Financial Crime Time - Your update from RPC: 2023 Q1

The Proceeds of Crime Act 2002 (POCA) has been amended by the Proceeds of Crime (Money Laundering) (Threshold) Amount Order 2022, to increase the threshold at which businesses need to submit a defence against money laundering suspicious activity reports (DAMLs).

Section 339A, POCA, provides a 'defence' or protection from criminal liability when a person is proposing to 'deal' with property that may be criminal property, by gaining consent from the National Crime Agency (NCA) to the proposed dealing. If consent is given by the NCA, or seven working days pass without response, the transaction can proceed without risk of criminal liability. Previously, DAMLs were available for transactions where the property in question had a value of £250 or above, but from 5 January 2023, DAMLs are only required when the property concerned has a value of £1,000 or above.

This change has been made due to the increase in costs of everyday items and due to a recent surge in the number of DAMLs which have increased by 80% between 2018/19 and 2019/20.  

On 8 February 2023, the UK government confirmed the introduction of a new 'failure to prevent' economic offence.  The new offence will be introduced by way of amendment to The Economic Crime and Corporate Transparency Bill (the ECCT Bill) which has passed through the House of Lords and is awaiting Committee stage. At the time of writing, it is not known  when the ECCT Bill will become law.  

The Bribery Act 2010 contains a 'failure to prevent bribery' offence and the Criminal Finances Act 2017 contains two 'failure to prevent the facilitation of tax evasion' offences.  There has been much debate around the introduction of further failure to prevent laws. RPC has covered this extensively over the past few years – you can listen to a Taxing Matters episode on the subject here. The ECCT Bill introduces a new offence of 'failure to prevent fraud, false accounting or money laundering'. Full details of the proposed offence will be published during the Committee stage, however, it is expected that the offence would mean that any corporate that fails to prevent fraud, by an associated person, would commit an offence.  It is likely that the only defence would be that the corporate had reasonable procedures in place to prevent fraud.   

The 'identification doctrine' is also being reformed so that a corporate body will be committing an offence if a relevant offence is committed with the "consent, connivance or neglect of a senior manager or senior managers". This is a major shift in the current law where corporate liability only arises from the acts of a person who represents a corporate body's 'controlling mind and will'.

In anticipation of the ECCT Bill becoming law, corporates should consider their existing compliance procedures to ensure they have appropriate systems in place when the new offence is introduced. 

The Serious Fraud Office (SFO) and the Eurasian Natural Resources Corporation (ENRC) have been in dispute since 2013, when the SFO opened a criminal investigation into ENRC for suspected fraud, bribery and corruption in connection with the acquisition of substantial mineral assets.

In May 2022, the High Court dismissed ENRC's claim that the SFO had committed misfeasance during the course of its investigation. However, the High Court found that Neil Gerrard, a then-partner at Decherts, the law firm advising ENRC, had breached his duties by leaking information to the SFO and the SFO had acted recklessly in accepting the leaked documents.

In January 2021, ENRC commenced a separate High Court claim against the Director of the SFO, a former SFO officer, and a senior SFO investigator, Mr Tony Puddick, in which it alleges that the SFO’s investigation into ENRC would not have taken place but for the unauthorised disclosure of confidential information by Mr Gerrard. The case was heard in early March and a decision is awaited. ENRC are seeking damages from both Dechert and the SFO for the legal fees and costs of work undertaken which it claims it incurred unnecessarily as a result of the leaks made by Mr Gerrard to the SFO. 

On the first anniversary of Russia's invasion of Ukraine, the UK, EU and US re-confirmed their commitment to embargoes, export controls and financial and trade sanctions against Russia.

The EU and UK announced new coordinated trade sanctions and export controls, aligned with those imposed by the US, which are designed to restrict Russia's ability to continue its invasion of Ukraine. The UK and EU sanctions focus on restricting every item Russia has found to have used on the battlefield, including aircraft parts, radio equipment and electronic components. The UK is imposing further financial sanctions on organisations, including power companies, banks and individuals with links to industries supplying the military, both in and outside of Russia.  The full press release on the new package of sanctions can be read here.

In announcing the new measures, Business and Trade Secretary Kemi Badenoch noted: "Trade sanctions are working. UK goods imports from Russia have fallen by 99%, since before the invasion, and goods exports to Russia have fallen by nearly 80%".

Further sanctions are likely to be imposed, including a number of announced, but as yet not in force measures, such as the transactional legal services ban and the Oil Price Cap imposed on seaborne Russian oil products.

Sanctions have impacted the commercial operations of a growing number of businesses and necessitated careful review of day-to-day business. These new sanctions suggest that this is likely to continue for the foreseeable future.

The Public Accounts Committee (PAC) has published its report on HMRC's performance in 2021/22 (the Report).

The Report notes that tax collection is at its highest level on record at £731.1bn. However, the amount of tax debt owed to HMRC in August 2022 stood at £42bn, significantly higher than before the pandemic. 

PAC highlights that HMRC needs to have a greater focus on tackling fraud and suggests that setting a formal compliance yielded target, to improve accountability, would be beneficial. The report states that HMRC should spend more resources on mitigating losses caused through fraud and error related to the various government COVID-19 economic support schemes and that by not challenging this abuse appropriately, dishonest individuals and businesses gained an unfair advantage over compliant taxpayers. 

The Report also notes that taxpayers and their agents are not receiving an acceptable level of customer service.  The Report makes various recommendations to HMRC to improve its customer service levels and HMRC must write to the PAC to set out its plans for improving customer service.   

Following our commentary in our last Financial Crime Time, which you can read here, judgment has been handed down in R (on the application of World Uyghur Congress) v Secretary of State for the Home Department. The Home Secretary, NCA and HMRC, successfully defended a judicial review claim which challenged the decision not to commence a criminal investigation into the importation of cotton produced by forced labour in Xinjiang.

The court heard claims that most of the UK textile and clothing industry is linked to the abuses in Xinjiang, where the issue of forced labour was said to be pervasive and extremely difficult to monitor.  Mr Justice Dove concluded that the World Uyghur Congress was unable to prove that a specific consignment of cotton imported into the UK was in fact the product of unlawful conduct. 

The government successfully argued that the claimant had only provided evidence "of a chance that a crime had been committed", without the detail needed to warrant a criminal investigation. However, the NCA has suggested that should such evidence become available, it will have no reason not to act on it and investigate further. This keeps alive the possibility of UK corporates and retailers being prosecuted if such evidence of human rights abuses does come to light in their supply chains. 

On 24 January 2023, the NCA published the 2022 Suspicious Activity Reports (SARs) Annual Report, which features statistics covering the years 2020/21 and 2021/22. 

A record has been set in the last financial year with 901,255 SARs received and processed. This marked a 21% increase from the previous year.

SARs are sent to the NCA by persons in regulated sectors who suspect that transactions are being used to launder money or conceal criminal activity. Specifically, the level of funds denied to suspected criminals from DAML requests has increased by 120% since the last report period.

There has been significant recruitment at the NCA over the past year, with staff numbers increased to over 150 and on track to meet its target of 201 total staff by the end of the next financial year and it has set up a new Combatting Kleptocracy Cell.  The expectation is that this will increase activity and enforcement from the NCA.

The Criminal Cases Review Commission (CCRC), the body responsible for investigating miscarriages of justice is due to release its final decision shortly, in relation to the alleged fixing of the London Interbank Offered Rate (LIBOR). The CCRC's decision will determine if Tom Hayes, can take his case to the Court of Appeal. 

Mr Hayes was convicted on eight counts of conspiracy to defraud in 2015, following which he served his full jail tariff of five and a half years, before his release in 2021. Mr Hayes traded the differences between the LIBOR rate and Japanese interest rates for Citigroup, and was accused of dishonestly driving manipulation of the LIBOR to enhance his trading results.

However, in October 2022, the US dismissed charges against Mr Hayes, stating that LIBOR manipulation, as conducted by Mr Hayes, did not "break any rules or laws".  

The Financial Conduct Authority (FCA) has handed out over £173 million in fines to a variety of large companies in what has been an emphatic start to 2023 for the agency.

Most notably, the FCA fined Santander UK Plc £107,793,300 for serious and persistent gaps in its anti-money laundering (AML) controls. The FCA had identified several Business Banking accounts which Santander failed to manage correctly, leaving the bank open to serious risk of money laundering. Santander has not disputed the findings and has agreed to settle. This enabled the bank to secure a 30% discount on the fine.  

Guaranty Trust Bank Ltd was fined £7.6 million for failures in its AML systems and controls. The bank failed to undertake adequate customer risk assessments and failed to monitor customer transactions and business relationships to the required standard.

The FCA also handed down fines to three broker firms totalling £4,775,200, for failures relating to the detection of market abuse and for failing to ensure they had appropriate systems and controls in place to effectively detect such abuse.

Finally, criminal proceedings have been started against five individuals for conspiracy to commit insider dealing and money laundering. The FCA alleges that the accused had conspired to commit offences of insider trading. In each case, the defendants had used a derivative product called Contracts for Difference. It is alleged that confidential inside information was accessed to ensure that the defendants could realise profits by betting on the value of the shares to go down. All the defendants have pleaded not guilty.

The Register of Overseas Entities (the Register) came into force in the UK on 1 August 2022 (through the Economic Crime (Transparency and Enforcement) Act 2022).  Overseas entities had to register with Companies House and advise who their registrable beneficial owners or managing officers are, by 31 January 2023. 

The implementation of the Register was fast-tracked following Russia's invasion of Ukraine. The aim of the Register is: (1) to provide transparency in relation to overseas-based structures with an interest in the UK; and (2) prevent money laundering.

Many offshore companies owning properties in the UK have missed the above deadline with the government stating that only 19,510 of 32,440 registered overseas organisations, had declared their beneficial owners by 31 January 2023.

Failure to register is a criminal offence, committed by both the entity concerned and every officer of that entity.  Those that have failed to register will face sanctions such as daily fines and not being able to transact with their property.