UK Economic Crime Group: Enforcement Update

• Law Firm: Arnold & Porter
• Subject Matter: Employment and HR, Government, Public Sector, International Law, Criminal Law, Technology, Money Laundering, Export Controls & Trade & Investment Sanctions, White Collar Crime, Anti-Corruption & Fraud, Whistleblowing, Fin Tech
• Author: Mr Sean Curran, Kathleen Harris, Melissa Dames, Maya Paunrana and Rosa Hurdidge
• Published date: 25 May 2023

Executive Summary

In this edition of the UK Enforcement newsletter, we provide an update on recent economic crime matters in the UK. We consider the recent regulatory and enforcement actions taken by the Serious Fraud Office (SFO), the Financial Conduct Authority (FCA), the Financial Reporting Council (FRC), and the UK's Gambling Commission. We also report on proposed legislative reforms, as well as recent updates in relation to sanctions and the growth of cryptoasset-related regulation.

With respect to enforcement, governmental matters, and legislative reform, we consider the following topics:

• SFO secures its first DPA-related conviction of an individual
• SFO abandons its case against G4S executives
• Recent enforcement actions by the FRC, FCA, and the Gambling Commission
• The new "failure to prevent fraud" offense in the Economic Crime and Corporate Transparency Bill
• FCA's 2023/2024 business plan
• Review of the UK's whistleblowing framework
• Updates with respect to cryptoasset-related regulation
• Updates with respect to sanctions against Russia

As part of our social commentary, we consider the following topics:

• Ongoing efforts towards a more inclusive workforce throughout the regulated financial sector
• Guidance for companies on how to measure, report on, and address any ethnicity pay differences within their workforce

SFO secures its first DPA-related conviction of an individual

In February 2023, following the lifting of reporting restrictions, the SFO reported that Roger Dewhirst, a former director of a project management company, pleaded guilty to bribery offenses in May 2022. After several failed attempts, this marks the SFO's first conviction of an individual after reaching a deferred prosecution agreement (DPA) with a company over related conduct.

Reporting restrictions were put in place when the SFO opened its investigation into suspected bribery concerning Bluu Solutions Limited and Tetris Projects Limited (the companies) in 2017. In 2021, the companies simultaneously agreed to enter into DPAs, remaining anonymous pending resolution of an ongoing investigation into connected individuals. We commented on these DPAs in an earlier newsletter. Under the terms of the recently published DPAs, the companies respectively accepted responsibility for four counts of bribery and one count of failure to prevent bribery during the tender process for five office refurbishment contracts worth approximately '11.5 million and for one count of failure to prevent bribery amounting to '2.62 million. As a result, the companies agreed to pay a combined penalty of over '1.9 million and to pay back all profit obtained through bribery in the amount of '604,407.

Dewhirst, formerly of Bluu Solutions Limited, pleaded guilty on two counts of accepting bribes worth '291,000 as part of a tendering process to win office refurbishment contracts between 2014 and 2016 on behalf of the companies. The payments were characterized as "finder's fees" awarded to influence the outcome of the tender process. Dewhirst's guilty plea was subject to reporting restrictions at the time as it preceded a three-month trial that took place in January 2023 in which a jury acquitted three other connected individuals on bribery and money laundering charges relating to the same conduct. In this trial, the defendants were able to successfully argue that the fees paid were legitimate and commonplace within the industry, and following half-time submissions, the jury was directed to return not-guilty verdicts.

Dewhirst's guilty plea is significant given that the SFO has failed to prosecute individuals since the introduction of DPAs for corporations in 2014. However, it should be noted that Dewhirst pleaded guilty to receiving bribes, which differed from the criminal conduct of giving bribes as agreed to in the corporate DPA. Additionally, Dewhirst did not contest the proceedings against him. Although the SFO can consider its conviction of Dewhirst to be a success, it is clear that the prosecution of individuals following corporate settlements continues to be a challenge for the SFO.

Serious Fraud Office abandons case against G4S executives

On March 10, 2023, the SFO abandoned its case against three former G4S executives who allegedly defrauded the Ministry of Justice (MoJ) over a prisoner-tagging contract. Notwithstanding its success with respect to the guilty plea it secured against Roger Dewhirst, as discussed above, the collapse of this trial adds to a string of unsuccessful attempts to prosecute individuals following a corporate settlement as a result of disclosure failings.

The G4S executives were each charged in September 2020 with seven offenses of fraud in connection to false representations made to the MoJ between 2009 and 2012. The SFO's prosecution offered no evidence against the three individuals at a hearing at the Central Criminal Court in March 2023. Following a decades-long investigation, the SFO noted that it was no longer in the public interest to proceed with the case following an evaluation that the complex disclosure issues would take too long to resolve. The trial that should have taken place in 2022 had been pushed back by a year, but the SFO maintained that it would be unable to complete disclosure in time for a fair trial.

The failure to prosecute the three former executives follows a DPA entered into between the SFO and G4S in which the latter paid a financial penalty of '38.5 million and the SFO's full costs of '5.9 million, in relation to the aforementioned scheme to defraud the MoJ. The collapse of the case is one of many instances in which the SFO has been unable to follow through with its fraud charges against employees after entering into a DPA with a company. In 2021, the SFO failed to prosecute two former directors at Serco Geografix Limited, once again due to difficulties with disclosure, after the company had agreed to pay a '22.9 million fine as a result of the agreement.

In her keynote speech in September 2022, the SFO's Director, Lisa Osofsky, acknowledged that disclosure remains one of the SFO's biggest problems. While the subject of disclosure and whether it requires reform will remain at the forefront for some time, corporations that find themselves under investigation will undoubtedly think twice before entering into a DPA when it is clear that the SFO has thus far faced challenges in prosecuting the underlying criminal conduct.

Recent enforcement actions by the Financial Reporting Council for audit failings

On March 8, 2023, the FRC announced sanctions against PwC and two former audit partners for committing a number of serious breaches with regard to the statutory audits of Babcock International Group PLC (Babcock) and one of its subsidiaries.

The FRC's seven-week investigation concerned the audits of Babcock's accounts for 2017 and 2018, identifying breaches with respect to every area of audit investigated. This included a failure to follow basic audit requirements, showing a lack of competence, care, or diligence. For example, there was no evidence that the audit team had reviewed a '640 million contract written in French, as the audit team did not understand French, and neither did they obtain a translation. There was also evidence of repeated failures to challenge...