Corporate Crime analysis: What changes are being made to the financial sanctions regime under the Policing and Crime Act 2017 (PCA 2017) and what will they mean in practice? Charlotte Wright, an associate in the criminal litigation department at Kingsley Napley, says the predominant message is that the government is taking sanctions breaches seriously and has enhanced its toolkit to take action where necessary.

Original news

Police and Crime Bill receives Royal Assent, LNB News 01/02/2017 96 A vital bill for the government’s police reform agenda has received Royal Assent. The Home Office has set out a number of the provisions of the new PCA 2017, which include reform of pre-charge bail in order to prevent individuals from remaining on bail for long periods of time without scrutiny of its necessity.

  1. What are the most significant changes brought about by PCA 2017 and why are these changes significant?

The changes made by PCA 2017 can be divided into three broad categories:

  • sentencing
  • enforcement
  • implementation

Sentencing

PCA 2017 increases the maximum penalties for the sanctions offences under Schedule 3 to the Anti-terrorism, Crime and Security Act 2001 (failure to comply with freezing orders) and Schedule 7 to the Counter-Terrorism Act 2008 (failure to comply with requirements such as undertaking customer due diligence, limiting or ceasing certain types of business).

The maximum penalty was previously two years’ imprisonment, PCA 2017 increases it to seven years.

This increase in penalty for UN sanctions is designed to harmonise the penalties across existing sanctions legislation. Penalties for the summary offences under the same legislation are also increased from six months to 12 months.

Enforcement

Currently, breaches of sanctions are punishable by either an administrative warning letter or criminal prosecution. PCA 2017 introduces a number of measures to supplement these, including:

  • extending the deferred prosecution agreement (DPA) regime so that breach of financial sanctions is in the list of offences for which a DPA may be given (see Schedule 17 to the Crime and Courts Act 2013)
  • adding sanctions breaches to the list of offences for which a serious crime prevention order (SCPO) may be imposed (see Schedule 1 to the Serious Crime Act 2007)—an SCPO is a civil order, which prohibits a company from undertaking certain activities, for example on who a person or company may have business dealings with, the premises they may use, or whether they may travel abroad. Breach of an SCPO carries a maximum five year prison sentence and an unlimited fine, and can lead to an order for forfeiture or for winding-up of a company
  • creating a new civil monetary penalty—these may be imposed by the Treasury where it is satisfied on the balance of probabilities that a prohibition has been breached and the person in breach either knew or had reasonable cause to suspect that they were in breach. The maximum penalty provided for is £1m or 50% of the estimated value of the funds to which the breach relates, whichever is the greater

Implementation

Currently, UN sanctions are given effect in the UK by EU regulations—meaning that once the UN introduces a new sanction, the EU must then adopt sanctions regulations implementing any associated asset freezes. The asset freeze cannot be given effect in the UK until the EU regulations have been adopted, which is reported to lead to delays of four weeks on average. International best practice is for asset freezes to be given effect within 48 hours.

PCA 2017 now makes provision for new UN sanctions regimes to be given immediate effect in the UK for a period of up to 30 days (extendable to 60 days) pending the introduction of the necessary EU legislation. This will be done by the Treasury via statutory instrument.

2. What are the objectives behind the changes? How likely is it that the measures will achieve these objectives?

The overriding objective behind the changes is to enhance the UK sanctions regime, which has for some time lagged behind those in other jurisdictions, particularly the US. The changes to enforcement are particularly interesting. The objective is to expand the range of enforcement measures available to prosecutors which, ultimately, ought to increase the number and type of breaches that can be effectively punished.

Currently there are just two means of enforcing a breach—criminal prosecution, or an administrative warning letter. Introducing new penalties will help to close the gap between these two very different types of penalty, and give prosecutors more options for penalising breaches which cannot be proven to the higher criminal standard.

The extension of the DPA regime is also reflective of the on-going appetite for UK authorities to take proceedings against corporates. The authorities will hope that this will lead to more self-reports for breaches by corporates keen to avoid prosecution and cooperation by those corporates in providing information to support prosecutions of culpable individuals.

3. What does all this mean in practice for lawyers and their clients? Are there any steps they should be taking in preparation?

The predominant message that arises from these changes is that the government is taking sanctions breaches seriously and has enhanced its toolkit to take action where necessary. The measures are likely designed to carry deterrent as well as punitive effect, as there is now a much wider range of behaviours that can be caught and punished. Whereas organisations regulated by the Financial Conduct Authority (FCA) are likely to already have worked hard on their controls in this area, companies outside that field may have counted sanctions as a lower-risk area until now.

Those organisations would be well-advised to conduct an audit of their current business relationships to ensure that they are not in breach of sanctions, and review their due diligence processes to ensure they do not open themselves up to breaches in the future.

4. How does this fit in with other developments in this area of law? Do you have any predictions for future developments or trends?

This development fits with the general trend in the UK of moving towards a more robust approach to the enforcement of financial crime.

It also aligns with an increased focus on penalising corporates as well as individuals for breaches in this area. The new enforcement mechanisms—DPAs, SCPOs and monetary penalties—offer prosecutors a number of means of holding companies to account that do not require them to demonstrate that the ‘directing mind’ of the company had the requisite mens rea for the offence.

In the same vein, this also reflects the shift towards incentivising companies to take measures to prevent offences being committed by them and their employees, rather than focussing on the prosecution of those that fail. The ‘failure to prevent’ offence under the Bribery Act 2010 and the proposed tax evasion offence under the Criminal Finances Bill are obvious examples of this trend.

This is also reflected in the current call for evidence regarding corporate liability for economic crime.

It is interesting as Brexit approaches and as we consider its likely effect on the UK legal landscape, that a piece of legislation is enacted in which the UK has found a practical way to deal with the slow pace of implementing EU legislation.

It will be interesting to see how the UK enforcement landscape continues to develop against this background.

Charlotte Wright specialises in white collar crime, advising individuals under investigation by the Serious Fraud Office and the FCA. She has acted in cases involving fraud, bribery and corruption and money laundering. Charlotte also has experience of advising organisations in relation to their compliance procedures and of conducting internal investigations into suspected employee misconduct.