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.

With this month marking half a year since the UK left the EU, the UK continues to develop its own independent legislative and regulatory framework. Most notably, this quarter, we have seen the introduction of new legislation in the financial services industry and a new, autonomous sanctions regime. We continue to watch closely how the UK navigates its independence, particularly in relation to the prevention of business crime. Whilst there have been highs and lows for the Serious Fraud Office (SFO) this quarter, other enforcement agencies have been preparing for the future by assessing how the COVID-19 pandemic has changed the risk and construct of fraud, bribery, and corruption. As restrictions resulting from the pandemic continue to ease and the “new normal” begins to materialise, the impact that the pandemic, and the substantial shift to at home working and online socialising, has had on the business crime arena will become more apparent.

UK introduces new Global Anti-Corruption Sanctions regime: On 26 April 2021, the UK’s first sanctions under the Global Anti-Corruption Sanctions Regulations 2021 (SI 2021/488) (the “Regulations”) came into force. The Regulations are included under the Sanctions and Anti-Money Laundering Act 2018 and combine with UK Global Human Rights regime introduced in July 2020. The Regulations, along with the Human Rights Sanctions in July 2020, focus on individuals and entities who, through corrupt practices, impact the economy of a country. This is the second set of autonomous UK sanctions that have been introduced since the UK left the EU, following the introduction of the global human rights sanctions regime in July 2020, and are a further indication of the UK’s tougher stance regarding sanctions. The UK Foreign Secretary’s statement to Parliament placed significant emphasis on enhancing the UK’s anti-corruption profile as “a global leader in tackling corruption and illicit finance.”[1] Please see our recent client alert for more details on the new regime.

UK Sanctions against Libya and Myanmar: On 13 May 2021, the UK government announced sanctions on the Libyan al-Kaniyat militia and its leaders to address human rights violations and breaches of humanitarian law in Libya. Libya is subject to sanctions under the UK Libya sanctions regime. On 17 May 2021, the UK government announced further sanctions targeting the Myanmar regime. In particular, it announced sanctions on Myanmar Gems Enterprise, a state-owned gemstone company linked to the military regime in Myanmar. These sanctions are  additions to the sanctions that the UK announced against senior Myanmar military officers and their economic interests following February’s military coup, which is referred to in our previous Quarterly Review.

The Financial Services Act 2021 becomes law: On 29 April 2021, the Financial Services Act 2021 (the “Act”) received Royal Assent. The Act amends the legislative and regulatory framework for the financial services industry in the UK post-Brexit, and provides the FCA with new powers and obligations. It is noteworthy, in relation to financial crime, that the Act adds amendments to the UK’s on-shored Market Abuse Regulation, the Criminal Justice Act 1993, and the Financial Services Act 2012, including an increase in the maximum sentence for criminal market abuse offences from seven to 10 years’ imprisonment. For more information on the Act, please see our recent client alert.

SFO prosecution collapses due to disclosure failures: On 26 April 2021, the SFO’s case against two former executives of Serco Geografix Limited (“Serco”) collapsed due to failings in the SFO’s disclosure of evidence to the defence. The former Serco executives had been charged with fraud by false representation in relation to representations made by Serco to the Ministry of Justice between 2011 and 2013 and false accounting. This followed a lengthy investigation into Serco, which resulted in a fine of £19.2 million for falsifying accounting records to overstate revenue and costs incurred. However, after it became apparent that the SFO had failed to disclose certain relevant materials to the defendants, the judge directed the members of the jury to return not guilty verdicts. The basis for this direction was that the lack of disclosure rendered the prosecutions unsafe. The SFO’s application for the trial to be adjourned whilst the disclosure issues were rectified was rejected by the presiding judge, who did not consider a re-trial to be in the public interest. SFO officials have announced that they “are considering how best to undertake an assessment to prevent this from happening in the future”.

SFO success after guilty plea: On 28 April 2021, former Airbus SE subsidiary, GPT Special Project Management Ltd (“GPT”), pleaded guilty to corruption in relation to contracts for work undertaken for the Saudi Arabian National Guard between December 2008 and July 2010. The SFO, which commenced its investigation into GPT’s conduct in 2012, alleged that GPT paid bribes to members of the Saudi royal family, military commanders, and senior government officials via bogus payments to subcontractors in order to maintain the contracts. Following GPT’s guilty plea, the judge ordered GPT to pay a confiscation order of £20.6 million, a fine of £7.5 million, and costs of £2.2 million. These sums took into account various mitigating factors, including GPT’s guilty plea and its cooperation with the SFO, and concluded a major part of one of the SFO’s oldest investigations. Three individuals have also been charged in relation to the corruption. Their trial is currently scheduled for May 2022.

UK government published the Economic Crime Plan Statement of Progress: On 4 May 2021, the UK government and UK Finance published a joint Statement of Progress regarding their Economic Crime Plan (the “Plan”). The Plan was launched in July 2019 to help the UK tackle fraud and economic crime, and it is divided into seven Strategic Priority areas containing 52 actions to direct efforts. There have been four key updates:

1. There is now a greater understanding of potential fraud and economic crime threats to the UK, which is supported by the third UK National Risk Assessment of Money Laundering and Terrorist Financing published in December 2020 and the introduction of a “Fusion Cell” in the National Economic Crime Centre.
2. There has been action to close certain gaps, such as updating anti-money laundering requirements, to make it harder for criminal actors to abuse the UK economy for illicit purposes.
3. There has been an injection of capital into the national effort to tackle economic crime and fraud through a £63 million investment in the Home Office to apportion as needed.
4. The UK government and UK Finance have introduced seven additional actions (on top of the original 52) to further enhance the Plan, including the design and delivery of a comprehensive Fraud Action Plan and the continuation of reforms in the UK suspicious activity reporting agenda.

COVID-19 and Brexit contribute to increased risk of bribery and corruption: On 25 May 2021, the National Crime Agency (NCA) released the 2021 National Strategic Assessment of Serious and Organised Crime (NSA), setting out a comprehensive assessment of the threat posed to the UK by organised crime. In the NSA, the NCA stated that the financial impact of the COVID-19 pandemic and the UK’s departure from the European Union, will likely result in a higher risk of bribery and corruption for UK companies, as compared to the equivalent risk in 2020. The NCA noted that, as a result of Brexit, there is a higher likelihood of UK entities considering trade opportunities in alternative jurisdictions in order to stay profitable, some of which may be higher risk. The NCA further highlighted that economic volatility resulting from the ongoing pandemic presents added challenges for businesses (particularly financial institutions) in identifying potentially corrupt payments. Another obstacle to identifying corruption is said to arise from increased remote working, as businesses find themselves with a reduced ability to monitor staff and identify concerning behaviour. The NCA identified the following industries as those most likely to be subject to an increased risk of bribery and corruption: oil and mineral extraction; overseas real estate; aerospace and defence; and pharmaceuticals.

Internet to be the new frontline of defence against financial crime: The NSA described above also focused on the exploitation of technological advancements by criminals to stay ahead of the authorities and included a warning that there was a need for law enforcement to continue identifying and maximising technological opportunities and threats in order to eliminate the risk of financial crime in the UK. The NSA continued to note the potential impact of the COVID-19 pandemic on the actions of organised criminals, referring to: (i) a rise in the use of cryptoassets to launder money, as cash could not readily be obtained; (ii) increased usage of decentralised messaging applications to support the work of organised criminals; and (iii) continued enhancements to secure messaging applications, some of which have now implemented automatic disappearing message functionality. The technological improvements necessary to combat these issues are said to require collaboration with the NCA’s partners and the development of innovative approaches to intelligence collection. The NCA is therefore encouraging law-enforcement agencies to bolster their attempts to combat financial crime online.

We are grateful to the following team members for their contributions: Morrison & Foerster associates Laura Steen, Pietro Grassi, Sampaguita Tarrant, and Matt Rodin, and trainee solicitors Stephanie Pong and Carlotta Pregnolato.

[1] HM Government, “Global Anti-Corruption Sanctions Regime: Foreign Secretary’s statement to Parliament, April 2021”, accessed 2 May 2021.