Financial Crime Time - Your update from RPC: 2024 Q4

The Economic Crime and Corporate Transparency Act 2023 established the new criminal offence of 'failure to prevent fraud'. Under this new criminal offence, 'large organisations' can be held criminally liable if they do not prevent their employees or agents from committing fraudulent acts which benefit the company. A company will be considered a large organisation if it meets at least two of the following criteria:

• turnover of more than £36 million;
• balance sheet of more than £18 million; or
• more than 250 employees.

In-scope organisations should take steps to ensure that they have in place reasonable preventative procedures, or run the risk of an unlimited fine.

The government has now released Guidance which explains that reasonable fraud prevention procedures put in place by organisations should be informed by the following six principles:

1. Top level commitment: Organisations need to be able to demonstrate that senior management are committed to detecting and preventing fraud.

    

2. Risk assessment: Organisations need to assess the nature and extent of its exposure to the risk of its employees, agents and associated persons committing fraud. Risk assessment needs to be dynamic and kept under review.

    

3. Proportionate risk-based prevention procedures: An organisation's procedures to prevent fraud need to be proportionate to the fraud risks it faces and to the nature, scale and complexity of the organisation's activities.

    

4. Due diligence: Organisations need to apply due diligence procedures in respect of persons who perform, or will perform, services for or on behalf of the organisation, in order to mitigate identified fraud risks.

    

5. Communication (including training): Organisations need to ensure its prevention policies and procedures are communicated and understood throughout the organisation.

    

6. Monitoring and review: Organisations need to monitor and review its fraud detection and prevention procedures on a regular basis.

The failure to prevent fraud offence will come into effect on 1 September 2025. In-scope organisations should consider their current fraud prevention framework and ensure that it meets the above principles.

The Serious Fraud Office (SFO) is to receive an additional £9.3 million in funding to create a new team to improve its ability to seize assets implicated in fraud; upgrade its disclosure technology; and improve its case management system.

In a press release, the Attorney General, Lord Hermer KC, said that the new funding would "modernise SFO’s services, improve their disclosure practices, and build their capabilities to seize assets and make significant returns to the taxpayer" which would subsequently raise "confidence and public trust in the criminal justice system."

French and Dutch tax authorities recently raided Netflix's offices in Paris and Amsterdam, as part of an investigation, launched in November 2022, into alleged tax fraud.

Netflix is reportedly being probed in France by its specialist financial crime prosecution unit, Parquet National Financier (PNF), in relation to its tax filings for 2019, 2020 and 2021. The Dutch authorities have confirmed that Netflix's Dutch office, which is its headquarters for the EMEA region, was raided in the context of a French legal assistance request. 

Tax authorities, including HMRC, are increasingly carrying out 'dawn raids' and it is essential that businesses know how to respond if they are ever the subject of a dawn raid. Not only are such raids stressful, there are intricate legal issues involved, such as understanding the limitations imposed by a search warrant and legal privilege. RPC has developed a comprehensive dawn raid toolkit which provides detailed guidance and the ability to contact RPC's specialist lawyers in the event of a live incident (available to download for free via the Apple and Google Play stores).

Eurasian Natural Resources Corporation (ENRC) and the SFO have reached a confidential settlement, for an undisclosed sum, in relation to whether the SFO leaked information to the media during its criminal investigation into ENRC.

The investigation into the Kazakh mining group was closed last year as there was insufficient evidence to prosecute. The SFO has been widely criticised for the investigation, with a court ruling last year that the SFO was in "serious breach of its own duties" (see an executive summary of the judgment here).  

Whilst the SFO will no doubt be pleased that this dispute has been resolved, there remains another claim by ENRC in relation to the SFO's criminal investigation which could result in damages being paid out to ENRC.

The SFO has launched an investigation into suspected bribery and corruption at aviation and defence electronics group Thales.

The Thales Group is headquartered in Paris. Its UK subsidiary, Thales UK, employs over 7,000 staff in the UK across 16 sites.  

The SFO is working with PNF in its investigation.

The SFO's Director, Nick Ephgrave said that the SFO and PNF "will together rigorously pursue every avenue in our investigation into these serious allegations".

Metro Bank has been fined £16.7m by the Financial Conduct Authority (FCA) in relation to shortcomings in its financial crime checks between 2016 and 2020.

The FCA found that Metro Bank's automated system for monitoring customer transactions for potential crime did not operate as intended. An error in how the data was fed into the system led to transactions which took place on the day a new account had been opened, or took place before the account record was updated, passing through its automated system unchecked.

The FCA said Metro Bank became aware of the issue in 2017 but did not implement systems to check all data until December 2020.

The FCA's press release can be viewed here.

The FCA has announced it will amend its plans to name and shame businesses under investigation, following the responses it has received to its consultation which closed in April of this year.

The FCA has historically operated a policy of maintaining confidentiality in relation to companies it is investigating but had intended to align with other regulators such as the SFO and Competition and Markets Authority, which typically announces when it has begun an investigation into a company's conduct. It had been hoped by the SFO that the move would encourage whistleblowers to divulge suspected wrongdoing.

However, its proposals have elicited a strong response from the financial sector as the majority of FCA investigations do not end in prosecutions.

Nikhil Rathi, the Chief Executive of the FCA, has said that the FCA will decide on next steps in the first quarter of 2025.

The SFO's Director, Nick Ephgrave, has suggested that he would consider working with whistleblowers.

In a recent interview with the Times Crime and Justice Commission, Mr Ephgrave explained that he plans to financially reward informants for whistleblowing.

In a move that emulates the US's Securities and Exchange Commission, the amount of any such financial payment would be calculated as a percentage of the fine imposed on the business concerned. Mr Ephgrave said that this would make the SFO's investigations more efficient and would lead to more convictions. He emphasised that the financial reward would only be given to those not criminally implicated in the suspected fraud.