It may be early in the New Year, but already a number of important issues and themes we’re likely to find ourselves dealing with in 2016 have emerged.
If anyone doubts the determination of enforcement authorities to crack down on corporate wrongdoing, take a look at the long list of household names facing action this year. The FIFAand VW investigations are still making global headlines. In the US, the list of large FCPA bribery cases expected to resolve this year includes Microsoft, Walmart, Cisco, GlaxoSmithKline and JP Morgan. Closer to home, the SFO will be continuing its investigations into Barclays, Tesco and Rolls-Royce, with more LIBOR prosecutions to come and the FX investigations in their early stages.
The SFO ended last year on a high, of course, with the first deferred prosecution agreement with ICBC, the Sweett Group’s guilty plea to failing to prevent bribery, and the Court of Appeal dismissing the appeal by Tom Hayes against his LIBOR Conviction. We have commented on this decision in detail here.
The Sweett sentencing hearing in February will be particularly interesting. Not only is this the first guilty plea to this offence in England, but the case involves a company which little more than a year ago the SFO considered non-cooperative. Further, in deciding to admit the offence, the company will have had to take into account the risk of debarment from EU public procurement – a serious threat to a company with a significant public contracting business. Is it confident that by admitting the offence it can avoid debarment? Similar businesses should be watching closely.
Whilst the SFO was only recently being feted as an institution ‘on the up’, the New Year has brought a reminder of the precariousness of its financial status. On 7 January, the Government announced that Parliamentary approval would be sought for a £21 million increase in the SFO’s annual budget and approved a £15.5 million emergency advance. These additional resources are for existing cases, and represent a 65% increase on its original budget for the year. We’ve written about this before, but surely it makes more sense to fund the SFO properly in the first place rather than requiring it to come with a begging bowl to Parliament whenever it needs a top up? We’d like to predict that 2016 will be the year the SFO(and perhaps the NCA too) becomes properly funded, but we wouldn’t put money on it.
2016 will see individuals in the spotlight more often where corporate crime is concerned. In the US, the effect of the September 2015 Yates memorandum may start to be felt. This encourages prosecutors to focus on holding individuals to account. In the UK, if the SFO is to conclude more deferred prosecution agreements, then the process of reaching agreement ought to lead to more individuals facing action too. We have our doubts though, as we explained here. Finally, on 1 March 2016 the Senior Managers’ Regime comes into force in the financial sector, placing senior executives in the front line when things go wrong in financial institutions. You can learn more about that here.
Sticking with the financial services industry for the moment, September will see the introduction of stricter whistleblowing rules by the PRA and FCA. We wrote about these here. It will be interesting to see whether they achieve their aim of encouraging more industry whistleblowers to come forward. One thing we don’t expect this year, though, is any shift on the issue of UK regulators paying whistleblowers for their assistance, as happens in the US. Although some commentators consider the US approach is proving increasingly effective, we anticipate the PRA and FCA will want to allow the new regime to operate for some time before it considers that issue again.
This increased focus on individual accountability where corporate crime is concerned doesn’t mean that law makers won’t be looking to extend corporate criminal liability in 2016. Already Switzerland has announced proposals for tougher commercial bribery laws and new tax evasion and anti-money laundering measures.
In the UK, Labour is pushing for a review of the Government’s decision, late last year, not to enact a corporate offence of failing to prevent economic crime. The Government’s decision was something of a surprise, given there had previously been cross-party support for this measure. With the Government now enjoying a small majority in Parliament, however, we don’t see this new offence being introduced, at least not in 2016. The main issue will be transferring personal data to the US, particularly in light of the Schrems judgment (see Safe Harbor R.I.P.for details). Although negotiations are ongoing for a new safe harbour, it looks like the self-imposed deadline of the end of January will be missed and many commentators are suggesting it will be months before a deal is reached.
We also expect continuing tension between the US authorities and courts on the one hand, and European headquartered companies on the other, over the impact of other data privacy restrictions such as those which exist under French and German law. Anecdotally, we hear that it is increasingly accepted in the US that such restrictions apply in principle. The battleground is shifting, though. We expect disputes over the extent to which these restrictions genuinely prevent corporations from cooperating with the US authorities in particular cases to become more commonplace.
Alongside this, we expect continuing efforts by enforcement authorities and claimants to challenge the scope of privilege in investigations. We had helpfully robust decisions in Germany and the UK last year, but this is an issue which is not going away. The potential benefits of gaining access to investigation reports when trying to prove a case are too great. In addition, we still have the SFO adopting the position that refusal to waive privilege over relevant material can constitute non-cooperation, and just recently Bloomberg reported that Standard Chartered was being pressed to disclose the legal advice it had received in connection with its breach of sanctions investigation.
On the subject of sanctions, 2016 could also prove a very interesting year. We’ve written about recent developments concerning Iran, but we will have to see whether the US is prepared to loosen its sanctions to the same degree as the EU. Elsewhere, could this be the year that US sanctions on Cuba finally come down, as the two countries continue their rapprochement? Some commentators think so. In terms of uncertainty, though, surely nothing beats the sanctions situation with Russia, where the situation in Syria may be just as likely to influence the sanctions regime as developments concerning the Ukraine.
Finally, we should mention a couple of new measures with the potential to have a large impact on UK businesses in 2016.
First up is the new regime for disclosure of beneficial ownership of non-listed UK companies and limited liability partnerships, which comes into force on 6 April. As so often where corporate behaviour and transparency is involved these days, the UK is leading the way here, as the first country in Europe to require a public statutory register of corporate beneficial ownership. If you need more information about this, you can find it here.
The first Modern Slavery Act statements will also have to be published this year. We wrote about this requirement here.
What many business affected have still to wake up to is the effort that may be needed to comply. They may only need to publish a statement, but compiling that statement may require significant work. Parties with operations and agents in high risk jurisdictions may find that demonstrating compliance involves significant investigative work, and there’s always the risk that when you subject areas such as this to thorough scrutiny for the first time, unexpected problems emerge.
It’s always dangerous to make predictions about the future, but we’re pretty certain that anyone involved in preventing, detecting and responding to corporate wrongdoing is likely to be at least as busy this year as last, if not more so.