Financial Crime Time - Your update from RPC: 2024 Q2

The government has published a number of new factsheets on measures contained in the Economic Crime and Corporate Transparency Act 2023 (ECCTA). The factsheets break the ECCTA down into its constituent parts for easy reference by sector specialists. The key factsheets include:

• Overarching factsheet: a four-page summary of the ECCTA's aims and measures

• Beneficial ownership factsheet

• Companies House factsheets discussing:
  • New civil sanctions and offences relevant to Companies House
  • Companies House fees
  • New accounts filing requirements with Companies House 
  • Expanded controls on company names

• Cryptoasset factsheets discussing:
  • Key terms and definitions
  • Legislative changes
  • Technical information concerning cryptoassets

• Factsheets on aspects of economic crime:
  • The failure to prevent fraud offence
  • Updates to the identification principle

There are also a number of other factsheets on related issues such as solicitors' regulation, SLAPPs and transparency reforms. The full list can be found here.

Over the last few years, the Serious Fraud Office (SFO) has had to deal with various issues relating to both its past and current disclosure software providers, Autonomy Introspect and OpenText Axcelerate, respectively. Serious issues with Autonomy Introspect were a key cause of the failure of the SFO's prosecution of three former G4S executives in March 2023 and are also implicated in a number of other high-profile SFO failures. In February of this year, issues also came to light with the SFO's replacement software tool, OpenText Axcelerate. The SFO has notified potentially impacted defendants and launched an urgent review into its current and historic cases. It claims to have identified a solution for the problems which relate to OpenText Axcelerate's use of search terms, but there is a risk of historic convictions being undermined because of these software issues.

On a related note, HM Crown Prosecution Service Inspectorate (HMCPSI) released a report on 30 April 2024 into the SFO's ability to deliver its disclosure obligations. The report compares the SFO's successful handling of the Balli Group Companies case with its failure in the G4S case. HMCPSI makes six recommendations for the SFO to implement by October 2024, in order to improve its management of the disclosure process. 

As part of its ongoing effort to close perceived loopholes in the various sanctions imposed on Russia since its invasion of Ukraine in February 2022, the EU announced late last year that it intended to remove an automatic exemption that permitted companies to provide their own subsidiaries in Russia with professional services. From 20 June 2024, companies must apply for authorisation from EU member state national authorities for each individual type of service they supply to their Russian subsidiaries.

The new requirements could be intended to provide the EU with greater information so that it has greater visibility in relation to those companies that are still doing business in Russia, or the intention might be to persuade those EU companies who still have a connection with Russia to withdraw from the country. The description, by an EU spokesperson, of the automatic exemption as being a "loophole", might suggest the latter.  

The SFO has announced that it has charged two former Petrofac senior executives, Marwan Chedid and George Salibi, with bribery offences. The charges cover the pair's actions in the UAE over the period 2012 to 2018, during which time they allegedly paid agents over $30 million to win Petrofac contracts worth around $3.3 billion. 

Petrofac itself was convicted in 2021 of seven counts of failing to prevent bribery, in relation to its operations in Iraq, Saudi Arabia and UAE between 2011 and 2017.

A series of Freedom of Information Act requests by The Bureau of Investigative Journalism (TBIJ) has revealed a significant decrease in HMRC's pursuit of tax fraud.

According to TBIJ figures, HMRC opened 43% fewer preliminary enquiries into suspected errors or false declarations in the tax year 2022/23 compared to 2018/19. Comparing the same years, 28% fewer civil cases were formally opened by HMRC's Fraud Investigation Service (FIS) and 56% fewer by HMRC's Offshore, Corporate and Wealthy Unit, the HMRC team responsible for offshore, corporate and wealthy taxpayers. TBIJ figures also revealed a significant decline in criminal prosecutions and convictions by FIS. 

Although HMRC enforcement activity was significantly affected by the pandemic, which also caused a major backlog across the court system, it is concerning that, several years after normal working has been resumed, the level of enforcement action by HMRC has not returned to pre-pandemic levels.

A major challenge for prosecuting authorities is their obligation to disclose information or material which may undermine the prosecution case, or assist the defence case. 

Failure to discharge this duty fully has led to difficulties in a number of high profile SFO prosecutions. According to Jonathan Fisher KC's recent comment in connection with his Independent Review of Disclosure and Fraud Offences (the Review) – which we discuss below – the current disclosure regime "has its roots in a pre-digital age, whereas we have now reached a situation where if printed, the average volume of material in an SFO case would stack considerably higher than the Shard."

It was as a consequence of these difficulties that Mr Fisher was appointed by the Home Secretary in October 2023 to conduct an in-depth review. Part 1 of the Review relates to the criminal disclosure regime. In April 2024, Mr Fisher published his preliminary findings for Part 1.  

His preliminary findings suggest that:

(a) the Criminal Procedure and Investigations Act 1996, is fundamentally sound and issues tend to be in the application of it or with non-core aspects of the Act;

(b) a 'keys to the warehouse' approach (where the defence is permitted direct access to all material held by the prosecution) is worthy of further exploration but would require careful thought being given to issues of privacy and collateral use;

(c) the 'relevant material' test is potentially too subjective and could be narrowed and/or clarified;

(d) technological and AI capabilities should be explored; and

(e) disclosure should be engaged with at an earlier stage in the process. 

Mr Fisher's final report and recommendations are expected later this summer and will no doubt lead to a great deal of debate. 

The Crown Prosecution Service (CPS) has made the UK's largest ever cryptocurrency seizure, involving Bitcoin wallets estimated to be worth over £2 billion. The Metropolitan Police suspected that the Bitcoin in question was connected to a large Chinese investment fraud and obtained a civil Property Freezing Order from the High Court, pending a civil recovery investigation into the Bitcoin.

Not all of those involved in the fraud have been identified. However, Jian Wen has been convicted of laundering the proceeds of crime for her role in enabling the conversion of Bitcoin into tangible assets, such as valuable jewellery and multiple properties in Dubai. 

This case demonstrates the CPS's increasing willingness and ability to seize non-traditional assets, including cryptocurrency, that are suspected to be the proceeds of crime.   

The Financial Conduct Authority (FCA) has published a Consultation Paper CP24/2 (the Paper) in which it suggests, amongst other things, a controversial proposal to 'name and shame' companies which are under investigation. The FCA's proposal involves "publicly announcing that we have opened an enforcement investigation, including the identity of the subject of the investigation, and publishing updates on the investigation, if we consider that it is in the public interest to do so". This is caveated by the FCA confirming in the Paper that, mindful of their GDPR and ECHR obligations, they do not generally intend to announce investigations into named individuals. Despite this caveat, the proposal would be a major shift away from the previous approach under which parties under investigation are not named unless and until misconduct has been identified by the FCA on conclusion of its investigation.

While the FCA stresses that the announcement of an investigation does not imply that the named company has done anything wrong, the proposals have caused some concern. Given that around 65% of FCA investigations close without any further action being taken, it is considered by some commentators that this proposal, if implemented, would be disproportionate and could undermine confidence in the UK finance industry. Criticism of the proposal by the Chancellor, Jeremy Hunt (speaking to the FT on 30 April 2024), and the House of Lords financial services regulation committee, may give the FCA pause for thought.

With the consultation now closed, the industry awaits the FCA's final decision with some trepidation.