Regulatory Outlook: Anti-Corruption, Bribery and Financial Crime
Current issues: February 2019
SFO priorities in 2019
The new Director of the SFO 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 likely 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, given that there have only been four DPAs to date, with only one of these leading to an (unsuccessful) prosecution, this may turn out not to be the reality of the position.
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 about the relative merits of the self-reporting regime.
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.
First prosecutions under failure to prevent facilitation of tax evasion offence?
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.
Trends in investigations
Whilst the Court of Appeal ruling in ENRC 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 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, which may include a request to provide documents relating to internal investigations.
The SFO may also be more likely to make compulsory requests to produce material held outside the jurisdiction following the decision last year in KBR. The High Court in that case rejected KBR’s challenge to the SFO’s use of compulsory powers to require documents, finding that production of material overseas could be compelled provided that there is “sufficient connection” between the company and the UK.
The decision may also lead to the SFO insisting on businesses providing documents held overseas voluntarily, as part of full co-operation for the purposes of a DPA or other leniency.
In Focus: No deal Brexit
What would be the impact of a no deal Brexit for UK businesses trading with the EU?
Anti-bribery and economic crime offences, although often following on from commitments made at the supranational level, are generally set at the national level. UK businesses trading with the EU will therefore already need to ensure compliance with the national regimes in countries in which they trade. This will not change as a result of Brexit.
However, law enforcement agencies currently benefit from a range of EU-wide cooperation mechanisms and resources, most notably the Europol database and the European Arrest Warrant but also cross-border surveillance, joint special investigations and cooperation between customs authorities, amongst other things. Under the draft EU-UK Withdrawal Agreement, these are expressly preserved for the duration of a transition period, but this would not be the case in a no deal scenario.
Nevertheless, it is anticipated that even in a no deal scenario, alternative law enforcement cooperation mechanisms would be agreed fairly swiftly, for the benefit of both the UK and the EU. If so, the impact of a no deal Brexit in terms of law enforcement tools would be relatively limited.
What would be the impact of a no deal Brexit for non-UK businesses trading with the UK?
As discussed above, given that anti-bribery and economic crime offences are largely matters of national law, businesses will continue to need to ensure compliance with relevant national regimes, many of which (including the UK) have an extra-territorial reach.
If replacement cooperation mechanisms could be found in the short-term, there may also be a limited impact on law enforcement.
Brexit may, though, have an indirect effect on UK prosecutors in relation to the political will and resources behind certain priorities or options. For example, the potential role of the NECC discussed above may be affected by the challenges that the Home Office may be facing in relation to immigration in a no deal Brexit scenario.
What should businesses be doing now to prepare for a no deal Brexit?
As businesses carry out reviews of procedures and policies for the purposes of no deal planning, this may be a good opportunity to review those procedures and policies from a compliance point of view, and consider where revisions may be necessary.
Times of uncertainty and economic challenge can also raise the risks of economic crime. Businesses should be alive to any risks within their organisation and have clear procedures in place both to mitigate those risks and to react to any potential issues that arise.