The Situation: High-profile money laundering incidents have caught the attention of lawmakers and enforcement authorities in the United Kingdom.
The Result: A new director at the Serious Fraud Office ("SFO"), the formation of the National Economic Crime Centre ("NECC"), and the introduction of Unexplained Wealth Order ("UWOs") are indicative of the seriousness of the United Kingdom's efforts against money laundering.
Looking Ahead: Enforcement agencies are expected to collaborate more closely to fight money laundering activities, and certain parts of the economy, including the property sector, should expect closer scrutiny.
Money laundering is front-page news. A UK Parliamentary Committee report titled "Moscow's Gold" warned that UK national security was endangered as a result of turning a blind eye to Russia's "dirty money". As perceptions of the threat level posed by economic crime change, so do the response and priorities of those tasked with tackling the issue.
This Commentary looks at the changing landscape in the fight against economic crime in the United Kingdom and in particular the increasing focus on the fight against money laundering.
Changes at the SFO
David Green QC stepped down as the Director of the SFO in April 2018. During his six years in charge the SFO, he was widely regarded as having moved in a positive direction from an enforcement perspective. His tenure was characterised by a string of high-profile prosecutions and a conviction rate of over 70 percent, the highest of any SFO Director. Green's permanent replacement, Lisa Osofsky, was announced in June 2018.
Osofsky has previously worked at the FBI and Goldman Sachs. She joins the SFO from Exiger, who are the court-appointed monitor for HSBC. She inherits an organisation that has faced more than its fair share of uncertainty about its future in recent years. The Conservatives' 2017 Election Manifesto pledged to abolish the SFO and transfer its remit to the National Crime Agency ("NCA").
Commenting at the time, Osofsky expressed reservations about the status of the SFO, stating that the agency had been on a "knife edge for years" and had a "chequered history of success in its prosecutions".
The Conservatives' plans were shelved following the election, and Osofsky has been very clear in asserting her support for an independent SFO since being announced as the new Director. It remains to be seen where she will focus the SFO's efforts in the future.
The introduction of the National Economic Crime Centre
In December 2017, the UK Government announced plans to form the NECC. Its function is to bring together the knowledge and skills of the United Kingdom's law enforcement agencies in order to coordinate attempts to fight economic crime, with a particular focus on prosecuting money laundering and corruption offences.
The political impetus to take decisive action against money laundering and corruption has grown steadily. The scale of the problem became apparent following the release of the Panama Papers. Transparency International have repeatedly called upon the UK Government to tackle the "dirty money" that flows through London, which the NCA estimate could be as much as £90 billion. In 2016, the UK Government also issued its Action Plan for Anti-Money Laundering and Counter Terrorist Activity. Last month, the House of Commons declared that the influx of dirty Russian money to the United Kingdom posed a threat to UK national security.
The NECC will sit within the NCA and will work to combat economic crime in conjunction with a number of agencies, including the SFO, the Crown Prosecution Service, the City of London Police, the Financial Conduct Authority and Her Majesty's Revenue and Customs. This is a significant step toward centralisation and, according to the UK Government, brings together expertise from different agencies, which should allow for greater coordination in the fight against economic crime.
Under the current proposals, the NECC will have the power to "direct" the SFO to conduct investigations, meaning that while the SFO remains a stand-alone agency, it may now have to commence investigations at the behest of another organisation, raising questions over its ongoing independence. A similar approach was proposed when the NCA was first established back in 2013, but the plans were subsequently dropped in the face of opposition from the SFO and its supporters.
The NCA is answerable to the Home Office, and arguably the introduction of the NECC could result in the SFO being subject to, and more directly influenced by, the political agenda of the UK Government, which recently appointed a Minister for Economic Crime as part of their proposals. The Minister has since indicated that the budget for the NECC could be drawn, in part, from the SFO's existing funding, which will impact the SFO's resources.
Unexplained Wealth Orders
The UK Government's commitment to clamp down on money laundering offences is further underlined by the introduction of the UWO, which confers upon law enforcement authorities powers to require individuals or companies to explain the source of funds used to acquire defined property.
The NCA has now obtained the first UWO. Donald Toon, Director of Economic Crime at the NCA, stressed the deterrent value of such orders, stating that "UWOs have the potential to significantly reduce the appeal of the United Kingdom as a destination for illicit income".
UWOs focus on assets held in the United Kingdom. As such businesses, particularly those operating in the property sector and the financial and professional advisers who support them, will need to exercise even greater care when entering into transactions.
In the wake of the Skripal poisoning case, many commentators touted this new weapon in the arsenal of law enforcement as the remedy for the ill of dirty Russian money in the London property market.
What This Could Mean for Enforcement Activity in the United Kingdom
Under David Green QC, the SFO focused on prosecuting the most "serious and complex" fraud cases, while the NCA took the lead responsibility for tackling money laundering. There are signs that may now change.
In a world where the SFO takes direction from the NECC, the SFO may have to play a greater role in the investigation and prosecution of money laundering offences. Indeed, before Green stepped down, he had already suggested that the SFO was "combing" through its case load to detect examples of unexplained wealth.
In 2017, the incoming Director, commenting on the Conservative Party's manifesto plans for tackling economic crime, said that the Conservative Party had opted to pursue a framework designed to show the world that post-Brexit Britain was focused on tackling risks to national security, such as money laundering and terrorist financing. She noted that the classic SFO prosecution was about individual or high-profile scalps. In contrast, the scale of money laundering, while largely unknown, is much bigger and therefore presents a better opportunity for the Government to get the "biggest bang for its buck".
Since being announced as Director, Osofsky has stressed the importance she places on working across agencies to achieve results. Her experience working for law enforcement in the United States will likely lead to even closer cooperation with the United States in the fight against economic crime.
It seems certain that the fight against money laundering will assume greater importance in the future and that the agencies tasked with the job of tackling economic crime will work more closely together. In practical terms, this is likely to result in greater intelligence-sharing both domestically and internationally.
While efforts to tackle bribery and corruption will continue, a greater emphasis on combatting money laundering is likely to bring sectors that have, to date, largely avoided the close scrutiny of law enforcement into the cross hairs. In particular, the property sector must expect closer attention going forward.
Jones Day successfully acted in connection with the first Deferred Prosecution Agreement entered into with the SFO and will continue to monitor developments in this area.
Four Key Takeaways
- In the fight against economic crime, the UK Government will place greater emphasis on tackling money laundering.
- The incoming SFO Director has publically endorsed the Government's focus on an anti-money laundering agenda.
- Sectors, particularly the property sector, must expect closer scrutiny going forward.
- The SFO can now be "directed" to investigate crimes by the NECC and as a result might lose a degree of its independence.
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