UK: UK Economic Crime Group: Enforcement Update - September 3, 2019

Executive Summary

In this edition of the UK Enforcement newsletter we provide an update on recent anti-corruption, fraud and bribery developments in the UK. We focus on enforcement actions by the Serious Fraud Office (SFO), National Crime Agency (NCA) and the Financial Conduct Authority (FCA). We also look at government policy issues including documents published by the SFO and the National Audit Office (NAO).

In terms of enforcement, we consider:

  • The prosecution of a director of ALM Services UK Ltd for failure to produce documents required by a Section 2 Notice;
  • Three former Barclays' executives facing a retrial, including new charges, in relation to the 2008 financial crisis;
  • Court approval of the deferred prosecution agreement between the SFO and Serco Geographix Ltd;
  • Former Deutsche Bank trader acquitted over rigging of Euribor;
  • NCA secures £100 million Account Freezing Order and an Unexplained Wealth Order covering £10 million of property;
  • Updates related to the SFO's investigation into Unaoil;
  • Reporting restrictions lifted in relation to 2016 deferred prosecution agreement, as XYZ Ltd is revealed to be Sarclad Ltd;
  • SFO opens investigation into De La Rue plc; and
  • Richard Baldwin's conviction for money laundering revealed after reporting restrictions lifted, following the FCA's Operation Tabernula.

In relation to government policy:

  • NAO issues its report on tackling serious and organised crime;
  • Prime Minister orders a sentencing review to consider automatic release for longer sentences, while UK criminal prosecutions are at an all-time low; and
  • The SFO publishes guidance on corporate cooperation.

Enforcement Actions

Prosecution of director of ALM Services UK Ltd for failure to produce documents

On 14 June 2019, Anna Machkevitch was charged with failure to comply with a notice issued under Section 2 of the Criminal Justice Act 1987 (a Section 2 Notice) in relation to the SFO's investigation of Eurasian Natural Resource Cooperation (ENRC). A Section 2 Notice compels the person it is addressed to, to produce documents or other information to the SFO. The offence of failure to comply with a Section 2 Notice is punishable by a maximum six-month prison term and an unlimited fine.

Ms Machkevitch is the director of London-based ALM Services and the Machkevitch Foundation, as well as being the daughter of Alexander Machkevitch, one of the three founders of ENRC. Ms Machkevitch had been provided with a Section 2 Notice in connection with the current SFO investigation into ENRC. The SFO alleges that in January 2019 she failed to supply documents required by the SFO, contrary to a Section 2 Notice. On 5 July 2019, appearing at Westminster Magistrates' Court, she pleaded not guilty to the offence. A date has not yet been set for her full trial.

Barclays' executives facing re-trial of fraud charges and new charges

As we reported previously, the trial of four senior Barclays' executives was stopped when the jury was discharged in April 2019, following a decision by Mr Justice Robert Jay that there was insufficient evidence against the defendants. Reporting restrictions remain in place in respect of this case.

On 21 June 2019, the Court of Appeal declined an application by the SFO to overturn the decision by Mr Justice Jay that there was insufficient evidence against the former CEO of Barclays, John Varley. However, the application was approved in relation to the three other defendants, Richard Boath, Roger Jenkins and Tom Kalaris, and they will face a retrial scheduled to commence on 7 October 2019 at the Crown Court at Southwark.

In addition, on 1 August 2019, the SFO was given permission to amend its indictment against the three defendants, so that at their retrial they will now face substantive fraud charges, in addition to those of conspiracy to commit fraud by false representations.

SFO announces DPA reached with Serco

On 4 July 2019, Mr Justice William Davis approved a Deferred Prosecution Agreement (DPA) between the SFO and Serco Geographix Ltd (Serco). Under the DPA, Serco has taken responsibility for three offences of fraud and two of false accounting arising from a scheme to dishonestly mislead the Ministry of Justice about the extent of profits being made by Serco's parent company from its contract for the provision of electronic monitoring services. According to the DPA, as a result of this deception, the Ministry of Justice was prevented from attempting to limit the company's future profits, recover any previous profits, seek more favourable terms during renegotiations of contracts or otherwise threaten contract revenues.

Under the terms of the DPA, Serco will pay a financial penalty of £19.2 million as well as the SFO's costs for the investigation. This is in addition to £12.8 million that Serco has already paid to the Ministry of Justice by way of compensation.

As with previous DPAs, Serco and its parent company have agreed to provide ongoing cooperation to the SFO, including reporting evidence of fraud by itself and any associated persons, as well as strengthening its internal policies and procedures and reporting annually to the SFO on its group-wide assurance programme.

The DPA concludes the SFO's investigation into Serco and its group companies, but the investigation into individuals associated with this matter remains active. Reporting restrictions are in place.

Former Deutsche Bank trader acquitted over rigging of Euribor

On 4 July 2019, Andreas Hauschild, a former Managing Director at Deutsche Bank was found not guilty of conspiracy to defraud in respect of manipulating the Euro Interbank Offered Rate (Euribor) between January 2005 and December 2009.

Having been charged in November 2015, Mr Hauschild declined to appear at hearing at Westminster Magistrates' Court in January 2016, along with three other former Deutsche Bank employees and a trader from Société Générale. Following that hearing, the SFO secured European Arrest Warrants against these five individuals and Mr Hauschild was arrested in Italy and subsequently extradited back to the UK.

During his three week trial in June 2019, it was alleged that Mr Hauschild was part of an elite group manipulating Euribor, using his responsibility for the team that provided rate submissions to rig the benchmark. He was accused of conspiring with others at Deutsche Bank, Barclays, Société Générale and other banks, with the jury's attention being drawn to the convictions of Christian Bittar (formerly of Deutsche Bank), and Philippe Moroyoussef, Carlo Palombo and Colin Bermingham (all three formerly of Barclays). On 4 July 2019, the jury acquitted Mr Hauschild of conspiracy to defraud over the rigging of Euribor.

NCA secures £100 million Account Freezing Order and an Unexplained Wealth Order covering £10 million of property

Continuing the trend of increasing the use of freezing and forfeiture powers by the NCA, the agency has, in the past few months, secured its largest ever set of Account Freezing Orders (AFOs) and obtained another Unexplained Wealth Order (UWO).

On 12 July 2019, the NCA obtained a UWO in relation to property worth £10 million against a businessman from the north of England with suspected links to serious organised criminals. The UWO requires the individual to reveal the source of funds used to start and develop his £10 million property empire. The NCA believes that eight properties he has purchased were funded by a number of criminal associates involved in drug trafficking, armed robberies and supplying firearms. While the NCA has previously obtained UWOs, this is the first instance of one being obtained solely based upon a suspicion of involvement in serious organised crime, rather than being based on underlying criminal convictions. In addition to the UWO, interim freezing orders have been granted over the properties, preventing their sale, transfer or other dissipation while the investigation continues.

On 12 August 2019, the NCA was granted freezing orders over eight bank accounts containing a total of more than £100 million. The AFOs were granted on the basis that it is suspected that these funds have been derived from bribery and corruption in an overseas nation. This is the largest amount of money frozen using AFOs since their introduction. These AFOs are also related to an earlier AWO granted in December 2018 against a linked individual, which froze £20 million.

The NCA's continuing efforts in freezing funds suspected of being involved or originating from criminal conduct show the NCA's commitment to recovering funds and tracing the proceeds of crime.

Updates on the Unaoil investigation

On 15 July 2019, Basil Al Jarah, Unaoil's former partner in Iraq, pleaded guilty to five offences of conspiracy to give corrupt payments. The offences related to the award of contracts to supply and install single point moorings and pipelines in southern Iraq. As part of the same investigation, Ziad Akle, Paul Bond and Stephen Whiteley have been charged with conspiracy to make corrupt payments. The trial of these three individuals is due to begin on 13 January 2020 at the Crown Court at Southwark.

It has also been reported that Unaoil believes that the SFO has ended its investigation into Unaoil chairman Ata Ahsani and his sons who are the company's chief executive and chief operating officer. The SFO has not commented on this development.

Separately, the SFO has handed over control to Scottish prosecutors of the investigation into oil company the Wood Group in relation to alleged payments made by Wood Group to Unaoil.

Reporting restrictions lifted in relation to 2016 DPA as XYZ Ltd is revealed to be Sarclad Ltd

On 16 July 2019, Michael Sorby, Adrian Leek and David Justice were acquitted of conspiracy to corrupt and conspiracy to bribe in relation to allegations of conspiring with various agents to agree bribes in respect of 27 separate overseas contracts for their company, Sarclad Ltd.

Following these acquittals, reporting restrictions were removed in respect of the DPA agreed between the SFO and Sarclad Ltd in July 2016, which had been previously reported anonymously as XYZ Ltd. Sarclad accepted charges of corruption and failure to prevent bribery in relation to the systematic use of bribes to secure contracts for the company between June 2004 and June 2012. Under the terms of the DPA, Sarclad paid a penalty of £352,000 and disgorgement of £6.2 million, with a portion of the payments being made by Sarclad's US parent company.

SFO opens investigation into De La Rue plc

In July the SFO confirmed that it had opened an investigation into the activities of the De La Rue group and its associated persons in respect of suspected corruption in South Sudan. When the country formed in 2011, De La Rue secured the contract to print South Sudan's bank notes. The company's statement to the London Stock Exchange confirmed that the SFO's investigation had been opened and that the company would cooperate with the SFO.

Richard Baldwin's conviction for money laundering revealed after reporting restrictions lifted

In one of its largest and most complex investigations (Operation Tabernula), the FCA has secured the conviction (in his absence) of Richard Baldwin for offences arising from his laundering the proceeds of crime generated by insider dealers, Martyn Dodgson and Andrew Hind. Mr Dodgson, who worked as an investment banker, supplied insider information to Mr Hind who used this to effect secret deals for their benefit. They were convicted in May 2016 and were sentenced to four-and-a-half years and three-and-a-half years respectively for conduct spanning 2006 to 2010.

It was a facet of the conspiracy between the two men that they would not receive directly the profits from the insider dealing they commissioned. Mr Baldwin, Mr Hind's partner in a West-End luxury watch business, was responsible for moving the £1.5 million proceeds of the criminal enterprise, which he did by setting up companies in Panama and via a Swiss bank which he defrauded by providing false documentation attesting to the origin of the funds.

Upon Mr Dodgson and Mr Hind's arrests in 2010, Mr Baldwin closed the relevant company accounts. In 2011, aware that there was a restraint order imposed in respect of the proceeds of the conspiracy, Mr Baldwin travelled to Geneva and withdrew cash or liquidated assets to the combined value of nearly £200,000. As a result of this conduct, and his subsequent disposal of the money withdrawn, Mr Baldwin was further charged with contempt of court, an offence to which he pleaded guilty in November 2015.

Despite Mr Baldwin absconding during the trial process and remaining on the run, he was sentenced on 3 September 2019 in his absence to five years and eight months. The sentence was five years for the money laundering offences and a further eight months for contempt of court.

In an FCA press release, Mark Steward, the FCA's Director of Enforcement, highlighted the case as an example of the FCA's determination to ensure that criminals operating within its purview are brought to justice and are deprived of the proceeds of their criminal conduct, however complex their offending. He noted that this case in particular shows that the FCA will pursue not only principal offenders but also those who facilitate the laundering of the proceeds of their crimes.

Government Policy

NAO issues its report on tackling serious and organised crime

On 28 June 2019, the NAO issued its report into tackling serious and organised crime. The report was focused on all types of serious and organised crime, from money laundering, fraud, and bribery and corruption to modern slavery, illegal firearms and drugs. It was noted that serious and organised crime is evolving at a rapid rate.

The report reviewed the government's strategy and framework for dealing with serious and organised crime which was first issued in 2013 and then revised in 2018. The report identified that the government's 2018 strategy has tried to address shortcomings in the earlier strategy but to date the strategy has not been successfully implemented. The strategy operates on the four "P" work strands:

  • Prevent people from getting involved in organised crime;
  • Pursue and disrupt serious and organised criminals;
  • Protect individuals, organisations and communities against serious and organised crime; and
  • Prepare for when serious and organised crime occurs and mitigate its impact.

However, the NAO considers that the government has prioritised the "pursue" workstream over the other three strands.

The report also identified issues with the disparate way in which funding is provided for tackling serious and organised crime, with funds coming from HM Treasury, the Home Office and various other sources to the NCA, regional organised crime units and individual police forces. This makes funding both uncertain and inefficient, with resources varying by region.

Prime Minister orders a sentencing review to consider automatic release for longer sentences, while UK criminal prosecutions are at an all-time low

Statistics released in August 2019 by the Ministry of Justice showed that the number of people prosecuted, convicted and jailed all fell in the first quarter of 2019 and the number of people prosecuted or handed penalties for crimes has fallen to a record low. This is despite an increase in the number of crimes recorded by the police in the same period.

Separately, the Prime Minister has ordered a review of sentencing legislation, to look at whether there should be reform of the current legislation which automatically requires offenders to be freed on licence at the half-way point of any determinate sentence. The focus of the review will be on sentences for the most serious crimes, particularly violent and sexual offenders. In addition the government announced funding of up to £2.5 billion to create 10,000 more places in prison and build new jails.

SFO issues guidance on corporate cooperation

On 16 August 2019 the SFO published the updated Corporate Cooperation Guidance chapter from its Operational Handbook (the Guidance). Whilst this document is explicitly intended "for guidance only" (as opposed to having statutory authority), it is expressed as being for use "in assessing the cooperation from business entities". The document is therefore essential reading for those engaged in investigations which could come to be investigated by the SFO.

The Guidance reiterates that cooperation is a public interest factor to be taken into account when the SFO determines what course of action to take against a company where there is sufficient evidence to provide a realistic prospect of conviction (for example whether to prosecute, to enter into DPA negotiations, or whether to take no further action).

Much of the content of the Guidance confirms concepts which have long been understood from the SFO's public statements on cooperation and from practitioner experience of dealing with SFO investigations. Issues such as preservation of evidence, presenting evidence to the SFO in a structured manner (not data-dumping), consulting the SFO prior to interviewing key witnesses, making witnesses available to the SFO, not protecting certain executives or blaming others, and considerations around legal professional privilege, are all already familiar features of corporate criminal investigations.

The SFO has also clarified its previous position of a company needing to self-report as soon as the company realises it has a problem, with the SFO now preferring to require approaches to it within a reasonable time of the suspicions coming to light, with relevant evidence preserved and made available to the SFO. It is clear that the SFO expects that a company should have carried out a reasonable assessment of whether it has a problem or not before bringing its concerns to the SFO's attention and requiring it to investigate them.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions