UK Economic Crime Group: Mid-Year Roundup in Economic Crime
Executive Overview
News from the Serious Fraud Office (the SFO) – Sweett Group Plc was sentenced on 19 February 2016 and ordered to pay £2.25 million following its conviction after an SFO investigation into its activities in the United Arab Emirates. As reported in our February 2016 update, the company pleaded guilty in December 2015 to a charge of failing to prevent an act of bribery intended to secure and retain a contract, contrary to the Bribery Act 2010 s.7(1)(b). This was the first actual guilty plea to an offence committed contrary to section 7.
Smith & Ouzman Ltd became the first company to be successfully prosecuted for bribing foreign officials, following a lengthy SFO investigation. Two directors of the company were also found criminally responsible and sentenced in February 2016.
In relation to the SFO’s investigation into LIBOR manipulation, on 23 March 2016 a confiscation order was made against Mr. Tom Hayes. Separately, on 6 April 2016, the trial commenced of six Barclays traders accused of manipulating the US Dollar LIBOR while employed by Barclays Bank Plc.
On 15 March 2016, the Director of the SFO announced that the SFO has closed its criminal investigation into allegations that traders were rigging the Foreign Exchange Market (FOREX) after there was insufficient evidence to secure a realistic prospect of conviction.
Despite suggestions of limited funding from media sources, the SFO continues to take on new cases, with the latest being a criminal investigation into Tata Steel (UK) Ltd and further charges being made in relation to bribery and corruption offences alleged against Alstom UK.
News from the Financial Conduct Authority (FCA) – To date, the FCA has fined eight banks and brokerages for misconduct relating to LIBOR manipulation and four individuals, with fines totalling £426 million. In recent months, three further individuals have been banned from working in the UK financial services industry for lacking honesty and integrity as a result of their part in LIBOR manipulation.
News from the Courts – In R -v- Johnson, the Court of Appeal provided guidance on 'tainted gifts' and their impact on confiscation orders made under the Proceeds of Crime Act 2002 (POCA) when considering the defendant’s available assets.
News from the Government – On 31 March 2016, the Treasury Office announced the establishment of the Office of Financial Sanctions Implementation (OFSI), to deal with financial sanctions. In March 2016, the government consulted on enhancing the transparency of beneficial ownership information of foreign companies operating in the United Kingdom.
Following the leak of 11 million documents from the law firm Mossack Fonsenca, based in Panama, which exposed evidence of tax evasion, the government announced that it has established a taskforce led by HM Revenue and Customs (HMRC) and the National Crime Agency (NCA) to investigate allegations relating to British companies and individuals named in the leaked papers.
On 12 May 2016, David Cameron announced the creation of a new global forum to step up international efforts on recovery of stolen assets.
News from the Serious Fraud Office
Bribery Act 2010 sentencing of Sweett Group Plc
Following its guilty plea on 18 December 2015, Sweett Group Plc was sentenced on 19 February 2016 at Southwark Crown Court and ordered to pay £2.25 million.1 As reported in our February 2016 update, this was the first actual guilty plea to a section 7 offence. Sweett Group Plc admitted failing to prevent an act of bribery intended to secure and retain a contract, contrary to section 7(1)(b) of the Bribery Act 2010. The SFO's investigation identified that Sweett Group Plc's subsidiary, Cyril Sweett International Limited, had made corrupt payments to an individual to secure and retain a contract with an insurance company for project management and cost consulting services in relation to the building of a hotel in Abu Dhabi. The SFO is still investigating individuals in relation to the bribery of Mr. Al Badie.
The landmark judgment was passed by Beddoe HHJ in accordance with Section 125(1) of the Coroners and Justice Act 2009 and the sentencing guidelines set out by the Sentencing Council on the 1 October 2014. The total penalty of £2.25 million is broken down to £1.4 million in fine, £851,152 in confiscation, plus £95,000 in costs to the SFO.
Sentencing of Smith & Ouzman Ltd. and its Directors
Smith & Ouzman Ltd, an Eastbourne-based printing firm specialising in security documents, has been ordered to pay £2.2 million, having been found guilty of making corrupt payments in breach of the Prevention of Corruption Act 1906 (the 1906 Act).2 The case is of particular significance as it is the first UK conviction of a company for foreign bribery offences following a trial, in contrast to the SFO’s previous successful prosecutions which were not contested.
The SFO opened its investigation into the company in October 2010 and found a total of £395,074 had been paid to public officials to secure business contracts in Kenya and Mauritania. The offences took place between 2006 and 2010 and fall under the 1906 Act, rather than the Bribery Act 2010.
The 1906 Act does not include strict liability offences which would hold the company criminally liable – which are provided for by the Bribery Act 2010 – so the company could only be found liable under the identification doctrine. This requires the illegal actions to have been carried out by the ‘directing mind and will’ of the company, in order for the company to be held liable. The jury considered that this high threshold had been met and consequently held the company liable.
In addition, two directors of the company were held criminally responsible for their role in the offences. Smith & Ouzman Chairman Mr. Christopher Smith was sentenced to 18 months' imprisonment, suspended for two years, and ordered to do 250 hours community service. Sales and Marketing Director Mr. Nicholas Smith was sentenced to three years' imprisonment. Confiscation orders and orders for costs were also made against both men.
The company was sentenced in accordance with the Sentencing Council's Fraud, Bribery and Money Laundering Offences Definitive Guideline, despite the conviction being under the 1906 Act rather than the Bribery Act 2010.
The penalty of £2.2 million incorporated a compensation order of £881,158 and a fine of £1,316,799, together with costs of £25,000. The level of the compensation order was calculated by identifying the company's gross profit on the contracts secured by bribery, plus the value of the bribes. To reflect inflation, Recorder Andrew Mitchell QC used the Printing and Reproduction Index, which reflected a change in the cost of doing business in the sector.
In determining the level of the fine, Recorder Andrew Mitchell QC classified the offending to be of high culpability and used a 300% multiplier on the gross profit of the contracts secured by bribery. This was due to: (i) the directors of the company having a lead role in the bribery offences; (ii) the bribes involving corruption of public officials; (iii) the company using its dominant position in the market to bribe public officials; and (iv) the fact that the directors' motive was substantial financial gain.
Recorder Andrew Mitchell QC also considered whether, in addition, a compensation order should be made to compensate the victims of bribery (namely, the Kenyan and Mauritanian governments). While the Guideline emphasises the importance of compensating the victims of bribery, Recorder Andrew Mitchell QC felt it was not appropriate as there had been no formal request from either government and he could not be certain that any compensation would be returned to the appropriate persons.
LIBOR confiscation order
As reported in our February 2016 update, Mr. Tom Hayes, a former derivatives trader at UBS and Citigroup, was convicted by a jury on 3 August 2015 on eight counts relating to conspiracy to defraud in connection with his role in manipulating LIBOR while employed at the investment banks. Mr. Hayes' December 2015 appeal was dismissed but the appeal against his sentence was upheld, leading to a reduction in sentence from 14 to 11 years.
More recently, on 23 March 2016, Mr. Hayes was also ordered to pay £878,806 by way of confiscation order by Mr. Justice Cooke at Southwark Crown Court.3 The SFO had argued that the confiscation order should be in the amount of £3.4 million, which comprised all of Mr. Hayes' salary and bonuses for the period 2006 to 2009. Mr. Justice Cooke accepted that it was almost impossible to arrive at an exact mathematical calculation as to how much Mr. Hayes had gained from the attempted rigging of LIBOR. Nonetheless, the judge did not accept the SFO's assertion that all of Mr. Hayes' earnings in the relevant period were the result of criminal conduct. Instead, he sought to draw a distinction between Mr. Hayes' unlawful activities and other lawful trading, arriving at the figure of £878,806.
Trial of former Barclays traders accused of manipulating LIBOR
The trial of six individuals accused of manipulating the US Dollar LIBOR while employed by Barclays Bank Plc commenced on 4 April 2016 at Southwark Crown Court.4 The case is expected to last three months and is the SFO's third LIBOR-rigging trial.
To date, the trial has heard evidence focused on whether senior managers at Barclays were aware of the interest rate being fixed between London and New York and whether the traders were encouraged to influence the US Dollar rates, in order to suit the trading position of the New York swaps desk from mid-2005 to mid-2007.
Separately, on 11 May 2016, a reporting restriction was lifted on the identity of the first person to be convicted as a result of SFO’s investigation into LIBOR. Peter Johnson, a former Barclays executive, had pleaded guilty to conspiracy to defraud in October 2014, although his name had been withheld until now.
New Charges
On 29 March 2016, a seventh individual, Mr. Terence Watson, was charged as part of the ongoing SFO investigation into Alstom Network UK Ltd. Mr. Watson is the Alstom Country President for the UK and Managing Director for Alstom Transport UK & Ireland. To date, seven individuals and two Alstom companies have been charged with corruption offences under the Prevention of Corruption Act 1906 and offences of conspiracy to corrupt under the Criminal Law Act 1977.
Mr. Watson's alleged offences are said to have taken place between 1 January 2003 and 31 December 2008 and concern the paying of bribes to win contracts for the supply of trains to the Budapest Metro. He is to be joined to the case against Alstom Network UK Ltd, Michael John Anderson, and Jean-Daniel Lainé, who have already been charged with corruption offences relating to the Budapest Metro. The trial date has been fixed for May 2017.
New and closed investigations
The SFO confirmed on 8 April 2016 that it had opened a criminal investigation into activity at Speciality Steels, a business unit of Tata Steel (UK) Ltd.5
On the 15 March 2016, the SFO announced that it has closed its criminal investigation into the allegations that traders were rigging the FOREX Market after it concluded that there was insufficient evidence to secure a realistic prospect of conviction.6 The decision follows a year and a half investigation which commenced in July 2014, following a referral from the FCA. The SFO stated that whilst there were reasonable grounds to suspect the commission of offences involving serious or complex fraud, there was not enough to meet the evidential test and that further investigation would not overcome the evidential issues.
News from the Financial Conduct Authority
Three further bans for LIBOR manipulation
The FCA announced on 2 March 2016 that it had prohibited Mr. Michael Curtler, a former trader at Deutsche Bank, from working in the UK financial services industry for lacking honesty and integrity.7 This followed a criminal conviction in the US for his role in a conspiracy to manipulate Deutsche Bank's US Dollar LIBOR submissions.
Similarly, on 12 April 2016, the FCA announced that it had banned Mr. Paul White, a former RBS LIBOR submitter, from conducting any regulated financial activity. The FCA also issued a public censure and stated that Mr. White would have received a £250,000 fine were it not for his serious financial hardship.8 This related to his conduct when submitting Japanese Yen and Swiss Franc prices to the British Bankers Association for input into the LIBOR prices.
Subsequently, on 14 April 2016, the FCA also prohibited Mr. Arif Hussein, a former trader at UBS in London, from any role in regulated financial services. The FCA's decision was based on Mr. Hussein's role in influencing UBS's LIBOR submitters by informing them of his preference for certain Great British Pound rates, which were beneficial to his trading positions. Mr. Hussein disputes the FCA's decision and the matter has been referred to the Upper Tribunal. While a decision is pending in the Upper Tribunal, the prohibition on Mr. Hussein will not be effective.
These bans follow the earlier bans for LIBOR manipulation of Mr. Paul Robson in February 2015 and Mr. Lee Stewart in July 2015, both previously employed by Rabobank.
News From Court
Confiscation Order for tainted gift
The issue of 'tainted gifts' and their impact on confiscation orders made under POCA when considering the defendant’s available assets was assessed in R -v- Johnson.9
In this case, the defendant, Ms. Johnson, pleaded guilty to 16 counts of defrauding her employer, Leeds Credit Union. During confiscation proceedings, the Judge determined that the benefit of Ms. Johnson's criminal conduct was £45,000 but accepted that Ms. Johnson had no assets with which to satisfy any confiscation order apart from a gift of equity in a house she had sold to her daughter in July 2008.
At the time the gift was made the equity in the property was valued at £20,000 and the house itself valued at around £140,000. As part of the conveyance, Ms. Johnson gifted the £20,000 equity to her daughter. Following a slump in property prices, the value of the house decreased and was worth around £110,000 at the time the confiscation order was made, so that in effect the gift of £20,000 had been lost by the daughter, as she could no longer realise it.
The Crown Court established that the gift made by Ms. Johnson to her daughter was a 'tainted gift' for the purposes of POCA. The Court clarified that under POCA, when considering assets available to fulfill a confiscation order, the value of the 'tainted gift' was to be determined on the date it was made (£20,000 gift received by the daughter), rather than its value on the date of the confiscation order (nil). The Court of Appeal upheld this as not being manifestly excessive or wrong in principle.
The judgment will be of assistance when interpreting 'tainted gifts' under POCA and makes clear that the aim of POCA is to discourage those who commit fraudulent acts from gifting away their proceeds.
News from UK Parliament
Financial Sanctions – Policing & Crime Bill
The Policing and Crime Bill was introduced to the UK Parliament on 10 February 201610 and, in addition to various other provisions, proposes to enhance enforcement measures available following a breach of financial sanctions, as well as increase the ability of HM Treasury in enforcing the new regime. The proposed legislation signals a shift towards tougher enforcement of the financial sanctions regime in the UK.
The anticipated legislation will bring consistency to fines across all the financial sanctions regimes to ensure that penalties for breaches of financial sanctions have a sufficient deterrent effect, and provide the enforcement community with more powers.
Separately, on 31 March 2016, the Treasury Office announced the establishment of the Office of Financial Sanctions Implementation (OFSI). The OFSI is intended to help ensure that financial sanctions are properly understood, implemented, and enforced.
Beneficial Ownership
In March 2016, the government consulted on enhancing the transparency of beneficial ownership information of foreign companies operating in the United Kingdom.11 The purpose of the consultation is to improve transparency in ownership and control of foreign companies that are active in certain ways in the UK.
The UK will publish its own register of company beneficial ownership from June 2016, which proposes to be a publically accessible register showing ownership and control of UK companies. The register will be made available through Companies House. Other EU countries are due to establish similar registers pursuant to the Fourth EU Anti-Money Laundering Directive.
Panama Papers
The release of the 'Panama Papers' in early April 2016 by the International Consortium of Investigative Journalists (the ICIJ) sparked widespread condemnation of practices used to evade tax, lauder money, and breach sanctions through the tax haven. More recently, on 9 May 2016, the ICIJ released a searchable database of the offshore entities referred to in the Panama Papers.
A taskforce12 led by HM Revenue and Customs (HMRC) and the National Crime Agency (NCA) has been established to investigate allegations relating to British companies and individuals named in the leaked papers. The taskforce will work alongside analysts from the SFO and FCA who are also conducting investigations arising from the leak. The investigative team will report to the Chancellor and Home Secretary later in the year on their findings.
Following the revelations of the Panama Papers, the Solicitors Regulation Authority (SRA) has asked a number of City Law firms to review their files for links to Mossack Fonseca, the law firm at the centre of the data leak. Similarly, on 7 April 2016, the FCA ordered banks and other financial companies to carry out a similar review of their connections to the law firm.
Creation of Global Forum for Asset Recovery
During the Anti-Corruption Summit in London on 12 May 2016, Prime Minister David Cameron announced the creation of a new global forum to step up international efforts on asset recovery. The forum, which will be co-hosted with the US and be supported by the UN and World Bank, will aim to bring together law enforcement agencies to work together to recover stolen assets. The first forum will focus on returning assets to Nigeria, Ukraine, Sri Lanka, and Tunisia. The Prime Minister's office stated, "The forum will strengthen co-operation between the countries that have had assets stolen and the countries where those assets are hidden, and help ensure law enforcement on both sides drive forward vital work to return illicit funds."13
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