Corporate Crime: The Year Ahead

• Published date: 26 March 2024
• Subject Matter: Corporate/Commercial Law, Criminal Law, Compliance, Corporate and Company Law, White Collar Crime, Anti-Corruption & Fraud, Corporate Crime
• Law Firm: Pallas Partners
• Author: Matt Getz, Alessia de Quincey and Rachel Ong

Many significant developments took place in 2023 across the landscape of corporate crime, and we can expect to see more in 2024. In particular, we expect three areas to come under increased scrutiny: sanctions, deferred prosecution agreements ("DPA") and commercial corporate liability.

As the war in Ukraine enters its third year, we expect that sanctions will continue to spearhead the international political and legal agenda with enforcement likely to ramp up, assisted by expanding resources, new disclosure requirements and improved international cooperation. An increase in activity can also be expected in relation to DPAs, with the end of 2023 seeing the Crown Prosecution Service ("CPS") concluding its first DPA. With 2024 also marking the 10^th anniversary of the legislation introducing DPAs, we expect to see an increase in companies monitoring and updating their financial crime compliance procedures, in response to the CPS's newfound recognition of the agreements.

Finally, the end of 2023 saw the Economic Crime and Corporate Transparency Act (the "ECCTA") come into force, a significant and welcome step in corporate criminal liability which we expect will drive further constructive change in compliance behaviour and corporate self-regulation. We expect the new offence of failure to prevent fraud to result in many companies augmenting or adjusting their compliance systems, as they look to avoid potential legal action. And the expansion of corporate criminal liability to include the acts of "senior managers" - a term that is sure to be litigated - will lead to much action in and out of court.

The legal landscape has shifted, and both companies and individuals need to make sure they're prepared for what lies ahead in 2024 and beyond. Here, we lay out what you can expect.

Sanctions

We expect that sanctions, particularly those relating to Russia, will remain at the forefront of the international political and legal agenda. In response to Russia's invasion of Ukraine in 2022, the UK has so far designated 1950 persons (1681 individuals and 269 entities) for the purpose of an asset freeze.¹ These include many of the wealthiest Russian individuals and largest Russian companies, with business and other ties around the world, making dealing with Russian sanctions by many measures more complex than any previous set of sanctions.

Russian sanctions are highly unlikely to become any less restrictive in the near term, as Western governments have been unanimous in their view that the sanctions must remain in place at their current level (if not strengthened) until such time as a durable peace agreement is reached in Ukraine.

Many significant developments took place in 2023, and more are expected in 2024.

2023

Enforcement

While it is understood that the pace of investigation into breaches of sanctions is increasing, which may bear fruit in 2024, 2023 shows only a small increase in enforcement in the UK. In 2023, the Office of Financial Sanctions Implementation ("OFSI") issued nine fines, with three exceeding '50,000, and seven warning letters in response to breaches that did not warrant public enforcement action.² This is an increase from eight fines, with two exceeding '45,000, in 2022,³ but remains less than expected, given the significant broadening of sanctions.

In 2022-2023, OFSI recorded 473 suspected breaches of financial sanctions (excluding oil price cap and counter-terrorism breaches). This is a significant increase on the 147 suspected breaches recorded in 2021-2022. This increase was expected given the scale of increased Russia sanctions, and OFSI's increased enforcement capabilities.⁴

OFSI has been granted significant new powers over the years, and in 2023, it used its disclosure powers for the first time to publish details of a breach on its website. The disclosure powers are to be used for breaches that are moderately severe: too serious for a simple administrative warning but not serious enough to warrant a civil monetary penalty.⁵ The first target of the powers was Wise Payments Limited ("Wise"), which had breached regulation 12 of The Russia (Sanctions) EU Exit Regulations 2019 (the "Russia Regulations"), as reported by OFSI on 31 August 2023.⁶ A cash withdrawal of '250 was made from a business account with Wise held by a company owned or controlled by a designated person under the Russia Regulations. In permitting the withdrawal, Wise breached the prohibition on making funds available to a company owned or controlled by a designated person. Despite the low breach value, OFSI considered Wise's systems and controls, specifically its policy surrounding debit card payments, to be inappropriate. Mitigating factors included Wise's voluntary disclosure, lack of deliberate sanctions evasions and remedial actions undertaken by Wise. OFSI is expected to continue to use its disclosure powers in cases of similar gravity.

Licensing

The distinctive nature of the targets of the Russian sanctions, many of whom own property and/or reside in the UK, has made the question of licensing more important than ever before, since licences may be needed to employ locals and pay UK vendors. Decisions were taken on 503 cases, up from 170 in the previous reporting period; 164 licences were granted in relation to the Russian sanctions regime. OFSI issued 21 general licenses in connection with the Russian sanctions regime.

In 2023, for the first time, OFSI's refusal to grant a licence in the requested terms led to a judicial review hearing, which was ultimately unsuccessful. On 26 October 2023, the Court heard a judicial review application made against OFSI by Mikhail Fridman, a designated person, under section 38(2) of the Sanctions and Anti-Money Laundering Act 2018 ("SAMLA").⁷ After designation, Mr Fridman, who owns a large property in London was granted licences to cover many payments, including utility bills, insurance premiums, legal fees and certain domestic staff payments. But he was refused licences for some requested household staff payments, as well as payments for internal phonelines and audio and TV equipment.⁸

Fridman challenged the refusal by way of judicial review, arguing that OFSI should have granted him licences because his requests met the basic needs...