UK: Latest actions against corruption and financial crime by Parliament and the regulators
This article provides a brief overview of some of the key developments in the United Kingdom regarding the continuing focus on financial crime and anti-corruption measures.
New corporate criminal offense: Failure to prevent fraud or money laundering
During its passage through the Houses of Parliament, the Economic Crime and Corporate Bill has provoked extensive debate on expanding the use of Failure to Prevent (FTP) offenses.
The UK already has two FTP offenses on the statute book which apply to bribery and the facilitation of tax evasion. During debates on the Bill, it has been suggested that new FTP offenses be drafted which would apply to fraud and/or money laundering. These amendments have not yet been tabled and are therefore not included in the current draft Bill.
Reform of corporate criminal liability
The Bill in its current draft further proposes to amend the means by which criminal liability attaches to corporate entities.
At present, for criminal behavior to be attributed to the corporation, prosecutors must identify and establish a "directing mind and will" (DMW) of the company (referred to as the “identification principle”), and then prove that individual’s corporate criminal liability through that person's state of mind (which will require an intention to undertake the prohibited act, or knowledge of certain matters, recklessness or dishonesty).
Because there are many levels within a corporate body where wrongdoing can take place without the knowledge of a DMW, prosecutors have struggled to prosecute corporate bodies. Therefore, the House of Commons debated whether, instead of introducing an FTP offense, the identification principle ought to be reformed. An amendment was proposed which would hold companies liable for economic crimes committed with the “consent, connivance or neglect of a senior manager.”
Debate in the House of Lords concluded that such reform would be better suited to a discrete bill and given more extensive scrutiny before being enacted. It thus appears that while such a reform may be desired, it is not imminent.
Companies House reform
A further element of the Bill is proposed reform of Companies House, the executive agency of the British government which maintains the register of companies, employs company registrars and incorporates all forms of companies in the UK.
Proposed reforms, found in parts 1 and 2 of the Bill, would aim to improve the quality of data held by Companies House and strengthen the powers of the Registrar of Companies House. The changes which the bill would introduce are being enacted so that Companies House may better investigate companies themselves and can ensure that data shared with other investigatory bodies may be used more effectively in combatting financial crime.
Performance of the Serious Fraud Office
2023 started for the SFO with the convictions of two executives of British steel trading business Balli Steel Plc for fraud and the publication of a deferred prosecution agreement (DPA) reached by SFO in 2021 with two companies, Bluu Solutions Ltd and Tetris Projects Ltd, which specialized in office refurbishments and between them admitted to four offenses of bribery and two offenses of failing to prevent bribery.
The case concerned so-called introducers’ fees paid to consultants for advance market information on potential new clients. The prosecution case held that such payments were improper and skewed the bidding process for contracts in favor of the companies that had paid for advance information. Three defendants argued that such payments for early market intelligence were normal and legitimate business practice. Those defendants were acquitted following trial in January 2023; however, one individual pled guilty in May 2022 to receiving bribes worth approximately $350,000. This, notably, represents the first time the SFO has secured the conviction of an individual in any of the eleven instances in which a DPA was reached.
Nevertheless, questions remain as to whether the SFO has sufficient resources to appropriately investigate and prosecute the most significant financial criminal cases. Following the collapse of the trial of two Serco executives in 2021, the SFO commissioned a review of its approach to disclosure in the case. That review was published in July 2022; in its response, the SFO accepted the report’s conclusion: that it was unable to tackle the key issue encountered when investigating and prosecuting: resourcing.
On March 10, 2023, the SFO announced that it would not proceed with the trial of three individuals working for G4S, who had been charged with multiple counts of fraud, on the basis that it would not be in the public interest to adjourn the trial to April 2024, some ten years after the start of the investigation. The case had been delayed on multiple occasions due to concerns about the SFO’s approach to disclosure.
SFO director stepping down
Lisa Osofsky, Director of the Serious Fraud Office, is due to step down in August this year. As of this writing, it is not known who the new director will be, what the new strategic focus may be, or even if the SFO will still exist.
FCA Sustainability Disclosure Requirements for investor firms
The UK’s Financial Conduct Authority recently closed the consultation period on its proposed Sustainability Disclosure Requirements (SDR) which were published in October 2022.
The naming and anti-greenwashing rules in the FCA SDR aim to apply to all FCA-authorized firms, whereas the labelling and disclosure requirements will apply to a narrow category of in scope firms (eg, UK alternative investment firms, UK portfolio managers and UK UCITS management companies in respect of alternative investment funds and certain portfolio management services, as well as distributors of those products). Broadly speaking, the rules apply to in-scope firms pursuing strategies and investing in assets that focus on sustainability, but some of the labelling and disclosure requirements will apply to all in-scope firms, even those without any sustainability focus.
As noted in our recent article on the consultation paper, these proposed rules would place significant obligations on firms advertising the green credentials of their investment products to protect consumers and prevent so-called greenwashing.
To learn more about these ongoing developments and their implications for your business, please contact any of the authors.
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