UK Economic Crime Group: Enforcement Update

Executive Summary

In this edition of the UK Enforcement newsletter, we provide an update on recent anti-corruption and fraud developments, as well as other economic crime issues in the UK. We consider recent enforcement actions by the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA) and the National Audit Office (NAO).

We also comment on post-Brexit law enforcement, and the ongoing strains on the justice system as a result of the COVID-19 pandemic. We discuss a report on the SFO’s handling of complaints, and we consider new proposals to tackle economic crime.

Considering social commentary, we look at the FCA’s proposals to regulate diversity and inclusion within the financial services sector, and consider various proposals to address ethnic and racial bias within the criminal justice system.

In terms of enforcement, we consider the following topics:

• The collapse of the SFO’s investigation into former Serco executives.
• NAO’s investigation into Greensill.
• FCA’s criminal proceedings against NatWest for money laundering.
• UK Government demonstrates its commitment to combatting international money laundering.
• Updates on the SFO’s investigation into Unaoil.
• Supreme Court clarifies the SFO’s global reach in the KBR case.

In relation to governmental matters, legislative reform, and social issues, we discuss the following:

• Update on the impact of Brexit.
• Ongoing effects of COVID-19 on the criminal justice system.
• Report on the SFO’s handling of complaints.
• CPS announces its strategy to contribute to the fight against economic crime.
• FCA: Diversity and inclusion are regulatory issues.
• Addressing racial bias in the use of stop and search powers.
• Sentencing Council’s guidelines to highlight disparity between ethnic minority and white offenders.

Enforcement Update

The Collapse of the SFO’s Investigation Into Former Serco Executives

On 26 April 2021, the SFO’s case against former Serco Geographix Limited (Serco) executives, for fraud by concealing profits related to a contract for the electronic tagging of offenders, collapsed. The trial against Nicholas Woods and Simon Marshall began in March 2021 following an eight-year long investigation. Part-way through the trial, it emerged that the SFO had failed to disclose certain materials, which meant that it could not offer any evidence against the defendants in the trial. After refusing the SFO’s application to adjourn the case in order to resolve the issue, the Honourable Mrs Justice Tipples directed the jury to return not guilty verdicts.

The SFO has since committed to conducting an internal assessment to prevent this type of disclosure failure from occurring in future. However, there is a wider issue concerning the collapse of this trial, and that is the fact that it follows the SFO having approved a DPA with Serco in July 2019, which we wrote about here. While the company was required to admit wrongdoing as part of its settlement, the SFO was unable to prove its case against those attributed to the wrongdoing. To date, the SFO is yet to successfully prosecute any individuals where a DPA has been agreed with a company, highlighting the conflict between companies admitting criminal liability, and senior individuals of the company being acquitted of any wrongdoing. In light of a further acquittal of this nature, companies considering entering into a DPA may be encouraged to consider with more vigour their chances at trial, rather than entering into early settlement.

NAO Initiates an Investigation Into Greensill

The NAO, an independent body responsible for auditing central government departments, government agencies and non-departmental public bodies, initiated an investigation into Greensill Capital (Greensill) on 16 April 2021. In June 2020, Greensill, a supply-chain finance firm, was accredited by the British Business Bank to provide emergency loans to large companies on behalf of the Government as part of the national COVID-19 financial relief scheme. Although Greensill was rejected from accessing the higher level COVID Corporate Financing Facility, it became an approved lender for the Coronavirus Large Business Interruption Loan Scheme (CLBILS). In May 2021 however, Greensill filed for insolvency after its insurer declined to extend its $4.6 billion policy.

The investigation will consider Greensill’s involvement in the pandemic support schemes, including how it came to be accredited as a CLBILS loan provider despite being rejected from accessing the higher level loan facility, and any post-accreditation monitoring of its activities. The NAO will publish the results of its investigation in due course, with the scope of its report limited to the establishment of facts, rather than evaluating the consequences of any of Greensill’s actions.

The NAO’s investigation is, however, only one of several lines of inquiry that have been launched into Greensill and several current and former government officials that have been linked to the firm. Of equal concern to these investigations is the extent of the lobbying that took place on the Greensill’s behalf in securing its access to COVID-19 financial support, and whether officials properly declared their interests in the company.

Whilst some of the reports from independent inquiries may remain private, some inquiries will take place publicly such as that initiated by the Treasury Committee, the particular focus of which will be the regulatory lessons learned from Greensill’s failure, and the appropriateness of the Treasury’s response to lobbying on behalf of the firm. Given the scale of financial support that the Government has offered and companies have received during the pandemic, there is an urgent need for transparency both in how companies have accessed these funds, and the wider issue of whether governmental lobbying is adequately scrutinised in the UK.

FCA’s Criminal Proceedings Against NatWest for Money Laundering

The FCA announced on 16 March 2021 that it has initiated criminal proceedings against a subsidiary of National Westminster Bank Plc (NatWest) in respect of offences under the Money Laundering Regulations 2007 (MLR 2007), marking its first criminal prosecution under the MLR 2007, and the first ever prosecution under MLR 2007 against a bank.

The FCA alleges that NatWest contravened provisions of MLR 2007 that required it to determine, conduct and demonstrate risk-sensitive due diligence and ongoing monitoring of its relationships with customers for the purposes of preventing money laundering. In doing so, it failed to monitor and detect suspicious activity by a customer depositing £365 million between November 2011 and October 2016. The customer, Fowler Oldfield - a wholesale jewellers in Bradford that was liquidated in 2016 - allegedly paid in over 70% of the five-year total in cash. The Crown Prosecution Service (CPS) confirmed that the FCA’s proceedings are linked to a case against 13 individuals it has charged separately with money laundering offences, two of whom were former Fowler Oldfield directors. The CPS’ case is listed for trial in April 2022.

The bank is due to make its first appearance in the FCA’s investigation at Westminster Magistrates Court on 26 May 2021. If found guilty, NatWest will be subject to unlimited fines and undoubtedly, significant damage to its reputation. The FCA’s approach demonstrates that it is prepared to use the full force of the powers available to it to penalise an institution for violating anti-money laundering regulations, and firms should take this as a reminder to ensure that their own procedures are wholly compliant. It is notable that no individual within the bank has been charged as part of the proceedings, and it remains to be seen what action, if any, will be taken against connected individuals.

UK Government Demonstrates its Commitment to Combatting International Money Laundering

The UK Government has agreed a deal with the Nigerian Government to return £4.2 million from the UK assets of a convicted fraudster. This is the first deal of its type between the UK and Nigeria and demonstrates the UK’s commitment to combatting money laundering and showing that ill-gotten gains are not welcome in the UK.

James Ibori was the Governor of Delta State in Nigeria from 1999 until 2007, during which time he took money from public funds. When this came to light he evaded arrest and prosecution in Nigeria and left the country for Dubai. Separately in the UK, he held numerous bank accounts and properties in London and came to the attention of the UK authorities in 2005 in relation to the purchase of a private jet. He was eventually jailed in the UK in 2012 following a lengthy extradition process resulting in his return to the UK from Dubai. He was convicted, following a guilty plea, of fraud and money laundering amounting to nearly £50 million.

The UK authorities have sought to confiscate the proceeds of Mr Ibori’s crimes, most recently applying to confiscate £117.7 million in January 2020, comprising assets including six properties in the UK, cars and a private jet. However, the judgment on this matter remains outstanding. The funds that are being returned to Nigeria stem from other confiscation proceedings linked to this matter, including against Mr Ibori’s wife and a former Goldman Sachs banker who was convicted of money laundering associated with Mr Ibori. Should the confiscation order be granted, it is likely that further monies will be returned to Nigeria.

In addition, on 26 April 2021, the UK announced sanctions against 22 individuals under the Global Anti-Corruption Sanctions Regulations 2021. The sanctions target individuals involved in serious corruption cases in Russia, South Africa, South Sudan and throughout Latin America, preventing them from entering and channelling money through the UK.

Updates on the Unaoil Investigation

On 24 February 2021, Paul Bond, a former sales manager at Dutch oil company SBM Offshore NV, was convicted of two counts of conspiracy to give corrupt payments, contrary to section 1 of the Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906. This is the SFO’s fourth conviction linked to the criminal investigation into Monaco-based oil-services company Unaoil Group (Unaoil) since the agency launched its probe in March 2016.

The SFO’s investigation into Unaoil followed allegations that the company had acted corruptly in facilitating business deals in Iraq in 2003, with various individuals being brought to trial in the UK as a result of the investigation. Basil Al Jarah, Unaoil’s former Iraq partner, was sentenced in the UK last year to three years and four months’ imprisonment after pleading guilty to five counts of bribery in 2019. Unaoil’s former territory managers for Iraq, Ziad Akle and Stephen Whiteley, received sentences of five and three years respectively after pleading guilty in relation to their roles in the bribery scheme.

With Bond’s prosecution, the SFO established that Unaoil employees, working on behalf of SBM Offshore and with Bond directly, paid more than $900,000 in bribes to Iraqi public officials to secure a $55 million contract for SBM Offshore to commission offshore mooring buoys. Following Bond’s retrial at Southwark Crown Court after the jury initially failed to reach a verdict in July 2020, Bond was sentenced to three and a half years’ imprisonment, concluding the SFO’s Unaoil-related prosecutions.

The SFO has faced an uphill battle in recent times when pursuing individuals connected to various of its long-standing investigations. Its successes against individuals connected to Unaoil matter gave the SFO the opportunity to restate its mission, commenting that the case demonstrated its “determination to root out and prosecute corrupt practices in all corners of the globe working with law enforcement partners across the world”.

Supreme Court Clarifies the SFO’s Global Reach in the KBR Case

On 5 February 2021, the UK’s Supreme Court confirmed the extraterritorial limits of the SFO’s investigatory powers under the Criminal Justice Act 1987 (the Act). Following a challenge to the law that had been making its way through the courts since 2017, the Supreme Court confirmed that the SFO cannot rely on its ordinary powers of compulsion contained within Section 2(3) the Act to obtain documents held overseas by a non-UK company, and must instead proceed through existing diplomatic channels.

As we reported previously, the question regarding the extraterritoriality of the SFO’s investigatory reach arose in April 2017 following the SFO’s issuance of a notice under Section 2(3) of the Act (a Notice) against KBR, Inc. (KBR), a company incorporated in the US with no fixed place of business in the UK, but with UK subsidiaries. The Notice compelled production of certain material in order to investigate fraud concerning its UK subsidiaries.

KBR applied for judicial review to nullify the Notice, arguing that the SFO had exceeded its powers and could not use a Notice to force a foreign company to produce material held overseas. The Divisional Court rejected KBR’s argument, ruling that Section 2(3) permitted the SFO to compel material held abroad from a foreign company if there was a sufficient connection between the company and the UK. KBR appealed that decision to the UK Supreme Court in April 2019.

The Supreme Court overturned the earlier court’s decision, ruling unanimously in favour KBR, and we provided our analysis of the judgment earlier this year. While the ruling has not changed the law, it has brought clarity to the territorial limits of Section 2(3). Shortly after the Supreme Court’s ruling, the SFO closed its four-year investigation into KBR’s UK subsidiaries, citing insufficient evidence. With this in mind, it remains to be seen whether the judgment will have an impact on the SFO’s ongoing and future investigations, both in terms of how it investigates multinational offences, and the length of time it takes to gather the necessary evidence in order to decide whether to prosecute or not.

Legislative Reform and Government Matters

Update on the Impact of Brexit

More than three months on from the end of the transition period, some matters of the ongoing relationship between the UK and the EU remain unclear, while other matters have now been resolved. As the elements of the Trade and Cooperation Agreement between the EU and UK come into operation, the practical implications of that agreement are being tested and reviewed.

On 26 March 2021, the House of Lords EU Committee published its report, “Beyond Brexit: policing, law enforcement and security”. This report looked at Part 3 of the Trade and Cooperation Agreement which deals with law enforcement and judicial cooperation in criminal matters. In particular it raised concerns about the new and untested arrangements between the UK and EU for extradition, now that the UK is no longer part of the European Arrest Warrant system. As part of the evidence provided for this report, the government informed the House of Lords EU Committee that 10 EU countries had confirmed that they would no longer extradite their nationals to face prosecution in the UK. These countries are Croatia, Finland, France, Germany, Greece, Latvia, Poland, Slovakia, Slovenia, and Sweden. Additionally, Austria and the Czech Republic have said that they will only extradite their nationals to the UK with their consent. It has been reported that a further eight countries have attached other restrictions, such as requiring prison sentences to be served in home nations. This means that only seven of the 27 EU Member States agree to reciprocity with the UK, namely, Belgium, Bulgaria, Cyprus Italy, Ireland, Malta, and Spain.

The House of Lords EU Committee also raised concerns regarding data protection and in particular, the issue of ensuring that there is confidence in the UK’s policing and criminal justice data sharing processes, such that EU law enforcement partners continue to share data with the UK. The House of Lords EU Committee highlighted the benefits of a positive adequacy decision from the EU with respect to the UK’s data privacy regime. On 19 February 2021, the EU announced that it had drafted two adequacy decisions, which once finalised would allow for transfers of personal data to the UK on the basis of third country adequacy. The European Commission has concluded that the UK has ensured essentially equivalent levels of protection for data as those guaranteed under the General Data Protection Regulation (GDPR) and the Law Enforcement Directive.

In addition, the House of Lords EU Committee considered the impact of Brexit on civil justice cooperation between the UK and EU. The Trade and Cooperation Agreement does not provide for any arrangements in relation to civil law and as a result, the UK position has reverted to reliance upon the Hague Convention for matters such as questions of jurisdiction, applicable law and the recognition of judgments. Although the UK has applied to accede to the Lugano Convention, the decision on this remains outstanding. While some of the Lugano countries have indicated their support for the UK’s accession, importantly no such support has been forthcoming from the EU and as such the likelihood of accession is unclear.

The relationship between the UK and EU continues to evolve as practical issues seek to be resolved. We will continue to monitor the position and look at the implications of decisions as they are made.

Ongoing Effects of COVID-19 on the Criminal Justice System

Last year, we commented on the growing backlog of cases yet to be tried in the criminal courts. The effects of the pandemic were experienced widely throughout the justice system, and the delays continue to adversely impact defendants and victims alike. Whilst ideas for reform initially included doing away with jury trials for less serious offences, the focus has now shifted on to the more pressing, and we suggest, more appropriate response, of maximising and increasing court capacity.

Measures will involve use of Nightingale courts, with 20 across the country currently in use and plans for more, physical dividers between those who attend the court, and use of multiple courtrooms connected via video link for jury trials. Additionally, there has been a reported 4,000% rise since March 2020 in the number of hearings taking place that employ remote technology, and most recently the Ministry of Justice announced that there would be no cap on the number of days that Crown Courts could sit for in the next financial year. Despite these efforts, the reality is that the criminal justice system has been plagued by delays and a lack of resources well before the pandemic began. COVID-19 has worsened an already overly burdened system, and it is likely that alleviating these pressures will require a herculean increase in the resourcing that is currently allocated to the criminal justice.

Quite apart from the effects that the pandemic has had on the justice system, COVID-19 has generated an entirely new wave of criminal offences and regulatory breaches. From companies and individuals committing fraud against the government’s various financial support schemes, to individuals breaching pandemic restrictions, the past year has seen the criminal justice system having to deal with public offending of an entirely new breed. To this end, hearings have now commenced in the Justice Committee, which along with written evidence, will inform the Committee on how the criminal law has adapted to deal with the pandemic, how COVID-19 offences have been enforced, and the role of the courts in dealing with such offences.

Report on the SFO’s Handling of Complaints

In February 2021, HM Crown Prosecution Service Inspectorate (HMCPSI), a body responsible for inspecting the UK’s prosecution services, reported on the SFO’s handling of complaints. The report made clear that the SFO receives very few complaints, having received only 14 between 1 April 2019 and 31 January 2020, for which each of the SFO’s decisions to either reject or uphold the complaint was supported by the oversight body. Broadly, the complaints related to: 1) legal, investigative or operational decisions; 2) the behaviour and conduct of staff; and 3) how the SFO’s action or inaction had affected an individual or group of individuals with which it had direct contact.

Despite the low number of complaints, the report noted that the SFO’s procedures for handling complaints were too time-consuming and could be shortened considerably. For example, it noted that there were no set deadlines for acknowledging complaints, and although it usually did so within 10 days, this should be reduced to five days. It also recommended setting a 28-day deadline for providing substantive responses, stating that the current deadline of two months was “neither sufficiently challenging, nor one which represents a quality service for complainants”. The report highlighted that these changes were capable of being implemented considering that this was “a highly digital age” and that 10 days was too long for a complainant to wait to be told the SFO had received their email or letter.

Additionally, recommendations were made for responses to complaints to be more empathetic, offering avenues for the complainant to access further redress if required, and that a consistent quality assurance process and trail of audit should be maintained for all complaint responses.

In response to HMCPSI’s report, Lisa Osofsky thanked the inspectors for their time and helpful recommendations as to how the SFO could further improve its service to the public. In the same way that the it adopted all of HMCPSI’s recommendations in its previous report in June 2020, it is hoped that the SFO continues to pay heed to the criticism it receives in respect of its general efficiency and value for taxpayers’ money, as discussed in our commentary earlier this year.

CPS Announces its Strategy to Contribute to the Fight Against Economic Crime

On 30 March 2021, the Crown Prosecution Service (CPS) issued its first economic crime strategy setting out the role it hopes to play amongst other national bodies tasked with tackling economic crime. The CPS has published its vision, with hopes for it to be realised by 2025, against the context of increasing levels of economic crime including fraud, which is now reported as one of the most common offences in the UK. Cybercrime in particular has grown in prevalence, largely due to the pandemic and its associated challenges.

The strategy, which the CPS accepts is ambitious, encompasses five broad aims to combat all forms of economic crime, including fraud, money laundering, sanctions abuse and bribery, and corruption:

1. A review of its resources and plans to invest in its staff to ensure that they are adequately equipped to prosecute;
2. Better use of technology in respect of case management, preparation and presentation, including conducting virtual hearings where possible and exploring artificial intelligence in disclosure;
3. Strategic partnering with other governmental bodies in responding to crime;
4. Take an innovative approach to casework in order to deliver justice swiftly, involving the efficient use of resources and the pursuit of asset recovery where possible; and
5. Ensure cases are centred around victims and witnesses, and victims are compensated where possible.

The strategy is largely abstract at this point, and it remains to be seen how the above aims are pursued on a practical level. Of most interest will be the part that the CPS will play alongside other investigative and prosecutorial bodies such as the National Economic Crime Centre and the SFO, and how these bodies will collaborate in order to tackle economic crime on an efficient and thorough basis. Given that economic crime is growing exponentially, it remains to be seen whether the CPS’ strategy  results in an uptick of investigations pursued to resolution.

Social Commentary

FCA: Diversity and Inclusion are Regulatory Issues

In a speech published by the FCA on 17 March 2021, CEO Nikhil Rathi announced that the FCA is working with the Prudential Regulation Authority to formalise a regulatory approach to diversity and inclusion within regulated firms. Over the past couple of years, the FCA has broadened its umbrella to regulate non-financial risks within firms, and this is yet another example of its reach.

The FCA emphasised the strong business case for enhanced diversity, stating that firms should build an environment in which they can adequately understand and communicate with the various communities they serve. Research suggests that ethnic minorities are disproportionately represented amongst vulnerable consumers, thereby placing them at greater risk of financial harm. Further, it was found that increased gender diversity correlates with improved risk management culture, as well as a decline in the frequency of misconduct fines received within European banks.

The FCA recommended adding the following question when consider banking conduct and culture: “Is your management team diverse enough to provide adequate challenge and do you create the right environment in which people of all backgrounds can speak up?” The question is intended to encourage practical assessment which considers not only the existence of a diverse workforce, but one that it also authentically inclusive.

Additionally, the FCA is considering including adding diversity and inclusion to its premium listing rules. This approach is akin to that adopted by the Nasdaq in the US last year, which requires all listed companies to either have, or explain why they do not have, at least two diverse directors. According to the FCA, if there is lack of progress in relation to diversity and inclusion within firms, particularly at a senior level, it will be scrutinising these firms and recommending tools to implement remedial change.

Addressing Racial Bias in the Police’s Use of Stop and Search Powers

In a report issued by the Commission on Race and Ethnic Disparities on 31 March 2021, it was noted that data consistently highlights the over-representation of ethnic minority groups both as perpetrators and victims of crime. This was most apparent in the stop and search stage of the investigation of crime, with black people being most over-represented amongst all other ethnic minorities. This is not the first time these powers have been assessed through this lens, and we have previously written about reports that have shed light on this issue. Ultimately, the Commission’s report concluded that stop and search powers remain a critical tool for policing, but must be executed appropriately and lawfully.

Going further than reviewing the statistics collected on racial and ethnic disparities, the Commission noted that while stop and search was designed to prevent crime, greater emphasis should be placed on preventing individuals from being drawn into violent crime in the first place. Going forward, the Commission called for more individual and collective agency when tackling drivers of violent crime affecting ethnic minorities, before the police are required to become involved.

However, once the police have become involved, it was recommended that greater transparency and communication are used when employing the use of a stop and search from their arsenal of powers, in order to rebuild trust, respect and consent from members of the public. One of the measures promoted to ensure fairness was for police officers to use body-worn cameras whenever a stop and search was required, or if not, the police officer would have to explain in writing why not. It was recognised that due to recent examples of abhorrent encounters between police and the public, there was a growing perception of mistrust and suspicion of the police, and that fairness and propriety were paramount to policing methods in order to rebuild public confidence.

Sentencing Council’s Guidelines to Highlight Disparity Between Ethnic Minority and White Offenders

On 1 April 2021, the UK’s Sentencing Council’s revised guidelines for sentencing adult offenders under the Misuse of Drugs Act 1971 came into effect, updating the guidelines published in 2012.

Following research conducted in order to inform the guidelines, the Council found disparities in sentence outcomes for some drug offences associated with ethnicity and sex. The odds of a male offender receiving an immediate custodial sentence were found to be 2.4 times that of a female offender, and the odds of certain ethnic minority offenders being imprisoned immediately were 1.4 times higher than those of a white offender. Asian offenders were found to receive custodial sentences that were on average four percent longer than the sentences imposed for white offenders. Mental health was also of concern with evidence suggesting that those from ethnic minorities were more likely to suffer the stigma of being labelled as having a mental health concern, and more likely to enter the mental health services via the courts or the police rather than through healthcare systems.

In response to this research, the guidelines now draw explicit attention to the existence of these disparities, which those imposing sentences are actively encouraged to take into account wherever possible to ensure that there is fairness for all involved in court proceedings.

We wrote previously about measures that were being taken to tackle racial bias in the courtroom. What was novel then was the explicit instruction to those on the bench of the courts to do away with the requirement for a defendant to state their nationality at first instance, a measure that had been found to result in racial bias. The sentencing guidelines will hopefully extend this approach and go some way to addressing a system that continues to be afflicted by disparities.

For our part, we are involved in several projects that seek to provide a platform for those from underrepresented backgrounds, either through offering work experience or supporting them in their professional aspirations on a pro bono basis. We look forward to continuing our work in this regard in order to further efforts towards a more diverse and inclusive workforce.

© Arnold & Porter Kaye Scholer LLP 2021 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.