UK Quarterly Review: Business Crime, Investigations, and Regulatory Enforcement

In our Quarterly Review, we bring you important UK developments relating to business crime, investigations, and regulatory enforcement from the last three months. Please contact us if you would like to discuss any of these issues.

As the UK gets used to life outside the EU and implements its independent approach to combatting business crime, we continue to keep an eye on key developments. In this issue, we see the UK courts delivering decisions both in favour of and against UK enforcement agencies in their attempts to use statutory powers to investigate financial crime. Of particular note is the focus on money laundering; there has been much talk but little action in recent years on anti-money laundering efforts and it will be interesting to see if the cases we refer to here herald a more robust approach to anti-money laundering enforcement.

FCA announces its first criminal prosecution under the UK’s Money Laundering Regulations: On 16 March 2021, the Financial Conduct Authority (FCA) announced that it had begun criminal proceedings against NatWest in connection with alleged breaches of the UK’s Money Laundering Regulations.[1] The announcement marks the FCA’s first prosecution under the regulations. This is undoubtedly a very significant development for the FCA and should be seen as a warning to firms within scope of the Money Laundering Regulations that the FCA is prepared to exercise its criminal jurisdiction in serious cases, including against major financial institutions. Nevertheless, looking ahead more broadly, we do not expect to see a significant change in the FCA’s approach to the enforcement of money laundering related systems and control issues. Although criminal prosecutions will be a threat in the most serious cases, we expect the FCA to continue to take regulatory action against FCA-authorised firms under the Financial Services and Markets Act 2000 or, in some cases, by imposing civil penalties under the Money Laundering Regulations. FCA-authorised firms and firms in the scope of the current Money Laundering Regulations should continue to ensure that they have effective systems and controls in place in order to prevent financial crime and to comply with their obligations under the regulations and, where relevant, related obligations under the FCA Handbook. Read more in our March 2021 client alert.

HMRC imposes record £24 million fine for breaches of the UK’s Money Laundering Regulations: On 7 January 2021, HMRC revealed that it had imposed a fine of £23.8 million on a UK money transfer company, MT Global Limited, for “significant breaches” of the Money Laundering Regulations.[2] The fine was imposed for breaches relating to the company’s obligations regarding risk assessments and associated record-keeping; policies, controls and procedures; and customer due diligence measures, which took place during the period July 2017 to December 2019. The fine is the largest HMRC has ever issued, surpassing its 2019 fine of £7.8 million on another money service business. As a reminder to businesses, the Deputy Director of Economic Crime at HMRC stated that “We’re here to help businesses protect themselves from those who would prey on their services. That includes taking action against the minority who fail to meet their legal obligations under the regulations as this record fine clearly shows”. HMRC supervises over 30,000 businesses to identify and issue fines for money-laundering, including 1,500 money service businesses. It is able to take enforcement action under the Money Laundering Regulations against certain types of firms which may fall outside the scope of the FCA’s jurisdiction. Going forward, it will be interesting to see whether HMRC chooses to follow the FCA and pursue criminal proceedings in the most serious cases.

Supreme Court clarifies extra-territorial reach of SFO information-gathering power: In February 2021, the UK Supreme Court handed down its decision in KBR v SFO[3], in which it held that the Serious Fraud Office (SFO) cannot use its power under section 2(3) of the Criminal Justice Act 1987 to compel a foreign company to produce documents it holds outside the UK where that company has no registered office or business operations in the UK. The decision relates to a particular set of factual circumstances and should not be taken to mean that the SFO cannot obtain documents from a person outside the UK. The SFO is still able to use mutual legal assistance to obtain documents and, in some circumstances, will be able to make use of overseas production orders to obtain electronic data. Further, as expected, the SFO has since indicated that it will continue to use its section 2 powers to compel UK companies and individuals to produce documents which they hold (physically or electronically) outside the UK. Read more about the decision in our February 2021 client alert.   

European Investigation Orders no longer available to the UK post-Brexit: The UK is no longer able to use the expedited European Investigation Order (EIO) procedure to obtain assistance from EU member states in connection with criminal matters. UK authorities will now need to revert to a slower process governed by the Council of Europe 1959 Convention on Mutual Assistance in Criminal Matters and UK-EU Trade and Cooperation Agreement when seeking such assistance.

Similarly, the UK is no longer subject to the European Arrest Warrant (EAW) framework, and extraditions will, as with mutual legal assistance requests, be governed by the UK-EU Trade and Cooperation Agreement. The new system to a great extent mirrors the EAW framework, however, the UK may face delays in incoming transfers of extradited persons, as UK requests will no longer be prioritised.

Success for UK’s first Unexplained Wealth Order: Supreme Court says recipient must explain source of wealth used to purchase UK properties: In December 2020, the UK Supreme Court refused permission to appeal in a case seeking to challenge the UK’s first Unexplained Wealth Order (UWO). The National Crime Agency (NCA) first secured two UWOs against Zamira Hajiyeva in February 2018. Mrs Hajiyeva’s husband is a former banker who has been convicted of fraud in Azerbaijan. Since moving to London in 2006, Mrs Hajiyeva was found to have made various high-value purchases including multiple properties and a private jet, totalling over £60 million. Under powers granted to the NCA in the Criminal Finances Act 2017, and as a result of the Supreme Court’s decision, Mrs Hajiyeva will now be required to give a clear account of the source of the wealth used to purchase two properties in the UK worth more than £22 million as her avenues to challenge the UWO have now been exhausted. If she does not comply, she risks having the properties confiscated. The NCA alleges that her spending does not align with her husband’s former official salary at the International Bank of Azerbaijan and instead is the result of the £2.2 billion fraud he was found to have committed.

SFO secures fourth conviction in Unaoil-linked case: On 24 February 2021, Paul Bond, a former sales manager at Dutch oil company SBM Offshore, was convicted in the UK’s Southwark Crown Court on two counts of conspiracy to give corrupt payments (in order to secure lucrative oil contracts in Iraq),  contrary to section 1 of the UK Criminal Law Act 1977 and section 1 of the Prevention of Corruption Act 1906 (the predecessor legislation to the Bribery Act 2010). Mr Bond’s conviction followed a re-trial of his case before the Crown Court. Mr Bond was found to have conspired with other executives at SBM Offshore and Unaoil to pay over $900,000 in bribes to Iraqi public officials in order to gain access to confidential information about the contractual requirements, which was then used to SBM Offshore’s advantage in the bidding process. On 1 March 2021, Mr Bond was sentenced to three and a half years’ imprisonment for his role. This marks the SFO’s fourth individual conviction connected to its long-running Unaoil bribery case, which has identified over $17 million worth of bribes to secure contracts worth over $1.7 billion for Unaoil and its clients.

UK levy sanctions against countries for human rights violations: In July 2020, the UK introduced its new global human rights regime (through the Global Human Rights Sanctions Regulations 2020), giving it new powers to sanction designated individuals and organisations involved in serious human rights abuses and violations. Most recently, in February 2021, the UK announced immediate asset freezes and travel bans against three members of the Myanmar military for serious human rights violations following the military coup.

In February 2021, the UK also announced sanctions against four Zimbabwe security chiefs in response to human rights violations in 2019 when protestors were killed for expressing their rights to protest and free speech. These individuals cannot freely travel to the UK, channel money through UK banks, or profit from the UK’s economy.

We are grateful to the following team members for their contributions: MoFo associates Laura Steen, Pietro Grassi, James Colautti, Sampaguita Tarrant, and Matt Rodin, and trainee solicitors Stephanie Pong and Georgia Wright.

[1] The prosecution relates to alleged offences under Regulation 45 of the Money Laundering Regulations 2007.

[2] The fine relates to breaches of the Money Laundering Regulations 2017.

[3] R (on the application of KBR, Inc) v Director of the Serious Fraud Office [2021] USKC 2.