Economic crime in 2019: what are we seeing, what can we expect?

Written on 15 Jan 2019

Political statements during 2018 reiterated a commitment to combatting economic crime, with particular prominence given to renewed efforts to target money laundering and the professional enablers who facilitate it. Although 2018 heralded a new era at the Serious Fraud Office (SFO) under its new Director Lisa Osofsky, the year did not end well for the agency – with strong judicial criticism directed at it in the wake of the failed prosecution of two former Tesco executives.

Looking ahead to 2019, we give our view as to the issues that may shape the enforcement landscape and what this may mean for both businesses and individuals under investigation.

Lead Agencies

SFO

The new Director has promised a regime which will see greater co-operation with international enforcement agencies, greater use of informants and greater use of technology. She has also undertaken to reduce the, often oppressively long, periods that SFO investigations can take.

It is hoped that this approach will see more businesses coming forward to self-report issues to secure leniency in the form of a Deferred Prosecution Agreement (DPA). In turn, it is hoped that increased prosecution of individuals will follow from the evidence provided by the self-reporting businesses.

In theory, this is an attractive proposition for businesses (in contrast to the individuals), which should encourage self-reporting. However, this may not be the reality of the position.

To date, there have been four DPAs, with only one leading to the linked prosecution of individuals. That, however, was the fateful Tesco prosecution referred to above, where a senior High Court Judge dismissed the case, stating that it should not have been brought. Further, despite the SFO’s heralding its DPA with Rolls-Royce, over two years have now elapsed but individuals are still to be charged.

Against a backdrop of the SFO not being able to demonstrate that it can bring successful high profile prosecutions, businesses may well need to think very carefully as to whether a self-report will ultimately be beneficial.

With the prosecution of the senior Barclays executives now under way, and charging decisions still awaited on a number of high profile, but increasingly aged investigations, including GSK, Serco and particularly Rolls Royce, 2019 may prove to be a pivotal year for the SFO if it is to in establish an environment where businesses are willing to accept that a self-report is the best available option.

National Economic Crime Centre

If the SFO is unable to point to tangible success, the NECC, which commenced operations in late 2018, may come into play. The NECC is a multi-agency body comprising the National Crime Agency, HM Revenue & Customs, SFO, FCA and the police. It is housed within the NCA and so reports to the Home Office, thus potentially bringing the SFO under the control of the Home Office. It is intended that the NECC will be able to direct SFO operations and, if so, it will represent the first time that the SFO’s independence has been compromised since its foundation in 1987.

If the SFO fails to make progress with its headline cases, the political will to make use of the NECC’s powers and exercise greater control over the agency may grow as the year progresses.

HM Revenue & Customs

One development that should be expected in 2019 is the first use of the corporate failure to prevent the facilitation of tax evasion offences. Enacted by the Criminal Finance Act 2017, the offences are not retrospective and the tax returns which might lead to tax evasion being uncovered have only recently been submitted.

HMRC has a dedicated unit responsible for investigating the offences and historically as an agency it has been keen to bring targeted high-profile prosecutions to deter similar conduct by others. Professional enablers such as accountants or tax advisors who fail to prevent clients from facilitating tax evasion committed by others may be an area of focus.

Investigations

Privilege

Whilst the Court of Appeal ruling in ENRC (see our earlier briefing) may have restored the status quo in terms of the ambit of litigation privilege as it was previously understood, businesses faced with the need to conduct an external investigation may still need to exercise great care.

Companies that self-report, whether to the SFO or other agencies, will continue to be required to demonstrate full co-operation if they are to secure leniency. The SFO in particular has made clear its position in this respect.

Material held overseas

Whilst the impact of ENRC was subject to significant focus, the decision in KBR (briefing here) saw less comment but may have greater impact in 2019.

KBR sought to resist producing material held in the US, which the SFO had purported to compel production of utilising its compulsory powers under the Criminal Justice Act 1987. The High Court rejected that challenge ruling that production of material overseas could be compelled provided that there is “sufficient connection” between the company and the UK.

This decision is likely to see the SFO increase the frequency of compulsory requests to produce material held outside the jurisdiction to assist with its investigations. It may also see the SFO insisting on companies that self-report voluntarily repatriating material held overseas if it wishes to be viewed as a fully co-operating for the purposes of securing a DPA or other leniency.

Brexit

Whilst a no deal Brexit would see the end of access to current European law enforcement capabilities, most obviously access to the Europol database and the ability to make use of the European Arrest Warrant, the likelihood may be that other arrangements are quickly made to replicate relevant provisions through other means and thus, in terms of economic crime enforcement tools at least, Brexit may not have a significant impact.

However, whether there will be the same political will to aggressively target wrong doing by UK businesses in a trading world that has been made more difficult post–Brexit does remain to be seen.

Conclusions

Whilst 2019 does not promise any new watershed legislation, the year is likely to be significant in terms of how the existing law and enforcement tools are deployed.

For the SFO in particular, in the wake of Tesco, there will be pressure to show that it remains an effective agency and one that the government remains happy committing to in the long term.

However, the appetite for economic crime enforcement generally may, like so much, be linked to Brexit.