UK business crime review 2021

This is the second edition of UK Business Crime Review—an annual publication focused on the outcomes, trends and developments over the past 12 months that are likely to be of interest to businesses operating in the United Kingdom. While this publication primarily focuses on the With the U.K.'s response to the pandemic being the key introduction and use of criminal sanctions in the focus of Whitehall departments and dominating the business crime space, we also consider key regulatory parliamentary timetable, 2020 did not see the developments that are likely to be of interest to those enactment of a flagship business crime statute. managing financial crime risks within businesses. However, there are signs that Prime Minister Boris Johnson may use his sizeable majority—secured as a Readers interested in gaining a global perspective on result of the General Election in December 2019—to the topics covered should also look to other Shearman implement a number of long-held ambitions, such as & Sterling resources, such as the FCPA Digest, reforming the judicial review process and the operation Sanctions Round Up and our financial regulation blog at of the Human Rights Act 1998. How far Mr. Johnson is finreg.shearman.com. prepared to go and the opposition he will face remains to be seen, but he may be laying the groundwork for OVERVIEW some of the most significant changes to the legal frameworks governing executive decision-making in a In the first section of this publication, we focus on the generation. actions of those bodies operating at a national level, whose work is likely to be of most interest to readers— COVID-19 the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA), the National Crime Agency (NCA), Her The pandemic has impacted the U.K. business crime Majesty's Revenue & Customs (HMRC) and the Office of landscape in several ways. Financial Sanctions Implementation (OFSI). First, it has presented businesses with new risks to In the second section, we examine key outcomes or identify and manage. Disrupted supply chains, remote developments in a little more detail. In this edition, we workforces and economic pressures have created an focus on the U.K. Supreme Court's recent decision in environment ripe with opportunities for exploitation. Regina (On the Application of KBR Inc) v Director of the Even though many of the risk-types are not new, the Serious Fraud Office [2021] UKSC 2 that will prevent the ways in which they are presenting themselves can be SFO from using its investigation powers to compel very different. For example, fraudulent schemes foreign companies to produce documents they hold centring on the provision of PPE, access to testing and outside the U.K.; the FCA's use of its criminal powers; the vaccines, and government loan schemes and other latest developments in relation to legal professional stimulus measures have become commonplace. In the privilege; and how financial institutions can manage U.K., like most other countries, dedicated taskforces financial crime risks in challenging circumstances. have been created to target pandemic-related criminal activity. In the final section, we consider other matters that are likely to be of interest to readers, including recent Second, it has severely impacted the way in which enforcement action taken by the Information businesses have been able to monitor risk. With many Commissioner's Office (ICO); the commencement of the compliance teams working from home, unable to hold U.K.-U.S. data access agreement; the introduction of an face-to-face meetings or travel across borders, many of economic crime levy, the Pension Schemes Act 2021 the "go-to" methods of identifying and managing and the Online Harms Bill; independent reviews of business crime risks are simply not available. corporate criminal liability, judicial review and the Nevertheless, U.K. enforcement authorities have been Human Rights Act 1998; proposed reforms to the clear that businesses must continue to take "all Modern Slavery Act 2015, Companies House and the reasonable steps" to effectively manage business crime Trusts Register; revisions to the Attorney General's risks. As a result, companies have been forced to find Disclosure Guidelines; and the new legal test for ways to adapt. establishing dishonesty in criminal proceedings. Third, the restrictions imposed have hampered the ability of U.K. enforcement authorities to progress investigations in a timely manner. In the first few months following the national restrictions imposed in March THE POLITICAL LANDSCAPE Many expected 2020 to be dominated by the U.K.'s departure from the European Union and the negotiations over the parties' future relationship. However, COVID-19 cast a long shadow across the political landscape over the past 12 months. 4 2020, the number of investigations opened, and searches and interviews carried out, fell sharply at the SFO, the FCA and similar bodies. There are signs that steps have been taken by enforcement authorities to overcome the difficulties that they face, but investigations are likely to be delayed as a result. Fourth, the pandemic has had an enormous impact on an already stretched criminal justice system. In December 2020, the U.K. Government revealed that the backlog of cases before the Crown Court (where the most serious cases are heard) had grown to more than 53,000—an increase of 40% on the figure from a year earlier. As most business crime cases will not involve defendants in custody, their resolution will not usually be a priority. As a result, when prosecutions are brought, delays suffered during the investigation stage are likely to be compounded. The U.K. Government is exploring options to reduce the backlog, such as opening courtrooms in alternative locations, but it is unlikely to find "quick fixes" to deal with this growing problem. Finally, many commentators believe that the current economic stresses placed on businesses will expose pre-existing criminality in the same way as other "economic shocks" have, such as the global financial crisis in 2008. If that proves to be the case, already stretched regulators, law enforcement agencies and prosecutors will come under even greater pressure, as they grapple with ever-increasing portfolios and limited resources. BREXIT In last year's edition of UK Business Crime Review, we explored the ways in which the U.K.'s departure from the EU may shape future cooperation in relation to criminal matters. The European Union (Future Relationship) Act 2020, which was enacted on 31 December 2020, permits limited cooperation in certain areas through the sharing of conviction data, passenger names and vehicle registration details. However, the U.K. has lost access to the Schengen Information System— commonly referred to as "SIS"—which sends out alerts to police and border guards across the EU. Instead, the U.K. will need to rely on "red alerts" issued through Interpol. While Schedule 3 to the Act permits ongoing mutual legal assistance in relation to a limited number of criminal matters, many of the most effective tools, such as European Investigation Orders and European Arrest Warrants, are no longer available. In response, the U.K. has taken unilateral action to improve its position. For example, the enactment of the Extradition (Provisional Arrest) Act 2020 allows those wanted in relation to serious offences to be arrested without a warrant and taken before a court if they are wanted by authorities in a "trusted country." Of course, the U.K.'s withdrawal from the EU does provide it with newfound freedom to shape its own business crime-related legislation and policies in some areas—most obviously, through the creation of an autonomous sanctions regime, implemented and policed by OFSI. There is also scope to tailor retained EU legislation, such as the Market Abuse Regulation 2014 and the General Data Protection Regulation 2016 (GDPR), to better suit the U.K.'s national and international interests. However, there may be consequences should the U.K. diverge in any meaningful way. As a result, in most areas, many commentators expect the U.K. and the EU to remain in close alignment for the foreseeable future. In a recent speech, Lisa Osofsky—the SFO's Director— stated that she was sure that her opposite numbers throughout Europe would continue to take her calls. However, under the new arrangements, it may be more difficult for the parties to those calls to achieve what they want to in a timely manner. KEY ENFORCEMENT OUTCOMES Following the Deferred Prosecution Agreement (DPA) concluded between the SFO and Airbus SE in January 2020, the first few months of the year delivered very few notable enforcement outcomes as U.K. agencies adjusted to the restrictions imposed as a result of the pandemic. However, the second half of the year saw: • the SFO conclude DPAs with G4S Care and Justice Services (U.K.) Ltd and Airline Services Limited for fraud and failing to prevent bribery respectively; • the FCA secure sizeable financial penalties against major banks for allegedly inadequate financial crime controls; • the ICO fine British Airways Plc, Marriott International Inc and Ticketmaster U.K. Limited for breaches of the GDPR; and • HMRC impose a £23.8 million fine against MT Global Limited, a money service business, for breaches of the Money Laundering Regulations 2017—the largest financial penalty ever imposed under the legislation. KEY TRENDS Many of the key trends identified in 2019 continued in 2020. U.K. enforcement agencies maintained their pursuit of corporates for failures to properly implement, monitor and enforce adequate policies and procedures to prevent financial crime, and there appears to be no indication that the U.K. Government or law enforcement agencies will be charting a different course anytime soon. Indeed, the Law Commission's review of corporate criminal liability—announced at the end of last year— may lead to the wholesale extension of corporate criminal liability or a range of new "failure to prevent offences" similar to those set out under the Bribery Act 2010 and the Criminal Finances Act 2017. 5 Some commentators believe that this is all part of a growing trend to shift the burden of tackling serious crime to the private sector following the realisation that those tasked with enforcing the rules will never have sufficient resources to confront the many challenges they face in this area. 2020 also saw the continuation of the growing trend towards coordinated global enforcement. Hot on the heels of the €3.6 billion settlement between Airbus and French, U.K. and U.S. authorities, a major global bank reached settlements totalling $6.8 billion with enforcement authorities in Malaysia, Singapore, Hong Kong, the U.K. and the U.S. as a result of alleged financial crime issues linked to 1MDB. We expect to see similar coordinated enforcement actions and outcomes over the next 12 months with respect to other companies. Finally, many of the long-asked questions continue to go unanswered. When will the SFO secure a conviction against an individual following a DPA? When will the FCA commence its first prosecution under the Money Laundering Regulations 2017? When will HMRC bring the first criminal proceedings for failure to prevent the facilitation of tax evasion? Maybe 2021 will bring some answers. CONCLUSION Taking all of these matters into account, in our view, it has never been more important for businesses operating in the U.K. to devote adequate expertise and resources to implementing, monitoring and enforcing the mechanisms necessary to avoid falling foul of the ever-increasing legal and regulatory frameworks under which they now operate. 6 Enforcement Round Up • S E R I O U S F R A U D O F F I C E • F I N A N C I A L C O N D U C T A U T H O R I T Y • N A T I O N A L C R I M E A G E N C Y • H E R M A J E S T Y ' S R E V E N U E & C U S T O M S • O F F I C E O F F I N A N C I A L S A N C T I O N S I M P L E M E N T A T I O N 7 SERIOUS FRAUD OFFICE The Serious Fraud Office (SFO) is tasked with tackling "the top level of serious or complex fraud, bribery and corruption." It is unusual in the U.K. because it both investigates and prosecutes its cases through multidisciplinary teams and has done so since it was established in 1988. However, while its operating model has remained largely the same, the types of cases it tackles has not. The organisation must obtain and review everincreasing amounts of electronic data during investigations that invariably feature an international dimension. It has left many asking whether the SFO's twentieth century toolkit is fit for a twenty-first century enforcement agency. Those questions are likely to grow louder following the recent Supreme Court ruling in Regina (On the Application of KBR Inc) v Director of the Serious Fraud Office [2021] UKSC 2 that will prevent the SFO using its investigation powers under section 2(3) of the Criminal Justice Act 1987 ("the 1987 Act") to compel foreign companies to produce documents they hold outside the U.K. While 2020 started with the approval of the Deferred Prosecution Agreement (DPA) against Airbus SE— discussed in last year's edition of UK Business Crime Review—once again, the SFO has suffered a "mixed bag" of results over the past 12 months. The first half of the year proved to be largely barren. However, the SFO did secure a number of outcomes in the latter half of 2020—most notably, convictions against several individuals connected with Unaoil, and DPAs against Airline Services Limited and G4S Care and Justice Services (U.K.) Ltd. While the pandemic will account, at least in part, for fewer outcomes and public announcements over the past 12 months, many long-standing and deep-seated issues that existed long before coronavirus continue to hamper the organisation's ability to deliver the frequency of outcomes it has in the past. In February 2020, in response to a request made under the Freedom of Information Act 2000 (FOIA), the SFO revealed that it had opened just five investigations in 2019—five fewer than in 2018. In the same year, it closed ten investigations without bringing enforcement action against an individual or corporate entity—an increase of one on the previous year. The SFO's Annual Report published in July 2020 also confirmed a reduction in activity in the 12 months prior to 31 March 2020. It is right to note that one investigation is likely to feature multiple suspects and, as the SFO was at pains to point out, "the number of cases opened fluctuates year-onyear." However, it has opened less than ten investigations only in one other calendar year in the last 12 years, and it is a long way short of the 20 it opened in 2008. The SFO is understood to have more than 50 ongoing investigations and prosecutions at the current time— some of which may yet yield significant outcomes. However, many critics see the reduction in investigations—and, as a result, outcomes—as a worrying trend. They also point to the fact that the SFO is yet to secure a conviction against an individual in a case involving a DPA as evidence of an organisation that is struggling to meet the demands placed on it. Of course, no-one can sensibly argue that the SFO's task is an easy one. The majority of investigations the organisation undertakes are complex and resourceintensive, and usually concern multiple suspects. They invariably require the assistance of overseas authorities and are increasingly conducted in conjunction with other agencies, both in the U.K. and abroad. Most acknowledge that such investigations will take time to resolve and will not always lead to DPAs, prosecutions, or convictions. However, like most other law enforcement and prosecution agencies in the U.K., the SFO is under ever-increasing political and public pressure to improve on its performance. Against this backdrop, it is unsurprising that Lisa Osofsky, who joined the SFO as its Director in August 2018, continues to look for new ways to deliver an increased number of outcomes more quickly through the smarter use of the resources available to her. As we highlighted in last year's UK Business Crime Review, securing increased cooperation from individuals and corporate entities is one of the ways in which she believes the SFO can meet her aim. Ms. Osofsky is also a vocal proponent of legislative change to make it easier to secure DPAs and convictions against corporate wrongdoers. Finally, Ms. Osofsky has faced personal criticism for her contact with David Tinsley, a U.S. private investigator acting for the Ahsani family—the prominent Monacobased entrepreneurs who once ran Unaoil. Commenting on the contact, His Honour Judge Beddoe said Mr. Tinsley was "not hesitant in flattering Ms. Osofsky and talking up her talents, and unfortunately Ms. Osofsky made herself vulnerable to them." He stated that the SFO should "have been engaging only with the legal representatives of [Mr. Al Jarah and Mr. Akle] and should have had nothing to do with [Mr. Tinsley]." In response, the SFO said "we accept [the Judge's] criticisms of the way a contact was handled. A review will be conducted into this matter, and a protocol covering contact with non-legal representatives has been put in place." The review will take place later this year and may mean that 2021 is particularly important for Ms. Osofsky personally. COVID-19 Like all other U.K. regulators, prosecutors and law enforcement agencies, the work of the SFO has been 8 impacted by the current pandemic. In a statement issued on 7 May 2020, the SFO said it "continues to investigate suspected fraud, bribery and corruption, adapting ways of working where necessary to adhere to Government guidance." Unlike some other U.K. agencies, the SFO has been less forthcoming about how it has been impacted by recent events and the steps it is taking to overcome the operational challenges it is facing in the current environment. However, in July 2020, HM Crown Prosecution Service Inspectorate (HMCPSI) published a review of the way in which the SFO responded to the pandemic between 16 March and 8 May 2020—a period including the significant restrictions announced by Prime Minister Boris Johnson on 23 March 2020, commonly referred to as "the first lockdown." Overall, HMCPSI concluded that the SFO dealt with the challenges created by the pandemic "effectively" due, in large part, to the timely implementation of measures set out in its business continuity plan. However, HMCPSI noted that the organisation had faced pressure on its IT systems despite significant investment in recent years. The Inspectorate noted three issues in particular. First, that the SFO's IT infrastructure was designed on the basis that a majority of staff would be office-based. With the overwhelming majority of its workforce moving to home-working almost overnight, various short-term measures had to be implemented, such as staggering when staff accessed systems and limiting the availability of in-demand services during peak hours. Second, HMCPSI highlighted a lack of access to videoconferencing facilities due to security concerns, despite such facilities being widely available across the U.K. civil service. The Inspectorate noted that the SFO largely relied on teleconferencing services with cameras and microphones disabled on SFO-issued laptops. HMCPSI noted the limits that the lack of facilities placed on the ability of staff members to communicate within the organisation. However, more importantly, the Inspectorate noted instances in which the lack of such facilities hampered the SFO's ability to engage with external stakeholders. By way of example, HMCPSI highlighted the inability of SFO staff to fully participate in virtual court hearings. Many commentators have also pointed to this issue as a reason why the SFO did not carry out any interviews under compulsion under section 2 of the Criminal Justice Act 1987 or under caution under the Police and Criminal Evidence Act 1984 between 23 March and 30 April 2020, as revealed in response to a FOIA request. The SFO also revealed that it had not applied for a search warrant or carried out a search during the same period. Given the circumstances, this is unlikely to come as a surprise. However, the SFO disclosed that in the almost six-week period, it had only issued 16 notices compelling the provision of information. Given that the organisation issued 629 notices in the 12 months to 31 March 2020, this figure highlights the very real challenges the SFO is facing in attempting to progress investigations. Third, HMCPSI noted that the ingesting and processing of digital material and electronic evidence required SFO staff to be based onsite. While the Inspectorate noted that measures were put in place to allow these key business functions to continue, there can be no doubt that the pandemic has significantly hampered the SFO's ability to gather, process and analyse material. Again, this comes as no surprise. On 11 May 2020, the Financial Times reported that the SFO was struggling to process evidence, having stopped handling "paper documents or seized devices to minimise the risk of transmitting the virus." The newspaper also reported that the move to homeworking had meant that only electronic evidence in certain compatible formats could be uploaded to its IT platform. Since the inspection, the SFO has taken several steps to address the operational weaknesses highlighted in the report and there is anecdotal evidence that significant improvements have been made. The outcomes achieved and the significant investigation developments discussed below also indicate that the SFO is now on a more even footing. However, we expect the effects of the pandemic to be felt for many months to come. RESPONSES TO EARLIER REPORTS BY HMCPSI In 2019, HMCPSI published its findings following separate reviews of case progression, and leadership and management at the SFO. In June 2020, the SFO provided its formal response to the observations and recommendations made by HMCPSI. HMCPSI's review of case progression focused on systems and processes between case acceptance and charge. The Inspectorate noted that the SFO deals with very complex cases involving huge amounts of data and often extensive international cooperation. It found that the SFO had clear and well-documented internal casework processes and welcomed its engagement with partners and stakeholders; its greater commitment to victims and witnesses, in particular, setting clearer expectations leading to improved communications; and the opportunities for training and development it offered. However, it identified a number of areas that would benefit from improvement and made seven recommendations concerning the organisation's allocation of resources, its use of independent counsel, the demands placed on its digital forensic unit, the development of core skills training to support case progression, and the monitoring of key milestones in the investigation and prosecution of cases. HMCPSI also identified two further issues to address—the use of a new electronic case management system by the Intelligence Division, and the improvement of 9 performance data in order to identify and challenge delays in cases. In responding to the findings, the SFO accepted all of the recommendations in full, save for one, which it accepted in part—refusing to accept that it should consider the reallocation of case controllers and case teams when cases are not being taken forward promptly. The SFO's response also contained a number of announcements designed to implement the recommendations, such as: • the recruitment of a cadre of paralegals to reduce the number of temporary staff; • the refreshing of its Counsel Panel List; • a staff rotation policy in order to enable all staff to experience the breadth and depth of its work; • the rebalancing of the allocation of resources across divisions; • new training programs; • revisions to its Business Plan; • changes to the way in which MI is gathered and presented; and • various other amendments to existing policies and procedures. All of the announcements are to be welcomed. However, some readers may be left wondering whether HMCPSI's report and the subsequent measures to be introduced by the SFO really address the systemic issues that often delay case progression, such as limited resources, high staff turnover, reliance on overseas cooperation, etc. Time will tell whether any of the measures announced by the SFO will have a meaningful impact. FURTHER DPA GUIDANCE In October 2020, the SFO published the relevant section of its Operational Handbook on Deferred Prosecution Agreements. Although the Handbook is for "internal guidance only," it is commonly made available (either in full or with redactions) "in the interests of transparency." Although the chapter runs to a few dozen pages, those familiar with the DPA Code of Practice, recent U.K. judgments concerning DPAs, and other SFO guidance will find little within the chapter of which they were not already aware. However, it does provide a useful insight into how the SFO approaches DPAs and how it engages with companies when a DPA is a potential outcome. For example, it highlights that cooperation is "a key factor" the SFO considers when deciding whether to enter into a DPA. It also provides those unfamiliar with the law and procedures relating to DPAs with a helpful overview of the U.K. regime. COOPERATION ON CARTEL INVESTIGATIONS In October 2020, the SFO published a revised Memorandum of Understanding (MoU) with the Competition & Markets Authority (CMA). Under the MoU, the SFO and CMA agree to cooperate to ensure effective and efficient investigation and/or prosecution of the criminal cartel offence set out under section 188 of the Enterprise Act 2002. The MoU provides for the sharing of know-how (e.g., joint training, secondments, etc.) and improved information and intelligence distribution. However, it is the prospect of joint investigations—detailed in the MoU—that will interest many. In recent years, the CMA has shied away from undertaking criminal investigations and prosecutions. In these areas, the SFO undoubtedly has greater experience and expertise, which the CMA may well wish to draw upon. Many will be waiting to see how often the terms of the MoU are utilised and whether entering into such an agreement signals a greater appetite to investigate and prosecute criminal cartels. DIRECTOR'S LEGISLATIVE 'WISH LIST' While Ms. Osofsky's primary aim is to secure wholesale reform of the U.K.'s corporate criminal liability laws, during a speech delivered in October 2020, she set out a more moderate legislative "wish list." Her stated aim is to enable the SFO to be more effective. Unsurprisingly, the introduction of a new offence of failure to prevent serious fraud (or economic crime more generally) topped the list. However, Ms. Osofsky stated she would also welcome the ability to use investigative powers—set out under section 2 of the Criminal Justice Act 1987—in relation to serious fraud and domestic bribery before opening a formal investigation. The SFO is already permitted to do so in relation to foreign bribery. Ms. Osofsky also seeks the introduction of an offence that would prevent those receiving section 2 notices from "tipping off" those that are the subject of investigation. It is envisioned that such an offence would operate in a way similar to the offences set out under the Proceeds of Crime Act 2002. The two discrete legislative changes that Ms. Osofsky seeks will only impact the SFO. As a result, they are relatively straightforward to achieve. However, as matters currently stand, the U.K. Government has given no indication that it intends to implement one or other of these changes. SIGNIFICANT OUTCOMES In February 2020, three former bank executives—Roger Jenkins, Richard Boath and Thomas Kalaris—who were accused of funnelling secret fees to Qatar in exchange for emergency funding at the height of the 2008 10 financial crisis, were acquitted of conspiracy to commit fraud following a high-profile trial. Their acquittal allowed the publication of several earlier judgments concerning the dismissal of proceedings against Barclays Plc and findings made by the original trial judge that there was no case for Mr. Jenkins, Mr. Boath, Mr. Kalaris and former CEO John Varley to answer—a decision that was later overturned by the Court of Appeal in relation to the first three men, leading to the retrial that concluded in February 2020. Of particular interest is the judgment of Lord Justice Davis dismissing the SFO's application for leave to prefer a voluntary bill of indictment against Barclays—a process through which the SFO attempted to resurrect its prosecution (SFO v Barclays Plc [2018] EWHC 3055 (QB)). Paragraphs 58 to 87 provide a helpful overview of the law on corporate criminal liability and highlight the very real legal and practical difficulties faced by enforcement authorities in bringing prosecutions against corporate entities, largely due to the operation of the "identification doctrine"—the principle that a corporate body can only be held liable for the acts or omissions of individuals if they represent its "directing mind and will" (absent an express statutory provision to the contrary). In April 2020, the SFO confirmed that Tesco Stores Ltd had fully complied with the terms of the DPA made in April 2017 in relation to the company's false accounting practices. In May 2020, the SFO announced the closure of its investigation into the U.K. subsidiaries of ABB Ltd—the Swiss incorporated engineering company—their officers, employees, and agents. The SFO stated that the case did not meet the relevant tests for prosecution. The investigation, which was announced in February 2017 following a self-report by representatives acting on behalf of the company, was linked to the SFO's Unaoil investigation. In June 2020, the SFO announced the closure of its investigation into the activities of the De La Rue group and its associated persons in relation to suspected corruption in South Sudan. The SFO stated that "following extensive investigation and a thorough and detailed review of the available evidence," the case did not meet the relevant tests for prosecution. Also in June, the SFO announced that it had closed its investigation into the manipulation of EURIBOR and withdrawn European Arrest Warrants for three German traders and a French citizen. While the investigation led to four senior ex-bankers being convicted for their part in the conspiracy and receiving sentences ranging from four to eight years' imprisonment, several individuals were acquitted or avoided extradition to the U.K. In July 2020, the SFO's DPA with G4S Care and Justice Services (U.K.) Ltd (G4S C&J) was approved. G4S C&J accepted responsibility for three counts of fraud against the Ministry of Justice by deceiving it as to the true extent of profits from contracts for the provision of electronic monitoring services. Under the three-year DPA, G4S C&J is required to pay a financial penalty of £38,513,277 and meet the SFO's costs in full, totalling £5,952,711. G4S C&J received a 40% reduction in the financial penalty due to the delayed nature of its "substantial cooperation." This is only the second time a discount of less than 50% has been applied under a DPA. G4S C&J paid compensation of £121.3 million to the Ministry of Justice as part of an earlier civil settlement. Also in July, the trial of Ziad Akle, Paul Bond, and Stephen Whiteley—three individuals accused of bribery in connection with the activities of Unaoil in Iraq— reached its conclusion. The trial, which began at Southwark Crown Court in January 2020, was temporarily halted towards the end of March 2020 due to the pandemic. It resumed on 13 May 2020 at the Central Criminal Court where social distancing measures could be implemented. Mr. Akle and Mr. Whiteley were convicted and sentenced to five and three years' imprisonment respectively. Basil Al Jarah, who had pleaded guilty in July 2019, was sentenced to three years and four months' imprisonment. The jury was unable to reach a verdict in relation to Mr. Bond. He was retried and convicted earlier this year. This outcome was overshadowed by publicity of Ms. Osofsky's aforementioned contact with a U.S. private investigator acting for the Ahsani family. The contact was revealed following a failed abuse of process application by the defendants and will be the subject of a review later this year. Also in July, confiscation orders in the sum of £2,935,000 and £2,515,000 were made against the former CEO and COO of Afren Plc. In October 2018, both men were convicted of fraud and money laundering, and sentenced to six and five years' imprisonment respectively, for their part in deceiving the Board of Afren when entering into a $300-million oil deal from which they personally stood to gain over $17 million. In October 2020, the SFO's DPA with Airline Services Limited (ASL) was approved. ASL accepted responsibility for three counts of failing to prevent bribery arising from its use of an agent between 2011 and 2013 to win three contracts, together worth over £7.3 million, to refit airliners for Lufthansa. The one-year DPA requires ASL to pay almost £3 million, consisting of a penalty of £1,238,714, disgorgement of profits of £990,971 and a contribution to the SFO's costs of £750,000. ASL is also obliged to fully cooperate with the SFO and any other domestic or foreign law enforcement agencies. Interestingly, ASL had been effectively dormant since 2018 following the sale of its core businesses. It remained only as a shell, supported by its major investor, to permit the SFO to conduct its investigation and to conclude the DPA. 11 In November 2020, the SFO announced that it had secured almost £1.2 million from Julio Faerman following a civil recovery investigation. During interviews with Brazilian investigators, Mr. Faerman admitted paying bribes to win business for SMB Offshore NV. The admissions were made as part of "Operation Car Wash"—the high-profile investigation into systematic bribery to win contracts from Petrobras. Mr. Faerman is the subject of a co-operation agreement with Brazilian authorities, having paid a settlement of around $54 million. The SFO's investigation focused on a West London apartment believed to be worth in the region of £4.25 million, which it believed had been acquired, at least in part, by the proceeds of Mr. Faerman's criminality. In return for Mr. Faerman paying the sum, the SFO has agreed not to commence a civil recovery claim. This outcome highlights the growing trend of U.K. authorities seeking to secure assets held in the U.K. that are believed to have been secured, at least in part, by the proceeds of foreign criminality, particularly bribery and corruption. In December 2020, the Court of Appeal dismissed appeals brought by Colin Bermingham and Carlo Palombo—two ex-bankers convicted of conspiring to manipulate EURIBOR. The Court held that there was nothing arising from alleged jury irregularities and misdirections to render their convictions unsafe (see Regina v Bermingham & Palombo [2020] EWCA Crim 1662). In January 2021, the SFO announced the closure of its investigation into suspicions of corruption in the conduct of business by British American Tobacco Plc, its subsidiaries and associated persons following "extensive investigation and a comprehensive review of the available evidence." Also in January, David Lufkin, the former Global Head of Sales at Petrofac, pleaded guilty to three counts of bribery concerning corrupt offers and payments made between 2012 and 2018 to influence the award of contracts to Petrofac in the UAE worth approximately $3.3 billion. These charges are in addition to 11 counts of bribery to which Mr. Lufkin pleaded guilty in February 2019 concerning corrupt offers to influence the award of contracts to Petrofac in Iraq worth in excess of $730 million and in Saudi Arabia worth in excess of $3.5 billion. Mr. Lufkin is due to be sentenced later this year. In February 2021, the Supreme Court delivered its ruling in Regina (On the Application of KBR Inc) v Director of the Serious Fraud Office [2021] UKSC 2. This significant decision, which will prevent the SFO using its investigation powers under the 1987 Act to compel foreign companies to produce documents they hold outside the U.K., is discussed in the In Depth section later in this publication. SIGNIFICANT INVESTIGATION DEVELOPMENTS In July 2020, the SFO charged GPT Special Project Management Ltd (GPT)—a U.K. subsidiary of Airbus SE— and three individuals with offences concerning alleged bribery and related misconduct arising from work carried out for the Saudi Arabian National Guard. The SFO's investigation into the activities of GPT was specifically excluded from the DPA reached with Airbus SE in January 2020. In August 2020, the SFO announced it had charged three individuals with multiple offences in connection with its investigation into the collapse of the Axiom Legal Financing Fund. Timothy Schools, David Kennedy and Richard Emmett are alleged to have diverted money from the fund for their own benefit. In September 2020, the SFO announced it had charged three former G4S C&J executives with multiple offences arising from the fraudulent scheme that led to the making of the DPA against the company in July. Also in September 2020, the SFO announced it had charged several individuals with various fraud offences in relation to the activities of Balli Group Plc and Balli Steel Plc. In November 2020, the SFO confirmed that it had opened an investigation into suspected bribery in relation to the sale of aircraft by Bombardier Inc to Garuda Indonesia. In February 2021, the SFO announced it had charged Gianni Rivera, a former employee of Greenergy Fuels Limited, with fraud and money laundering offences following an investigation centring on the sustainable fuel sector. OTHER MATTERS OF INTEREST In last year's edition of UK Business Crime Review, we highlighted the civil proceedings brought against Tesco Plc by shareholder groups who claimed they had suffered losses as a result of the company's misstatements. In support of their claims, the shareholders relied on admissions made by Tesco when entering into a DPA with the SFO and a regulatory settlement with the Financial Conduct Authority. All eyes were on the proceedings as the first brought under section 90A of the Financial Services and Markets Act 2000—a little used provision that allows persons suffering a loss as a result of false or misleading statements to seek compensation from issuers in certain circumstances. Many were hoping that a trial would bring greater clarity and certainty. However, in September 2020, the parties reached a confidential settlement. It may well be that the costs decision in Sharp & Others v Blank & Others [2020] EWHC 1870 (Ch)—a judgment handed down in July 2020 as part of the Lloyds/HBOS investor litigation—played an important part in encouraging the parties to reach a settlement. Although 12 not a claim brought under section 90A, the High Court held that even though the directors of the Bank had breached two disclosure duties because the claimants ultimately failed to establish that the breaches were causative of any loss, or that any loss was suffered, it followed that the claimants were liable for all the Bank's costs. Attention has now turned to claims brought by shareholders against Serco Group Plc who claim that they have suffered losses as a result of corporate wrongdoing. Again, the claimants rely on a DPA approved in July 2019 following an SFO investigation into allegations of fraud and false accounting arising from the provision of electronic monitoring services to the U.K. Government. While investor litigation in the U.K. is nowhere near as developed as it is in the U.S., there are signs that shareholders may be becoming more confident in pursuing claims following criminal and/or regulatory settlements. LOOKING AHEAD August 2021 will mark three years since Ms. Osofsky took the helm at the SFO. In that time, she has spearheaded a number of initiatives designed to make the SFO more effective. She continues to push for greater incentives for individuals and organisations to cooperate with her agency, and she is a vocal proponent of legislative change to make it easier to secure DPAs and convictions against corporate wrongdoers. However, her tenure has also seen a decrease in the number of investigations opened each year and the SFO is yet to secure a conviction against an individual in a case involving a DPA. Ms. Osofsky appears to be a firm believer in doing things differently if she thinks it will deliver results. It remains to be seen whether she can secure the support she needs, both within the SFO and across government, to deliver the changes that she advocates. 13 FINANCIAL CONDUCT AUTHORITY In recent years, the Financial Conduct Authority (FCA) has seemed intent on amassing an ever-increasing number of open enforcement investigations. However, there are signs that the regulator may be changing tack. For the first time in more than five years, the number of open investigations fell in the last 12 months. Whether the latest statistics are merely an anomaly or indicative of a fundamental change in approach remains to be seen. However, many believe that it has become increasingly clear to the regulator that its resources are finite and that it cannot do all that is asked of it. On the business crime front, the FCA's Enforcement and Market Oversight Division (EMO) remains keenly focused on firms' maintenance of systems and controls to prevent and detect financial crime. However, despite the much-publicised rhetoric, it appears that the Division may be less inclined to pursue criminal outcomes against firms when a regulatory outcome will suffice—a change in approach that many will welcome. Of course, it remains the case that EMO is far more likely to pursue a criminal investigation against an individual or a firm now than it was five years ago, but there are signs that there is a growing realisation that criminal investigations are resource-intensive, time-consuming and expensive, and are best used to identify, investigate and prosecute the most egregious wrongdoing and only when the public interest clearly demands it. Finally, the FCA's new CEO, Nikhil Rathi, took up his post in October 2020. To date, he has said very little about how and when the FCA should use its enforcement powers, but many are waiting for him to address this very thorny issue. COVID-19 Like most other regulators around the world, the FCA's work has been impacted by the pandemic. However, arguably for good reason, it has been very guarded about just how the restrictions have affected EMO's activities. That said, through a response to a request made under the Freedom of Information Act 2000 (FOIA) and a recent public statement, we have been provided with some insight into how EMO's work has been impacted. In August 2020, the FCA revealed it opened just 36 enforcement cases between 1 March and 31 May 2020 compared with 148 during the same period in 2019. Only 14 concerned firms compared with 73 a year earlier. In February 2021, Mark Steward—the Executive Director of EMO—when commenting on the FCA's ongoing investigation into the operation of Woodford Investment Management Ltd, said "[t]he investigation is being appropriately resourced and is progressing, though there has been some impact on accessing certain documents and witnesses during the pandemic." Of course, this is just one case, but there is anecdotal evidence that many of EMO's investigations have been hampered by the COVID-19 restrictions. The FCA has recognised that the pandemic has also had a significant impact on those it regulates. However, while it has shown a willingness to allow some flexibility in the way in which financial institutions address financial crime risks, it has been clear that risks must be managed effectively, and legal and regulatory obligations met. There have also been reports that the FCA's view has been hardening, the longer firms have had to adjust. The FCA has also been quick to point out how certain risks may be heightened during the pandemic. For example, in October 2020, in a speech entitled "Market Abuse in a Time of Coronavirus," the FCA's Director of Market Oversight highlighted that an increase in remote working, market volatility, capital raising, corporate restructuring and acquisitions has provided the perfect environment for the misuse of price-sensitive information. Furthermore, the current working arrangements may make it harder for firms to identify and manage financial crime risks. Of course, it remains to be seen just how the pandemic will shape the FCA's enforcement portfolio. It took many years for the fallout from the global financial crisis in 2008 to play out. However, now—like then—there appears to be growing public and political pressure for the FCA to step up and act. ENFORCEMENT DATA On 10 September 2020, the FCA published its "enforcement data" as part of its Annual Report. The data provides an overview of EMO's activities between 1 April 2019 and 31 March 2020. In the 12 months to 31 March 2020, 184 investigations were opened and 185 were closed (compared with 343 and 189 respectively in 2018/19). As at 31 March 2020, 646 investigations were ongoing—one fewer than on 31 March 2019. It is the first time since Mr. Steward took the helm in September 2015 that the number of open investigations has not increased year-on-year. Most striking, however, is the significant decrease in the number of investigations opened during the reporting period, which concluded largely before the effects of the pandemic took hold. The Annual Report does not detail the types of regulatory breach or criminal offending that gave rise to an investigation. Instead, it provides broad categories of underlying conduct. Similarly, the Annual Report does not provide a breakdown of the number of investigations being carried out on a regulatory basis, a criminal basis or a "dual track" basis (i.e., those that may lead to a regulatory and/or criminal outcome). 14 However, in many of the areas that traditionally generate criminal inquiries, the Annual Report revealed that the number of open investigations fell. As at 31 March 2020, 71 investigations concerned "financial crime" (down from 83), 88 concerned "insider dealing" (down from 99) and 29 concerned "misleading statements" (down from 34). Even in those areas where the number of open investigations increased, the rises were very modest compared with previous years—142 investigations concerned "unauthorised business" (up from 137) and 29 concerned "market manipulation" (up from 26). By August 2020, the number of open investigations had fallen to 585. In response to a FOIA request, the FCA also revealed that, of those investigations, 318 were regulatory investigations, 137 were criminal, 41 civil and 89 "dual track." The FCA also disclosed that it had opened 76 investigations and closed a further 147 since March. Of course, the pandemic, at least in part, will account for the significant reduction in the number of investigations opened since March 2021. However, it is unlikely to account for the growing number of cases the FCA has closed. In just five months, EMO closed almost as many investigations as it closed in the 12 months to 31 March 2020. Finally, between 1 April 2019 and 31 March 2020, EMO imposed 203 Final Notices—187 against firms and individuals trading as firms, and 16 against individuals. It also secured 217 outcomes using enforcement powers—208 were regulatory or civil and nine were criminal. As in previous years, the vast majority of outcomes—more than 80%—concerned the variation, cancellation or withdrawal of approvals or permissions. MONEY LAUNDERING REGULATIONS 2017 One area of EMO's focus that continues to attract a significant amount of attention is its enforcement of the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017— commonly referred to as the "MLRs"—against FCAregulated firms and individuals. The MLRs came into force on 26 June 2017, replacing the Money Laundering Regulations 2007, and gave effect to the EU's Fourth Money Laundering Directive. The MLRs apply to those carrying on business (in designated sectors) in the U.K.—a broad definition that includes any business whose registered or head office is in the U.K. if the day-to-day management of the business is the responsibility of that office or another establishment maintained in the U.K. They set out a range of regulatory standards concerning AML policies, training, due diligence, etc. A breach of the MLRs can be punished with a range of civil and criminal sanctions. If prosecuted, firms may be subjected to unlimited fines and individuals may be imprisoned for up to two years. Responsibility for enforcing compliance with the MLRs rests with the designated supervisory authority depending upon the sector in which the business or individual operates. The FCA is the designated supervisory authority under the MLRs for those firms that fall within its remit under the Financial Services and Markets Act 2000 (FSMA). Firms have been pursued for breaches of their AML and counter-terrorist financing systems and controls under the FCA's broader regulatory framework for several years. In our view, there is very little to separate a regulatory investigation under the MLRs from a regulatory investigation under that wider framework. However, EMO’s increased willingness to pursue criminal investigations under the MLRs against firms and individuals has caused a stir in recent years. During a speech in April 2019, Mark Steward, EMO's Executive Director, sought to explain the FCA's change in approach: It would be inconsistent with the investigative mindset to narrow the scope of potential outcomes provided for by the law before you have made any inquiries or been able to assess the nature of the matter under investigation. Moreover, this practice brings AML investigations into line with the FCA's practice in market abuse investigations, which have been conducted on a "dual track" basis for many years as well. More importantly, I think it is time that we gave effect to the full intention of the Money Laundering Regulations, which provide for criminal prosecutions. In making poor AML systems and controls potentially a criminal offense, the MLRs are signalling that, in egregious circumstances, MLR failures let down the whole community. This does not mean every investigation where we think there is a case to answer will or should be prosecuted in this way. I suspect criminal prosecutions, as opposed to civil or regulatory action, will be exceptional. However, we need to enliven the jurisdiction if we want to ensure it is not a white elephant and that is what we intend to do where we find strong evidence of egregiously poor systems and controls and what looks like actual money-laundering. The change in approach is in line with the broader principles outlined in the FCA's Approach to Enforcement published in April 2019. It also follows criticism from the Financial Action Task Force in 2018 at the lack of prosecutions brought under the MLRs and the 2007 Regulations. However, even though Mr. Steward stated in April 2019 that a "large number" of investigations were entering "important phases," the FCA is yet to prosecute any firm or individual under the MLRs. In September 2020, in response to a request made under FOIA, the FCA revealed it had closed half of the 14 criminal 15 investigations under the MLRs that were open at the beginning of 2020. Of the seven that remained open, six were being pursued on a "dual track" basis (i.e., they may still result in a regulatory outcome). Only one investigation was being pursued on a solely criminal footing. Recent outcomes secured against major financial institutions indicate that, despite the rhetoric, the FCA is still more likely to pursue a regulatory outcome against a firm for AML failings. SIGNIFICANT CRIMINAL OUTCOMES Despite the significant increase in the number of investigations carried out by EMO in recent years, only one criminal trial was prosecuted to a conclusion in 2020. Konstantin Vishnyak, a former employee of VTB Capital, stood trial at Southwark Crown Court accused of destroying documents that he knew or suspected were or would be relevant to an investigation contrary to section 177(3)(a) of FSMA. He was acquitted in September 2020. It was common ground that Mr. Vishnyak deleted the WhatsApp application from his mobile telephone in 2018 while subject to an investigation for suspected insider dealing. During the trial, he stated he deleted the application because he feared being dragged into a "political scandal" if his links with a Russian suspect in a British murder investigation were known. He was never charged with insider dealing. In a press release, the FCA stated it was "disappointed" with the verdict but respected it. It continued, "we will take action whenever evidence we need is tampered with or destroyed." The prosecution was the first brought following an alleged breach of section 177(3)(a), although the FCA has pursued other criminal charges against those believed to have interfered with its investigations. It followed a prosecution brought by the Serious Fraud Office (SFO) against Anna Machkevitch—a director of London-based ALM Services U.K. and the Machkevitch Foundation—for failing to produce documents to the SFO as part of its ongoing investigation into the activities of ENRC. In January 2020, she was convicted, fined £800 and ordered to pay the SFO's costs in full. Both cases highlight that, increasingly, U.K. enforcement authorities are willing to bring criminal proceedings against those who take steps to avoid providing information—even when they are not the target of an ongoing criminal investigation. In December 2020, Fabiana Abdel-Malik and Walid Choucair, who were each convicted of five offences of insider dealing in 2019, failed in their attempts to overturn their convictions. In Regina v Abdel Malik & Choucair [2020] EWCA Crim 1730, the Court of Appeal concluded "there was no irregularity or unfairness, whether arising as a result of events and disclosure before and at trial or arising as a result of events and disclosure occurring after the trial, or both, such as to render these convictions unsafe." Ms. Abdel-Malek was a senior compliance officer employed by UBS in its London office. The FCA alleged that she used her position to identify inside information, which she passed to Mr. Choucair, an experienced day trader and family friend. Armed with the information, he proceeded to deal in Contracts for Difference through an account held in the name of a company incorporated in the British Virgin Islands with a trading address in Switzerland. In each of the five instances, he opened positions in relation to companies that were the subject of actual or potential takeovers ahead of press articles or company announcements that caused their share price to increase substantially. As a result, Mr. Choucair made profits in the region of £1.4 million. During the trial, Ms. Abdel-Malek denied providing Mr. Choucair with inside information. Mr. Choucair argued that, in addition to his own expertise and research, he had relied on tips and information from other wellconnected and experienced traders known to him. The FCA provided both defendants with extensive disclosure before and during the trial, which they pointed to in order to demonstrate other methods through which Mr. Choucair may have acquired relevant information. Following the trial, a Wall Street Journal article named a former Citigroup employee as the "middleman" in an insider trading scheme subject to investigation. The employee lived in a London property owned by a company linked to Alshair Fiyaz—one of the individuals from whom Mr. Choucair claimed he had received relevant information. At various times, the former employee was also in contact with other individuals named by Mr. Choucair. As a result of the article and information received following the trial, including from Citigroup, the FCA provided further disclosure to the defendants. The information revealed in the Wall Street Journal article undoubtedly put further "meat on the bones" of the disclosure the FCA had provided before and during the trial. The key issue the Court of Appeal had to determine was whether, in the light of what had since emerged, matters were sufficiently put before the jury. In the Court's view, it was "very hard to see how, in substance, the further disclosed matters added materially to what the jury already knew." In the Court's assessment: This was…a powerful case which in reality called for an explanation from each of the appellants at trial. They gave their explanations over many days of oral evidence. The jury, having evaluated their evidence, did not believe them. The jury were made sure, on all the evidence, that the counts of insider trading on the indictment had been proved. 16 As a result, the Court concluded that both defendants' convictions were safe. In January 2021, the FCA announced that confiscation orders in the sum of £3,893,964 and £34,194 had been made against Mr. Choucair and Ms. Abdel-Malek respectively. Mr. Choucair's order takes into account the profits made from the five insider dealing charges together with the profits arising from other trading carried out by him, which the court is entitled to assume also represent his benefit from criminal conduct. He must also pay prosecution costs of £403,552. In October 2020, the FCA also secured a confiscation order against Richard Baldwin in the sum of £1,633,766. If he fails to satisfy the order, he faces a further eight years' imprisonment. Mr. Baldwin was convicted of money laundering following a trial in 2017. On 3 September 2019, he was sentenced to a total of five years and eight months' imprisonment for the offence and for breaching the terms of a restraint order imposed in June 2011, which prevented him from dealing with, disposing of or diminishing the value of any asset in which he had an interest. In 2017, shortly before the money laundering trial was due to commence, Mr. Baldwin—who was on bail at the time—absconded. He was tried in his absence and convicted. An arrest warrant has been issued, but he remains at large. Mr. Baldwin's conviction followed those of Martyn Dodgson and Andrew Hind in May 2016 for conspiracy to insider deal between November 2006 and March 2010. All three convictions were secured following one of the FCA's largest and longest-running investigations, known as Operation Tabernula. SIGNIFICANT CRIMINAL INVESTIGATION DEVELOPMENTS In 2019, the FCA commenced just one criminal prosecution. However, the past 12 months has seen it announce criminal proceedings in several cases. In June 2020, the FCA revealed it had commenced prosecutions against three former employees of Redcentric Plc—an IT service provider—for making false or misleading statements contrary to section 89 of the Financial Services Act 2012, and related offences. The alleged offending took place between May 2015 and October 2016. The announcement followed public censure of Redcentric Plc for market abuse between November 2015 and November 2016. In a highly unusual move, the FCA stopped short of imposing a financial penalty on the company as a result of it "providing vitally needed services in the fight against coronavirus." The company has agreed to provide compensation to affected investors. In a speech delivered in early 2020, Mr. Steward stated that the FCA is now far more focused on corporations who mislead the market. Five years ago, 90% of market abuse investigations concerned insider dealing. Now, he estimates that approximately 50% relate to the provision of false or misleading information. In October 2020, the FCA announced it had commenced criminal proceedings against Stephen Allen for conspiracy to pervert the course of justice. It is alleged that he conspired with Renwick Haddow to disguise Mr. Haddow's interest in a property that may be used to satisfy orders obtained in civil proceedings. Mr. Allen has pleaded not guilty. His trial is due to commence in October 2021. Mr. Haddow awaits sentencing for fraud following a prosecution by the U.S. Department of Justice. In November 2020, as part of a joint investigation with the City of London Police, the FCA charged Richard Jonathan Faithfull—a former stockbroker—with money laundering. He is alleged to have laundered almost £1 million of funds originating from investment frauds between June 2017 and August 2018. He is due to appear at Southwark Crown Court in March 2021. In February 2021, the FCA announced that it had commenced criminal proceedings against Stuart Bayes and Jonathan Swann for insider dealing. The alleged offending took place in 2016 and involves trading in shares in British Polythene Industries Plc ahead of an announcement that RPC Group Plc was to acquire the company. At the time, Mr. Bayes was employed by RPC Group Plc. Also in February, the FCA announced that it had brought prosecutions against two brothers for insider dealing and fraud by false representation between 2016 and 2017. It is alleged that Mohammed Zina—a securities analyst—and Suhail Zina—a former solicitor at a major law firm—traded on six stocks while in receipt of inside information, generating profits in excess of £140,000. Both men left their employment in 2018. They will appear before Southwark Crown Court in March 2021. REGULATORY OUTCOMES Between 1 April 2019 and 31 March 2020, the FCA imposed 15 financial penalties totalling £224.4 million. These figures—both in number and amount—are very similar to those published for the previous 12 months. Out of the 15 financial penalties imposed, 12 were secured against firms. Those fines amounted to £224.1 million—99.87% of the total value of all financial penalties imposed. While regulatory proceedings are not the focus of this publication, two outcomes from 2020 demonstrate that the FCA remains focused on the adequacy and effectiveness of the systems and controls employed by firms to prevent and detect financial crime. 17 In July 2020, a major European bank was fined £37.8 million for failing to put adequate AML systems and controls in place between October 2012 and September 2017. The FCA found significant weaknesses in (i) the bank's AML policies and procedures, (ii) the carrying out of customer due diligence and (iii) transaction monitoring. It found the bank was aware of these weaknesses and failed to take reasonable and effective steps to remedy them despite the FCA raising specific concerns in 2012, 2015 and 2017. In October 2020, a major financial institution was fined a total of £96.6 million by the FCA and the Prudential Regulatory Authority for allegedly failing to adequately manage financial crime risks when it underwrote, purchased and arranged three bond transactions in 2012 and 2013 that raised a total of $6.5 billion for 1MDB—the Malaysian sovereign wealth fund. The FCA also found that the bank failed to properly address allegations of bribery in 2013 and to manage allegations of misconduct in 2015 in connection with 1MDB. The penalty formed part of the settlements totalling $2.9 billion reached with several U.S., Hong Kong and Singaporean authorities. These settlements were in addition to that reached with Malaysian authorities in August 2020, which amounted to $3.9 billion. This outcome provides another example of the ever-growing trend towards coordinated global enforcement. OTHER MATTERS OF INTEREST In November 2020, the FCA banned three individuals following convictions for serious non-financial offences. In the three unrelated cases—Russell David Jameson, Mark Horsey and Frank Cochran—had been convicted of sexual offences while working in the financial services industry and had received immediate or suspended sentences of imprisonment. Commenting on these outcomes, Mr. Steward stated, "[t]he FCA expects high standards of character, probity and fitness and properness from those who operate in the financial services industry and will take action to ensure these standards are maintained." In these circumstances, the FCA's actions are unsurprising. Almost everyone would expect it to do as it did. However, these cases raise two interesting questions. First, what action does the FCA expect an employer to take before an employee is convicted of an offence unrelated to their employment, and second, can an individual be convicted of a serious non-financial offence and avoid prohibition? The answers to both of these questions will probably depend on the particular circumstances. However, one thing is clear: increasingly, the FCA (like many other U.K. regulators) is interested in what those it regulates get up to away from the office. In December 2020, Dame Elizabeth Gloster—a former Court of Appeal judge—delivered her long-awaited report into the FCA's actions, policies and approach to regulating London Capital & Finance Plc (LC&F). The company, which entered administration in December 2018, had been given permission by the FCA only for "advising" and "arranging" activities, but raised over £200 million from mostly U.K. retail investors. There are widespread concerns that the FCA-authorised firm was used to operate an alleged "Ponzi scheme." LC&F's activities are the subject of ongoing criminal and regulatory investigations by the SFO and the FCA. Dame Gloster's investigation, carried out at the request of the FCA's Board and HM Treasury, found that "the FCA did not discharge its functions…in a manner which enabled it effectively to fulfil its statutory objectives." In Dame Gloster's opinion, this was largely due to "significant gaps and weaknesses in the FCA's policies and procedures," including: • adopting a restrictive approach to its regulation of "the perimeter"; • failing to consider LC&F's business holistically; • delivering insufficient training to staff; • granting LC&F inappropriate permissions; • inadequately supervising LC&F's compliance with rules; and • failing to respond to repeated allegations by third parties. When questioned by the Treasury Committee in February 2021, Dame Gloster stated that the FCA's failings were largely borne out of a "disconnect" between those at the top of the regulator and the operatives on the ground over many years. She acknowledged that Andrew Bailey—the former FCA CEO and now Governor of the Bank of England—had inherited a deeply flawed regulator, but in her view, he could not evade responsibility for failing to fix it more quickly. The fallout from Dame Gloster's report is still being felt. It has led to a number of FCA initiatives aimed at addressing the report's recommendations and the use of authorised firms as vehicles for financial crime in particular. Nikhil Rathi—the FCA's new CEO—has stated that he and his staff are "committed to implementing the recommendations and lessons learned which will require significant and necessary changes." Four LC&F bondholders—represented by Shearman & Sterling (London) LLP—have also obtained permission to judicially review the Financial Services Compensation Scheme's decision to refuse to compensate the vast majority of investors. The substantive hearing took place in January 2021. Judgment is expected in the coming months. In February 2020, two medicinal cannabis companies— MGC Pharmaceuticals Limited and Kanabo Group Plc— made their U.K. stock market debuts. The listings followed guidance issued by the FCA in September 18 2020 on its approach to listing applications by cannabis-related companies. It warned that "there remains a risk that the proceeds from overseas medicinal cannabis businesses may constitute 'criminal property' for the purpose of the Proceeds of Crime Act 2002." In short, unless a cannabis-related business is licensed in the U.K., property generated, held or used is likely to amount to "criminal property" even if the business is licensed in its home country. Also in February, the FCA censured Premier FX Limited for failing to safeguard its customers' money and for misuse of its payment accounts. In doing so, the FCA found that the company "seriously misled" its customers about the services it was authorised to provide and how it held customers' money. The FCA stated that it would have imposed a substantial fine had Premier FX not entered liquidation in 2018. It is estimated that the company owes it creditors—mainly consumers who used its services—approximately £9 million. Several commentators have drawn parallels between this case and LC&F. Premier FX was regulated by the FCA for money transfers, but it misled customers into believing it could also hold their funds indefinitely in secure, segregated client accounts, protected by the Financial Services Compensation Scheme. LOOKING AHEAD In last year's edition of UK Business Crime Review, we described 2020 as a "pivotal year" for the FCA—and EMO in particular—and there is evidence that it may have been. In next year's edition of UK Business Crime Review, we will be examining whether the trends evident over the last 12 months have continued. Will 2021 see a continued reduction in the number of open investigations? Will the significant increase in investigations being closed continue? Will there be further evidence of a move away from opening criminal investigations against firms? One thing is for sure: Mr. Rathi is likely to have an awful lot on his plate for the foreseeable future. 19 NATIONAL CRIME AGENCY Like many of the U.K.'s other law enforcement agencies, the National Crime Agency (NCA) has a broad portfolio. However, its primary objective is to protect the public from those who pose the greatest threat to the United Kingdom by cutting serious and organised crime, which it estimates costs the U.K. economy at least £37 billion a year. Many commentators believe the figure is likely to be significantly greater than that. Under its Director General, Lynne Owens, many argue that the NCA has made significant progress in recent years. It has certainly achieved a number of notable outcomes over the past 12 months. However, with such a broad portfolio, it will always be fighting on many fronts. In July 2020, Operation Venetic hit the headlines. Working with law enforcement partners in Europe, the NCA has been targeting organised crime groups using EncroChat and other encrypted communications channels. By July 2020, the NCA's efforts had led to 746 arrests and the seizure of £54 million in cash, 77 firearms and over two tonnes of drugs. In a further boost to the agency, in January 2021, the Court of Appeal ruled in Regina v A, B, C and D [2021] EWCA Crim 128 that EncroChat communications obtained by a French and Dutch joint investigation team were admissible in criminal proceedings before a U.K. court. It is thought that EncroChat evidence is being relied on in around 900 U.K. prosecutions. Operation Venetic is a good example of the scale and scope of the NCA's efforts. It aims to tackle some of the most serious offending, usually with a national or international dimension—such as terrorism, human trafficking, drug smuggling, sexual exploitation and cybercrime—by using a variety of tools and measures, including the commencement of prosecutions and civil proceedings, as well as intelligence gathering and disruption techniques. However, in this section, we will focus on its work to tackle serious economic crime. NATIONAL ECONOMIC CRIME CENTRE The National Economic Crime Centre (NECC) was created to "task and coordinate the national response to economic crime, backed by greater intelligence and analytical capabilities." Although housed within the NCA, it draws on "expertise from across government, law enforcement and criminal justice agencies, as well as new resources provided by the private sector." Operational since February 2019, it has brought together staff from the NCA, the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA), Her Majesty's Revenue & Customs (HMRC), the City of London Police, the Crown Prosecution Service and the Home Office, as well as the private sector, to identify and prioritise the most appropriate type of investigation, whether criminal, civil or regulatory, in order to ensure "maximum impact." The U.K. Government views the establishment of the NECC as a central plank in its Economic Crime Plan for 2019 to 2022, which was published in July 2019. The creation of the NECC was widely welcomed as a way of dealing with what has often been described as a "fragmented approach" to tackling serious economic crime in the U.K. The U.K. Government hopes that its establishment will go a long way to deliver a joined-up strategy from a variety of law enforcement agencies and prosecuting bodies whose work is frequently divided up based on the sums involved, crime type, the sector concerned or geographical location. The NECC includes the Joint Money Laundering Intelligence Taskforce (JMLIT), which was created in 2015 as "a partnership between law enforcement and the financial sector to exchange and analyse information relating to money laundering and wider economic threats." In order to carry out its work, JMLIT relies on existing information sharing gateways, such as section 7 of the Crime and Courts Act 2013. JMLIT includes representatives from over 40 financial institutions, as well as the NCA, the SFO, the FCA, HMRC, the City of London Police, the Metropolitan Police Service and Cifas—the fraud prevention membership association. In its Mutual Evaluation published in December 2018, the Financial Action Task Force (FATF) highlighted JMLIT as "a particularly strong feature" of the U.K.'s AML regime, and its successes were widely viewed as having led to the creation of the NECC. In its Annual Report, published in July 2020, the NCA stated that—in the 12 months to 31 March 2020—56 arrests had been made, 3,740 bank customers had their accounts closed and £3,398,776 in funds had been restrained or seized as a result of the work of JMLIT. Establishing effective public-private partnerships is a key theme in the Economic Crime Plan. Of course, the private sector, and the financial services sector in particular, already play a significant role in the U.K.'s fight against economic crime. However, few would argue that there is no scope to develop more effective and wide-reaching partnerships. What remains to be seen is how the U.K. Government envisages such partnerships operating in practice. Will there be greater scope for information sharing between financial institutions and increased feedback from law enforcement agencies when information is provided? Will the U.K. Government embark on a more collaborative approach to legislative reform and the development of financial crime policy? Will there be more opportunities to develop and share best practices, to pool resources or to cooperate in the building of improved IT systems and advanced technological solutions? 20 We have little doubt that many businesses operating in the U.K. are likely to welcome the opportunity to develop genuine, public-private partnerships. The concern is that the U.K. Government may view such measures simply as a way of shifting the burden of fighting economic crime to the private sector by saddling them with ever-increasing regulatory burdens and demands for funding. COVID-19 The NCA has been at the forefront of many initiatives in response to the pandemic as new threats and pressures have emerged. Many have considered the NECC's response, in particular, as its first real test. The so-called "OTELLO COVID-19 Fusion Cell"—cosponsored by the NECC and the private sector—has brought together experts from the financial sector, insurance companies, trade bodies, law enforcement and the wider public sector. This further example of a public-private partnership aims to "rapidly share information on changes to the economic crime threat related to COVID-19 and to proactively target, prevent and disrupt criminal activity, protecting businesses and the public." Through analysis of Suspicious Activity Reports (SARs) and other available data, it produces a weekly "public-private threat dashboard" to "inform areas for proactive tactical development and disruptive action." The pandemic has also highlighted two economic crime threats that have been growing in recent years—fraud and cybercrime. In its Annual Report, the NCA revealed that by June 2019, fraud had overtaken theft as the most prevalent type of crime with an estimated 3.86 million reported incidents in England and Wales alone. In January 2021, the Royal United Services Institute described fraud as a "silent threat" and called for it to be considered as part of the U.K.'s national security assessment. Of course, fraud prevention has been high on the economic crime agenda for several years. However, the pandemic has demonstrated just how quickly criminals are able to adapt to exploit new opportunities. They have been bolstered in their efforts through the increased use of technology. In its Annual Report, the NCA stated that 84% of fraud is believed to be cyberenabled. In relation to both threats, the NCA and other enforcement agencies stress the importance of taking effective preventative measures in order to reduce the risk of exposure to harm. This is clearly an area in which the further development of effective working relationships between public and private sector entities will be welcomed. FINANCIAL INTELLIGENCE UNIT The U.K.'s Financial Intelligence Unit (FIU) sits within the NCA and is responsible for receiving, analysing and disseminating financial intelligence gathered from SARs, which individuals and firms—and particularly those operating in regulated sectors—are required to submit if they suspect money laundering or terrorist financing. The FIU also maintains a secure network with FIUs throughout the world to receive and share information in order to fight money laundering and terrorist financing. In response to the pandemic, the FIU has been encouraging those submitting SARs to highlight suspected criminality linked to COVID-19. Since March 2020, the FIU has been providing weekly bulletins— outlining the key themes and trends—in order to assist those in the private sector tasked with identifying, assessing and managing financial crime risks. The FIU's analysis of SARs has also helped to inform law enforcement partners at home and abroad of the "intelligence picture." In its Annual Report, published in November 2020, the FIU revealed that it received a record 573,085 SARs between 1 April 2019 and 31 March 2020—a 19.78% increase from the previous year when 478,437 were submitted. This equates to 1,570 a day. Of those filed, 62,408 were Defence Against Money Laundering (DAML) or Defence Against Terrorism Financing (DATF) SARs—an 80.67% increase from the previous year. DAML SARs allow individuals or firms to seek consent from the FIU to deal with property that they suspect is, in some way, criminal. DATF SARs operate in the same way but relate to terrorism financing. Of those submitted, 61,978 related to money laundering and 430 related to terrorist financing. Consent was refused in relation to 2,055 DAML SARs and 71 DATF SARs. As a result of DAML SARs being filed, the FIU calculated that £171,986,930 was denied to criminals—a 30.62% increase from the previous year's figure of £131,667,477. A further £50,623 was restrained or forfeited as a result of DATF SARs. The significant increases in recent years are largely thought to be due to the introduction of Account Freezing Orders (AFOs), which allow a number of law enforcement and prosecuting agencies to apply to a court to freeze the balance of a bank account if it has reasonable grounds for suspecting that the money held is property obtained through, or to be used in, unlawful conduct. Thereafter, the monies held may be forfeited if a person with an interest in the account fails to respond to an Account Forfeiture Notice issued by the relevant agency within the permitted period or if a court is satisfied, on the balance of probabilities, that the balance is property obtained through, or to be used in, unlawful conduct. The new powers, which came into force on 17 April 2018, were introduced to Part V of the Proceeds of Crime Act 2002 (POCA) by the Criminal Finances Act 2017 (CFA). Last year, it was reported that more than 650 AFOs had been obtained by all enforcement authorities in 2018/19, resulting in more than £110 million being frozen. In its Annual Report, the NCA disclosed that more than £145