Anti-corruption: developments in enforcement policy in the UK and the US
February 2018 | SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION
Financier Worldwide Magazine
February 2018 Issue
This article provides an update on significant enforcement developments in the UK and the US regarding corruption and other financial crimes.
In recent years, events such as the FIFA corruption scandal and the Panama Papers leak have prompted a growing popular awareness of financial crime, such as bribery and money laundering. Traditionally, the UK was often perceived as taking a light-touch approach to white-collar crime. London’s financial and real estate sectors were regarded as havens for ill-gotten gains obtained overseas. It appears that this perception has changed markedly over the past few years, most notably since the Bribery Act 2010 took effect, and in light of increased enforcement against corruption and money laundering. During 2017, the Organisation for Economic Cooperation and Development commented that the UK had made significant progress in combating foreign bribery.
However, the UK government has, rightly, acknowledged that there remains room for improvement. In launching its new five-year anti-corruption strategy on 11 December 2017, the government warned against complacency, and emphasised the need for further action. The strategy sets out the government’s plans to tackle both domestic and international corruption up until 2022.
The strategy identifies the six key priorities which include strengthening the integrity of the UK as an international financial centre, promoting integrity across the private and public sectors and assisting other countries to implement and uphold their international anti-corruption standards. While these priorities may read like general statements of principle, the strategy contains several points of detail that are worth noting. To achieve its stated priorities, the strategy notes that the government states it shall take the following measures, detailed below.
Housed within the National Crime Agency (NCA), the government will create a new national economic crime centre. The centre will employ staff from across government and the private sector and will be tasked with improving the intelligence picture on economic crime and coordinating the law enforcement response.
The government will also establish a new Minister for Economic Crime in the Home Office.
The Serious Fraud Office (SFO) will be added to the list of organisations that can be directed by the NCA to investigate cases of economic crime. This has resolved the long-running question as to whether the SFO would be dissolved entirely or merged into the NCA. Instead, and presumably thanks to its high-profile successes in cases such as Rolls-Royce and Tesco, the SFO lives on.
The government will revisit the issue of extending corporate criminal liability beyond bribery and tax evasion to a wider offence of a commercial organisation “failing to prevent economic crimes” by persons associated with that organisation. This would be based upon the strict liability model of the Bribery Act 2010 and Criminal Finances Act 2017. The government is considering draft legislation on this point. This is likely to cause significant concern within industry and the legal profession. It remains something of a hot topic.
A reform of the Suspicious Activity Report (SAR) regime will be carried out, through improved feedback to reporters in order to enhance the value and quality of SARs submitted to the NCA.
The government will adopt a more robust approach to economic sanctions. The government indicated that it will be more aggressive in pursuing those who evade sanctions. The Office of Financial Sanctions Implementation will be authorised to impose monetary penalties for sanction breaches. There will also be a campaign to raise awareness of financial sanctions within industry and the general public in order to improve compliance with reporting obligations.
An overseas companies’ beneficial ownership register will also be created. Given the money laundering risks associated with corporate secrecy, the government will establish a new register of beneficial ownership in overseas legal entities. This register will require beneficial owners to provide information when they own or purchase property in the UK or are participating in central government contracts.
In addition, the government states it will work with its Overseas Territories and Crown Dependencies as they implement their commitments for the sharing of beneficial ownership information. This has been a source of tension between those offshore havens and the UK government for some time, exacerbated by the media attention arising from the Panama Papers leak in 2015 and the more recent Paradise Papers leak in late 2017.
The strategy emphasises promotion of ‘integrity’ throughout the public and private sectors. The government announced that measures will be implemented to improve shareholder scrutiny of executive remuneration and strengthen the employee voice in boardrooms to drive higher standards of corporate governance in large private companies. The strategy highlights that a culture of integrity within companies is critical to combating corruption and for generating sustainable growth.
The new strategy is a culmination of the government’s efforts over the past year to fortify its financial crime armoury. By way of example, over the last year alone, the government has taken the following steps.
The Criminal Finances Act 2017. Taking effect in September 2017, this extended existing powers for the seizure of criminal cash, which included the introduction of orders to compel recipients to account for the source of apparently unexplained wealth or risk losing those assets through civil court proceedings. Most significantly, the Act created two new corporate criminal offences of failing to prevent the facilitation of tax evasion, whether in the UK or abroad (see Part 3 of the statute).
The Finances Act 2017. This Act introduces civil sanctions for professional enablers of tax avoidance, such as accountants, lawyers and financial advisers.
Revisions to the 2017 Anti-Money Laundering regime. The revisions, required by the Fourth Money Laundering Directive, mean that firms must apply enhanced due diligence to all politically exposed persons on a risk-sensitive basis. The revisions also provide for a new Office for Professional Body Anti-Money Laundering Supervision (OPBAS), overseen by the FCA, to ensure that professional body AML supervisors implement their supervisory obligations to a consistently high standard. OPBAS will be fully operational by the beginning of 2018.
The strategy’s overall message is clear: businesses are expected to act with integrity, and there will be more scrutiny on sanctions compliance going forward. The strategy fits a broader pattern that the UK authorities are increasingly active in their enforcement of laws against financial crime. While the strategy makes various declarations regarding the need for business integrity, it remains to be seen how those statements of principle, no matter how laudable, measure up against the post-Brexit realities for the UK in its current and new trade markets beyond the European Union.
Over the past two years, the US Department of Justice (DOJ) has been increasingly active in enforcing the Foreign Corrupt Practices Act 1977 (FCPA). As part of that effort, the DOJ introduced its FCPA Pilot Program in 2016 in an attempt to incentivise corporate self-reporting. In the same year, the DOJ secured criminal resolutions in 17 FCPA-related corporate cases, resulting in penalties and forfeitures in excess of $1.6bn. Despite these results, only two of the 17 resolutions were the result of voluntary disclosures by companies under the Pilot Program.
In November 2017, the US Deputy Attorney General announced revisions to the DOJ’s FCPA Corporate Enforcement Policy, which represents an attempt to improve upon the FCPA Pilot Program by providing guidance and greater certainty for companies agonising over whether to self-report. The policy also enhances the DOJ’s ability to identify and punish culpable individuals for FCPA offences.
The DOJ has been careful not to promote its policy as being a judicial guarantee for leniency. The policy does provide some greater clarity about the DOJ’s decision-making processes, and about the costs and benefits for a corporate in cooperating with the DOJ.
The revised policy places companies that choose to cooperate with the DOJ in connection with FCPA violations into one of three categories, and assigns benefits to each.
First, companies that have voluntarily self-disclosed an FCPA violation, have “fully cooperated” with the DOJ’s investigation, and that have “timely and appropriately remediated” the violation are entitled to a presumption that the DOJ will decline to prosecute. Under the previous Pilot Program, the DOJ would only consider a declination of prosecution.
Note, however, that the presumption may be overcome if there are aggravating circumstances related to the nature and seriousness of the offence, or if the offender is a recidivist.
Note, also, that the declination is contingent upon disgorgement, forfeiture or payment of restitution in connection with the unlawful conduct. Therefore, companies will still need to make a potentially sizeable payment to the US government in order to avoid criminal resolution.
Second, if a company voluntarily discloses wrongdoing and satisfies all other requirements, but aggravating circumstances compel an enforcement action, the DOJ will recommend a 50 percent reduction off the low end of the US Sentencing Guidelines fine range. Previously, under the Pilot Program, the DOJ offered up to a 50 percent reduction. Again, recidivists may not be eligible for such credit.
Third, companies that do not voluntarily self-disclose, but later choose to fully cooperate and remediate the misconduct, will be entitled to a recommended 25 percent reduction off the low end of the Sentencing Guidelines’ fine range. The Pilot Program provided that the DOJ would “accord at most a 25 percent reduction” in these circumstances.
On monitorships, the policy states that the DOJ “generally will not require the appointment of a monitor if the company has implemented an effective compliance program”. The policy also details how the DOJ evaluates what constitutes an appropriate compliance programme, and also gives examples of what it considers to be an effective compliance programme, such as fostering a culture of compliance, dedication of sufficient resources to compliance and ensuring that experienced compliance personnel have appropriate access to management and to the board.
The significance of the revised policy is that it reaffirms the DOJ’s enhanced focus on “individual accountability for corporate wrongdoing”. The policy continues to require cooperating companies to disclose “all relevant facts about all individuals involved in the violation of law” and the Deputy Attorney General emphasised this point in his comments announcing the policy, observing that “[i]t makes sense to treat corporations differently than individuals, because corporate liability is vicarious; it is only derivative of individual liability”. Therefore, while the DOJ has shifted its focus to holding corporates accountable for corruption, it has not lost its appetite for pursuing individual officers, shareholders or board members involved in relevant criminality.
Anupreet Amole is counsel and Stephen A. Best is a partner at Brown Rudnick. Mr Amole can be contacted on +44 (0)207 851 6118 or by email: firstname.lastname@example.org. Mr Best can be contacted on +1 (212) 536 1737 or by email: email@example.com. The authors were assisted by Francesca Cassidy-Taylor.
© Financier Worldwide
Anupreet Amole and Stephen A. Best