Criminal Law Insights: October 2021

Simmons & Simmons advises Petrofac Limited in relation to its final resolution of SFO investigation

Petrofac Limited resolved the long running SFO investigation into its historic conduct this month following pleas to seven offences of failing to prevent former Petrofac Group employees from offering or making payments to agents, contrary to Section 7 of the UK Bribery Act 2010.

A total penalty of USD 104.6 million (£77 million) was imposed. In determining the penalty, the Court and the Serious Fraud Office acknowledged Petrofac's corporate reform through its transformation of the Company's leadership, personnel, compliance and assurance processes.

Simmons & Simmons was instructed in relation to the SFO investigation and plea negotiations. It is the first significant Bribery Act 2010 investigation to be resolved in this way and as such the procedure adopted and the Judge's approach to sentencing is likely to be a reference point in future investigations.

David Lufkin, Petrofac's former Global Head of Sales, was sentenced together with Petrofac. Lufkin had entered into a cooperation agreement with the SFO under the Serious Organised Crime and Police Act 2005. His cooperation was accepted by the Court as having been of an exceptional nature. On that basis, his sentence was reduced to 2 years, suspended for 18 months. The sentence was expressly intended by the Court to encourage further such cooperation from individual defendants. The SFO has been keen to make further use of SOCPA agreements to "flip" defendants. Lufkin's sentence may advance that aim.

SFO round-up:

In addition to the above resolution with Petrofac Limited, the SFO has had a productive summer; agreeing three new Deferred Prosecution Agreements ("DPAs") in July to follow the three high profile DPAs that were secured by the Serious Fraud Office (SFO) in 2020 and GPT's guilty plea earlier this year. The DPAs were agreed with Amec Foster Wheeler Energy Limited, resulting in a £103 million fine, and with two unnamed UK limited companies. The latter represent the eleventh and twelfth DPAs agreed by UK authorities. Pending the prosecution of individuals involved, reporting restrictions have been applied and few details are publicly available. The SFO has, however, confirmed that:

• The DPAs relate to charges contrary to s.1 and s. 7 of the Bribery Act 2010 (BA 2010). 

• The two companies will pay a total of £2,510,065, comprising disgorgement of profits and a financial penalty.

• The DPAs relate to UK companies operating within the UK (and do not concern overseas conduct).

• Both companies co-operated fully with the SFO.

In August, the SFO charged four men and one woman with bribery and money laundering for allegedly paying bribes to win construction contracts. The charges result from an investigation which began in 2017 and relate to acts of bribery contrary to s.1 and s.2 BA 2010 and two counts of money laundering contrary to section 328(1) of the Proceeds of Crime Act 2002. Again, as the case is ongoing the SFO has provided few details. The matter has been listed for trial on 12 September 2022.

In recent months the SFO has also announced new investigations in relation to:

• The Alpha and Green Park group of companies for suspected fraud in relation to the companies' student accommodation and holiday park developments. It is alleged that the companies misled investors who funnelled £150 million into fraudulent leasehold schemes across the country between 2014 and 2019.

• Gavin Woodhouse, whose business dealings were revealed by an undercover investigation by the Guardian and ITV News, and relate to investments that were offered in care homes and hotels between 2013 and 2019. Mr. Woodhouse raised more than £80 million from retail investors over several years in order to build care homes and to buy and refurbish hotels.

Corporate liability for breaches of the Modern Slavery Act 2015 - what's next for the UK?

When first enacted, the Modern Slavery Act 2015 ('MSA 2015') was internationally recognised as a landmark piece of legislation. However, key areas of the legislation have since been criticised for lacking enforceability - including the requirements for corporate supply chain transparency and the quality of modern slavery reporting. Simmons & Simmons has considered a number of potential developments related to MSA 2015 which, if enacted, can be expected to impact significantly on corporate duties and liability in this area. Read our full article on the topic here.

Corporate criminal liability reform update

The Law Commission consultation on potential reforms to the law on corporate criminal liability in England and Wales closed on 31 August 2021. The consultation formed part of a Law Commission project to assess different options for reform, following concerns raised by prosecutors and others that it is often too difficult to prosecute companies under the current law. Options considered include reforming the general law on corporate criminal liability (the so-called 'identification principle') or introducing new 'failure to prevent' offences that would hold corporations liable for the misconduct of their employees and agents. The issue has proved highly controversial. Critics of reform argue, for example, that extending corporate criminal liability would place a disproportionate compliance burden on law abiding businesses.

Simmons & Simmons has responded to the consultation; in summary, our view in relation to suggestions in the Discussion Paper is:

(A) We are not persuaded that there is sufficient evidence that the criminal aspect of corporate liability requires further reform. There are few compelling examples or empirical data of specific economic crime offences, such as fraud, money laundering or false accounting, committed by or on behalf of corporates which they could or should have prevented.

(B) There are already extensive regimes, both criminal and regulatory, to hold both corporate and individuals to account for financial crime and other wrongdoing in the UK. Whilst arguably somewhat fragmented, these regimes are targeted at the sectors where the risks of such offending are highest and/or tailored to address specific types of prevalent misconduct. They incentivise a culture of compliance within affected businesses and, where shortcomings are identified, are actively enforced by the relevant authorities who have the scope to impose significant penalties including criminal sanctions.

(C) These regimes do not operate in isolation and are supported by a range of other key measures which present an effective and proportionate response to demonstrated financial crime risk in the UK.

(D) The introduction of wide-ranging 'failure to prevent' economic crime offences (the option for corporate criminal liability reform which appears to have found most favour) risks imposing an unreasonable and disproportionate compliance burden on certain businesses. We do not believe it would translate into a significant increase in successful corporate prosecutions (which ought to be the principal aim of any proposed reform), or, given current low levels of enforcement against culpable individuals, that the offences would have enough of a deterrent effect to justify the resources required to introduced them into law and implement them within the business environment.

The full Simmons & Simmons response is available here. The Law Commission is aiming to publish its options paper in late 2021, following which, the Government will consider further steps.

For additional background - the discussion paper and links to a series of virtual consultation events (one of which Stephen Gentle took part in) are available from the Law Commission's website.

Pandora Papers

The Pandora Papers (FT, paywall) is the latest, and largest, in a series of leaks over the last decade (following the Paradise Papers in 2017, the Panama Papers in 2016 and the Offshore Leaks in 2013). In total almost 12 million documents have been leaked from 14 offshore service companies to the International Consortium of Investigative Journalists ("ICIJ").

Previous leaks to the ICIJ have led to waves of media publications in relation to the use of offshore structures by individuals and corporates. In a number of cases they have prompted or furthered criminal investigations, including - but not limited to - in relation to tax evasion, money laundering and corruption.

Much of the media coverage relates to what may be controversial, but entirely legal, conduct. However, where information relating to potential criminal activity enters into the public domain regulated entities that might have been involved in or facilitated any related transactions should consider whether they are under an obligation to file suspicious activity reports.

Sanctions roundup

In August 2021, the UK Office of Financial Sanctions Implementation ("OFSI") announced that it had imposed a £50,000 penalty on TransferGo Limited, a regulated fintech company that manages international money transfers, for breach of EU sanctions against Russia. This is the first penalty imposed by OFSI on a fintech company, and only the fifth time that OFSI has used its powers to issue civil monetary penalties since they were introduced in 2017.

According to OFSI's penalty report, between March 2018 and December 2019 TransferGo facilitated 16 transfers totalling £7,765 to accounts held by Russian National Commercial Bank, which is a designated entity under the Ukraine (European Union Financial Sanctions) (No. 2) Regulations 2014. TransferGo failed to make a voluntary disclosure to OFSI as required, and although it had cooperated with the investigation once commenced, this was insufficient for it to secure a reduced penalty. The report emphasises that OFSI will continue to enforce EU sanctions post-Brexit and indicates that it is willing to pursue companies in a range of sectors, "not just traditional financial institutions". Regulated fintech companies, in particular, should be mindful of the need to have a clear understanding of their sanctions compliance obligations and have robust systems and controls in place to ensure that the rules are met.

Also in August 2021, the European Commission launched a public consultation on proposed amendments to the EU Blocking Statute (Regulation 2271/96). The consultation forms part of the Commission's ongoing review of the Blocking Statute, which aims to deter and counteract the extra-territorial application of US sanctions against Iran and Cuba. The amendments under consideration have two principal objectives: (i) to provide the Commission with additional deterrence powers, including commercial or other measures regarding judicial cooperation, exclusion or restriction from access to EU capital markets or public tenders, and visa limitations for individuals; and (ii) to streamline the application of the current provisions and reduce the administrative burden for compliance with the Blocking Statute. Any changes to the statute are expected to come into force in Q2 2022. The Commission announced that it was reviewing the Blocking Statute in January 2021 and published an impact assessment on the proposed amendments in early August 2021. In September 2021, the Commission also published a report in to the application and effects of the Blocking Statute between August 2018 and March 2021. The current consultation is open until 4 November 2021 and is available to all citizens and organisations (both inside and outside the EU). In the UK, the Blocking Statute forms part of post-Brexit EU retained law and the UK regime is currently substantially similar to the EU (see the guidance on the UK regime). However, there are no immediate proposals to amend the UK regime, such that the Commission's proposals could cause the two regimes to diverge.

Parallel proceedings

We are beginning to see some of the consequences of increased fraud and other scams fuelled by the COVID pandemic, all of which indicates that we should continue to see a rise in parallel proceedings (i.e. multiple proceedings arising from similar events). An increased exposure to the risk of claims from victims and investors and regulatory action for systems and controls failures, alongside criminal investigations into the underlying conduct, creates scope for tension. Recent communications from the Government as well as consideration given to these issues by the Courts provide some guidance for affected parties, but there is much that remains to be determined as the numbers of such cases grow.

In our latest Parallel Proceedings update, we consider such issues, as well as a range of other relevant developments in recent months. These include:

• New Government guidance on the use of SARs in civil litigation.

• Challenges for retail banks where customers are victims of Authorised Push Payment and other frauds.

• A number of recent court decisions on the relationship between private prosecutions and civil proceedings.

• The latest trends in investors actions brought under s.90A FSMA against UK listed companies.

• A recent Administrative Court decision on staying regulatory proceedings to make way for civil litigation.

• A recent High Court decision on the English courts' approach to declarations that may interfere with foreign proceedings.

Read our full Autumn 2021 Parallel Proceedings update here.

Criminal enforcement of anti-money laundering breaches

At a hearing at Westminster Magistrates' Court last week, NatWest bank became the first in the UK to be prosecuted for, and admit to, criminal breaches of the Money Laundering Regulations 2007 (the "Regulations"). The Regulations require regulated firms to conduct risk assessments of their business and customers, and apply appropriate customer due diligence or 'know your customer' checks. In this case, the Financial Conduct Authority ("FCA") alleged that NatWest breached the Regulations by failing to apply enhanced customer due diligence measures and conduct ongoing enhanced monitoring of its relationship with a high risk customer who deposited £365 million in its accounts over five years; £264 million of which was in cash. The case has now been remitted to Southwark Crown Court where sentencing will likely be heard in December and at which point the Judge will set the level of any fine imposed. The FCA has confirmed that it will not be taking further action against any individuals in connection with the failings.

This action supports reports within the market of a renewed focus by UK enforcement authorities on bringing criminal prosecutions against corporates and individuals suspected of enabling money laundering. Another recent development which lends support to this view are the updates made to the Money Laundering Offences Legal Guidance for prosecutors (the "Guidance") by the Crown Prosecution Service ("CPS") earlier this summer. The updated guidance expressly confirms for the first time that it is possible for an individual working in the regulated sector to be charged with an offence of failing to disclose suspicions of money laundering under s.330 Proceeds of Crime Act 2002 ("POCA 2002") "even though there is insufficient evidence to establish that money laundering was planned or has taken place". This means that where individuals in the regulated sector receive information giving rise to a suspicion, or provides reasonable grounds for suspecting, that another is engaged in money laundering, an offence is committed by failing to make a report under s.330, regardless of whether it subsequently transpires that the money laundering cannot be proven, or that it did not occur. Prior to this change, the CPS did not bring charges under s.330 POCA 2002 where there was insufficient evidence to establish that money laundering was planned or undertaken.

These developments show a desire on the part of UK enforcement agencies to tackle the perception that London is 'soft' on money laundering and so-called money laundering enablers, which may well translate into increased enforcement action in due course. For more forward looking analysis of the FCA's criminal prosecution agenda, see our webinar.

Further anti-money laundering news and analysis of the European Commission's package of legislative proposals to strengthen the EU's regime on anti-money laundering and financing of terrorism can also be found here.