2017 was, once again, a very busy year in the business crime world. It was a year when Deferred Prosecution Agreements (DPAs) came of age, when the boundaries of legal professional privilege narrowed, when the scope of failure to prevent offences was expanded to tax offences and threatened to become even wider, when one of the most famous cases in criminal law was discarded by the Supreme Court and when the government left it to the very last minute to enact the Fourth Directive on Money Laundering. Many of these developments will have considerable impact in 2018.
The SFO and DPAs
Perhaps the most significant development came early, when on 17 January 2017, the Serious Fraud Office (SFO) secured a DPA with Rolls-Royce, the British aero-engineering company. The agreement resulted in a penalty of approximately £500 million and a payment in respect of the SFO’s costs. Although the third DPA, it remains by far the most significant, covering widespread corruption over a number of years, and brought what was colloquially known as “US style fines” to the UK. For more information see Legal update, Third deferred prosecution agreement approved between SFO and Rolls-Royce (Crown Court).
The SFO has had a mixed year. Despite the success of Rolls Royce and the subsequent Tesco DPA, and the generally positive comments made towards the SFO’s performance under its current director, it found its abolition looking inevitable in April 2017. The Conservative Party, at that point holding a commanding poll lead over the opposition, published its 2017 Manifesto, entitled “Forward together: Our plan for a stronger Britain and a prosperous future”. The manifesto includes a commitment to “strengthen Britain’s response to white collar crime by incorporating the Serious Fraud Office into the National Crime Agency, improving intelligence sharing and bolstering the investigation of serious fraud, money laundering and financial crime”. (See Legal update, Plans to incorporate the Serious Fraud Office into the National Crime Agency announced in Conservative Manifesto.)
In May 2017, the general election resulted in a hung parliament, and eventually a Conservative government propped up by the confidence and supply arrangement with the Democratic Unionist Party. The loss of a majority, no doubt compounded by a number of backbenchers speaking about the SFO favourably, led to the manifesto commitment not appearing in the Queen’s speech.
Having seemingly found itself safe, the SFO had a mixed second half of 2017. As part of the criminal investigation into the Eurasian Natural Resources Corporation (ENRC), in a High Court ruling, Andrew J ruled against ENRC’s assertion of privilege against certain over documents prepared as part of an internal investigation into alleged misconduct. For more information, see Practice note, Legal professional privilege in internal investigations. Although seen as a victory for the SFO, there was much criticism of the decision, which seemingly threatened the ability of legal representatives to provide advice at relevant stages of an internal investigation. Permission to appeal this case has been granted, and the Law Society has sought to intervene. The appeal is likely to be one of the most significant business crime cases in 2018.
Towards the end of the year, the SFO received considerable judicial criticism for the choice of an expert witness in a LIBOR case who “lacked expertise” to give evidence in the Libor trials. At a hearing on 24 November 2017, Lord Justice Gross informed the SFO:
It’s not a matter to be downplayed when the Crown in a major prosecution calls a witness who is wholly out of his depth. We take a very serious view of what in the judgment we will describe as a debacle, whatever the outcome. We want to know how did it come about that he was instructed when he lacked expertise? We are very concerned as to how he can have been instructed, the due diligence, and how it came to light.
The expert was a key witness, who gave evidence in the Libor trials of Barclays’ traders and of the first trader to be jailed for conspiracy to defraud through Libor manipulation in 2015. It was disclosed in March that the expert had sent text messages to friends during a Libor re-trial asking for help.
The court reserved judgement to a future date. The judgement could be immensely significant for the SFO. The Libor investigations were some of the most resource intensive and expensive ever undertaken by the SFO, and the result deemed proof that the organisation was equipped to tackle serious fraud effectively. They also received blockbuster funding , where the SFO has traditionally sought and been given the resources for tackling such cases on a “cap in hand” basis. If these trials ultimately fail the SFO may see a different financing structure put in place.
In December 2017, it seemed the SFO had been finally saved. In the Anti-corruption strategy (see Legal update, HM Government publishes UK Anti-Corruption Strategy 2017-22) the Home Secretary simply committed to the National Crime Agency (NCA) being given the power to “direct” the SFO to investigate particular cases (a power the NCA has, in reality, possessed since 2013). However, that the power was a prominent feature in the review creates the possibility of the SFO’s future caseload being largely directed by the NCA.
Finally, the search for the next Director commenced with the publication of the job advert in December 2017. The publication was very late; traditionally, the successor has been named prior to Christmas. With the interview stage listed as mid-March, and David Green QC set to depart in April, it is most likely that a senior lawyer within government will become the next Director.
The Treasury unveiled plans to create a new watchdog that will tackle potential weaknesses in the anti-money laundering supervisory system. The new Office for Professional Body Anti-Money Laundering Supervision (OPBAS) will seek to improve the overall standards of supervision and ensure supervisors and law enforcement work together more effectively. The new office will come into operation on 18 January 2018. For more information see Legal update, The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017.
The news that HM Government is to create such an office is not surprising. Sectors at risk of being used to facilitate money laundering and terrorist financing are supervised by 25 organisations, 22 of which are accountancy and legal services providers’ professional bodies and set down in schedule 3 of the Money laundering Regulations 2007. The complex and unified landscape was therefore ripe for reform and simplification.
The Treasury concedes that professional body AML supervisors bring considerable benefits to the regime, as they are closest to the innovations and emerging risks within their sector. However, having several organisations supervising the same sectors and issuing guidance will inevitably lead to an inconsistent approach, and there are vast differences between the standards and resources of the relevant regulators, the greatest contrast perhaps being between the Financial Conduct Authority and the Faculty Office of the Archbishop of Canterbury.
OPBAS will be tasked with enforcing the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The 2017 regulations were finally published in September 2017, on Friday afternoon. They came into force the following Monday, without much of the expected guidance. There is much guidance still to be finalised.
The former Money Laundering Regulations, which came into force in 2007, contained a single criminal offence that was rarely used. The 2017 regulations contain both criminal and civil enforcement powers. It will be interesting to see how OPBAS approaches enforcement. For more information see Practice notes, Money Laundering Regulations 2017: criminal offences and Money Laundering Regulations 2017: civil penalties.
Finally, the Criminal Finances Act 2017 brought in some amendments to the Proceeds of Crime Act 2002, most notably the potential extension of the moratorium period beyond the current 31 day limit. This will come into force in January 2018. For more information see Legal update, The Proceeds of Crime Act 2002 (Investigations in different parts of the United Kingdom) (Amendment) Order 2017 published.
Ongoing disclosure problems:
July 2017 saw the publication of two reports: a joint report from HM Crown Prosecution Service Inspectorate and HM Inspector of Constabulary, and The Mouncher Investigation Report by Richard Horwell QC, both highly critical of the way the police and the CPS handle disclosure, and calling for significant change.
Many criminal practitioners no doubt felt a strong sense of déjà vu when reading another report detailing the various failings of the disclosure process. In 2013, the DPP published a report by HMCPSI into serious failings in the disclosure process that led to a miscarriage of justice in R v Mouncher. A decade earlier, a number of prosecutions brought by HM Customs & Excise were overturned when customs officers deliberately withheld information that a critical prosecution witness was a registered informant in the infamous LCB prosecutions. A common theme in the failings seems to be some police officers and prosecutors treating the disclosure process as some form of side issue, rather than a vital part of the criminal justice system.
The BCI blogpost, Disclosure – can we avoid another critical report in a few years’ time, highlighted past problems, in particular the difficulties of disclosure failing due to resourcing issues. Sadly, in a widely reported case at the end of the year, there were few signs of any lessons having been learned. A rape trial at Croydon Crown Court was halted after it emerged that police had only disclosed phone messages between the complainant and her friends that threw the case into doubt on the first day of trial. The prosecuting barrister described the situation as “the most appalling failure of disclosure”. The trial judge called for a review of disclosure of evidence by the Metropolitan police, as well as an inquiry at the Crown Prosecution Service (CPS). The Met later confirmed it had launched an urgent assessment of what had happened. The Prosecution barrister, Jerry Hayes commented:
The CPS are under terrible pressure, as are the police. Both work hard but are badly under-resourced. Crown court trials only work because of the co-operation and goodwill of advocates and the bench – but time pressures are making this increasingly difficult. Because of the swingeing cuts that the Treasury continuously imposes, the system is not just creaking, it is about to croak.
This failure is deeply concerning for so many reasons, most significantly the risk of an innocent person being convicted and imprisoned. The subsequent revelations that a second trial had suffered a similar fate led to a Metropolitan Police review of all ongoing rape cases. Such failures in disclosure will not come as any great surprise to defence practitioners. This story is likely to feature heavily in 2018.
Expanding the failure to prevent offence
The criminal offence of failure to prevent the facilitation of tax evasion came into force on 30 September 2017. Under the Criminal Finances Act 2017 (CFA 2017) there is no change to the underlying offences of tax evasion, but two new corporate offences are introduced: failure to prevent facilitation of domestic tax evasion offences (section 45) and failure to prevent facilitation of overseas tax evasion offences (section 46). For more information, see Practice note, Tax offences: failure to prevent facilitation of tax evasion.
This offence is the second “failure to prevent” offence, although a consultation on further offences was launched in early 2017. The offence is similar to section 7 of the Bribery Act 2010, which introduced the corporate offence of failure to prevent bribery. The offences are effectively strict liability, in that no mens rea is required on the part of those representing the corporation. Both offences also have similar defences, although described as “prevention” rather than “adequate” procedures for the tax offence. For more information see Practice note, Failure to prevent facilitation of tax evasion: prevention procedures and policies.
The section 7 offence has seen one prosecution since it came into force in 2011. It seems likely that the tax facilitation offences will follow a similar path, mainly resolved by DPA rather than prosecution. The more interesting development for 2018 will be whether the failure to prevent offences will be further expanded to include additional economic crimes. We await the results of the consultation (see Legal update, HM Government has opened a consultation on corporate liability for economic crime). Further, On 5 April 2017, the House of Commons and House of Lords’ Joint Committee on Human Rights published a report asking for a new corporate offence of failing to prevent human rights abuses.
August saw the disturbing news from the National Crime Agency (NCA) that the criminal offences of modern slavery and human trafficking are far more prevalent in the UK than previously thought. On 10 August the NCA released figures showing there are currently more than 300 live policing operations targeting modern slavery in the UK. For more information see Blogpost, Tackling modern slavery. This report was the subject of much discussion at a plenary session at the Cambridge Symposium on Economic Crime at Jesus College Cambridge in September, Chaired by David Bacon and Paul Brooks of Practical Law.
In December 2017, two reports were published, both of which addressed the failure of government to get to grips with modern slavery. Her Majesty’s Crown Prosecution Service Inspectorate reported on the Crown Prosecution Service’s response to the Modern Slavery Act 2015, finding some examples of good practice, but that more work is required in the establishment of a nationwide formal structure. The following day, the National Audit Office reported on the effectiveness of the government in tackling modern slavery, and found that the approach has been incomplete, lacks clear accountability and has provided inadequate oversight of victim support and also very few prosecutions.
Both reports should lead to changes in HM Government’s approach to tackling modern slavery. It remains to be seen whether one reform will be the creation of a further failure to prevent offence.
Finally, perhaps the biggest surprise of the year came in the Supreme Court judgment concerning a civil dispute over gambling winnings, Ivey (Appellant) v Genting Casinos (UK) Ltd t/a Crockfords (Respondent)  UKSC 67. In the ruling, the leading criminal case on dishonesty, R v Ghosh, was heavily criticised, deemed not to correctly represent the law and “judicial directions based upon it ought no longer to be given”. For more information see Legal update, Judging criminal dishonesty no longer involves a subjective test (Supreme Court) and Blogpost, Abandoning Ghosh – an important safeguard lost?
Although technically obiter, both the Court of Appeal and a regulatory tribunal confirmed that they would be following the Supreme Court decision shortly afterwards. The practical effect of the decision in Ivey may be limited, but the surprising change does appear to have taken away an important safeguard.