Increased international co-operation
The exchange of information, on both a formal and informal basis, between international enforcement agencies continues to grow. This increases the likelihood that the conduct of business executives undertaken overseas will come to the attention of UK authorities and so potentially lead to prosecution here.
Increased whistleblower reports
Similarly, the growing prevalence of whistleblower reports, particularly in the US where they are financially incentivised, provides yet further intelligence and evidence for authorities, which is now more likely to lead to enforcement action being taken than ever before. The Rolls-Royce investigation started with an online whistleblower.
The most recent guidelines issued by the Sentencing Council in 2014, for ‘Fraud, Bribery and Money Laundering Offences’, point to the likelihood of more severe sentences being imposed on those convicted of economic crime committed in the course of their work.
Unexplained Wealth Orders (UWO)
The Criminal Finances Act 2017 brings into force UWOs, allowing the SFO, HMRC and other agencies to apply to the High Court for an order forcing the owner of an asset, valued at over £100,000, to explain how they obtained the funds to acquire it. If the owner cannot demonstrate that the asset was acquired with legal funds, the asset can be seized.
Failure to prevent tax evasion
The Criminal Finances Act 2017 also introduced the new corporate offence of failing to prevent tax evasion. The commencement date of the offence is uncertain but it could be as early as September or October 2017. Companies will need to consider what steps they should take to prevent tax evasion, potentially following a methodology familiar to many from the development of adequate procedures to prevent bribery.
Developing SFO pre-requisites to offering a Deferred Prosecution Agreement (DPA):
The SFO’s early, but developing, record on DPAs appears to indicate some evolving flexibility. Most notably, the Rolls-Royce DPA was agreed despite the company not self-reporting, something previously understood to be a pre-requisite to a deal. Having the systems in place to understand and react to issues quickly remains key to taking full advantage of the strategic opportunities that may arise, such as self-reporting or otherwise co-operating with the authorities.
In focus: Personal liability
Individual liability can be imposed for bribery or fraud offences under the same key legislation, the Fraud Act and the Bribery Act, that applies to corporates.
It is notable, though, that the most significant economic crime development in 2016 is a point of significant difference between corporate and individual liability. The first deployment of DPAs have involved Standard Bank, Rolls-Royce and so-called ‘XYZ Ltd’, whose real identity has been concealed pending the possible prosecution of individuals within the company. However, DPAs can only be granted to companies and not to individuals.
Further, as a condition for obtaining a DPA, companies will normally be required to provide evidence with which company personnel may be prosecuted, and increasingly the authorities will be looking, where relevant, at the most senior individuals in the organisation. This may lead to an environment where the company is spared conviction, but at the expense of individuals who may have been following company culture.
Where a potential issue arises, individuals should be considering when they will need to seek independent legal advice on their personal liability, separate from the advice provided by external counsel to the company.
Thought should also be given to the impact on the company when the interests of the individual and the interests of the company begin to diverge. For example, a conflict of interest may develop such that it is no longer appropriate for certain members of senior management to instruct external lawyers (or otherwise be involved in dealing with an issue) on behalf of the company. In this position, both the individual and the company can be better protected if pre-existing procedures are activated to ensure the company continues to have representatives who can act on its behalf. This acutely sensitive issue can also be, to some extent, defused by the engagement of a pre-existing process.
Have there been any notable fines or custodial sentences for individuals?
Tom Hayes was sentenced to 11 years’ custody (on appeal) for his role in the LIBOR scandal, and the sentence represents a general upward direction of travel. The years 2017 and 2018 will be watched with interest as a number of high-profile prosecutions proceed, involving senior executives from Alstom, Tesco and XYZ Ltd. They are likely to be informative as to the future approach of the courts. Of perhaps greatest significance will be the decisions taken by the SFO in relation to the Rolls-Royce corruption investigation. This may see the prosecution of the (current or formerly) most senior individuals in the company.
Is this a current area of focus for regulators or prosecuting authorities?
Individuals have always been at risk of prosecution in the event that they act improperly. What has changed, however, is the focus, in both the UK and the US, to look to establish corporate criminal liability and, in doing so, to require the companies concerned to assist the authorities with the prosecution of key individuals. The risk of prosecution now faced by companies, it is hoped, will encourage greater self-reporting, but this in turn will almost certainly lead to greater exposure for individuals.
What can individuals do to protect themselves?
As noted above, individuals cannot obtain a DPA. Individuals, though, may be able to secure full or partial immunity from prosecution or increased mitigation credit under the provisions of the Serious and Organised Crime and Police Act 2005 (SOCPA). Even if a formal SOCPA deal is not possible, early and full co-operation with the authorities will be recognised by the courts, leading to a lesser sentence than would otherwise have been the case.
The decision to engage with the authorities is one that must be taken with great care and caution. The decision will often be highly complex and very finely balanced, and so expert advice should always be sought.
Following applicable company policies and procedures can protect the individual as well as the company. In terms of internal exposure to disciplinary action, employees can help protect themselves by ensuring they can demonstrate full compliance. This may include, for example, keeping copies of receipts indicating that gifts are within permitted thresholds and that, where required, written approval was given. Individuals should also ensure that they document the resolution of any issues that do arise. For example, if a contract omits an anti-bribery and corruption clause, individuals may need to be able to explain that omission (particularly if inclusion is required by company policy and procedure).
Dates for the diary
June 2017 – Money Laundering Regulations 2017 come into force.
June/July 2017 – Verdicts and sentencing, if any, in the trial of a number for former senior Alstom executives charged with corruption. This is a significant SFO investigation, which has also resulted in charges against Alstom companies. Two further, separate, Alstom-related trials are due to commence in September 2017 and January 2018.
4 September 2017 – Commencement of the trial of three former senior Tesco executives accused of manipulating company accounts. The trial follows a high-profile SFO investigation.
September/October 2017 – Expected commencement date of new failure to prevent tax evasion offence in the Criminal Finances Act 2017.
Late 2017 – Possible decision by SFO as to any charges against Rolls-Royce senior employees and officers.
15 January 2018 – Commencement of the trial relating to two former directors of XYZ Ltd in relation to corruption. This trial follows a related DPA and may be informative as to the sentencing approach with individuals in the future.