The developing attitudes and approaches of white-collar crime enforcement agencies in the US and UK
July 2018 | SPECIAL REPORT: WHITE-COLLAR CRIME
Financier Worldwide Magazine
July 2018 Issue
The past 12 months have seen a number of significant developments in relation to the attitudes and approaches of white-collar crime enforcement agencies in the US and UK. A new US administration began to shape the Department of Justice (DoJ) in accordance with its own priorities, while the Serious Fraud Office (SFO) in the UK secured new funding at the same time as it remained under threat of being shut down altogether and rolled into the National Crime Agency (NCA). However, the SFO’s new director may change all of that.
This article highlights some of the biggest developments and discusses what they mean for the future of white-collar crime enforcement in the US and UK.
New policy on FCPA enforcement. In November 2017, the DoJ published a new policy on enforcement of the Foreign Corrupt Practices Act (FCPA). The key feature of this new policy was the introduction of a presumption that it will not prosecute companies that voluntarily disclose an FCPA violation, fully cooperate with any investigation, take appropriate remedial action in a timely fashion, and agree to surrender any proceeds flowing from their misconduct. The intention behind this change in policy was to give companies greater certainty about the benefits of self-reporting.
However, running against this is the broad discretion the DoJ has under the new policy to override that presumption in the presence of “aggravating circumstances”. The policy gives broad examples of what circumstances may qualify as aggravating – involvement by executive management of the company in the misconduct, a significant profit to the company, pervasiveness of the misconduct within the company, and criminal recidivism. However, it adds that this list is not exhaustive and so, in practice, the DoJ is free to identify any factor in a case as aggravating.
At present, it is not clear how the DoJ will strike a balance between the new presumption and the broad discretion it has to bypass it. Even its examples raise questions – for example, is “significant profit” judged objectively or subjectively? What happens when the significance of the conduct is not directly tied to profit? Do executives of subsidiary companies count?
However, it is fair to assume that the DoJ will not want to undermine the purpose of the new policy, which is to give companies greater certainty about their choice when it comes to self-reporting, by using their discretion in any but the most exceptional cases. This view is reinforced by comments made by deputy attorney general Rod Rosenstein when he announced the policy in November last year, in which he stated that there had been only two voluntary disclosures under the Pilot Program that preceded the new policy and both cases were resolved through a non-prosecution agreement with no compliance monitor imposed.
The wider direction of the DoJ. Mr Rosenstein has also hinted more recently at the direction the department will take in the coming months and years. Speaking in March this year, he highlighted the DoJ’s recent work to combat Medicare and Medicaid fraud, military procurement fraud, and illegal offshore tax shelters and stated that more such cases would be seen in the future. He also emphasised the DoJ’s ability to adapt to the changing scope of what qualifies as white-collar crime. By way of example, he highlighted drug trafficking and national security investigations as areas that now frequently involve sophisticated data analysis and examination of complex financial transactions. In this vein, the DoJ is hiring more data analysts to support its investigations into a wider range of white-collar crimes.
Alongside the above, Mr Rosenstein cited less prominent developments, such as the DoJ’s initiative to target people who fraudulently fail to pay payroll taxes and recent criminal convictions for fraudulent transactions involving tax credits for renewable fuels. He also highlighted the DoJ’s success in bringing charges against 36 people for their involvement in a transnational racketeering enterprise via internet forum ‘Infraud’, overcoming the conspirators’ use of digital currency.
The key takeaway here for practitioners is that the scope of the DoJ’s efforts to target white-collar crime is widening, at the same time as its use of technology to assist its investigations is becoming more sophisticated. Types of conduct that it would not historically have treated as white-collar crime or invested substantial resources into investigating are now becoming key areas of focus.
A new director of the SFO. In recent years, the fate of the SFO as a whole has been uncertain. In the past, prime minister Theresa May has made no secret of her desire to fold the SFO into the NCA and, prior to the UK general election in June 2017, this was a stated policy of her Conservative party. Since that time, the policy has quietly been put on the backburner.
The recently confirmed appointment of former FBI-lawyer Lisa Osofsky to replace long-time director of the SFO David Green may, surprisingly, make this even less likely. In the past, Ms Osofsky has appeared to endorse Theresa May’s plan, stating that “Mrs May has made a calculation here on how to spend limited resources, and get the biggest bang for her buck”. She also said that, compared to classic SFO prosecutions, money laundering is a much bigger issue. However, speaking following her appointment, she affirmed her longstanding support for the SFO’s independence and reported that the UK’s attorney-general is fully committed to the organisation remaining independent. She added that, while she wants strong cooperation between the two organisations, she “didn’t take this job to report to the National Crime Agency”. If Ms Osofsky really is able to coordinate more closely between the SFO and the NCA, it could make for a formidable investigative power in the future.
Under Ms Osofsky, practitioners should also watch out for the SFO being more willing to strike deals, given her background in the US where non-prosecution agreements are par for the course. Speaking to this point, she recently remarked that the scale of the £500m-plus deferred prosecution agreement (DPA) reached with Rolls Royce demonstrated that the introduction of DPAs in the UK “has been a key step in the right direction”.
Another area that may see change under Ms Osofsky’s leadership is the SFO’s treatment of legal professional privilege (LPP). Mr Green attracted criticism for mounting challenges against what the SFO considered to be unjustified claims that material was subject to LPP. However, these challenges have met with some success in the courts. For example, the court’s judgment in Serious Fraud Office (SFO) v Eurasian Natural Resources Corporation Ltd  EWCA 1017 has given a narrow interpretation of the circumstances in which privilege over material such as the record of employee interviews can be claimed on the basis that litigation is reasonably in contemplation. Ms Osofsky may be less inclined to pursue challenges of this nature, given her long years of service under the strict US tradition of legal privilege.
Anyone hoping that the SFO’s investigations and charging decisions will happen faster under Ms Osofsky may be in for disappointment, however – in response to a criticism of the current situation, the Financial Times quotes her as saying that “charging someone is a big deal…charging a company can be a corporate death sentence. You want to make sure those decisions are taken accurately”.
In general, the appointment of a US lawyer is also likely to strengthen ties between the SFO and its US counterparts, with more coordination between them on enforcement likely in the future.
XYZ. The introduction of DPAs in the UK has not been without its teething problems. In The Queen (on the application of AL) v the SFO  EWHC 856, in April this year, two UK High Court judges strongly criticised the SFO for not demanding disclosure of notes of internal interviews with employees from XYZ before offering the company a DPA relating to allegations of bribery. XYZ declined the SFO’s initial request for the notes of the interviews on the grounds of legal privilege, instead providing an ‘oral proffer’ – effectively an oral summary of a statement which purported to summarise the interviews.
The judges said that the case raised novel issues around the extent to which the SFO is under a duty to obtain documents from a company that has self-reported wrongdoing. In a written statement, the SFO said that it is studying the judgment carefully and that it “will certainly seek to ensure that our future approach to such matters reflects the Court’s findings and observations”.
If the SFO takes the judges’ criticisms on board, practitioners ought to be prepared for an expectation of access to full written transcripts of internal interviews in the future.
Changes to the way the SFO is funded. Running contrary to mooted plans to fold the SFO into the NCA, the way the SFO is funded has just been revised in a way that is likely to give it access to a much more consistent pool of funds to finance its work. Its core funding has been increased by 54 percent to £52.7m, with the intention that this makes it less reliant on ‘blockbuster’ funding to operate. This is a significant change – in the past, blockbuster funding has accounted for as much as 45 percent of the SFO’s overall budget. Historically, blockbuster funding kicked in when a case was forecast to cost more than 5 percent of the SFO’s core funding. However, alongside the increase in the SFO’s core funding, the process for securing blockbuster funding has also been tweaked and it is expected to represent only a small handful of cases in the future.
As part of these changes, the SFO expects to reduce its reliance on temporary personnel and more freely reallocate staff between cases as the work requires, thereby increasing efficiency.
The outlook for the DoJ and SFO
In the US, greater certainty for companies in respect of self-reporting is being pursued through a new policy on the FCPA. At the same time, the widening scope of the DoJ’s pursuit of white-collar criminals leaves some uncertainty as to exactly what conduct it is going to be most interested in investigating going forward.
On the other side of the Atlantic, the funding of the SFO has been restructured in a way that will allow it to manage its budget more efficiently and pursue cases with much greater flexibility. In addition, a new director raises the possibility of a difference of approach going forward, perhaps with greater emphasis on DPAs.
The critical questions in the UK at present are what the SFO will look like under its new director, and whether it really will survive in its current form. The answers should help guide those navigating SFO investigations through what are seen by some as rather choppy waters.
Hannah Laming is a partner and David Jones is a trainee at Peters & Peters Solicitors LLP. Ms Laming can be contacted on +44 (0)20 7822 7752 or by email: firstname.lastname@example.org.
© Financier Worldwide
Hannah Laming and David Jones
Peters and Peters Solicitors LLP