The Serious Fraud Office (SFO) and Financial Conduct Authority (FCA) have become more aggressive in pursuing white collar and economic crime, with the former focusing on headline making investigations, and the FCA more recently setting its sights on individual accountability. With the number of corporate investigations surging and higher stakes involved, law firms in the City are looking to replicate the profitability of white collar practices in the US, which have done well out of increased powers given to the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC), both of which are increasingly targeting US organisations internationally.
Agencies in the UK have also been given more powers, in a white-collar crime landscape that is developing rapidly and becoming more complex. The Bribery Act of 2010, through its robust and far reaching guidelines, gave significant powers to the enforcing SFO, although at that time the agency was seen as ineffective, if not incompetent, following the botched 2011 investigation into Vincent Tchenguiz. Then Home Secretary, Theresa May, had the SFO firmly in her cross hairs, and has ever since been pushing to incorporate the more independent agency into the broader in scope National Crime Agency (NCA), despite continuous opposition from MPs and the legal community.
In 2012, the appointment of new director David Green QC, shifted the focus of the SFO’s resources onto bigger and more complex cases. The following years brought investigations into Barclays plc, Tesco plc and Rolls-Royce plc, represented by Willkie Farr & Gallagher, Freshfields Bruckhaus Deringer and Kingsley Napley, and Slaughter and May respectively. A significant success for the SFO was the result of the LIBOR investigation, which led to the prosecution and imprisonment of former UBS derivatives trader, Tom Hayes, for conspiracy to defraud.
More recently the agency has pressed charges against Barclays, along with four former directors, in relation to its capital raising in 2008. The case being significant because it makes the bank the first to be charged for its actions during the financial crisis, even if those actions were taken to avoid a bailout. The Tesco and Rolls-Royce cases were resolved using Deferred Prosecution Agreements (DPAs), with the engineering giant’s penalty settled at a record breaking £497m. Available to the SFO since 2014, DPAs are only a possible option if the company being investigated has co-operated fully with investigators, and significantly, does not preclude the prosecution of individuals.
The FCA has been opening more investigations than ever before. In a speech made in September, the Director of Enforcement and Market Oversight, Mark Steward, announced a 75% increase in investigations over the past year. In the same speech he referenced the Bank of England’s report into the failure of HBOS, acknowledging the shortcomings of the Financial Services Authority, which was criticised for not pursing further investigations, suggesting that the FCA does not want to repeat the same mistake.
Last year, with the Prudential Regulation Authority, the FCA introduced the Senior Management and Certification Regime (SM&CR), which aims at increasing individual accountability across the financial services industry. While this does indicate that the number of investigations will continue to rise, and certainly with a focus on pursuing individuals, it will be some time before we know the effectiveness of this tougher approach. Despite the record breaking fine of £163m levied at Deutsche Bank AG in January, for failings in anti-money laundering controls, there has been some criticism that the number and value of fines levied does not reflect the number of investigations.
For international law firms, the increase in legislation and investigations in the UK and the US, has created a significant demand for white-collar crime experience, to complement their perhaps more established regulatory practices. Law firms have more work to compete over, but also have to appear better able to navigate existing clients through the changing landscape of compliance and enforcement, where new corporate offences need to be addressed and, where a call from an investigators office might now be more likely. Ideal candidates have multi-jurisdictional regulatory and investigations experience in areas now under the spotlight, such as bribery, tax evasion, and money laundering. It is also desirable to have previous in-house or agency experience, as law firms seek to benefit from insider knowledge and prosecutor know-how.
The difficulty for law firms is that high quality talent is lacking in this competitive market, which includes candidates willing to sell themselves as experts but who have in fact only limited investigations experience. Hiring candidates from within a government agency is an option, as private practice would likely be an attractive suggestion. General Counsels are becoming more astute in their choice of outside counsel, and it is important for law firms to get the fit right.
Recent City hires come from a variety of backgrounds, including Eversheds Sutherland’s hiring of TLT’s former Head of Investigations and Enforcement Jake McQuitty, previously Head of Investigations & Enforcement at Barclays Bank for Europe and the Middle East, King & Spalding’s hiring of former Executive Director of Enforcement and the Executive Counsel at the Financial Reporting Council, Gareth Rees QC, Freshfields’ hiring of former SFO Joint Head of Bribery and Corruption, Ben Morgan, and Gibson Dunn & Crutcher’s hiring of former SFO Prosectutor, Sacha Harber-Kelly .
The UK government and its agencies are, to all appearances, more committed to tackling corporate crime, and the work load for law firms is increasing, with the Criminal Finances Act 2017 (addressing tax evasion), and Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017. The future of the SFO, the main provider of big ticket investigations, looks more secure, with David Green QC having had his stay as director extended to 2018, and Prime Minister Theresa May apparently easing off, at least for now, her attempts at abolishing the agency. Meanwhile, the SFO continues to pursue big targets, most recently launching an investigation into bribery claims at British American Tobacco plc.
By Jonathan Fort, Director
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