Is the UK entering into a new age of corporate crime enforcement?

It’s fair to say that the UK has been a relatively benign environment for some time with respect to the enforcement of corporate crime. While there have been some very prominent settlements involving household names for bribery and fraud, the consensus is that criminal enforcement authorities have failed to crack down on serious fraud and corruption committed by corporates and their executives.

In particular, there has been significant criticism of the Serious Fraud Office (“SFO“) for a range of issues, including a series of bungled prosecutions principally with respect to disclosure failings, the failure to achieve material progress in the prosecution of individuals implicated in the largest corporate corruption/fraud cases, the very public loss to ENRC in civil proceedings, and, some unfortunate coverage about the culture and leadership within the organisation. All of which crystallised in Brian Altman QC ‘s review into the collapse of the trial of Serco senior managers Woods and Marshall and Sir David Calvert-Smith’s review into the SFO’s handling of the Unaoil investigation.

There is, therefore, huge pressure on the SFO to reform and perform.

Notably, at this very juncture, the UK is seeing a leadership refresh at the SFO, the Financial Conduct Authority and the Crown Prosecution Service.

In tandem – and with the SFO cheering from the side-lines – the Government has introduced material legislative reform with respect to corporate crime in the form of the new Economic Crime and Corporate Transparency Act 2023. This Act brings a significant change to the landscape of corporate criminal liability, introducing an offence of failure to prevent fraud but perhaps more significantly altering for economic crime offences, the long-established so-called “identification principle”, which has for decades determined how criminal liability is attributed to a company.

And the roller-coaster doesn’t stop there. On 14 November 2023, a new Criminal Justice Bill commenced its passage through Parliament. Within it is a provision which builds on the changes in the Economic Crime and Corporate Transparency Act, allowing corporate liability to be attributed on the basis of any offence committed by a senior manager of the corporate while acting within their actual or apparent authority.

It is clear that the intention behind these changes is to give UK law enforcement agencies stronger powers to investigate and prosecute corporates suspected of criminal activity and these changes significantly tip the scales in their favour.

New leadership at the Serious Fraud Office

Following months of speculation, the new Director of the SFO was announced on 5 July 2023.

Nick Ephgrave QPM became the new Director of the SFO at the end of September, replacing outgoing Director Lisa Osofsky.

Ephgrave is a former Assistant Commissioner of the Metropolitan Police Service. Prior to this, he was the Chief Constable for Surrey Police. Most recently, Ephgrave was Chair of the National Police Chiefs’ Council Criminal Justice Coordinating Committee and held roles on the Criminal Procedure Rules Committee and the Sentencing Council. Ephgrave is clearly no stranger to the criminal justice system and its complexities.

On one view, the new Director’s most critical role will be to address culture and morale within the SFO’s ranks. This is reflected by the SFO’s ability, or arguably inability, to attract and retain its talent; in its Annual Report and Accounts (2022-23) published in July, the SFO reported that it had 450 permanent and fixed-term employees and an 8.5% job vacancy rate.

The new Director appears committed to increasing its staff levels and resourcing. In October 2023, its Joint Head of Fraud, Sara Chouraqui, told the American Bar Association’s annual London White Collar Crime Institute conference that Ephgrave is “determined for us to increase our capabilities, so we’re recruiting currently over 100-150 new investigators and prosecutors at the SFO, as well as analysts, accountants and so forth”¹.

Historical criticism of the agency has been rife. As noted in our previousEngage article, the SFO is reeling from a bad couple of years. Disclosure failings led to the collapse of the Serco trial in 2021. Three convictions of individuals were overturned at the Court of Appeal in the Unaoil case after the “wholly inappropriate” involvement of the SFO’s former director with an individual described as a “fixer”. There was also heavy criticism of the SFO’s culture and practices in the Sir David Calvert-Smith report published in July. In ENRC’s landmark case against the SFO, the agency was found by Mr Justice Waksman to be “in serious breach of its own duties” in relation to 15 meetings or calls between SFO officers and ENRC’s former solicitor, Neil Gerrard (in the words of the Judge, “again and again”). Two SFO officers were found to have given dishonest evidence in the trial that took place in 2021, and the Judge found that the SFO had been motivated by “bad faith opportunism” in inducing Mr Gerrard to behave wrongfully.

In March this year, the SFO abandoned a trial against three former senior executives accused of defrauding the Ministry of Justice over a prisoner-tagging contract. In August, it closed two high-profile corruption probes into overseas corruption, including into ENRC (an investigation which had spanned over a decade).

Conversely, bribery enforcement appears to have moved to the remit of other UK enforcement agencies. As reported recently, Ladbrokes owner Entain had set aside £585 million to pay a potential fine over alleged bribery offences at its former Turkish betting business. HM Revenue & Customs (“HMRC“) led this investigation, with a Deferred Prosecution Agreement expected this year. Earlier this summer, the National Crime Agency (“NCA“) also announced² that the Chief of Staff to the President of Madagascar and her associate had been charged with bribery offences following an NCA operation. It is understood that the alleged bribe was sought in return for securing licences to operate in Madagascar from Gemfields, a UK mining company that raised concerns to the NCA.

On any view, significant time, funding, and resourcing have led to little or no meaningful enforcement activity by the SFO – the UK’s principal prosecutor of serious or complex fraud, bribery, and corruption.

The timing of the SFO’s decisions to close long-standing investigations may reflect the SFO’s desire to free up resources for the new Director to pursue new investigations. Notwithstanding this, a number of ongoing investigations and prosecutions will continue. It remains to be seen whether the focus of Ephgrave’s tenure will be to target more domestic misconduct, tackle the SFO’s historical challenges with disclosure, or focus on new investigations where evidence gathering, and as such disclosure, has not yet commenced. It is interesting to note that within the first quarter of his tenure, Ephgrave opened a criminal investigation into funeral plan provider Safe Hands Plans, sending notices to stockbrokers and financial institutions requesting information for its investigation³ and also into collapsed law firm Axiom Ince⁴, in respect of which nine raids were executed, and seven arrests made earlier this month.

New offences and investigative powers

On 26 October 2023, the widely anticipated Economic Crime and Corporate Transparency Act 2023 received Royal Assent, bringing with it a new failure to prevent fraud offence, and a significant change to the identification principle, the general rule for attributing liability to companies in English⁵ criminal law.

It also expanded the SFO’s section 2A pre-investigative powers⁶. Those pre-investigative powers will no longer be limited to suspected cases of international bribery and corruption. The expansion will allow the SFO to compel individuals and companies to provide information at the pre-investigation stage in all SFO cases.

It follows that there will be an expectation of greater enforcement against corporates.

The SFO will undoubtedly wish to present a positive spin on its activities. For example, in the context of its recent investigation and prosecution of Glencore Energy UK for seven counts of international bribery, the SFO went out of its way to highlight that the fine of £280 million (the UK’s largest ever penalty for a corporate criminal conviction) “goes via HM Treasury back to the taxpayer”⁷.

The SFO is not the only agency prosecuting corporates. HMRC is tasked with the investigation of the one other current “failure to prevent” offence focussed on corporates – failure to prevent the facilitation of tax evasion. Earlier this year, HMRC confirmed that it has opened nine investigations into businesses suspected of failing to prevent the facilitation of tax evasion and is considering opening up to 26 more. However, it is notable that no company has yet been prosecuted since the offence came into force in 2017 as part of the Criminal Finances Act.

The new failure to prevent fraud offence creates a trio of “failure to prevent” offences available to a prosecutor, and it isn’t inconceivable that many future indictments include one or more of these offences where a fact pattern presents criminality in the form of fraud, bribery and facilitation of tax evasion. The new offence will come into effect once the Government has published its “reasonable procedures” guidance, expected early next year.

But it’s the reform of the identification principle which is probably the most significant corporate criminal reform since the UK Bribery Act. The Economic Crime and Corporate Transparency Act now places the identification doctrine on a statutory footing for economic crime, providing that the misconduct of senior managers is now in the scope of attribution to a company. The bar is significantly lower when compared to the previous necessity to demonstrate misconduct undertaken by an organisation’s “directing mind” and will. [For our detailed analysis, see our Engage Article]

All of this legislative reform should help the SFO. However, as history has shown, only a focused, confident, well-resourced and experienced prosecutor will achieve safe convictions in cases of this kind, which are often multi-jurisdictional, financially complex and focus on historic events over a number of years creating huge electronic and paper trails which require careful consideration, following a robust disclosure process.

A new government?

The next general election is likely to take place in Autumn 2024. Polling puts the Labour Party streets ahead of the incumbent Conservative Government. If those polls are replicated at a General Election, Sir Keir Starmer KC is likely to be Prime Minister by next Christmas.

While we don’t yet have an election manifesto from Labour, the political party has made plain its mission to raise confidence in the police and criminal justice system to its highest levels⁸.

As a former Director of Public Prosecutions, Kier Starmer led the Crown Prosecution Service, a role which would have exposed him to the complexities of successfully prosecuting difficult and high-profile cases.

The Bribery Act was given Royal Assent on 8 April 2010 under the Labour Minister of Justice, Jack Straw.

Indeed, it was the Labour MP and Chair of the All-Party Parliamentary Group on Anti-Corruption and Responsible Tax, Dame Margaret Hodge, who, on 24 November 2022, first introduced the amendment to the Parliamentary Bill, which ultimately led to the new failure to prevent fraud offence.

Change is certainly coming, and corporates must prepare for not only a new offence, which we anticipate will come into force in early 2024 but also wider corporate criminal attribution principles and the ability of prosecutors to use additional powers of compulsion at a very early stage. This is coupled with a potentially new political appetite to address the currently perceived shortcomings of the criminal justice system in the UK.