Criminal law insights: September 2020

FinCEN files leak: a look at what's to come

The FinCEN files are a cache of about 2,100 SARs (and other US Treasury documents) filed by nearly 90 different financial institutions reporting suspicions involving transactions which took place between 1999 and 2017 which were leaked earlier this month. Although emanating from the US, the leak is likely to have global repercussions, including in the UK. For financial institutions, the leak raises reputational concerns, questions over the effectiveness of their policies and procedures (notwithstanding that at first blush the leak shows the banks doing what is required and making SARs) and may result in them having to navigate a potentially more zealous regulatory/enforcement environment in response to public pressure going forward. With one of the leaked US Treasury documents referring to the UK as a "higher-risk jurisdiction", the UK government, as well as UK-based financial institutions, will be keen to ensure that this perception does not persist.

In our recent article, we take a look at some of the issues financial institutions and regulators will be considering going forward whilst our UpData post considers if there are also data protection concerns to be considered.

The G4S DPA: a more flexible approach to resolving SFO investigations

On 17 July 2020, the High Court of England and Wales approved the SFO's eighth deferred prosecution agreement (DPA), a £44.5m settlement with G4S Care & Justice (G4S C&J), a subsidiary of G4S.

The DPA concerned three counts of fraud perpetrated by G4S C&J against the UK Ministry of Justice (MoJ) following the systematic overreporting of costs by the company between 2005 and 2012 in relation to a prisoner monitoring contract. The DPA allowed G4S C&J to minimise its apparent profits and avoid triggering a mechanism under the contract by which the benefit of cost efficiencies would be shared, thereby extracting further revenue from the MoJ. Following an expression of concern from the MoJ in December 2013, in January 2014 G4S C&J reported to the SFO material which indicated that the company had failed to provide accurate financial reports to the MoJ. A criminal investigation was then commenced. In March 2014, as part of a separate civil process, G4S C&J paid compensation to the MoJ in the sum of £121.3m. It has now agreed to pay a further £44.5m - a fine of £38.5m plus the SFO's full costs - and carry out an extensive corporate renewal programme as part of the three-year DPA.

Read the full article here, first published in Global Investigations Review on 23 July 2020.

The Director of the SFO's address to the Cambridge Symposium on Economic Crime

On 7 September 2020, the Director of the UK Serious Fraud Office (SFO), Lisa Osofsky, delivered a virtual keynote speech to the Cambridge Symposium on Economic Crime. In terms of key developments, Osofsky highlighted the unique potential of Deferred Prosecution Agreements (DPAs) to get companies to admit their wrongdoing and be closely scrutinised, and described the recent agreement reached with G4S, a government contractor, as being a "DPA with teeth". She also noted that UK law enforcement agencies are considering the potential for the COVID-19 pandemic to create additional opportunities for criminals and are working together to tackle crime arising as a result of this.

Osofsky outlined that in an ever-changing world, the SFO, under her leadership, continues to adopt the following four key priorities:

1. To enhance cooperation with UK and international partners
   Seamless cooperation between law enforcement agencies, Osofsky said, is critical, for the SFO's successes. For example, the unprecedented €3.6bn global settlement in the recent Airbus DPA would not have been possible without the relationships between the French PNF, the SFO and the US Department of Justice. Closer to home, the SFO is working closely with the National Economic Crime Centre so that they can use their respective skillsets to tackle the crime they face.

2. To harness technology
   Osofsky has reiterated her commitment to investing in digital forensic technology and artificial intelligence to enable better targeting and extraction of evidence and to reduce processing times. Although the SFO is currently doing this, the challenge, in her words, is to "industrialise" the approach.

3. To expand intelligence capability
   Since joining, Osofsky has directed more resources into the SFO's intelligence unit eg by doubling the analytical team and adding more specialist sub-functions such as financial data analysis. She explained that she would like this unit to take a more "proactive approach", and that includes working with other law enforcement agencies to shape the UK's national response.

4. To bring greater focus and pace to investigations
   As part of bringing greater focus, Osofsky stressed the SFO did have a responsibility to close cases which do not meet the tests set out in the Code for Crown Prosecutors in a timely fashion. With respect to pace, she noted that the SFO has made changes to the way it requests and interrogates data, although the benefits are taking some time to percolate through the bulk of the current caseload.

An overview of the SFO's 2020 Annual Report

The SFO published its annual report for the year ending 31 March 2020 on 22 July 2020. Highlights include the €3.6bn DPA with Airbus agreed in January 2020 which was the "world's largest ever global resolution of bribery and corruption charges". However, this record breaking DPA is set against the backdrop of a less successful year in which the SFO has been criticised for a series of high-profile acquittals of individual defendants and the length of time the SFO continues to take in progressing its current caseload. Further, the SFO's response to COVID-19, although positively portrayed in the report, does not necessarily withstand closer scrutiny.

Please read the full overview in our article here.

Update on UK's 5 year anti-corruption strategy

The UK government has issued a report on the progress of its 2017-2022 anti-corruption strategy (the Report).

Accomplishments include increased used of Unexplained Wealth Orders (UWOs) and Account Freezing Orders to identify and seize property suspected of being obtained through corruption. There is growth in activity by the Office of Financial Sanctions Implementation (OFSI), which issued its first penalties against three companies for breaching financial sanctions and published updated guidance in February.

The Report also identifies a number of Commitments in respect of which deadlines set in 2017 have been missed which are attributed to "pressures on securing Parliamentary time", presumably due to the legislative burden created by Brexit and emergency legislation in response to the COVID-19 pandemic. The Report also fails to give a satisfactory answer for the notable lack of progress in the government's examination of the case for reform of the law on corporate liability for economic crime or reforming the SARs regime.

Please read our full overview published here.

HMRC's COVID-19 fraud amnesty

Since April 2020 the government's financial support measures to help businesses and individuals struggling as a result of the COVID-19 pandemic have amounted to pay-outs of nearly £35bn to more than 1.2 million businesses and self-employed persons through schemes such as the Coronavirus Job Retention Scheme and the Bounce-back Loan Scheme. The sheer scale of the scheme, along with its speedy roll-out at the height of the pandemic, has inevitably resulted in a high number of accidental erroneous applications as well as deliberate cases of fraud. HMRC made its first furlough fraud related arrest in a dawn raid in July 2020 and, to date, it has received over 7,000 whistleblower reports of suspected fraud.

The Finance Act 2020 (FA), which received Royal Assent in July 2020, provides new enforcement powers to HMRC to crack down on fraud, such as the power to claw back grant payments, impose income tax liability on companies and impose individual accountability on company officers if a business has become or is in the process of becoming insolvent. It can also use its investigation powers under the Criminal Finances Act 2017 as well as considering prosecuting tax evasion offences in the most serious of cases.

Importantly, the FA introduced an amnesty provision for companies that have inadvertently made claims under the schemes, provided they notify HMRC of a charge to income tax within a 90 day period from when the grant was incorrectly received, 90 days from a change in circumstances which meant that they no longer qualified for the grant or, at the latest, by 20 October 2020. The window of opportunity, therefore, to self-report to HMRC and circumvent significant penalties, a criminal investigation and damaged reputation is relatively short. We urge all applicants to the various schemes to review their records and consider if a self-report is necessary.

Landmark Court of Appeal judgment finds use of facial recognition technology to be unlawful

In what is believed to be a global first, a recent challenge to police use of automated facial recognition has been successful, with the UK Court of Appeal finding this deployment of AI to be unlawful (R (on the application of Edward Bridges) v The Chief Constable of South Wales Police & others [2020] EWCA Civ 1058).

Mr Bridges complained that the South Wales Police had infringed his rights when using 'AFR Locate' technology - which compared images captured on live camera feeds against faces on the police's 'watch list' - in public areas where he had been present. The Court of Appeal agreed with Mr Bridges that the police had: (i) breached his right to private life (Art.8(1) ECHR), because there were insufficient limits around the use of the technology; (ii) employed a deficient Data Protection Impact Assessment for purposes of the Data Protection Act 2018; and (iii) failed to ensure that technology was not discriminatory, as required under the Equality Act 2010. The case will likely be instrumental going forwards in setting expectations around the use of facial recognition technology and the governance that must be put in place around it prior to and during its use. As the use of such technology continues to grow, these issues are expected to come to the fore - the Metropolitan police, for example, has begun to roll out facial recognition technology, despite an independent report last year which suggested that its deployment may be unlawful.

See our article for more detail.