UK Quarterly Review: Business Crime, Investigations, and Regulatory Enforcement
UK Quarterly Review: Business Crime, Investigations, and Regulatory Enforcement
In the final Quarterly Review of 2021, we reflect on a year that has seen the UK acclimatise to life outside of the EU, whilst, like the rest of the world, contending with the difficulties brought on by the global coronavirus pandemic. The expectation for this year was an increase in UK enforcement activity as regulators adapted to new working environments and, in this issue, we review enforcement outcomes relating to Financial Conduct Authority and Serious Fraud Office actions involving bribery, fraud and money laundering offences. The UK’s post-Brexit autonomous sanctions regime also comes into focus again this quarter, with additions to the UK sanctions list and the Office of Financial Sanctions Implementation (“OFSI”) publishing its annual review.
Court of Appeal quashes Unaoil executive’s bribery conviction due to SFO’s “failure to comply with their duty of disclosure”: On 10 December 2021, the Court of Appeal quashed the 2020 conviction of former Unaoil executive, Ziad Akle, after the Serious Fraud Office (“SFO”) failed to disclose its own dealings with a private investigator who had tried to convince Akle to plead guilty to bribery. The decision has caused much embarrassment for the SFO and has seen the Attorney General, to whom the SFO reports, commission an independent review into the SFO’s failings. As referred to in our October 2021 Quarterly Review, Akle was convicted in July 2020, on charges related to a bribery scheme engaged in by Unaoil executives to secure lucrative oil and offshore construction contracts in Iraq. Akle alleged that the SFO was involved in an illegal attempt to persuade him to change his not-guilty plea before trial by engaging with David Tinsley, a retired US Drug Enforcement Administration agent who worked for Unaoil’s owners. On 1 July 2021, the Court of Appeal ordered the SFO to disclose its dealings with Tinsley. The communications revealed contact between the SFO and Tinsley that the Court of Appeal deemed to be “wholly inappropriate”. The Court of Appeal held that the SFO’s refusal to disclose these communications to Akle at his trial amounted to a “serious failure by the SFO to comply with their duty”. The Court of Appeal overturned Akle’s conviction and refused to order the retrial requested by the SFO.
The FCA announces second-largest fine for financial crime failings: On 19 October 2021, the FCA announced that it had fined Credit Suisse £147.2 million following “serious financial crime due diligence failings” in relation to loans that the bank helped arrange for the Republic of Mozambique from 2012 to 2016. As we reported in a client alert in October 2021, the FCA found that three employees of the bank received kickbacks of approximately US$53 million in connection with the loans, that a significant proportion of the loan monies were misapplied or misappropriated, and that the bank failed to adequately assess and scrutinise the financial crime risk associated with the loans. The FCA found that Credit Suisse breached (i) Principle 2 of the FCA’s Principles for Businesses, which requires firms to conduct their business with due skill, care and diligence; (ii) Principle 3 of the FCA’s Principles for Business, which requires firms to take reasonable care to organise and control their affairs responsibly and effectively, with adequate risk management systems; and (iii) the financial crime-related systems and controls obligations set out in the FCA’s Senior Management Arrangements, Systems and Controls (SYSC) 6.1.1R. The fine is part of a US$475 million global resolution agreement involving the US Department of Justice, the US Securities and Exchange Commission and the Swiss Financial Market Supervisory Authority.
Petrofac pleads guilty to Middle East bribery allegations: On 4 October 2021, Petrofac Limited (“Petrofac”), a major UK-based service provider to oil and gas producers, was ordered to pay £77 million following a four year investigation by the SFO. According to the SFO’s announcement, Petrofac pleaded guilty to seven counts of failure to prevent bribery between 2011 and 2017, contrary to section 7 of the Bribery Act 2010, admitting that former senior executives of the Petrofac Group paid bribes totalling £32 million to win contracts worth £2.6 billion in Iraq, Saudi Arabia and the United Arab Emirates. The £77 million to be paid by Petrofac is comprised of confiscation of £22.8 million, a fine of £47.2 million and the SFO’s costs of £7 million.
SFO investigates Alpha and Green Park companies for investor fraud: On 29 September 2021, following a series of coordinated raids, interviews and requests for evidence, the SFO announced a formal investigation into the Alpha and Green Park group of companies. A total of 26 group companies and 17 investment schemes have been named by the SFO as being under investigation for suspected fraud in relation to student accommodation and holiday park developments between 2014 and 2019. Alpha-branded companies are suspected of fraudulently misleading investors into purchasing leaseholds for student accommodation across northern England, promising returns of 8–10% over the first 10 years. The Green Park-branded companies are likewise suspected of a similar scheme involving the sale of leaseholds for holiday accommodation in Devon. The authority estimates that approximately £150 million was invested into the schemes by over 1,500 investors from around 50 different countries.
Rolls-Royce enters into leniency agreement with Brazilian authorities: On 25 October 2021, UK-based engineering firm Rolls-Royce entered a leniency agreement worth US$27.8 million with two Brazilian authorities, the Office of the Comptroller General of the Union and the Attorney General of the Union. According to the authorities, the agreement resolves allegations that Rolls-Royce bribed public officials in connection with contracts that it entered into with Petróleo Brasileiro S.A. (“Petrobras”), the Brazilian state-owned energy company, between 2003 and 2005. This agreement follows the company’s resolution of bribery allegations in 2017, including deferred prosecution agreements (“DPAs”) with the SFO and US Department of Justice, and a leniency agreement with Brazil’s Federal Prosecution Service. The company’s DPA with the SFO, which has a duration of five years, is due to expire in January 2022.
UK imposes sanctions on senior Nicaraguan individuals: On 15 November 2021, the UK imposed geographic sanctions, comprising travel bans and asset freezes, against eight senior Nicaraguan individuals, following the country’s presidential election on 7 November 2021. The sanctions were imposed in response to the arrest and detention of the president’s political opponents, repression of independent media and enforced dissolution of opposition parties during the election, which attracted strong criticism from the UK, US, EU, and Canada. The list of individuals sanctioned includes the Vice President and First Lady, the Attorney General, and the President of the Supreme Court of Justice. These new sanctions are in addition to the six that were carried over under the Nicaragua (Sanctions) (EU Exit) Regulations 2020 when the UK left the EU and one designation that the UK imposed on 26 April 2021 under the Global Anti-Corruption Sanctions Regulations 2021. A full list of designations can be found on the UK sanctions list.
OFSI publishes its 2021 annual review: On 14 October 2021, OFSI published its annual review for the financial year 2020–2021 (the “Annual Review”). The Annual Review reflects an increased focus on sanctions in the UK following the implementation of the UK’s autonomous sanctions regime as the Brexit Transition Period came to an end on 31 December 2020. Key takeaways from the Annual Review include: (i) the addition of 277 new designated persons to the consolidated list in the financial year 2020–2021; (ii) the consideration by OFSI of 132 reports of potential financial sanction breaches (a slight decrease from the previous financial year); and
(iii) frozen assets worth approximately £12.2 billion reported as being held by UK institutions, as of September 2020. Please see our recent client alert for further consideration of the Annual Review, which will be of interest to those in the UK private sector, as well as international players with business activities that have a UK nexus.
UK Finance publishes new guidance on the definition of “public officials”: On 30 September 2021, UK Finance, a trade association for the UK banking and financial services sectors, published a report on the definition of “public officials” for the purposes of anti-bribery and corruption (“ABC”) compliance. The report has no legislative effect but aims to assist the financial services industry in working toward a more consistent definition. Building on the UK Bribery Act 2010 definition of “foreign public official”, UK Finance recommends a three step approach in which firms should assess whether: (i) individuals are employees or officials of a relevant body, (ii) the relevant body is carrying out a public function or is owned or controlled by the government, and (iii) there are any known exceptions for (i) or (ii) under the applicable law that are sufficiently clear and material to the ABC risk. UK Finance provides decision-making criteria and specific illustrative examples for inclusion in, and exclusion from, the definition, but recognises that each firm needs to apply its own risk appetite.
SFO closes its five-year investigation into Speciality Steels: On 13 October 2021, the SFO announced that it had closed its investigation into British steelmaker, Speciality Steels, without bringing any charges. The announcement brings to a close the authority’s five-year investigation into the company, which was first announced by the SFO in April 2016 following the identification of a lapse in testing and certification procedures during an internal audit. At that time, Speciality Steels was a business unit of Tata Steel (UK) Ltd, but was subsequently sold to the Gupta Family Group Alliance (“GFG Alliance”) in 2017. GFG Alliance continues to be subject to a separate SFO investigation, in which the SFO is investigating suspected fraud, fraudulent trading and money laundering in relation to the financing and conduct of group companies.
We are grateful to the following team members for their contributions: associates Sampaguita Tarrant, Matt Rodin, and Stephanie Pong, and trainee solicitor Emily Duffy.