UK Fraud and Corruption Enforcement review – Annual review 2021

• United Kingdom

• Financial services disputes and investigations
• Fraud and financial crime
• Financial services

17-01-2022

Welcome to Eversheds Sutherland’s Fraud and Corruption Enforcement Annual Review, which highlights some of the top developments from the past year relating to criminal investigations and enforcement actions tackling fraud, bribery and corruption offences in the UK.

2021 was certainly an unusual and interesting year, which amid ongoing uncertainties related to Covid-19 saw three more Deferred Prosecution Agreements (“DPAs”) secured by the Serious Fraud Office (“SFO”), significant developments relating to the very long-running Petrofac case, and pre-legislative progress made in the areas of corporate criminal liability, procurement and online safety.

Thank you for your support of our quarterly Fraud and Corruption Enforcement Updates. Please continue to look out for them on our web-page and on social media.

Please click here to download our Annual UK Fraud and Corruption Enforcement review 2021.

 

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OECD adopts new anti-bribery recommendations

The Organisation for Economic Co-operation and Development (“OECD”) is an intergovernmental economic organisation with 38 member countries, including the UK and USA, which was founded in 1961 to stimulate economic progress and world trade. In 1997, the OECD implemented a ground-breaking Anti-Bribery Convention which required signatory countries to criminalise the bribery of foreign public officials and to investigate, prosecute and sanction this offence.

In November 2021, the OECD adopted its latest recommendation to the Anti-Bribery Convention which introduces a series of new measures including those which aim to strengthen the enforcement of foreign bribery laws, enhance international cooperation and introduce principles on the use of non-trial resolutions in foreign bribery cases.

While the OECD described the Anti-Bribery Convention as the “first and only international anti-corruption instrument focused on the ‘supply side’ of the bribery transaction”, the measures in the 2021 recommendation span wider than this. They also recognise the importance of government action to address the demand-side of corruption risk by attempting to foster an ethical culture amongst public officials. This is implemented by, for example, asking signatory countries to raise awareness by, and improve training for, key government agencies. This subtle change of direction is a welcome step forward, and could pave the way for a sharpened focus on the conduct of public officials by UK enforcement agencies.

The key elements of the 2021 recommendation which companies should pay attention to are calls on signatory countries to:

• better support companies facing bribe solicitation risks;
• include extensive provisions to ensure comprehensive and effective protection of whistle-blowers in both public and private sectors; and
• incentivise companies to develop internal controls and ethics and compliance programmes to prevent and detect foreign bribery.

 

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Pre-legislative Joint Committee welcomes inclusion of fraud in Online Safety Bill

In early December 2021, a joint committee of MPs published its pre-legislative scrutiny of the Online Safety Bill, which set out the Government’s proposals to introduce a new regime of regulating online content. The Bill responds to growing levels of public concern about online content by proposing new duties on providers of ‘user-to-user services’ and ‘search services’ to keep their users safe.

The report recommends a significant overhaul of the Bill’s structure alongside numerous changes to its substance, including proposals to add fraud to the definition of “illegal content” under clause 41. This follows the confirmation given by Prime Minister Boris Johnson in July 2021 that tackling online fraud would be one of the key objectives of the Bill.

However, there remain concerns as to whether these proposals would be effective in tackling fraud in practice. The report stresses the need to ensure that platform operators are “proactive in stopping fraudulent material from appearing in the first instance, not simply removing it when reported”. The Bill here draws a distinction between “illegal content” and “priority illegal content”. For offences falling under the former category, the duty for platforms to remove content would only arise upon being notified by their users. Since fraud is often only discovered after the crime has taken place, there are question marks over whether these provisions would make any difference in reducing the losses suffered by fraud victims. A stronger approach would see the fraud offence designated as “priority illegal content”, which would place duties on providers to minimise the risk that fraudulent content would appear in the first place. It remains to be seen how the Government will view this issue. It now has two months to issue a response to the Joint Committee’s recommendations.

 

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Authorised push payment fraud causes highest fraud losses

UK Finance has confirmed that authorised push payment (“APP”) fraud, where customers are tricked into authorising payments to accounts controlled by criminals, caused the largest losses of all types of fraud during the first half of 2021. Losses amounted to £355 million, a 71% increase from the same period in 2020, surpassing the sum stolen through payment card fraud for the first time.

Criminals often perpetrate APP fraud by obtaining access to information through hacked email accounts before requesting payment while posing as companies with whom the hacked account owner is already doing business. Criminals have become adept at matching their payment requests with the details and dates of genuine payments which the victim is expecting (for example by monitoring email chains), making them harder to detect.

The growing prevalence of APP scams is likely attributable at least in part to the Covid-19 pandemic, which led to an increase in online consumer activity. For example, it is estimated that 70% of APP scams originated on an online platform. Increases were also reported for other online scams such as purchase scams (where consumers make payment for goods which appear to be genuine but which never materialise) and investment scams (where consumers are persuaded to ‘invest’ money in exchange for returns which are never received). As noted above, the pre-legislative Joint Committee reporting on the Online Safety Bill has called for online fraud and scams to be included within the Bill’s scope.

 

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FCA concludes first anti-money laundering prosecution of a bank

The FCA’s first prosecution of a financial institution under money laundering legislation has ended with National Westminster Bank PLC (“NatWest”) being ordered to pay a total of over £269 million.

At a hearing in October, NatWest pleaded guilty to offences relating to failures to adhere to ongoing monitoring requirements set out in the Money Laundering Regulations 2007. The action was based on payments of approximately £365 million through accounts held by Fowler Oldfield, a company involved in buying and selling gold. The £264 million fine imposed closely matches the amounts deposited in cash into Fowler Oldfield’s accounts between November 2011 and June 2016. The FCA argued, and NatWest accepted, that discrepancies between anticipated and actual cash deposits ought to have been identified and acted upon as part of NatWest’s anti-money laundering systems and controls.

The fine imposed was reduced by one-third (from £397 million) to reflect NatWest’s guilty plea.

 

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SFO Director calls for improvements in the agency’s use of technology

The Director of the SFO, Lisa Osofsky, has called on the agency to improve its use of technology to keep up with the growing prevalence of offences committed online, and the mass of data which these offences often produce. For instance, we are told that data obtained in relation to a recent case could fill 400,000 lever arch files. Many of the commercial law firms which sit on the opposing side of the SFO’s investigations have invested heavily in this area in recent years, and while publicly-funded enforcement agencies are unlikely to be able to match those levels of investment, embracing technology which improves document discovery and review should nevertheless be a priority going forwards.

The same letter also responds to criticism of the “revolving door” of staff at the SFO. According to Osofsky, the regular interchange of personnel which has become a feature of life at the SFO over the past decade need not be seen as a negative. In her view, it brings a number of benefits, growing the SFO’s collective capabilities “more than a closed shop ever could”.

 

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UK Government response on consultation on transforming public procurement

The Cabinet Office has published a summary of responses to its consultation exercise on proposed changes to the UK public procurement regime. The paper deals with a wide range of aspects of the regime, but notably includes sections dealing with (i) proposed additions to the list of offences and behaviours which may lead to discretionary exclusion (for example to add modern slavery, environmental misconduct, tax evasion and poor performance to the existing list of offences); (ii) possible expansion of the scope of the regime to exclude suppliers where their beneficial owners are convicted of offences; and (iii) addition of DPAs as a ground for discretionary exclusion.

Further details of which changes will be taken forward are awaited, although the paper notes that any such changes are not expected to come into force until 2023 at the earliest.

 

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2021 marks a busy year for the SFO

July 2021 was a busy month for the SFO as it settled three DPAs, starting with an agreement with  Amec Foster Wheeler Energy Limited for the payment of £103 million to the SFO to settle allegations relating to the use of corrupt agents in the oil and gas sector between 1996 and 2014. This formed part of a US $177 million global settlement agreed with the SFO and US and Brazilian authorities.

In late July the SFO settled two further related DPAs which share a common statement of facts against two anonymous UK-based companies. Reporting restrictions currently apply to these DPAs so little is known other than the fact that they will remain in place for two years and that they result in total financial penalty payments of £2.5 million.

2021 also saw Petrofac and GPT plead guilty to bribery and corruption offences resulting in financial penalties of £77 million and £30 million, respectively.

During the year, the SFO also announced the opening of a number of investigations, including into O2, Gavin Woodhouse and Associates, Raedex Consortium and the Gupta Family Group Alliance. The SFO also brought charges against five individuals in the construction sector relating to bribery and money laundering allegations.

The SFO was dealt a serious blow in December, when the 2020 conviction of former Unaoil executive Ziad Akle was quashed by the Court of Appeal on the basis that the SFO had acted improperly and failed to disclose important evidence to the defence. The Court of Appeal gave stinging criticism in relation to the improper contact which was between the Director of the SFO and David Tinsley, a US representative of the Ahsani family who owned Unaoil. Mr Tinsley had offered to help the SFO secure a guilty plea from Mr Akle. Stephen Bond, who was convicted of related charges in March 2021, has indicated that he will also appeal his conviction on similar grounds.

 

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Five fast facts from 2021

1)  during the first half of 2021, criminals stole a total of £753.9 million through fraud, an increase of almost one-third compared to the same period in 2020

2)  since 2016, the SFO has contributed £1.3 billion to the public purse, more than four-times its cost to the taxpayer

3)  more than £145 million was lost through cryptocurrency fraud between January and October 2021, 30% more than during 2020. 18 to 25 year olds accounted for the highest percentage of reports

4)  HMRC estimates that more than £5.5 billion paid out by the Government in relation to its coronavirus assistance schemes ended up in the hands of fraudsters, having blocked just £28 million worth of furlough claims

5)  the value of financial penalties payable to the UK’s consolidated fund as a result of DPAs in 2020-2021 fell 84% to £137.9 million from the £845.27 million which was payable in 2019-2020

 

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Things to look for in 2022

• The Law Commission’s review into reform of corporate criminal liability: This is due to be published in early 2022 and could see the potential introduction of a failure to prevent economic crime offence
• further slow progress in HMRC’s enforcement of the facilitation of tax evasion corporate criminal offences (“CCO”) in the Criminal Finances Act 2017: HMRC reported in May 2021 that there were 14 live CCO investigations which is only one more than the number which were live in October 2020
• further active enforcement by the FCA in relation to financial crime breaches and offences: This follows the FCA prosecution of NatWest for money laundering offences and the Final Notice with £147 million financial penalty issued to Credit Suisse in relation to failures in detecting and preventing corruption in relation to the funding of two infrastructure projects in Mozambique
• the outcome of the Attorney General’s independent review: In early December 2021, the UK Attorney General commissioned a review into the conduct of the SFO in relation to Ziad Akle’s successful appeal of his 2020 convictions. This followed the severe criticism in the Court of Appeal judgment, which “deeply concerned” the Attorney General