UK Quarterly Review: Business Crime, Investigations, and Regulatory Enforcement (June - August 2021)

During the course of the last three months, there has been a significant focus on the activity of the Serious Fraud Office (SFO). The SFO has achieved its objectives in some instances; see, for example, our article below regarding the SFO’s deferred prosecution agreement with Amec Foster Wheeler Energy Limited. The SFO has also, however, been the subject of a number of allegations raised during the High Court trial in ENRC v Dechert, where judgment is now pending. The SFO’s Annual Report demonstrates overall progress in the SFO’s meeting of its enforcement objectives, with four individuals having been sentenced in the last 12 months and 60 new investigations on the SFO’s books (see more information below).

This quarter has also been demonstrative of the cross-border nature of many investigations, with authorities and courts alike cooperating with each other both domestically and internationally. We therefore continue to watch closely how the relationships among these authorities develop as the world’s borders begin to re-open.

UK government announces further sanctions under the UK’s Global Anti-Corruption sanctions regime: The UK government announced on 22 July 2021 that it would apply sanctions against five individuals involved in serious corruption in Equatorial Guinea, Zimbabwe, Venezuela and Iraq. These sanctions are brought under the UK’s Global Anti-Corruption sanctions regime. The measures follow the first tranche of UK sanctions under the regime in April, which targeted 22 individuals involved in serious corruption cases in Russia, South Africa, South Sudan and Latin America. This second set of Global Anti-Corruption sanctions targets individuals who have benefitted through misappropriation. The UK will impose asset freezes and travel bans against these individuals to ensure they can no longer channel money through UK banks or enter the country.

OFSI imposed a £50,000 fine on TransferGo Limited for breaching UK sanctions: TransferGo carries out payment transfers. On 5 August 2021, the Office of Financial Sanctions Implementations (OFSI) imposed a £50,000 penalty on the UK fintech company, TransferGo, for breaching UK sanctions on Ukraine. The European Union had designated the Russian National Commercial Bank (RNCB) in 2014 (meaning it was subject to an asset freeze) following the situation in Crimea. Although OFSI imposed its penalty in respect of pre-Brexit legislation, the equivalent sanctions are now set out in the Russia (Sanctions) (EU Exit) Regulations 2019.

In 2018 and 2019, TransferGo had issued instructions to make a number of payments to accounts held at RNCB. OFSI found that the instructions were in breach of UK sanctions because funds held by customers of RNCB ultimately belonged to the bank. As TransferGo did not disclose early to OFSI, it did not benefit from the voluntary disclosure discount of 50 percent.

UK court rules in favour of extraditing Michael Lynch to the United States: On 22 July 2021, Westminster Magistrates' Court ruled that Michael Lynch, the former CEO of Autonomy (a UK software company), can be extradited to the United States to face 17 fraud and conspiracy charges brought by the U.S. Department of Justice in connection with the US$11.7 billion sale of Autonomy to Hewlett-Packard in 2011. Mr Lynch is alleged to have manipulated Autonomy’s accounts which led to Hewlett-Packard subsequently writing down the value of Autonomy by US$8.8 billion a year after the sale. The decision has now been sent to the Home Secretary, Priti Patel, to determine whether or not the extradition should be allowed. Mr Lynch has expressed his intention to appeal the extradition order if the Home Secretary does approve the order. In its ruling, the court held that the extradition would be compatible with the extradition treaty between the UK and the United States and was not an abuse of process.

SFO agrees to DPA in respect of bribery and corruption in the oil and gas sector: On 2 July 2021, the SFO announced that it had entered into a deferred prosecution agreement (DPA) with Amec Foster Wheeler Energy Limited (AFWEL), with the company taking responsibility for ten offences of corruption relating to the use of corrupt agents in the oil and gas sector. Under the terms of the DPA, AFWEL will pay a total of £103 million for the use of third-party agents for bribery and corruption in five countries (Nigeria, Saudi Arabia, Malaysia, India, and Brazil) between 1996 and 2014. AFWEL’s parent company, John Wood Group PLC (“Wood”), reached a global settlement with the U.S Department of Justice, the U.S. Securities and Exchange Commission, the SFO, and Brazilian authorities, agreeing to pay a total of US$177 million to resolve the respective bribery and corruption investigations into AFWEL. Wood purchased AFWEL in October 2017, and was therefore not involved in the indicted conduct, but fully cooperated with the SFO’s investigation. This DPA signifies the continued enforcement progress made by the UK authorities against bribery and corruption, and again demonstrates the increased appetite for cross-border co-operation among enforcement authorities.

SFO secures confiscation order in relation to profits made from bribery and corruption scheme: On 17 June 2021, the SFO announced that it had secured a £402,465.65 confiscation order by consent against Basil Al Jarah, a former Unaoil executive. Al Jarah was sentenced to three years and four months’ imprisonment in October 2020, following his July 2019 guilty plea to five counts of conspiracy to make corrupt payments. The SFO alleged that Al Jarah and others paid over US$17 million in bribes to public officials in Iraq to secure US$1.7 billion worth of oil and offshore construction contracts. The court found that Al Jarah made over £3.3 million as a result of the bribery scheme and required him to pay the confiscation amount within three months, or face an additional three years in prison. In July 2020, Al Jarah’s co-defendants, Ziad Akle and Stephen Whiteley, were convicted by a jury on related charges.

UK set to introduce a foreign investment regime: On 20 July 2021, the UK government confirmed that a new foreign investment regime (the “NSI Regime”), included in the National Security Investment Act 2021 (the “Act”), will come into force on 4 January 2022. The NSI Regime will introduce: (1) mandatory filings for certain investments raising national security concerns, (2) call-in powers exercisable by the Secretary of State to review transactions for up to five years after completion, and retrospective application for transactions closing on or after 12 November 2020, and (3) a voluntary notification process applicable to planned or completed acquisitions, which aims to facilitate deal certainty. The UK government (Competition and Markets Authority) will also have the authority to impose conditions on transactions that fall within scope of the Act and, if necessary, to unwind completed acquisitions or prevent deals from closing. Read more in our client alert.

FCA effectively suspends the operations of UK cryptoasset firm: In June 2021, the UK Financial Conduct Authority (FCA) published a first supervisory notice (the “Supervisory Notice”) in relation to Binance Markets Limited (BML). BML is an FCA-authorised entity within the Binance group, the world’s largest cryptoasset exchange. The FCA imposed a requirement on BML’s existing regulatory permissions, effectively suspending BML’s ability to carry on regulated activities in the UK. BML was also required to display a related notice on its website and to remove all existing financial promotions and advertising. The Supervisory Notice states that the FCA took action broadly for two reasons: (a) BML’s failure, over a period of at least 12 months, to use its regulatory permissions and (b) BML’s failure to comply adequately with requests for information made by the FCA, which demonstrated that it was not capable of being effectively supervised. In August 2021, the FCA confirmed that BML had complied with the requirements set out in the Supervisory Notice.

SFO publishes its Annual Report: In July 2021, the SFO published its annual report for the year ending 31 March 2021 (the “Annual Report”). In the Annual Report, the SFO highlights the following statistics for the year 1 April 2020 to 31 March 2021:

• Four individuals were sentenced following conviction after trial or guilty plea;
• 20 individuals and corporates were charged (charges against two of these corporates were suspended following the execution of deferred prosecution agreements);
• The SFO secured two deferred prosecution agreements, resulting in over £47 million in fines and penalties, including costs;
• Eight Financial Orders were obtained, with a total value of £7.4 million, £220,000 of which was paid to victims by way of compensation; and
• 60 new criminal cases were opened, approximately 15 percent of the SFO’s total number of active cases.

The SFO continues to rely heavily on international assistance and the development of relationships with partner authorities both in the UK and internationally. The SFO also continues to undertake threat assessments to guide its intelligence and identifies the following themes in its Annual Report as priorities: (i) international bribery and corruption; (ii) the growth of cryptocurrency, and the related regulatory challenges; and (iii) getting ahead of investment fraud.

We are grateful to the following team members for their contributions: associates Laura Steen, Sampaguita Tarrant, Matt Rodin, and Stephanie Pong, and trainee solicitor Haania Amir.