Is the United States more effective than the United Kingdom at prosecuting economic crime?
In part one of this article, we compare the work of prosecutors in the US and the UK by examining several key areas of economic crime.
In part two, we analyse why the US continues to maintain its dominance in the enforcement of economic crime and look at the direction of travel in both jurisdictions.
Is the US more effective at prosecuting white collar crime?
In comparing UK prosecutions under the Bribery Act 2010 (Bribery Act) with those by US Prosecutors under the Foreign Corrupt Practices Act (FCPA), we see considerable comparative success for the US.
A freedom of information request in 2020, to commemorate the tenth anniversary of the Bribery Act, revealed there had been 99 convictions under it, alongside six Bribery Act-related Deferred Prosecution Agreements (DPAs). Such figures appear to show a healthy enforcement environment for countering bribery involving UK persons. However, on closer examination the picture is less impressive. Of these 99 convictions, only five were brought by the SFO, which is responsible for prosecuting the most serious and complex cases. Four of these five convictions were individual defendants. It appears that the remaining convictions were secured by other prosecuting bodies, including the Crown Prosecution Service, in relation to lower-level offences.
The main challenge for UK prosecutors is not that defendants are acquitted by juries at trial, it is that prosecutions are not brought in the first place – only nine Bribery Act prosecutions have ever been initiated by the SFO, resulting in just the five convictions identified above. This works out at roughly one per year, in addition to the six DPAs.
By contrast to the SFO’s cautious application, the Department of Justice (DoJ) and Securities and Exchange Commission (SEC) have charged 236 defendants under the FCPA during the same period (2010 to 2020), the majority being individuals. The US not only outperforms on the number of charges brought, but also on fines issued to companies. In 2020 alone, US fines under the FCPA totalled over $2.7bn, a figure that exceeds the £1.5bn combined total of all sanctions levied by UK authorities since the Bribery Act came into effect in 2011. 2020 was by no means an extraordinary year for US authorities - in 2019 more than $2.6bn in FCPA fines were issued. Even accounting for the difference in size between the two countries’ economies, the fact that US fines in 2020 alone exceeded the value of all UK fines in the last ten years indicates a vast disparity in the value of financial penalties imposed for bribery.
The SFO’s recent DPA with Airbus SE, coming three years after a similar blockbuster settlement with Rolls-Royce PLC, demonstrates that the UK has the ability to leverage substantial sanctions in relation to bribery; with total fines of €991m for the UK element of the Airbus investigation and £497m for Rolls-Royce. However, while this is an indication of significant progress, these settlements represent the exception in the UK rather than the rule. In relation to actual prosecutions under the Bribery Act, the largest financial penalty was £2.25m levied against a corporate defendant. This is notably modest by US standards.
Bribery is therefore an area in which the US, even allowing for its considerably larger population and Gross Domestic Product (GDP), has greater prosecutorial success. This is particularly notable in the prosecution of individuals, alongside a track-record of issuing significantly higher financial penalties for wrongdoing.
As with bribery, there is a clear gulf in the number and quantum of fines imposed by US enforcement agencies for money laundering violations, as compared to UK agencies.
In the UK, the Financial Conduct Authority (FCA) deals with breaches of money laundering regulations by financial institutions, using its civil and criminal powers. Since 2015, the FCA has imposed regulatory fines for breaches of anti-money laundering (AML) rules amounting to approximately £380m. Nearly half of this total was made up by the £163m fine imposed on Deutsche Bank in 2017 for failing to maintain an adequate AML control framework. US agencies have been far more emphatic in issuing financial penalties. During the same period (since 2015) the US has issued approximately $5.62bn in fines relating to AML failures. Again, even allowing for the greater GDP and population of the US, this is a significant difference between the two countries.
A critique often levelled at UK enforcement agencies relates to their lack of success in obtaining convictions for money laundering offences. In figures disclosed to Macfarlanes, the FCA revealed that since 2010 it has obtained six convictions against individuals for money laundering offences under the Proceeds of Crime Act 2002 (POCA). Similarly, the SFO has obtained just five convictions against individuals under POCA in the same time period. Given that these are the two central agencies in the UK for enforcing complex and high value cases, the existence in a decade of collectively only 11 convictions for money laundering is striking. HM Revenue & Customs has had greater success, securing approximately 200 convictions under POCA since 2011, but only 13 of those convictions involved high-value cases of laundered funds of £1m or more. Particularly striking is the fact that, in the last decade, none of the UK agencies have obtained a conviction against a corporate entity under POCA’s money laundering provisions. Similarly, neither the FCA nor the SFO has obtained a conviction under the Money Laundering Regulations 2007 (MLR 2007) or Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
The FCA recently announced its first corporate prosecution under the MLR 2007. This will be watched with interest to see whether the FCA can demonstrate the ability to combat egregious corporate AML failings through criminal sanctions.
The US is once again flattered by comparison. Statistics from the US Sentencing Commission show that in 2019 there were approximately 1,000 federal money laundering offenders. However, of those 1,000 defendants, just eight were corporates. Consequently, despite the reputation of the US for perceived enforcement successes and high monetary fines, the disparity between securing convictions against corporates and individuals also appears to exist.
As with bribery, there is evidence of a trend in the UK towards greater financial penalties for money laundering, though these penalties have some way to go before they match the size and frequency of those imposed in the US. When it comes to high-value, complex money laundering cases, prosecutions in the UK are notably low in number, especially when it comes to corporates. And although at first glance the US appears have a far more prolific record, a closer look at the statistics shows that a low corporate prosecution rate is also a feature of US enforcement.
Finally, an often drawn out point of comparison between the two countries is in the area of “rate rigging”, the fixing or inflation by financial institutions of key rates of lending or foreign exchange rates. Assessing enforcement in this area is of particular interest as it is the closest that prosecutors on either side of the Atlantic have come to addressing conduct arising from the 2008 financial crisis.
In the UK a familiar story emerges: whilst scandals involving manipulation of the London Interbank Offer Rate (LIBOR) made headlines across the national press, enforcement agencies are yet (and unlikely ever) to secure a single successful corporate prosecution for manipulation of the rate. The SFO, however, has brought charges against 13 individuals – one of whom pleaded guilty, another four of whom were found guilty at trial, and eight of whom were acquitted. Similarly, charges were brought against 11 individuals in relation to rigging of the continental Euro Interbank Offered Rate (EURIBOR), with four convictions. Yet even this record of prosecutions against individuals has been brought into question, as Tom Hayes, the first individual in the UK to be convicted for LIBOR rigging, has announced that he is challenging the safety of his conviction. His case is now being examined by the Criminal Cases Review Commission.
By contrast, the US has managed to bring corporate prosecutions, in connection with LIBOR manipulation. It has charged 10 companies, securing guilty pleas in a number of those cases, alongside 14 individuals. As well as LIBOR prosecutions, the DoJ has been successful in securing parent-level guilty pleas from several banks for manipulation of foreign exchange rates. As usual, the US has also been successful in flexing its financial muscle, with over $2.5bn in penalties issued by the DoJ in relation to LIBOR, including both fines agreed pursuant to DPAs and financial penalties obtained following guilty pleas to criminal charges of wire fraud. In this instance, the UK has posted a competitive haul; approximately £765m in fines have been issued by the FCA in relation to LIBOR and EURIBOR, predominantly against a host of financial institutions, together with a number of smaller fines issued against individuals.
Benchmark rate manipulation is perhaps the area where there is the greatest convergence between US and UK enforcement records; both countries have prosecuted similar numbers of individuals for offences related to LIBOR. The UK record, however, is once again marked by an inability to bring prosecutions against corporates. In contrast, the US has had some success in this area. For both countries, the imposition of financial penalties is the predominant enforcement tool.
What underpins any U.S. prosecutorial advantage?
US enforcement agencies benefit from significantly larger budgets than those of their UK counterparts. The SFO has been successful in recent years in securing increases to its core funding, which stood at £52.7m for the financial year 2019-2020. However, whilst such funding increases are welcome, they are notably limited when compared with US enforcement agencies, even when accounting for the difference in size between the two countries’ economies.
The structure and responsibilities of enforcement agencies in the UK and US are different, making direct comparison of funding difficult. However, there are examples that demonstrate the funding disparity. For instance, the Financial Crimes Enforcement Network (FinCEN), the arm of the US Treasury responsible for safeguarding the financial system from illicit use and receiving Suspicious Activity Reports (SARs), has a budget of $120m. By contrast, the UK’s National Economic Crime Centre (NECC), which contains the body responsible for receiving and analysing SARs, has a budget of just £6m. Again, this a significant disparity, not least given London’s position as one of the top two leading global financial centres.
As a result of this comparative lack of funding, UK agencies are keenly aware that unsuccessful enforcement actions can have acute consequences. In June 2020 the National Crime Agency (NCA) suffered a major setback when its appeal against the discharge of an Unexplained Wealth Order (UWO) was defeated in court. As a result, the NCA found itself liable for legal costs of approximately £1.5m; more than a third of the total budget of its international anti-corruption unit.
The FCA – the UK’s best-funded regulator which governs financial institutions and had an income of £632.6m last year – is not reliant on state funds but is instead funded by the institutions that it regulates. Even with its greater private resources, the FCA’s budget is under half that of the SEC - which had a budget of $1.815bn for 2020.
In the UK, there has been suggestion of increasing public funding to counteract financial crime, most recently through the announcement of a £100m investment to be funded by an economic crime “levy” on institutions in the anti-money laundering regulated sector. A government consultation on the proposal was conducted in 2020 but the outcomes of the consultation are yet to be published. However, there is significant concern in the industry that an additional £100m investment would continue to fall short of what is necessary to effectively tackle complex financial crime. In the most recent budget, the Chancellor also announced a £100m package to set up a new HM Revenue & Customs taskforce to combat fraud, although much of this will likely focus on tackling fraud within the government’s Covid-19 support packages.
The prosecutorial reputation of the US is undoubtedly bolstered by its image and impact on the global stage. Whilst the Bribery Act, like the FCPA, is extra-territorial in scope, US prosecutors are more proactive in asserting jurisdiction and more willing to pursue foreign companies operating in the US. Nine of the ten largest FCPA enforcement actions have been against companies incorporated outside of the US.
The US has repeatedly adopted an expansive interpretation of its jurisdictional reach. The well-publicised DoJ actions against 30 individuals involved in the FIFA bribery scandal began with a dawn raid in Switzerland, where FIFA is based, and involved individuals and entities from across the world. Amongst the broad jurisdictional arguments made by US prosecutors in that case were that business meetings had been conducted on US soil and that the US financial system had been impacted.
Current well-publicised attempts to extradite British entrepreneur Mike Lynch to the US on fraud charges relating to the sale of his software company Autonomy to Hewlett-Packard in 2011 have raised concerns in the UK about the imbalance in extradition treaties and the US’ expansive approach to claiming jurisdiction. Lynch’s defence team has criticised the US, telling the court that the US is “not the global marshal of the corporate world” and accusing it of acting as “an overweening international police force”. As judgment is awaited, at the time of writing it remains to be seen whether the English court will accede to the US authorities’ request.
The reach of US banks, and the widespread use of technology like the SWIFT global payments system, gives US authorities a number of clear pathways to claim a wide jurisdiction. Coupled with the threat of denial of access to US markets asserted through the secondary sanctions regime, US enforcement actions represent a significant risk for companies who fall foul of US rules. In essence, a US prosecution of a foreign company or individual carries much more weight than in other jurisdictions, precisely because the US as a jurisdiction is so hard to escape due to its status as the market to which multinational entities require access.
Furthermore, the jurisdictional scope of US enforcement rarely comes under judicial scrutiny because companies are increasingly encouraged to enter into DPAs.
UK prosecutors of corporate criminal liability may argue that their US colleagues have a greater range of options available to them in order to secure convictions and plea deals. Most significantly, corporate criminal liability in the US can be established on the basis of vicarious liability, where companies are held responsible for the actions of their employees committed during the course of their employment and which benefit the company. This represents a much broader approach to establishing corporate criminal liability than exists in the UK. Lisa Osofsky, Director of the SFO, is the latest UK prosecutor to criticise the narrow “directing mind and will” test that must typically be met in order to hold corporations criminally liable in the UK. Osofsky has expressed hope that UK policymakers might either adopt the US vicarious liability model or introduce a “failure to prevent economic crime” offence; modelled on the existing offences of this kind for bribery and the facilitation of tax evasion. This proposal is currently under review by the Law Commission and an options paper for approaches is due to be presented by the end of the year. The introduction of such an offence may well become a reality, but if it does so it is unlikely to come into force for some time yet.
US legislation in the area of economic crime has also been more widely applied in practice than its UK equivalents; the first prosecutions under the FCPA occurred in 1978. In addition, the prevalence of DPAs in the US means that US prosecutors are theoretically able to expand the scope of the legislation at their disposal. As agreement is reached, often the scope and interpretation of the legislation applied is not subject to challenge in the courts.
As opposed to the longstanding FCPA, the reach of which is being expanded, key UK statutes such as the Bribery Act and the Criminal Finances Act 2017 (CFA) have only come into existence in the last decade. Whilst such legislation has exciting potential, enforcement bodies are still learning how to best utilise it. When the CFA came into effect, for example, UWOs were heralded as a ground-breaking enforcement tool for UK agencies. However, to date the NCA is the only authority that has used UWOs, and the record is mixed. Whilst other tools introduced by the CFA have been used more frequently, such as Account Freezing Orders, the NCA had to wait until October 2020 to announce its first success in using a UWO to forfeit assets to the value of approximately £9.8m from an individual. It remains to be seen whether this is the start of a trend in the UK towards more successful application of this legislation.
The US approach to sentencing for economic crime is noticeably harsh when compared with its global counterparts. For example, bank fraud in the US is punishable with a prison sentence of up to 30 years, whereas in the UK an offence of fraud under section 1 of the Fraud Act 2006 carries a maximum sentence of ten years.
Such tough sentences help to incentivise plea deals, which prosecutors in the US have far more flexibility and discretion to agree than their UK counterparts. US prosecutors can entice plea deals through sentencing negotiations, UK prosecutors are unable to pre-empt sentencing, which remains the autonomous purview of judges. In the US, so called “(c)(1)(C) pleas” (because they refer to Rule 11(c)(1)(c) of the Federal Rules of Criminal Procedure), once accepted by a defendant are binding upon a sentencing judge and provide prosecutors with a significant amount of discretion. They also provide defendants with the certainty they seek when agreeing to a plea deal. Such certainty cannot be guaranteed with pleading in the UK. With the concept of double jeopardy limiting the scope for conviction on both sides of the Atlantic, flexibility and security of sentencing in the US is a significant factor when considering where to plead guilty to offences under investigation by both US and UK agencies.
The exception to the general position on harsher sentences is the disparity in sentencing for conspiracy offences. Under Title 18 of the U.S. Code, Section 371 there is a five-year sentencing cap on conspiracy offences, whereas sentencing for conspiracy offences in the UK often correlates to the object of the conspiracy. For example, the maximum sentence for conspiracy offences under the Bribery Act is ten years. The comparatively lenient sentences for conspiracy offences allow defendants and prosecutors in the US to agree plea deals for those more minor conspiracy offences in return for prosecutors dropping more substantives charges, and so boost the prosecutorial record.
Conclusion: the trend for DPAs
The data undoubtedly shows that the US has a more prolific prosecutorial record. However, given the advantages set out above, it is notable that the US also shares some of the UK’s struggles in the area of convictions, particularly in relation to corporate offenders. The sheer size of the fines extracted by US prosecutors is not necessarily an unmitigated success story; it reflects the fact that, in recent years, the country’s substantial firepower has been primarily marshalled in pursuit of DPAs.
DPAs are essentially a bargaining tool between the state and private companies; prosecutors seeking restitution, compensation and remedial action in exchange for deferring a potentially ruinous prosecution. The US’ significant advantages in funding, jurisdictional reach, legislation and sentencing therefore provide considerable bargaining power for prosecutors to conclude such agreements. DPAs were introduced in the US in 1992, and since the turn of the century the DoJ and the SEC have entered into more than 300 DPAs against corporates alone, with over half executed in the past decade. When combined with Non-Prosecution Agreements, that figure rises above 600. DPAs are now regularly accepted by corporate defendants, who do not want to risk the consequences of a criminal conviction. As a result, US enforcers are able to push the boundaries of both their jurisdiction and the substantive legislation at their disposal, as they face little risk of a challenge to that authority in court.
The UK followed the US and adopted DPAs on a statutory footing from February 2014, to much fanfare. Unlike the US, the UK restricted the agreements to corporate entities alone and has embedded them within a court-led process that grants less discretion to prosecutors to drive and scope settlements. Despite such judicial safeguards, DPAs are proliferating in the UK, as prosecutors recognise the benefit of such deals over expensive and risky corporate prosecutions. The SFO, the only UK agency thus far to utilise the legislation, has as at the date of this article entered into nine DPAs. Lisa Osofsky has praised the “unique leverage” DPAs provide; the largest fines agreed in UK DPAs would not look out of place in the US. Five of the UK’s nine DPAs have come since the beginning of 2019, including the largest DPA to date, agreed with Airbus SE (noted above). DPAs now appear to be a key focus of the SFO’s strategy.
The data Macfarlanes has gathered supports the perception that the US remains the dominant force in prosecution of economic crime. At the same time, UK enforcement is slowly converging on the practices and habits of its US counterpart. The US remains, for UK prosecutors at least, worthy of aspiration, but despite significant advantages in resources, jurisdiction and legislation, its record is not without its shortcomings. As in the UK, it has particularly struggled in recent years in the prosecution of corporate offenders. The UK must therefore be careful that, in seeking to emulate US success – particularly through high-value corporate settlements – it does not also incorporate some of the same shortfalls. The question remains as to whether DPAs and monetary penalties constitute an adequate alternative to criminal convictions in the enforcement of economic crime. On both sides of the Atlantic, this is a question that will remain at the forefront of policymakers’ minds in the years ahead.