White-Collar Crime in the UK

In March 2022, Action Fraud reported a 36% rise in fraud and related crime in 2021, with more than 420,000 offences recorded, so it is no wonder that regulators and law enforcement agencies wish to expand their powers to counteract it. COVID-19 assistance scheme-related fraud in 2020–2021 was estimated to be in the region of GBP4.5 billion (4.6% of total spending on the pandemic), in spite of robust pre-payment checks specifically designed to prevent exploitation of the schemes. In some ways, the microcosm of COVID-19 fraud highlights areas of risk and focus in financial crime more generally.

There are perhaps three high-level trends in the business crime arena of general interest to practitioners in this field:

• a continuing intent to broaden corporate crimes;
• a greater requirement for transparency in business; and
• greater financial regulation in light of exploding incidences of fraud and technological advances.

However, these are juxtaposed against the reality of limited resources to tackle financial crime, particularly outside the regulatory sphere.

Within these overarching trends, several areas of significant focus can be identified.

Corporate crime

Despite a decade of Conservative rule and the UK’s departure from the EU at the end of 2020, the regulation of UK professionals and financial institutions has continued to grow over the past year, nationally as well as globally. In the summer of 2022 alone, the Law Commission published an options paper on corporate crime and a consultation paper proposing reform of the way digital assets (including cryptocurrencies and NFTs) are treated legally. The latter will inevitably have an impact on civil and criminal law, including in terms of the definition of property and jurisdictional questions. Both papers demonstrate the current focus on keeping the law fit for purpose in response to changing challenges. Many had thought the Law Commission would recommend a general corporate "failing to prevent” offence but, to some surprise, it supported the retention of the doctrine of identification in corporate crime, alongside other rules of attribution, whilst proposing an offence of failing to prevent fraud by an associated person. It seems likely that this option, at the very least, will be implemented.

Transparency

An example of greater transparency is found in the new (and retrospective) requirement for beneficial ownership of property in the UK by foreign entities to be publicly available, with the Register of Overseas Entities coming into force on 1 August 2022 via the Economic Crime (Transparency and Enforcement) Act 2022. All overseas entities that want to buy, sell or transfer property or land in the UK must register with Companies House, declaring their registrable beneficial owners or managing officers. Remarkably, the provision applies to all those entities with interests in property in England and Wales from 1999 and Scotland from 2014. Entities that disposed of property or land after 28 February 2022 will also need to register and give details of that disposal. Non-compliance is a continuing offence (which can be committed after the initial failure) for the foreign entity and every officer in default, with fines of up to GBP2,500 per day and a maximum sentence of five years' imprisonment.

There are also signs that the Economic Crime and Corporate Transparency Bill 2022 will simplify the process for businesses and account holders in respect of suspicious activity reports. At present, when a business submits a Defence Against Anti-Money Laundering (DAML) due to suspicions about property, the practice is to freeze the entire account. No provision is made for access to any legitimate property within the account. This has caused unnecessary hardship for account holders and has resulted in a number of civil claims against banking institutions (Lonsdale v National Westminster Bank plc [2018] EWHC 1843 (QB)).

The number of DAMLs has increased year on year, rising from 18,849 in 2016/17 to 105,107 in 2020/21, which has produced burdensome administrative work for the National Crime Agency when its resources could be better deployed in other areas. The government appears to have listened to these concerns and there are exemption proposals at Section 143 of the bill, with specific exemptions for mixed-property transactions at Section 144. This is an area in need of urgent reform and the proposed amendments to the Proceeds of Crime Act 2022 (POCA) will be welcomed.

Financial regulation and sanctions

Despite the UK no longer being a member of the EU, de-regulation of the financial sector has proved problematic for the government. Whereas the Treasury Committee’s First Report of Session 2022–23 – “Future of financial services regulation” – recommended that the independence of the financial regulators be preserved and pointed out that reduction of UK regulation could risk harm to consumers and the markets, the government’s response clearly favours increased accountability to Parliament for the Prudential Regulation Authority, the Financial Conduct Authority, the Payment Systems Regulator and the Bank of England; indeed, such provision is included in the Financial Services and Markets (FSM) Bill. Governmental intervention is of concern to business and the City, and foreshadows greater uncertainty in regulation of the markets.

Greater regulation of crypto-assets is extended to economic sanctions, where they are caught in “funds” and “economic resources” by the Office of Financial Sanctions Implementation, UK Financial Sanctions: General Guidance for Financial Sanctions Under the Sanctions & Anti-Money Laundering Act 2018 (July 2022). UK persons, in particular regulated entities, are expected to evaluate red flag indicators of sanctions evasion, including in the use of crypto-assets (Joint Statement from UK Financial Regulatory Authorities on Sanctions and the Crypto-asset Sector, 11 March 2022). Regulated entities have a duty to inform the UK sanctions regulator – the Office of Foreign Sanctions Implementation (OFSI) – of suspected breaches; this obligation is now extended to crypto-asset exchange providers and custodian wallet providers that are registered with the FCA pursuant to the UK Sanctions (EU Exit) (Miscellaneous Amendments) Regulations 2022 and the Sanctions (EU Exit) Miscellaneous Amendments) (No 2) SI 2022/818.

The extensive sanctions imposed on Russian companies and individuals, as a result of the war in Ukraine, have posed a particular challenge in 2022. In March, the Economic Crime (Transparency and Enforcement) Act 2022 (ECA) came into force in the UK, increasing the powers available to the OFSI) and making other provisions in relation to the identification of asset holders and asset seizure. The most significant changes have been the creation of a register of overseas owners of property, greater powers in respect of unexplained wealth orders and the imposition of a strict liability regime for civil financial penalties in the event of a breach of sanctions.

The sanctions regime will continue to pose challenges for practitioners as its interaction with other legislative schemes and political expediencies evolves and changes over time.

Unexplained wealth orders (UWO)

Part 2 of the ECA has significantly extended the grounds for obtaining a UWO to include an assertion that the property has been obtained through unlawful conduct (as defined at Section 242 of POCA). It also amends Section 396A of POCA so that, where the holder of the property is a corporate entity, a UWO may be sought against the corporate’s “responsible officer” even if they are outside the UK. The definition of a “responsible officer” is widely drawn and includes directors, board members, managers, secretaries and any person in accordance with whose directions or instructions the board of directors are accustomed to act.

Part 3 of the ECA removed the requirement for the OFSI to establish that a person knew, or had reasonable cause to suspect, that they were in breach of a relevant sanction before they imposed a civil penalty for breach of sanctions (person includes natural persons, as well as a legal person, body or entity). A financial penalty of up to the greater of 50% of the estimated value of the funds or economic resources or GBP1 million can now be imposed on the basis of strict liability.

Civil recovery

Investigating agencies and prosecuting authorities are making increasing use of their civil recovery powers under POCA, both in relation to domestic investigations and in response to international requests for assistance. Recognising the increasing use of cryptocurrencies in unlawful conduct, in DPP v Briedis and Reskajs [2021] EWHC 3155 (Admin) it was held that crypto-assets are capable of falling within the very wide definition of “property” under POCA for civil recovery purposes.

Given the peculiarities and nuances of crypto-asset ownership, tracing and movement, practitioners are seeing a tussle between law enforcement and suspects for two reasons:

• first, because different methods of investigation and restraint are required in this novel and developing area; and
• secondly, because the evidential burden on individuals to document or disprove ownership proves elusive to grasp.

The UK has been slower to recognise the risks that cryptocurrency poses to businesses, in spite of the need for heightened screening in transactions of this type, particularly in the regulated sector, given the requirements of POCA. As early as March 2018, the United States Treasury Department’s Office of Foreign Assets Control (OFAC) published guidance in relation to their regulation. In so doing, OFAC noted the especially high compliance risks for technology companies, administrators, exchangers, users of digital currencies, and payment processors. The Money Laundering and Terrorist Financing (Amendment) (No 2) Regulations 2022 introduce future measures to tighten regulation and record keeping within crypto-asset businesses. This is likely to pose challenges to clients involved in businesses of this type. Early advice and intervention will ensure robust systems are in force.

Proceeds of crime and insolvency

A broadening area of work centres on the tensions that exist between POCA and insolvency, as demonstrated by CPS v Aquila Advisory Ltd [2021] UKSC 49, where the Supreme Court unanimously decided that the company’s property rights were not usurped by confiscation orders made against its directors. As part of that decision, important detail was given which suggests that, in the public interest, the Part 2 (restraint) and Part 5 (civil recovery) elements of POCA do in fact over-ride proprietary rights (outwith the specifics of any trust position).

The impact of this decision is now being seen and felt at all stages of asset recovery proceedings. It is an extension of the increasing blurring of lines in practice between the criminal and commercial law spheres. In some cases, such as Moore [2021] EWCA Crim 956, the Court of Appeal took the view that trust issues were best suited to the Business and Property Courts. Often, consideration will need to be given to employing the Stanford principle to resolve an apparent conflict in purpose of proceedings.

Lack of resources

Despite economic crime burgeoning during and since the pandemic, the harsh reality for victims of fraud is that very little is being investigated, let alone prosecuted. For example, the amount lost to Automated Push Payment (APP) fraud alone rose to GBP583.2 million in 2021, a 39% increase compared with 2020, according to the research of UK Finance, published in June 2022. There were 4.5 million reported fraud offences in the year ending March 2022, an apparent 25% increase from 2020, but fewer than 5,000 fraud offences resulted in a charge last year, according to the Office for National Statistics’ annual survey of crime. With police forces and crime agencies under increasing economic pressure, fraud remains a low priority. With the backlog of cases in the Crown Court, it is likely that bringing complex and lengthy economic crime allegations to trial will be even less attractive to law enforcement agencies and victims alike.