It looks as though 2017 will be another busy year in the corporate crime world, with potentially major implications for individuals and corporates alike. We consider some of the main issues to watch below.
The SFO has started 2017 with a bang, landing a deferred prosecution agreement with Rolls Royce under which the latter will pay a Ł471 million penalty in the UK. This is the largest amount by far that the SFO has ever secured by way of penalty in a case, catapulting it into the top tier of enforcement agencies worldwide in terms of its ability to lead and secure results from multi-national criminal investigations. The case may have profound implications for the future. The ability to generate returns of that nature will surely lead to the SFO becoming a much better funded agency, able to take on more cases of this nature. Until now, with some justification, many have questioned whether the SFO has the resources and the appetite for a real fight under the UK Bribery Act. We don't think it is safe for a corporate to take that view now.
It's impossible to talk about what the future may hold without mentioning Brexit. However, we are really no closer to knowing its impact in corporate crime terms now than we were when we wrote this in the immediate aftermath of the vote. Given that the formal Article 50 notification to leave the EU isn't expected to be served until March, and may be even later given the Supreme Court's decision that an Act of Parliament is needed to approve that notice, it is possible that we will be no closer to understanding the implications for corporate crime by the end of the year than we are now either!
That said, we stand by our original thoughts. We do not expect Brexit to have any real impact on the UK's substantive legal regimes in relation to bribery and corruption, anti-money laundering or proceeds of crime. It likely would have an impact on procedural measures for international cooperation in criminal matters, but we would expect the UK Government and the EU to want to preserve the benefits of those measures as a priority, through new bilateral agreements.
Privilege in investigations and cooperation with enforcement agencies
A topic never far from people's minds in the investigations world in 2016 was the extent to which claims for privilege over documents – especially documents concerning witness interviews – are consistent with cooperation with enforcement agencies.
We did get some useful guidance on this in 2016, in the XYZ deferred prosecution agreement case. The court found that providing oral summaries of witness interviews and claiming privilege over the relevant documents was consistent with full and genuine cooperation with the SFO for the purposes of considering whether a company qualified for a deferred prosecution agreement.
That was, however, then followed by the decision in the RBS rights issue litigation just before the end of the year, which threw the proverbial cat among the pigeons. Essentially, the judge held that notes of witness interviews for internal investigations, even if prepared by lawyers, did not attract legal advice privilege and were therefore disclosable in the litigation.
Our article in this edition looks at this case in more detail. Some commentators are hopeful of an appeal and we agree that it would be good for the Supreme Court to look at this issue at some point soon. In the meantime, though, enforcement agencies will clearly be emboldened to challenge claims to privilege as a result of this decision, and that will have a knock on effect on their views of what constitutes cooperation. Our expectation, therefore, is that the case will have a significant bearing on the way parties conduct investigations and deal with enforcement agencies in 2017.
Corporate liability for failure to prevent
It is also clear that the trend towards making corporates liable for failure to prevent wrongdoing by their employees and agents is set to continue unabated.
In fact, 2017 has already seen the introduction of one new corporate criminal offence; failure to prevent the facilitation of tax evasion, which came into force on 1 January. This is perhaps most likely to focus the minds of professional services firms providing tax advice than anyone else, but it continues the approach of imposing criminal liability subject only to the corporate justifying the adequacy of the steps it took to prevent the conduct in question.
David Green, the Director of the SFO has been a leading advocate for the introduction of another new criminal offence of this nature – corporate failure to prevent economic crime. This one has been on and off the cards regularly over the last few years, and David Cameron's Government had concluded that the case for it wasn't made out. Theresa May has taken a different view, and there now appears to be the political will to bring it to the statute books. A consultation exercise started recently, and it now appears to be a real possibility this will make it into force before the year is out. We write elsewhere in this edition about the suitability of failure to prevent offences as a vehicle for corporate criminal liability. We'll be writing in a future edition on the wide-ranging implications of this measure for companies, who will need to conduct a wholesale review of their policies and procedures in response.
After the bumper years of the LIBOR and FX scandals in particular, FCA penalties were very low last year. This is not indicative of a regulator pulling its punches, more of the unusual scale of those scandals. So what about this coming year?
2017 is likely to be the year we see the first enforcement cases under the Senior Managers' Regime. It will be interesting to see how the FCA approaches the question of whether a senior manager has taken reasonable steps to prevent misconduct on his or her watch. Also, expect financial institutions to be under far more pressure from the FCA to decide whether an employee is fit and proper where wrongdoing is suspected.
We are also aware that the FCA is considering its first prosecutions for the benchmark manipulation offences introduced in response to the LIBOR fixing scandal. Watch this space.
Whilst the SFO decided early in 2016 to drop its investigation into the FX scandal, in the US it appears that the criminal process is really only just gearing up. One judge recently approving FX-rigging settlements with major banks specifically urged the department of Justice to prosecute the individuals involved. Will this be the year the Yates memo has an impact? If so, some of those facing prosecution could be facing extradition from the UK first.
Finally, the really big legislative change in this field in the UK this year is likely to be the introduction of unexplained wealth orders, proposed under the Criminal Finances Bill. We wrote about this here. We really do consider these measures extraordinary. The authorities will be able to freeze large sums of money and forfeit them without having to prove wrongdoing. Yet the only political challenge to the introduction of these measures is that they do not go far enough. The UK will have probably the most draconian proceeds of crime regime in the world when this reaches the statute book.
Whatever your role in preventing, detecting or responding to wrongdoing affecting businesses, you look likely to have an interesting year ahead. All the best for 2017 from the TW UK team.
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