBE approved a DPA between the Crown Prosecution Service (CPS) and online sports betting business Entain plc. The DPA follows an investigation by HM Revenue & Customs (HMRC) into failures to prevent bribery in Turkey. As part of the DPA, Entain agreed to pay a financial penalty plus disgorgement of profits totalling £585 million, to make a charitable donation of £20 million and to pay a contribution of £10 million to the CPS and HMRC costs. This represents the second largest penalty imposed in England and Wales since the introduction of DPAs in 2014. It now seems clear from the concluded Entain, Rolls-Royce and Airbus DPAs that failing to make a timely voluntary self-report to the authorities will not preclude companies from achieving a DPA, provided that the company adopts a posture of maximum cooperation with the government investigation once it is on notice of it, concedes liability and undertakes an extensive programme of corporate renewal and compliance remediation.

It remains to be seen whether the CPS will pursue prosecutions against relevant individuals involved in the conduct underpinning the Entain DPA. Consistent with recent concluded SFO DPAs, the statement of facts and full judgment remain embargoed until the conclusion of any proceedings against individuals.

The Entain DPA was announced over a year after the Gambling Commission fined the company £17 million over separate issues related to AML and social responsibility failures.¹⁷ At the time, this was the Gambling Commission's largest enforcement outcome. This was topped in March with the imposition of a total financial penalty of £19.2 million for similar failings at businesses owned by the William Hill Group. As we noted at the time, the penalties show a regulator willing and able to take significant regulatory enforcement action, which should prompt licensed operators to update their risk assessment; AML policies, procedures, and controls; training; and corporate reporting procedures.

For its part, the National Crime Agency (NCA) has set its sights firmly on former Nigerian politicians. James Ibori, a former state governor, and his associates were ordered in July to pay back more than £130 million, at a confiscation hearing held more than 11 years after Ibori pleaded guilty to defraud nearly £50 million from Nigerian states.¹⁸ The following month, the NCA charged former Nigerian Minister for Petroleum Resources Diezani Alison-Madueke with accepting bribes during her time in office, in return for awarding lucrative oil and gas contracts.¹⁹

Focus on Sanctions Bears Little Fruit

Combatting the circumvention of trade sanctions has been a priority for UK enforcement in 2023. In August, HMRC fined an unnamed UK company £1 million in relation to the unlicensed trade of goods in breach of Russian sanctions regulations.²⁰ No further details of the breach were published (HMRC sanctions penalties are confidential) thereby preventing other companies from learning important compliance lessons. This may change in the new year with the recently announced introduction of the Office for Trade Sanctions Implementation (OTSI), which will be responsible for the civil enforcement of trade sanctions.²¹ OTSI's remit will include helping businesses to comply with trade sanctions, so we can expect more helpful guidance and greater transparency when civil penalties are imposed. Time will tell whether the UK's fight against economic crime will benefit from the creation of another new enforcement agency, which will now compete for resources with the Office of Financial Sanctions Implementation (OFSI) and inevitably take time to find its feet.

In August, OFSI used its 'disclosure' power for the first time to publish details of a sanctions violation by a UK fintech firm.²² The firm permitted a £250 cash withdrawal from the business account of a recently sanctioned customer. OFSI considered this a 'moderately severe' breach justifying use of its power to name and shame, albeit not meriting a monetary penalty. The low value of the breach calls into question whether OFSI is prioritizing resources appropriately, especially considering that the case represents the sum of OFSI's enforcement outcomes in 2023 and the first action it has taken under the Russia sanctions regime since the invasion of Ukraine. This concern is thrown into sharper relief by the fact the breach was self-reported to OFSI in July 2022, meaning it took OFSI thirteen months to investigate and conclude enforcement.

Footnotes

1 .Section 199, ECCTA 2023.

2 .David Cameron, The Guardian, The fight against corruption begins with political will (11 May 2016), https://www.theguardian.com/commentisfree/2016/may/11/fight-against-corruption-begins-with-political-will.

3 .Section 196, ECCTA 2023.

4 .UK Serious Fraud Office, SFO secures sentences totalling over 13 years for executives behind $500m bank fraud (4 April 2023), https://www.sfo.gov.uk/2023/04/04/sfo-secures-sentences-totalling-over-13-years-for-executives-behind-500m-bank-fraud/.

5 .UK Serious Fraud Office, Case Update, R v Bluu Solutions Limited and Tetris Projects Limited, https://www.sfo.gov.uk/cases/r-v-bluu-solutions-limited-and-tetris-projects-limited/.

6 .UK Serious Fraud Office Press Release, SFO secures two DPAs with companies for Bribery Act offences (20 July 2021), https://www.sfo.gov.uk/2021/07/20/sfo-secures-two-dpas-with-companies-for-bribery-act-offences/.

7. Sam Fry, Former G4S execs acquitted after SFO ends prosecution, GLOBAL INVESTIGATIONS REVIEW (Mar. 10, 2023), https://globalinvestigationsreview.com/article/former-g4s-execs-acquitted-after-sfo-ends-prosecution.

8. UK Serious Fraud Office News Release: SFO receives approval for DPA with G4S Care & Justice Services (UK) Ltd (Jul. 17, 2020), https://www.sfo.gov.uk/2020/07/17/sfo-receives-final-approval-for-dpa-with-g4s-care-justice-services-uk-ltd/

9 .UK Serious Fraud Office Case Update: ENRC Ltd, https://www.sfo.gov.uk/cases/enrc/

10. UK Serious Fraud Office, Press Release, Serious Fraud Office launches investigation into suspected fraud at Axiom Ince with nine raids and seven arrests (14 November 2023), https://www.sfo.gov.uk/2023/11/14/serious-fraud-office-launches-investigation-into-suspected-fraud-at-axiom-ince-with-nine-raids-and-seven-arrests/.

11. UK Serious Fraud Office, Press Release, SFO launches criminal investigation into global aviation supplier with dawn raid in London (6 December 2023), https://www.sfo.gov.uk/2023/12/06/sfo-launches-criminal-investigation-into-global-aviation-supplier-with-dawn-raid-in-london/.

12. UK Serious Fraud Office, Press Release, SFO launches criminal investigation into funeral plan provider Safe Hands Plans (11 October 2023), https://www.sfo.gov.uk/2023/10/11/sfo-launches-criminal-investigation-into-funeral-plan-provider-safe-hands-plans/#:~:text=The%20SFO%20is%20a%20specialist,updates%20via%20a%20web%20page.

13. UK Financial Conduct Authority, Press Release, FCA fines Guaranty Trust Bank (UK) Limited £7.6 million for further failures in its anti-money laundering systems and controls (10 January 2023), https://www.fca.org.uk/news/press-releases/fca-fines-guaranty-trust-bank-uk-limited-ps76-million-further-failures-its-anti-money-laundering.

14. UK Financial Conduct Authority, Press Release, FCA penalises Al Rayan Bank PLC for anti-money laundering failures (11 January 2023), https://www.fca.org.uk/news/press-releases/fca-penalises-al-rayan-bank-plc-anti-money-laundering-failures.

15. UK Financial Conduct Authority Press Release: FCA fines ADM Investor Services International Limited £6,470,600 for serious financial crime control failings (Oct. 2, 2023), https://www.fca.org.uk/news/press-releases/fca-fines-admisi-serious-financial-crime-control.

16. FCA Handbook

17. Gambling Commission, Entain to pay £17 million for regulatory failures (17 August 2022), https://www.gamblingcommission.gov.uk/news/article/entain-to-pay-gbp17-million-for-regulatory-failures.

18. UK National Crime Agency, Press Release, NCA to return millions to Nigeria from criminal gains of politician (24 July 2023), https://www.nationalcrimeagency.gov.uk/news/nca-to-return-millions-to-nigeria-from-criminal-gains-of-politician.

19. UK National Crime Agency, Press Release, Ex-Nigerian politician charged in corruption case (22 August 2023), https://www.nationalcrimeagency.gov.uk/news/ex-nigerian-politician-charged-in-corruption-case.

20 .UK Government, Notice, NTE 2023/17: a compound settlement (22 August 2023), https://www.gov.uk/government/publications/notice-to-exporters-202317-a-compound-settlement/nte-202311-a-compound-settlement.

21. UK Government, Press Release, New unit to crack down on firms dodging Russian sanctions (11 December 2023), https://www.gov.uk/government/news/new-unit-to-crack-down-on-firms-dodging-russian-sanctions.

22. OFSI press release: 'OFSI uses disclosure power for first time', 31 August 2023: https://ofsi.blog.gov.uk/2023/08/31/ofsi-uses-disclosure-power-for-first-time/

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