Global Investigations Review: key talking points from London Live 2022

Dr Susan Hawley from Spotlight on Corruption (SOC) posed the question of “whether the UK is serious about fighting fraud?” Unsurprisingly, the view of SOC is that it is not and there is a “crisis of enforcement”. In support of this view:

• convictions for fraud have dropped by 67% since 2011 and money laundering convictions by 25% in the last five years;
• the assessment for UWO’s when brought in was that there would be 20 per year. In fact, there have been only nine in total and none since 2019;
• there have been very limited sanctions breach prosecutions. OFSI issued fines six times in the last six years, totalling £20 million, where breaches amounted to a total of over £1.6 billion;
• Bribery Act convictions in the six years between 2011-2017 were fewer than under the old act in the three years from 2004-2007; and
• the NCA has obtained less than five prosecutions per year for economic crime.

Are low levels of enforcement a problem? The conclusion was: yes. It leads to lower levels of compliance and undermines authority, with criminal prosecution seen as vital for enforcement.

At the root of the problem is a lack of resource. In context, 0.042% of the UK budget is spent tackling economic crime, whereas it is estimated to cost the UK 14.5% of GDP. Fraud accounts for 40% of recorded crime.

Certainly, there is a case for increased funding. However, funding alone was seen as only one component, with three further elements being critical:

• a huge increase in ambition to recruit and retain staff at enforcement agencies. An independent review of how talent recruitment and retention is managed, compared with the US and other jurisdictions;
• significantly enhanced transparency and accountability of enforcement agencies; and
• debate within the legal community to address the imbalance between Magic Circle firms and law enforcement.

These factors would support the UK in developing an elite economic crime fighting force, in a culture where enforcement is respected and well resourced.

Moderators: Susannah Cogman, Partner, Herbert Smith Freehills and Johnathan Pickworth, Partner, Paul Hastings

Speakers: Neill Blundell, Partner, Macfarlanes, David Corker, Partner, Corker Binning and Dr Susan Hawley (SOC) 

The debate for the second session focused on the SFO, with contrasting views and lively discussion amongst the panel. Headline points from the views expressed as are follows.

• The discussion echoed Susan Hawley’s comments from the first session, finding that low levels of enforcement are not simply an issue for the SFO. The panel discussed the impact of under-resourcing, but also agreed that fraud is not taken seriously enough in the UK. It is under-reported, under-investigated and tackling it is under-resourced.
• The panel believed resourcing and prioritisation to be linked. Resourcing on the table would lead to an uptick in the number of agencies wanting to do the work.
• There was a suggestion that the SFO is skewed in its priorities and focused on high-profile cases, and that it potentially neglects more mundane ones. This is despite the fact that high-profile frauds have little impact on the public interest. Examples of LIBOR, Serco and Tesco called for regulatory enforcement from the Stock Exchange and Financial Reporting Council (for example) rather than SFO prosecutions.
• The panel discussed Deferred Prosecution Agreements (DPAs) which were seen as being like practice on a warmup court in tennis, where your "opponent" plays the shots you want, wants you to win and helps you. As a consequence of this, the SFO has less incentive to prosecute, in favour of pursuing these seemingly easier, negotiated agreements.
• The result has been that DPAs have, perhaps, had a harmful effect on the SFO as a whole. This effect includes that the inclination to negotiate DPAs has led to lower institutional experience and the skills that would otherwise equip the prosecutors to prosecute.
• Issues persist with disclosure and questions over the Criminal Procedure and Investigations Act (CPIA) and its fitness for purpose in modern day investigations and prosecutions. It was predicted that disclosure in criminal cases will be restricted on the claimant side, with increased onus on the defendant to put forward their case.
• There was a lively debate as to whether the Roskill model is still the best way to proceed. The panel questioned whether it is in the interests of fraud enforcement that the SFO had instead, a prosecution-only function and responsibility for investigations are wholly transferred to the NCA. The counterpoint was whether this would leave the SFO further denuded of responsibility and more vulnerable to pressures to disband in its entirety.
• One practical suggestion from the floor from the Chairman of a company who has agreed a DPA that the answer is to have either: judge-only trials for fraud; DPAs for individuals; or DoJ/FBI equivalent enforcement bodies.

Moderators: Susannah Cogman, Partner, Herbert Smith Freehills and Jonathan Pickworth, Partner, Paul Hastings

Speakers: Saqib Alam, Partner, Morrison & Foerster, Yindi Gesinde, Partner, Baker McKenzie and Deirdre O'Mahony, Partner, Arthur Cox

The third session looked more broadly at the widening scope of investigations, and potential directions of travel and future areas of focus. Particular trends highlighted included:

An increase in ESG investigations, including areas such as modern slavery and racial discrimination, following whistle-blowers or proactive investigations by companies.

Increasing numbers of follow-on investigations into board reactions to investigations.

Stakeholder and activist pressure being an increasing reason for investigations, especially in the ESG context. Shareholder derivative lawsuits based on diversity statements and what is being done to improve diversity within organisations. The panel also noted more investigations that are client led, and not agency led.

The panel also covered key international perspectives. The trends from Ireland included the following.

• More investigations are being characterised as ESG, but in reality are "G" representing Governance Examples include conflicts of interest investigations in entities such as sporting bodies and charities. The panel also felt that some of the biggest issues were in the "hottest" sectors of the Irish market – notably big tech and financial services.
• Covid related investigations – for example with the vaccine programme and a promised public enquiry.
• Although Ireland doesn’t have the equivalent of the SFO or DPAs, they are also grappling with the “Identification” principle, under which companies may be culpable of committing a criminal offence by the acts of its officers or employees.

The panellists considered the perspective from the USA, which included the following.

• The discussion noted a significant amount of work is also Covid related fraud, in light of $18 billion of public procurement contracts. Public interest in what happened is high, with a call for scrutiny over the allocation of these huge sums of taxpayers’ money which has been paid to corporates. As such, there is political pressure to look into the contracts.
• Other bodies investigating ESG-type issues, include: the CMA looking at fashion industry claims and the ASA looking at advertising claims. Both examples represent an increasing willingness for agencies to expand into new areas of investigation. We have also seen the UK National Contact Point looking at corporations not complying with OECD guidelines, and the potential for the FCA to go after investors making false/misleading claims - both of which sit under the "Governance" part of the ESG umbrella.
• Companies are increasingly proactively focused on culture, rather than reactively in response to the actions of regulators. This is perceived not only as mitigation of risk but also in terms of increased corporate value. In a transactional (M&A) context, the assessment of a company’s culture is increasingly important.
• There has been a shift in emphasis from forensic accounting, towards methods including cyber accounting and satellite tracking, with proactive forensic imagery and analysis of materials (e.g. cotton or other commodities) enabling companies to track the source of materials and if international laws have been breached in procurement. Much of this stems from companies’ efforts to ensure they are "doing the right thing" in their supply chains, investigating suppliers, and PE companies monitoring portfolio companies to ensure compliance. Key sectors highlighted included cotton, oil, minerals and gems.

Moderators: Susannah Cogman, Partner, Herbert Smith Freehills and Jonathan Pickworth, Partner, Paul Hastings

Speakers: Philip Clarke, Partner, Stephenson Harwood, Alexander Davies, Head of Corporate Intelligence, BDO, Brandon O’Neil, Partner, Allen & Overy and Clare Sibson QC, Queen's Counsel, Cloth Fair Chambers

The day closed with questions from the floor, including the following:

• Sanctions predictions, including the increased enforcement of and challenges to sanctions, areas overlooked by lawyers and clients in sanctions advisory work.
• The Biden memo and broader US strategy for countering corruption.