Financial Crime Time - Your update from RPC: 2022 Q2

The House of Commons Public Accounts Committee has released a follow-up report to the Bounce Back Loan Scheme (BBLS) which estimates that £4.9 billion of taxpayer money given out in loans will be lost as a result of fraud. 

Launched in May 2020 by the Department for Business, Energy and Industrial Strategy (the Department), the BBLS was the largest of three COVID-19 related business loan support schemes. The Scheme targeted the smallest businesses and sought to provide them with loans of up to £50,000, or a maximum of 25% of annual turnover, to maintain their financial health during the pandemic.

The Committee states the Department and the British Business Bank missed opportunities to prevent fraud within the BBLS. 

We have previously reported that investigations into BBLS fraud were increasing. Given the scale of losses highlighted in this follow-up report, it is likely that the UK government will increase the pressure on government law enforcement agencies to investigate and prosecute suspected fraud related to the BBLS. 

The Criminal Justice Act 2003 (Commencement No 33) and Sentencing Act 2020 (Commencement No 2) Regulations 2022 (SI 2022/500), made on 28 April 2022, brought into force section 282 of the Criminal Justice Act 2003, which increases the maximum term that may be imposed on summary conviction of offences triable either way, to a year. Previously, magistrates could only impose a maximum six-month prison sentence, with cases warranting a longer custodial sentence being sent to the Crown Court.  

The Ministry of Justice has stated that the latest measure will free up to an extra 1,700 days of Crown Court time annually. 

Magistrates have been given 'robust training' by the Judicial College. However, the new powers have been criticised, with many commentators arguing that the power to imprison an individual for a year, should be the preserve of professional judges. 

The Serious Fraud Office's (SFO) investigation into the activities of Unaoil, which included allegations of bribery in order to win crude oil export contracts in Iraq, has been long-running, dating back to July 2016. Paul Bond, alongside other Unaoil employees, including Ziad Akle, were alleged to have paid bribes to influence the terms and allocation of various contracts. The SFO secured convictions against Mr Bond, Mr Akle and two other employees. 

However, in December 2021, the Court of Appeal quashed Mr Akle's conviction and declined to order a retrial (see 2022 Q1 Update). The Court criticised the SFO’s failure to disclose certain material and the role of David Tinsley, a former Drug Enforcement Agent, who represented Unaoil executives. The Court found that the SFO improperly provided Mr Tinsley with access to the SFO case team. The SFO then withheld evidence of Mr Tinsley's role which "significantly handicapped" Mr Akle's defence.  

On 24 March 2022, the Court of Appeal overturned the conviction of Paul Bond on the same grounds as Mr Akle's case. The quashing of Mr Bond's conviction is another blow for the SFO. As a result, former Director of Public Prosecutions and High Court Judge Sir David Calvert-Smith has been asked by the Attorney General to lead a review into the SFO's conduct in this case with his, now delayed, report, due in late June 2022.

The National Cyber Security Centre (NCSC) has urged organisations within the UK to bolster their defences following Russia's invasion of Ukraine. 

The NCSC states that it is not currently aware of any specific threats to UK organisations, but the technology used in cyberattacks against Ukraine could be utilised in attacks against UK organisations. As a result, organisations are advised that they should take appropriate measures to further protect themselves and their systems.

The NCSC has published helpful guidance which can be found here here.

The International Criminal Police Organisation (INTERPOL) has launched the Financial Crime and Anti-Corruption Centre (IFCACC) to help tackle the growth in economic crime by allowing a coordinated global response to the issue. The IFCACC is expected to expand the economic crime teams already situated within INTERPOL whilst streamlining processes by allowing the centre and INTERPOL to work closely with other bodies and organisations dealing with the same issues. 

IFCACC will focus on targeting fraud, money laundering, asset recovery, and corruption.

In March 2021, the government announced that it would invest £100 million in a Taxpayer Protection Taskforce (TPT) to combat fraud linked to Covid-19 support measures (see our update on BBLS fraud above). However, data released by HMRC, under a Freedom of Information request, suggests that large numbers of HMRC staff have simply been reallocated from their current roles to the TPT.  

The data also highlights that very few staff on the TPT have a fraud investigation background. As a result, there are concerns that the TPT does not have the necessary skill or experience to deal with the high-level sophisticated frauds that have been carried out in relation to the various Covid support schemes. 

Further, the government's recent announcement of its intention to cut 91,000 civil service jobs is likely to  have an impact on the TPT as those who were temporarily re-allocated to the TPT return to their former roles within HMRC.

The Crown Prosecution Service (CPS) blames Brexit for the fact that despite over 5 million incidents of suspected fraud being reported to it, there have been only 4,924 charges. The CPS Director of Legal Services told the Commons Justice Committee that approximately 75% of fraud cases involve parties outside the UK and now the UK is no longer part of the EU it is more difficult to access those suspected of fraud who reside outside of the UK. 

The Treasury Committee published a Report on Economic Crime, which called for law enforcement bodies tackling fraud to be better resourced in order to combat the large scale fraud affecting the UK. The Report also questioned whether having a single law enforcement agency to tackle economic crime would be the most successful way of battling the ongoing issue. 

The government has responded by stating that it is in the process of creating a second Economic Crime Plan. However, it has dismissed the idea of a single body being responsible for tackling economic fraud in the UK. Shortly after the government's response was published, another specialist fraud squad was announced by the Chancellor. It is to be called the Public Sector Fraud Authority and it will sit within the Cabinet Office. Precisely what economic crime it will be responsible for tackling has not been announced. 

This unsatisfactory state of affairs has led to an increasing number of individuals and businesses turning to private prosecutions.  

On 15 March 2022, the Economic Crime, Transparency and Enforcement Act 2022, came into force having been fast-tracked through Parliament in response to urgent calls for the UK's economic crime laws to be tightened. One of the principle aims of the legislation is to crack down on individuals and businesses based overseas using real estate in the UK to launder money. 

In addition, in April 2022 the Treasury Committee published responses from the Financial Conduct Authority (FCA) and Payment Systems Regulator (PSR) to its report on economic crime. This comes after the government published details of forthcoming planned legislation. Measures will include reform of Companies House to prevent abuse of limited partnerships, and new powers to seize and recover illicit crypto-assets.

For more on the new legislation, listen to our podcast with Alice Kemp and Tom Godfrey, Barrister at 23 Essex Street Chambers.

Nearly two and a half years after their last Global Day of Action in January 2020, the heads of tax enforcement from the UK, Australia, Canada, Netherlands and the US recently met in London for a Joint Chiefs of Global Tax Enforcement (J5) summit. 

During the summit, the members agreed to increase the amount of intelligence they share and coordinate efforts on a global level against international tax crime and money laundering. Also, on the agenda, was a focus on using data and intelligence, including from decentralised platforms, to identify tax evasion.

More information on the J5 group can be found here.

Following Russia's invasion of Ukraine, the government has introduced, almost on a daily basis, new sanctions on the Russian state, including major banks, defence sector organisations, strategic sectors and industries and individuals with connections to Vladimir Putin. The latest sanctions are targeted at  Russian airlines, including state-owned Aeroflot.

There are various immediate steps which businesses can take as a result of these sanctions, which are detailed here.

Crypto-assets and their impact on the global financial system continue to dominate headlines.

The Chancellor of the Exchequer, Rishi Sunak, has launched a plan to make the UK a global crypto-asset technology hub. This is part of a series of measures intended to make the UK a global hub for crypto-asset technology and investment. As part of the plan, stablecoins are to be brought within regulation paving the way for their use in the UK as a recognised form of payment. Other measures include legislating for a ‘financial market infrastructure sandbox’ to help firms innovate, an FCA-led ‘CryptoSprint’, working with the Royal Mint on an NFT (see below), and an engagement group to work more closely with industry.

Set against the backdrop of Mr Sunak's plans to make the UK a global hub  for crypto-asset technology and investment, the Royal Mint has been asked to produce an NFT for Britain. The current plan is for a range of NFTs to be launched this summer which will only be purchasable by using cryptocurrency.  Time will tell whether these NFTs enjoy the same success as those of Beeple or Bored Ape Yacht Club!

As part of its Business Plan for 2022/23, the FCA announced that there is to be greater regulation over crypto-assets. Following the Treasury's confirmation that stablecoins used as a means of payment will be brought within the regulatory framework, the FCA confirmed that it will consult on the regulation of stablecoins later this year. The FCA will work with the government and other interested parties through the Crypto-asset Taskforce to design a regulatory regime that balances innovation and competition alongside the need for orderly markets and consumer protection.

A Joint Statement from the UK Financial Regulatory Authorities on Sanctions and Crypto-assets has been published. The statement contains a summary of the legal and regulatory requirements on firms, steps that firms can take to reduce the risk of sanctions evasion via cryptoassets, and what to do if a firm suspects that it is dealing with the cryptoassets of a designated person.

On 28 April 2022, the J5 issued and intelligence bulletin – named "J5 NFT Marketplace Red Flag Indicators" - warning banks, law enforcement personnel and the general public about some of the perceived risks associated with dealing with NFTs.  The bulletin – a collection of insights and best practices gained from investigations - is split into two sections: strong indicators of fraud and moderate indicators of fraud. The bulletin notes that a single red flag indicator in isolation may not be indicative of fraudulent activity, though a set of red flag indicators may provide insights into potential fraud. Such "strong indicators" include, for example, NFTs being sold for large sums and reacquired from the same party or a third party for smaller amounts or phishing scams, for example fake offers on NFTs which are sent via email. An example of a "moderate indicator" a lack of thumbnail on a marketplace profile. Whilst the bulletin is aimed at banks, law enforcement personnel and private citizens, businesses too should be alive to the red flags cited.