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

As the world watches in horror as the Russian invasion of Ukraine continues to unfold, the UK, as well as its allies and partners, has introduced a number of sanctions and trade restrictions in response. In this Quarterly Review, we report on these sanctions and on the ongoing efforts of the Serious Fraud Office (“SFO”) to investigate fraud and corruption in the UK. A spotlight continues to shine on the SFO, as the subject of a UK government-commissioned independent review, which was launched to investigate the SFO’s failings in the Unaoil case.

• UK responds to Russian invasion of Ukraine through extended sanctions
• Court of Appeal quashes second Unaoil executive bribery conviction due to SFO’s “failure to comply with their duty of disclosure”
• Independent Review into SFO failings in the Unaoil case underway
• FCA fines HSBC £63.9 million for failings in its AML processes
• FCA secures the conviction of two former company directors
• Three individuals and three companies caught in a multi-million pound bribery scheme
• UK to pay over £200,000 in compensation to the Government of Nigeria pursuant to a Memorandum of Understanding
• SFO fraud trial against directors of ethical investment scheme
• SFO launches investigation into individuals associated with Arena Television Limited
• UK’s National Cyber Security Centre urges British businesses to bolster defences against Russian cyberattacks

UK responds to Russian invasion of Ukraine through extended sanctions: In response to Russia’s invasion of Ukraine, significant amendments were made to existing Russian sanctions regulations in the UK. The UK government’s changes to the regime began in early February 2022, in anticipation of the invasion, with the broadening of the definition of “involved person” under the Russian (Sanctions) (EU Exit) Regulations 2019. This significantly increased the number of persons who could be subject to sanctions under the regime, by including those involved in obtaining a benefit from or supporting the Government of Russia and businesses operating in sectors of strategic significance to the Government of Russia.

Since the invasion, the UK government has moved to introduce and extend sanctions and export controls, covering key Russian institutions, industries and activities. These changes have included:

• New UK sanctions designations predominantly focused on Russian oligarchs and their family members, members of the Russian Duma, Putin’s political allies, individuals involved in supporting Russian-backed breakaway regions of Ukraine, and major Russian banks (including Russia’s largest bank, Sberbank).
• The extension of existing prohibitions relating to the granting of certain types of credit and loans, and dealing with certain types of security and financial instruments, in relation to Russian persons.
• New prohibitions on correspondent banking relationships and the processing of sterling payments to, from, or via key financial institutions (currently only Sberbank).
• The extension of trade restrictions to apply to critical-industry goods and technology, dual-use goods and technology beyond military use, aviation and space goods and technology, oil refining goods and technology, and luxury goods. Export of such goods to or for use in Russia is now prohibited. Prohibitions on the import of iron and steel products from Russia have also been introduced.
• Prohibitions on Russian aircraft flying over or landing in the UK, and Russian ships entering UK ports. New legislation also prevents sanctioned Russian oligarchs from accessing UK maintenance for their aircraft and ships.
• The introduction of the Economic Crime (Transparency and Enforcement) Act 2022, which creates a strict liability test to impose financial penalties for breaches of sanctions (removing the previous “knew or had reasonable cause to suspect” requirement, once implemented), streamlines the process for issuing sanctions, and allows for urgent sanctions designations.

Court of Appeal quashes second Unaoil executive bribery conviction due to SFO’s “failure to comply with their duty of disclosure”: On 24 March 2022, the Court of Appeal quashed the conviction of former Unaoil sales manager, Paul Bond, after the SFO failed to disclose its own dealings with a private investigator who had tried to convince Bond to plead guilty to bribery. This is the second conviction to be quashed for this reason (the conviction of another former Unaoil executive, Ziad Akle, was similarly quashed, as referred to in our December 2021 Quarterly Review). As reported in our March 2021 Quarterly Review, Bond was convicted in February 2021 on two counts of conspiracy to give corrupt payments in order to secure lucrative oil contracts in Iraq. He was subsequently sentenced to three and a half years’ imprisonment. On appeal, the Court of Appeal concluded that the SFO had refused to disclose documents that showed “wholly inappropriate” contact where David Tindley, a retired U.S. Drug Enforcement Administration agent who worked for Unaoil’s owners, tried to persuade Bond to change his not-guilty plea.

Independent Review of SFO failings in the Unaoil case now underway: On 9 February 2022, the UK Attorney General announced that the independent review, commissioned in December 2021 to assess the SFO’s failings in the Unaoil case, would be led by former Director of Public Prosecutions and High Court judge, Sir David Calvert-Smith. According to the announcement, Sir Calvert-Smith will aim to report his findings by the end of May 2022. The terms of reference for the independent review note a number of key questions to be considered, including (i) what happened in the Unaoil case and why, including a review of the SFO’s disclosure failures; (ii) whether the SFO’s failings in the Unaoil case have any impact upon the policies, practices, procedures, and culture at the SFO; and (iii) what changes are necessary to address the failings identified. A summary of Sir David’s findings will be published in our next Quarterly Review.

FCA fines HSBC £63.9 million for failings in its AML processes: In December 2021, the Financial Conduct Authority (“FCA”) fined HSBC Bank plc £63.9 million, finding that, between 2010 and 2018, the bank’s automated transaction monitoring systems were not appropriate or sufficiently risk-sensitive to prevent money laundering and terrorist financing. The FCA identified inadequacies in three areas.

• First, it found that the bank had not updated its transaction monitoring system in a timely manner to recognise new “scenarios” that raised a high risk of money laundering or terrorist financing. As a result, these systems did not identify risks such as (i) activity that was not in line with a customer’s onboarding profile; (ii) repeated transactions in round amounts; and (iii) transactions (other than by wire transfer) from specified high-risk countries.
• Second, the FCA found that the bank did not apply appropriate parameters for triggering alerts and follow-up actions on transactions. The bank applied too many “thresholds” that triggered alerts, which led to a high number of overdue alerts, as well as delays to the review and adjustment of the thresholds themselves. At the same time, in order to manage the high volume of alerts, other parameters suppressed transactions that were, in fact, unusual and merited further review.
• Third, the FCA determined that inaccurate or incomplete data were fed into the bank’s transaction monitoring system from other bank systems, which impacted the effectiveness of transaction monitoring.

The FCA’s decision is noteworthy for its focus on transaction monitoring, rather than onboarding processes, which are more often the target of similar investigations under the UK Money Laundering Regulations.

FCA secures the conviction of two former company directors: On 11 February 2022, Timothy Coleman, the former Chief Financial Officer of Redcentric plc (“Redcentric”), an AIM-listed IT service provider, was found guilty of (i) two counts of making false and misleading statements to the market, contrary to the Financial Services Act 2012; and (ii) three counts of false accounting, contrary to the Theft Act 1968. The charges relate to the issuance of unaudited interim results and audited final year results in 2015 and 2016, respectively, both of which were false and misleading. A second former director of Redcentric, Estelle Croft, pleaded guilty earlier in the proceedings to similar charges. The two former directors are said to have falsified key accounting records in order to inflate the financial figures of the company, knowing that the market was being misled by the published figures. As a result, investors overpaid for shares in the company based on Redcentric’s artificially inflated share price. Croft and Coleman were sentenced to three and five-and-a-half years’ imprisonment, respectively. Croft was also ordered to pay £120,346.70 following confiscation proceedings.

Three individuals and three companies caught in a multi-million pound bribery scheme: On 14 April 2022, a judge at Southwark Crown Court gave Noel Corry, a former engineer at Coca-Cola Enterprises, a suspended sentence of 20 months’ imprisonment for accepting £1.5 million in bribes. Corry pleaded guilty to five counts of corruption for helping three UK companies win lucrative contracts with Coca-Cola Enterprises, Coca-Cola’s UK bottling subsidiary, by leaking sensitive and confidential information between 2004 and 2013. The court also fined the three companies in connection with the bribes; WABGS, an engineering company, was ordered to pay £500,000 after it was found to have won contracts worth £13 million in the bribery scheme, and two electrical companies, Tritec Systems and Electron Systems, were fined £70,000 each. Two other individuals, Peter Kinsella, a former manager at WABGS, and Gary Haines, a former managing director at both electrical companies, were given suspended prison sentences for their roles in the scheme. The Metropolitan Police reported that this was the first time one of its investigations has led to the Crown Prosecution Service bringing charges against a company for failing to prevent bribery under section 7 of the UK Bribery Act 2010.

UK to pay over £200,000 in compensation to the Government of Nigeria pursuant to a Memorandum of Understanding: On 21 February 2022, the SFO announced that a Memorandum of Understanding had been signed by the UK government and the Government of Nigeria (the “Memorandum”), setting out the terms on which the UK government had agreed to transfer £210,610 in compensation to the Government of Nigeria. Under the terms of the Memorandum, the compensation will be used to finance three infrastructure projects designed to benefit Nigerian citizens. These funds were collected by the SFO pursuant to a Deferred Prosecution Agreement (“DPA”) between AMEC Foster Wheeler Energy Limited (“AFWEL”) and the SFO dated 1 July 2021, in respect of ten offences of corruption relating to the use of third-party agents for bribery and corruption in the oil and gas sector in five countries, including Nigeria. The DPA ring-fenced these funds to compensate Nigerian citizens for a tax reduction obtained by AWFEL in the country as a result of its bribery and corruption. AFWEL is liable to pay a total of £103 million to the SFO under the terms of the DPA, more details of which can be found in our October 2021 Quarterly Review.

SFO fraud trial against directors of ethical investment scheme: The trial of two directors of Global Forestry Investments, Andrew Skeene and Omari Bowers, commenced on 21 February 2022. The SFO charged the two executives with three counts of conspiracy to defraud contrary to common law, as well as offences relating to use of a false instrument, misconduct in the course of winding up, and making a false statement without oath. The charges relate to a series of ethical investment schemes promoted by Skeene and Bowers, whereby investors acquired a beneficial interest in Brazilian teak plantations on the understanding that they would receive returns in the form of rent. Prosecutors allege that these schemes did not generate any money and that the directors had deceived investors out of £35 million by promoting these schemes through false and misleading statements. 

SFO launches investigation into individuals associated with Arena Television Limited: On 23 February 2022, the SFO announced a criminal investigation into individuals associated with collapsed broadcast company, Arena Television Limited (“Arena”). These investigations relate to findings by Arena’s administrators that the company received more than £280 million in loans from various lenders, which were secured against broadcasting equipment now thought not to exist. The SFO’s investigations are on-going.

UK’s National Cyber Security Centre urges British businesses to bolster defences against Russian cyberattacks: Following Russia’s attack on Ukraine, on 18 March 2022, the UK’s National Cyber Security Centre (“NCSC”) published a call to organisations to bolster their online defences. Although the NCSC states that it is unaware of any current specific threats to UK organisations in relation to the war in Ukraine, recent intelligence suggests there has been a significant increase in cyberattacks since the war started. Notable cyberattacks so far include:

• interruption of Russian national television broadcasts with images of the bombing in Ukraine;
• a cyberattack on Ukrtelecom (Ukraine’s national internet provider) which caused major internet disruption;
• Russian distributed denial of service attacks on numerous Ukrainian websites, including the Ministry of Defence and Ukraine’s largest bank, PrivatBank; and
• a cyberattack on the Belarusian rail network to disrupt the entry of Russian troops into Ukraine.

The NCSC therefore advises organisations to improve their cybersecurity, referring to its January 2022 guidance on actions to take.