2016 – the year in business crime

Although an individual’s views on 2016 are largely dependent on their view of two significant political events, several other events on their own are likely to cloud 2016. Adverts on the Underground invite you to “just forget 2016 ever happened”,  while many suggest “a 2016” will enter modern parlance to describe a bad year. In the business crime sphere, 2016 could best be described as busy.

The word “leaking” continued to dominate the headlines. In April, Mossack Fonseca, the Panama based firm suffered the leaking of nearly 12million documents concerning companies in offshore jurisdictions. In response to this, the UK set up a group to investigate suspected tax evasion. This has yet to bring any known cases. More importantly, the government introduced a new corporate offence of failing to prevent tax evasion, based on the same principle as the section 7 offence under the Bribery Act 2010. An extension of this offence to fraud and money laundering was not pushed through in the same legislation, but a consultation was launched. Its progress throughout 2017 will be of great interest.

The other prominent theme was cybercrime. Although it has been subsequently amended, the UK’s key legislation for tackling cybercrime remains the Computer Misuse Act 1990. To put this in context, Amazon was founded in 1994, with Ebay following a year later.  Google was created in 1998, Facebook six years later in 2004, followed by Twitter in 2006. Billion dollar companies Instagram and Snapchat  celebrated their fifth and sixth birthdays in 2016. This growth in corporate internet companies, along an ever increasing range of activities carried out online, has bought with it an ever increasing number of stories of hacking and online theft. Social media offences have also become more prominent. In July 2016, the National Crime Agency (NCA) published its Cyber Crime Assessment 2016, the prominent theme being the necessity for a stronger partnership between law enforcement and business.

2017 will no doubt see more of the same, along with the publication of further government plans to tackle the problem. Hopefully, in the spirit of partnership, and recognising there will be instances when companies could have done more to prevent cyber attacks, the various authorities will recognise that the most efficient action will be to target the attacker, rather than the victim. The Information Commissioner began 2016 by calling for tougher sentences for those stealing data.

The Serious Fraud Office had a mixed year. It secured its first contested conviction of a company, Smith and Ouzman, for bribery and corruption offences, and won a critical case on the way it handles material potentially subject to LPP. The good news continued in February, with the first conviction of a company under section 7 of the Bribery Act 2010.  The first contested prosecution of a section 7 count, and eventually judicial guidance as to adequate procedures, is still  awaited. The SFO also saw the Director’s contract extended until 2018, a highly contentious change to the policy of legal advisers attending section 2 interviews and the second deferred prosecution agreement.

But LIBOR was always going to be the key issue for the SFO in 2016. In January 2016, five city brokers accused of conspiring with Tom Hayes, currently serving an eleven year sentence, were all found not guilty. The SFO made a partial recovery in July, where three former Barclays traders received custodial sentences for manipulation of the US Dollar LIBOR. The next challenge will come in September 2017 with the EURIBOR trial.

The SFO was also faced with explaining a historically low 32% conviction rate for the period 2015-16. Although it is wrong to place too much reliance on a single year’s figure, the SFO will be desperate to see a return to the figures of the past few years, where the rate has consistently been above 70%.

The Health and Safety Executive (HSE) continued to be the leading prosecutor of  corporate entities in the UK with the assistance of the new sentencing guidelines for HSE offences for corporates, in force since February 2016 , and repeatedly securing convictions against companies for unsafe workplace practices. The end of the year saw a rare HSE prosecution against an employee seen “balancing on scaffold tubes in the rain while working on the roof of the multi-storey hotel” and failing to take advantage of the safety provisions put in place by a company. The individual’s actions may have been risky and foolish, but it remains difficult to see it as meriting a sentence of six months’ imprisonment, suspended and a fine of £1400.

The Financial Conduct Authority’s Operation Tabernula continued, with the convictions of the former Deutsche Bank MD and a former finance director for insider dealing. The FCA also concluded the year on a high, with the conviction and sentencing of the former investment portfolio manager at BlackRock investments to 12 months’ immediate custody.

The FCA did oversee a number of developments. On 7 March 2016, the Senior Manager’s Regime came into force for financial service firms, establishing a new regulatory framework designed to strengthen individual accountability and also the changes introduced by the Market Abuse Regulation and the Directive on Criminal Sanctions for Market Abuse,  both in force since 3 July 2016.

Looking to 2017

The Criminal Finances Act 2017 will introduce unexplained wealth orders (UWOs) and the failure to prevent tax evasion offences. Although prosecutors will no doubt be keen to use any new powers, we will definitely not see the first failure to prevent offence in 2017. An UWO is more likely, but it will take some time before the effectiveness of the legislation is established.

The Fourth Money Laundering Directive is scheduled to come into force in June 2017. A consultation was introduced in 2016, the results of which should be published early in 2017. What is less likely is any substantive review of the SAR regime which, despite considerable criticism, seems here to stay.

The ageing Regulation of Investigatory Powers Act 2000 (RIPA) will be gradually replaced by the Investigatory Powers Act 2016. The most controversial powers, bulk storage, were subject to criticism in the European Court. It remains to be seen if the government will amend this part of the legislation.

Finally, it is impossible to write a review of 2016 without mentioning the B word. Six months on, nobody is any clearer as to the precise nature of Brexit or the UK’s future relationship with the EU, which could have a considerable impact on business crime. Brexit will almost certainly continue to dominate the news in 2017. One can only hope the issues impacting business crime are clearer by next Christmas.

Practical Law David Bacon

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