UK: FSA´s Power To Prosecute POCA Offences Is Confirmed

In the recent cases of R v Rollins and R v McInerney, the Court of Appeal has upheld the FSA's power to prosecute offences beyond those expressly set out in the Financial Services and Markets Act 2000 (the "Act"), including money laundering offences under the Proceeds of Crime Act 2002 ("POCA").

Background

Neil Rollins was charged with insider dealing and money laundering offences contrary to sections 327 and 328 of POCA. Separately, Michael McInerney was charged with committing offences contrary to section 23 of the Act in relation to various illegal "boiler room" activities and also offences under sections 327 and 328 of POCA. While the defendants accepted that the FSA could prosecute the primary offences, both challenged FSA's power to prosecute the money laundering offences.

The defendants argued that the Act contained a complete code within which FSA must operate, preventing them from exercising powers beyond those conferred by the Act. Sections 401 and 402 of the Act set out those offences that the FSA may prosecute. As the Act does not provide for FSA to prosecute offences under POCA, the defendants said that FSA does not have that power. The FSA contended that, as a private person, it had the right to bring a private prosecution for POCA offences.

The Court held that the FSA did have the power to prosecute the POCA offences. Both Rollins and McInerney appealed.

Issue

Did FSA have power to prosecute offences under sections 327 and 328 POCA?

Section 327 POCA makes it an offence to conceal, disguise, convert or transfer criminal property. Under section 328 POCA it is an offence if a person "enters into or becomes concerned in an arrangement which he knows or suspects facilitates (by whatever means) the acquisition, retention, use or control of criminal property by or on behalf of another person".

The Court of Appeal's judgment

The appeals were dismissed. Richards LJ, who gave the leading judgment, held:

  • While section 1 of the Act confirms that FSA will have certain functions set out in the Act, it does not limit the FSA to those and, in fact, contemplates that FSA would have wider functions. Clear and express language would have been required to limit FSA's powers in this way, if that were Parliament's intention.
  • The essential purpose of section 401 of the Act, which identifies that offences under the Act and subordinate legislation could be prosecuted by FSA, was not to confer this power but to limit who could prosecute such offences without the consent of the Director for Public Prosecutions ("DPP"). Section 401 did not, however, provide the basis for an inference that - absent an express provision - the FSA lacked the power to prosecute offences under the Act, or other offences.
  • Section 402 of the Act (relating to the power to prosecute certain other offences under separate legislation) had a similar effect. It empowered the FSA to prosecute those offences without having to obtain the DPP's consent. Therefore, sections 401 and 402 did not create a complete regime of offences that FSA could prosecute.
  • There was no reason why the general right to bring a private prosecution should not be enjoyed by the FSA. It was not excluded by the Act or any other statutory provision. FSA's Memorandum of Association was sufficiently broad to cover the power to institute criminal proceedings. It was irrelevant that the investigation powers conferred on FSA by section 168 of the Act related only to those offences for which FSA was given express prosecutorial power under sections 401 and 402. The right of private prosecution did not depend on the enjoyment of any particular power of investigation.
  • It made good practical sense that FSA should be able to prosecute other offences that formed part of the same criminality as offences that they had express power to prosecute under the Act, and that the FSA should be able to act as the single prosecutor instead of having to bring in another prosecuting authority in that regard.

Comment

The Appeal Court's decision does not, as some have suggested, create an additional weapon that FSA can use to meet its statutory objectives of combating financial crime and preserving market confidence. Rather, it supports the increasingly proactive and aggressive approach that the FSA and other authorities (notably SFO) are taking to investigate and prosecute financial crime, fraud and corruption and, in particular, FSA's increasing use of its criminal prosecution powers. As the authorities become more familiar and comfortable with the growing arsenal of investigative, injunctive and enforcement powers available to them under POCA and elsewhere, we are seeing ever more innovative and pragmatic use of those powers to achieve fast and high profile results.

This is in keeping with FSA's commitment to take a tough stance on market offences. As the FSA's Director of Enforcement, Margaret Cole, recently commented, "criminal prosecutions send a strong deterrent message. We are determined to deliver this message confidently and to be a feared and respected criminal prosecutor...".

This decision follows hard on the heels of:

  • FSA securing its first criminal conviction for insider dealing in March 2009 (see law nows Insider dealing: custodial sentence upheld (April 2009) and Insider Dealing: In-house Counsel sent down (June 2009)) and four more insider dealing cases currently before the criminal courts.
  • FSA's fining an insurer more than £5m in January for failings in its anti-corruption systems and controls in connection with payments to overseas companies and individuals who had helped it win business.
  • SFO using civil recovery powers under POCA to reach a Court-approved settlement in October 2008 with a construction company in connection with "payment irregularities" concerning a construction project in Egypt, resulting in fines of more than £2m. SFO's recent "carrot and stick" guidance to encourage businesses to self-report overseas corruption in return for civil settlements, and to reinvent itself in the mould of the US Department of Justice (click here to read our earlier Law-Now " Avoiding prosecution for overseas corruption: SFO's new self-reporting regime").
  • SFO's first successful prosecution of a corporate (Mabey & Johnson) for overseas corruption and its request that the Attorney General prosecute BAE for similar offences.

If these developments prove anything, it is that regulated and non-regulated businesses need to look carefully at their internal systems and controls to ensure they operate effectively to prevent wrongdoing by or within the business. This necessity can only increase as Parliament prepares to introduce new anti-bribery legislation that will make corporates directly liable for negligently failing to prevent bribery by their employees and agents.

A full copy of the judgment can be found here.

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.

The original publication date for this article was 15/10/2009.

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