The UK’s watchdogs of fraud and financial crime get a shakeup in 2018

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2018 could represent a shakeup for financial crime watchdogs in the UK, posing questions about what to look out for in UK litigation and investigations. 

In April 2018 the director of the Serious Fraud Office (SFO), David Green, is due to step down from his role leading the UK’s independent investigator and prosecutor.

Alan Milson, the SFO’s general counsel is tipped to replace him, although a senior figure from a private practice could also get the job.

In December 2017 the government announced the creation of the National Economic Crime Centre (NECC), to combat money laundering and ‘economic crime’, but which could also encroach on the SFO’s autonomy.

Last year the government scrapped its plan to merge the SFO with the National Crime Agency.

The SFO was active in court in December, prosecuting executives in a trial for fraud and false accounting at UK supermarket group Tesco.

The Tesco action was subject to a deferred prosecution agreement (DPA), which saw Tesco hand over £235m, of which £129m was a penalty for the DPA, plus the expected costs of an £85m compensation scheme, plus other costs.

“DPAs have been used aggressively in the US, but they’re still quite new here in the UK,” said Amanda Raad, a partner at legal firm Ropes & Gray.

“Tesco is the fourth such example, but there might be another coming down the line with Airbus,” Jo Torode, a senior financial crime lawyer at Ropes & Gray, told StrategicRISK.

Airbus faces a corruption investigation by the SFO and several other probes by European watchdogs.

Executives could also be charged after allegations, published in October by German magazine Der Spiegel, that a London slush fund run by the company had distributed millions of dollars to accounts held by companies in tax havens.

Also in October, Airbus revealed it had reported itself to US authorities for potentially breaching regulations on the use of agents to sell defence technology.

Raad noted that while close cooperation forms part of DPA deals, “individuals are pursued with criminal charges”.

The Euribor trial of several bankers is also expected in Spring 2018; six former Deutsche Bank and Barclays traders, investigated by the SFO, are charged with manipulating benchmark Euribor interest rates.

Torode described the investigation as a “show of strength” by the SFO, in the wake of the previous Libor rigging scandal.

“Corruption investigations will continue to be a big focus,” said Raad.

“Authorities are also being more careful of preserving workstreams taking place in other jurisdictions, she said.

“That is because convictions were found unsafe for one Libor case in the US because of the use of testimony in the US obtained under compulsion in the UK,” said Raad.

“So I suspect they’re trying to make sure that doesn’t happen again, and in doing so, perhaps conduct more interviews under caution, allowing witnesses the right to not answer the question,” she added.

Meanwhile the UK regulatory shakeup sees the new NECC body sit within but independent of the existing National Crime Agency (NCA).

The NCA has powers to direct SFO investigations. “But we don’t know to what extent and how it will be used,” said Torode.

As things stand, the SFO’s remit includes serious fraud, bribery, corruption, and financial crime.

Meanwhile anti-money laundering (AML) and counter-terrorist financing (CTF) probes are typically carried out by the Financial Conduct Authority, HMRC (i.e. revenue and customs), and the NCA, which acts as the coordinating authority.

The NCA also enjoys a wider remit, which includes investigations into modern slavery and cyber-crime, in the latter case leading to joint investigations with the Information Commissioner’s Office.

Torode noted new sanctions enforcement within the past year, including new civil enforcement powers.

“Introduced in 2017, they have not been used much yet. Previously, charges would be criminal, but now with the introduction of civil powers, there is a lower burden of proof,” said Torode.

This includes law firms, service providers, she pointed out, matching sanctions obligations with AML obligations.

Upcoming is also the second reading of post-Brexit AML / CTF sanctions legislation. “I don’t think will lead to a massive policy change,” she suggested.

In addition to all that, the G-7 countries’ Financial Action Task Force on money laundering (FATF) is looking at UK AML CTF regime and will issue report later in 2018.