The June 23 2016 decision by British voters to leave the European Union had a profound and immediate effect on the financial markets. Brexit is still in its early stages and surrounded by uncertainty. The process attracted further uncertainty on November 3 2016 when the divisional court(1) ruled that the government could not use its prerogative powers unilaterally to trigger Article 50 of the Lisbon Treaty and withdraw from the European Union. Instead, the court ruled that only Parliament has the authority to decide when (if at all) the United Kingdom can withdraw. The government has indicated that it intends to appeal the decision.
If the Supreme Court allows its appeal, the government intends to trigger the formal process of leaving the European Union by the end of March 2017. However, the extent to which this affect UK legislation remains unclear. Despite repeated calls from opposition politicians, the government has yet to provide significant direction or policy proposals on the matter.
The United Kingdom's withdrawal from the European Union could affect the regulatory and enforcement environment in respect of economic crime, particularly in regards to:
- the effect of economic uncertainty on the prevalence of economic crime; and
- the United Kingdom's relationship with EU law enforcement bodies and its ability to continue fighting economic crime.
It is unlikely that the United Kingdom's withdrawal from the European Union will have any effect on UK legislation in the short term. However, once the United Kingdom has formally withdrawn from the European Union (by triggering Article 50), it will no longer be bound to implement or enact European legislation. This is likely to have a particular effect on trade and economic penalties, an area in which a large number of EU regulations are in force. At present, the United Kingdom is bound by international obligations to implement UN and EU measures concerning trade and economic penalties.
Although existing EU regulations have direct effect in the United Kingdom, legislation is required to establish criminal liability (eg, as regards economic and trade penalties). Following its withdrawal from the European Union, the United Kingdom could elect to mirror developments in EU regulations, but would no longer be bound to do so. The United Kingdom could opt to repeal existing legislation that arises from EU regulations, but this is not a foregone conclusion. Rather, the immediate response would likely be for existing European legislation enacted in the United Kingdom to remain in force and a timeframe for reviewing the continuation of individual enactments to be introduced. Obligations arising from UN membership will be unaffected.
In addition to EU regulations, uncertainty remains over whether the United Kingdom would continue to implement EU directives. This could affect the United Kingdom's approach to implementing the EU Fourth Anti-money Laundering Directive (2015/849). However, it is unlikely that the United Kingdom would directly benefit from being seen to weaken its approach to economic crime.
Given the government's promises to crack down on corruption and bribery – evidenced in the attorney general's address to the Cambridge Symposium on Economic Crime (for further details please see "Expansion of corporate criminal liability likely"), in which he explained that dealing with economic crime is a "government priority" – any relaxation of regulation and enforcement would be contrary to the government's aspirations.
A unilateral relaxation of financial regulation would also hinder the United Kingdom's trading relationship with the European Union. Access to the single market as a European Economic Area member would undoubtedly require the United Kingdom's compliance (or at least near parity) with EU law. Likewise, any other bilateral or multilateral trade agreements will likely require the United Kingdom to adopt regulatory standards equivalent to the other contracting states. In order to ensure that London retains its place in the global financial markets, it would make sense for the United Kingdom to maintain a close connection with the European financial markets. Therefore, it will likely remain in the United Kingdom's best interests to maintain a strong regulatory environment.
During pre-election arguments, those campaigning to remain in the European Union cited a lack of intelligence sharing as a reason why the United Kingdom should vote to remain. Concerns remain as to how Brexit will affect the roles of the Serious Fraud Office and the National Crime Agency as effective intelligence gathering bodies in the fight against corruption.
While mutual administrative assistance between different countries would likely continue unaffected, securing admissible evidence through formal mutual legal assistance may be delayed. The ease with which UK law enforcement and intelligence agencies can conduct joint investigations with other EU agencies is also expected to be affected by Brexit. It is likely that notifications of individuals of interest crossing from EU member states into the United Kingdom will be less efficient than under existing agreements, as will the restraint, confiscation and recovery of assets travelling across EU and UK borders.
Although less likely to make headlines than those concerning migration, these issues should nonetheless be at the forefront of the government's considerations when ensuring the best possible deal for the United Kingdom's exit from the European Union.
For further information on this topic please contact Kathleen Harris, Stuart Baker, Michael J Atkinson or James McSweeney at Arnold & Porter LLP by telephone (+44 20 7786 6100) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The Arnold & Porter website can be accessed at www.arnoldporter.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.