Overview
Amongst those who operate or act (whether voluntarily or not) within global law enforcement arenas, there has long been a tendency in some quarters to view the UK law enforcement landscape with less trepidation than that in the US.[1] For many years law enforcement agencies in the United States and particularly the US Department of Justice (DOJ) and Securities and Exchange Commission – exponentially better funded and resourced – have drawn the limelight with billion-dollar bribery-related settlements such as the $1.78 billion settlement with Brazilian petrochemicals company, Petrobras, and the $1.01 billion settlement with Swedish telecommunications company Telia. There are signs, however, that a confluence of factors is now resulting in an increasingly aggressive posture being taken by UK law enforcement bodies and those who discount the appetite, powers and ability of those bodies may do so at their own peril.
Of all the UK law enforcement agencies, none has faced more apparent recent criticism and calls for reform than the UK Serious Fraud Office (SFO), the agency charged with tackling the top level of serious or complex fraud, bribery and corruption. The collapse of the 2019 trial of two former Tesco directors accused of false accounting (with the trial judge declaring that "I concluded in certain crucial areas the prosecution case was so weak it should not be left for a jury's consideration") was a high profile setback for the SFO, as was both the 2020 acquittal of three Barclays executives accused of making illegal payments to Qatar and the collapse of the case against the bank itself. Whilst it continues to defend itself against allegations that it is unfit for purpose and that a complete overhaul of the agency is necessary, the attacks appear to be having an unwelcome consequence for those in the SFO’s eyesight; namely, whilst the SFO faces increased scrutiny and the pressure of bringing significant prosecutions, there is likely to be much less shirking of high-profile investigations and, once an investigation is open, it will bring all its powers and expertise to bear. Put simply, once an investigation is opened, the SFO will play to win.
The August 2018 arrival of Lisa Osofsky as SFO Director looks likely to yield some rewards for the agency to the inevitable detriment of those under investigation. Osofsky’s tenure thus far has been apparently hamstrung, somewhat, by the decisions made by her predecessor, Sir David Green QC, to prosecute Barclays and Tesco and to drop other investigations. Osofsky’s first task therefore has been to survey the landscape and end existing investigations deemed unlikely to result in positive outcomes or to represent an inefficient use of resources – as has been done with Rolls-Royce and GSK. In their place, however, has been the opening of new investigations, opened in respect of entities such as Greenergy, London Capital & Finance plc (London Capital) and others. Once the most immediate COVID- 19 issues have abated, one should not expect any capacity in the SFO’s case roster to remain for long.
Equally detrimental to those caught in the SFO’s gaze is likely to be Osofsky’s stated desire for increased cooperation with other law enforcement partners. There are numerous advantages to law enforcement to having various agencies all signing from the same hymn sheet and focused on the same goal; law enforcement agencies may share information with one another, pool their resources and benefit from each other’s experience. Signs of such effective cooperation can be seen by the joint investigation opened into Greenergy with Dutch authorities and, most significantly, the SFO’s participation alongside the DOJ and French Parquet National Financier in the global £3 billion resolution that was struck with Airbus in January 2020. The latter proved a significant win for the SFO with the four year investigation into the airplane manufacturer ultimately resulting in the payment of £820 million to the SFO. Domestic cooperation also looks to be on the rise, with the SFO working alongside the Financial Conduct Authority (FCA) on its London Capital investigation.
In addition to increased capacity for new investigations and the potential significant benefits from cross agency collaboration, the formality (as others sometimes see it) of the UK justice system can mean that, once a company or individual is caught in the crosshairs of a UK investigation, the UK landscape offers much less room for maneuver. This is perhaps most easily illustrated by a comparison of the use of Deferred Prosecution Agreements (DPAs) in the UK as compared to the US. In the UK and unlike in the US, a DPA is only available to companies (and not individuals). In both the UK and the US, judicial approval is required to conclude a DPA and modify its terms. But while, with some notable exceptions, US courts’ review of DPAs is generally fairly narrow (absent evidence of impropriety or government misconduct), UK courts are required to conduct a more substantive review of a proposed DPA before approving it. In considering whether to approve a DPA (or not), a UK court will consider issues including whether the DPA is in the interests of justice and its terms are fair, reasonable and proportionate. The lesson is clear – a company cannot necessarily bank on a large sum of money being sufficient to abate any prosecution because a UK court must be satisfied that the DPA meets various requirements before deciding whether to approve its terms.
Additionally, UK legislation has afforded the SFO a string of broad powers not necessarily found in the armory of agencies in other jurisdictions. One of these is the power under section 2 of the Criminal Justice Act 1987 to compel an individual or entity to provide the SFO with information, either through documentation or participation in an interview. A failure to comply is punishable by imprisonment. The only permissible defense is where a ‘reasonable excuse’ for non-compliance exists, however, successful invocation of a reasonable excuse is no mean feat given that the SFO’s own guidance provides little in the way of examples beyond noting that section 2 notice recipients should be treated with consideration and fairness. Indeed, the guidance further states that many purported excuses can be addressed merely by explaining the law clearly and courteously. Whilst any information provided through this power is not admissible, the power nonetheless is significant and can be used in eliminating potential suspects and shaping an ongoing investigation.
The SFO’s arsenal is further bolstered by the entirety of the UK Bribery Act (UKBA) itself – sweeping legislation initially labelled as the ‘FCPA on steroids’ that leaves almost no stone unturned in the breadth of offences laid out within. The UKBA addresses both the giving and the receiving of bribes and, importantly, makes no distinction between those in the public and private sectors. The UKBA also creates a powerful ‘failure to prevent’ strict liability offence that shifts the onus onto a company to demonstrate that, in the event of one of its associated persons committing bribery, it had in place appropriate procedures designed to stop such an incident occurring.
This new offence represents a landmark moment in a UK criminal justice system that previously mounted a high bar to the establishing of corporate criminal liability, and in 2017 the Criminal Finances Act introduced a similar corporate criminal offence in respect of a business that fails to prevent its employees or any person associated with it from facilitating tax evasion. Osofsky has championed further reform of the UK criminal justice system, lamenting the difficulty in prosecuting corporate fraud, while others at the SFO also have explicitly called for the extension of economic criminal offences for corporations by further ‘failure to prevent’ offences. These cries may not necessarily fall on deaf ears – the UK Government’s response to a 2017 consultation on reform of the law on liability for economic crime is expected.
Crucially, the reach of the UKBA does not terminate at the UK’s international borders but instead extends far beyond. The various offences regarding bribery by individuals apply also to acts or omissions that take place outside the UK where the person concerned has a close connection with the UK (e.g., they are a British citizen or ordinarily resident within the UK). The failure to prevent offence, meanwhile, applies not merely to acts committed within, and by companies incorporated within, the jurisdiction but also (i) to UK-incorporated organisations where the actual bribery offence is committed outside the UK and (ii) to organisations headquartered outside the UK that carry on at least some business in the UK, where the actual bribery offence again is committed outside the UK.
Other UK agencies, meanwhile, have seen recent additions to their firepower in the ongoing corruption battle. Her Majesty’s Revenue and Customs (HMRC), the UK’s tax authority, was in 2018 given the power of Account Freezing Orders – the ability to freeze funds where reasonable grounds existed for suspicion that money in a bank or building society account was either recoverable property or intended for use in unlawful conduct. The process of applying for such an order is relatively simple and the threshold for granting one is low; an application is made to the magistrates’ court once reasonable grounds for suspicion exist. If granted, an Order may last as long as two years from the date of granting. As a result, HMRC has wasted little time in ramping up its use of the power, issuing 60 orders in the first full tax year since their introduction and then more than doubling the number to 166 in the following year (to date).
The same year, another power was also introduced – Unexplained Wealth Orders – giving HMRC, the FCA, SFO, Crown Prosecution Service and National Crime Agency the power to compel a respondent to explain how a particular asset was acquired. Should a satisfactory explanation not prove forthcoming then the asset can be treated as recoverable property.
An increasingly aggressive posture towards enforcement can also be found in other UK regulatory bodies. The UK’s regulatory body for electricity and natural gas, OFGEM (formally, the Office of Gas and Electricity Markets), recently hit Intergen with a £37 million fine for manipulating the electricity market for four days by sending misleading signals to the National Grid. Less than 12 months earlier, OFGEM had handed out its largest fine ever, agreeing a £44 million settlement with Cadent, the UK’s top gas distributor. The Financial Reporting Council, meanwhile, has seen its budget hiked by 13% and responded accordingly by unveiling plans to increase the number and scope of audit quality reviews and corporate reporting reviews as well as speeding up the conclusion of investigations by hiring additional lawyers and forensic accountants. The body recently generated headlines when it announced an investigation into the audits prepared by KPMG and PwC for Eddie Stobart, a well-known UK transportation company.
Of course, the enforcement landscape will not be transformed overnight. Nevertheless, both individuals and companies would do well to ensure their familiarity with the serious enforcement powers contained within UK law as well as the increasingly aggressive expectations and focus of UK law enforcement agencies. The necessity for a comprehensive and well-implemented compliance program, including appropriate due diligence on third parties, has never been greater; for example, a failure to do so leaves a company no defense to the failure to prevent bribery offence should one of its associated persons later commit bribery, as well as facing potential significant fines, prosecutions of individuals and damages to its reputation. Similarly, companies subject (or potentially subject) to an investigation by law enforcement will be well-advised to be fully up-to-date on the current priorities and expectations of the relevant agencies: the ramifications of choosing to self-report any suspected compliance breach (or not) and fully cooperating with the investigating agency (or not) can be significant to the outcome that the company can expect.
Individuals and companies may previously have benefitted from agencies that were reluctant to tackle the largest and most complex investigations, that did not fully cooperate with their domestic and international counterparts and that lacked the full array of powers needed to effectively bring many investigations to prosecution. They should be aware that the ground has since shifted beneath their feet and be prepared for that.
[1] For the purposes of this article, we refer to “UK law” and the “UK courts”. However, England and Wales, Scotland and Northern Ireland each have their own legal system and, in some respects, there may be differences between the information in this article (based on the law of England and Wales) and Scotland/Northern Ireland.
[1] For the purposes of this article, we refer to “UK law” and the “UK courts”. However, England and Wales, Scotland and Northern Ireland each have their own legal system and, in some respects, there may be differences between the information in this article (based on the law of England and Wales) and Scotland/Northern Ireland.
