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Cross-Border White Collar Crime and Investigations Review

A summary of the key legislative and enforcement developments in cross-border white collar crime.

In-house counsel advising on investigations and financial crime risk at large, multinational companies have had to contend with a plethora of developments over the past 18 months.

More countries are introducing or amending financial crime laws, new types of businesses are being bought into the scope of existing laws, and there is a flow of guidance from enforcing authorities. Some jurisdictions are reinvigorating or introducing laws that make it more difficult to transfer information across borders during an investigation. Others are encouraging enforcement authorities to collaborate with other investigating authorities across borders. 

The result has been a significant rise in the volume, scale and complexity of financial crime investigations.  In parallel, expectations of corporate behaviour before, during and after investigation, have never been higher.  

This review analyses the latest developments and trends, and highlights the most significant among the current and emerging issues that white collar crime and investigations in-house counsel should prioritise in the year ahead.

 

Country insights

Australia

Australia

Substantial increases in funding for government investigative agencies, and major reforms of the corporate criminal and regulatory framework (with the promise of more to come), has increased the workload of in-house litigation teams. A greater willingness from regulators to use the full range of their enforcement toolkit is generating more criminal and civil penalty investigations and court proceedings. While the financial sector has been the immediate focus and will remain so in the short term, recent reforms have radically changed the compliance landscape, and boards of all companies are under unprecedented pressure to manage conduct risk effectively.

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Belgium

Belgium

The Belgian legal landscape of criminal law and criminal procedure has changed over the past years and is bound to be amended even more substantially with a view to improving the efficiency of the judicial, investigative and prosecutorial functions. After several years of uncertainty, the legal framework for criminal settlement is now set as a result of landmark Supreme Court cases and subsequent legislative reforms. The prosecutorial policy is strongly in favour of settling financial and economic criminal cases which effectively translate as an increase in criminal settlements. Cross-border co-operation between judicial and regulatory authorities is intense both at EU and global level. Financial intermediaries continue to be a point of focus in fraud matters, especially in complex cross-border cases.
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China

China

2019 was an active year for white collar enforcement in China on all fronts.  The consolidation of enforcement agencies into one “super regulator”, plus the addition of new agencies is likely to increase the scope and pace of enforcement action.  The life sciences sector is a primary target, and regulatory enforcement against financial services has increased markedly. New laws provide for more significant fines for market manipulation and commercial bribery offences. Moreover, the International Criminal Justice Assistance Law, along with the Cybersecurity Law and State Secrets Law, pose challenges to how multinational companies conduct internal investigations, and potentially share information with foreign regulators in their home countries.

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France

France

The criminal enforcement landscape has clearly changed in France over the course of 2019, with unprecedented fines being imposed against UBS and a rise in the number of French-style deferred prosecution agreements (Convention Judiciaire d’Intérêt Public). Money-laundering, tax evasion and corrupt practices have been a key focus, and are likely to remain so.  The National Financial Prosecutor’s Office changed hands towards the end of 2019, with its director Eliane Houlette being replaced by Jean-François Bohnert. In light of the latter’s experience in Germany and with Eurojust, cross-border cooperation is likely to increase in 2020.  The revitalisation of the French Blocking Statute may make it more difficult for a company to cooperate with a non-French authority during an investigation.

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Germany

Germany

The diesel emissions scandal and the so-called cum/ex trades have unleashed unprecedented enforcement activity by German criminal prosecution authorities against national and international companies. In their wake, the German legislator is determined to expand the enforcement options available to sanction corporate crimes with the introduction of a new Corporate Sanctions Act, the draft of which is currently coordinated within the Federal Government. This Act will also impact how internal investigations with a German nexus are conducted.  In the current enforcement environment, investigations into tax evasion, money laundering and insider trading are high on the agenda of German criminal prosecution authorities.
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Hong Kong

Hong Kong

Hong Kong regulatory authorities have recently focussed on white collar and financial crime, corporate governance and senior management accountability, book building within the equity and debt capital markets, and financial product suitability. On the cross-border enforcement activity front, the High Court handed down an important judgment which supports the ability of the Securities and Futures Commission (SFC) to share evidence collected, using its investigative powers, with foreign regulators, but recognises that parties may invoke their privilege against self-incrimination in response. This could change the way future SFC enquiries may be conducted. Further, to combat “rolling bad apples” in the regulated sector the SFC has introduced a new obligation to disclose internal investigations of leaving employees. Regulated entities should ensure internal investigations are balanced to manage exposure to claims by former employees.

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Netherlands

Netherlands

Legal entities can be prosecuted for criminal offences committed by their employees, including by their employees abroad. In the last couple of years, we have seen the Dutch Anti-Money Laundering (AML) regime being strengthened and we expect this trend to continue. Out-of-court corporate settlements have been criticised for lack of transparency and there has been a call for some form of judicial review of these settlements. This discussion is still on-going, and has the attention of the Dutch government and Parliament. This has effectively put a freeze on new settlements until the issue is resolved. A new child labour due diligence law will increase corporate focus on supply chains.
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South Africa

South Africa

In the previous decade, South Africa has had low levels of prosecution for corruption, money laundering and other white-collar offences. The end of the Jacob Zuma era, the establishment by President Cyril Ramaphosa of a new Investigating Directorate at the National Prosecuting Authority and three recent Presidential Commissions of Enquiry into corruption herald a new era in South African enforcement efforts.  Coupled with anticipated changes in South Africa’s key anti-bribery and corruption law, corporates are expected to face increased scrutiny by regulators in 2020 after years of inaction.
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United Arab Emirates

United Arab Emirates

The UAE is at the forefront of a trend across the Gulf region to crack down on financial crime. Recent legislative changes introduced in the UAE have strengthened the powers and resources available to enforcement authorities. These changes have extended the scope and territorial reach of the anti-bribery law, increased penalties for private companies involved in criminal activities, and allowed authorities to seize the proceeds of crime.  
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United Kingdom

United Kingdom

The UK has high ambitions to fight financial crime, but 2019 saw mixed success for enforcement authorities. Whilst there were some successful prosecutions of individuals, and some decision making by the Serious Fraud Office (SFO) on legacy cases, there were some high-profile failures of SFO corruption prosecutions against individuals where their employers had already entered into deferred prosecution agreements (DPAs) and paid huge fines, for the same alleged conduct. The Office of Financial Sanctions Implementation saw its first three sanctions fines – but at quite low levels. Looking ahead, in the year of the Bribery Act’s 10th birthday, there was a significant start for the SFO with the ground breaking multi-jurisdictional DPA with Airbus. Both the SFO and the Financial Conduct Authority (FCA) have stated their intention to make greater use of money-laundering related offences. We await the outcome of an appeal of KBR v SFO on the UK authorities’ ability to order a company to produce documents from overseas parent companies.
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United States

United States

Mixed signals to companies came out of the U.S. last year. FCPA enforcement is at an all-time high, and the DOJ Antitrust Division continues to coordinate across borders, while the DOJ National Security Division enforces U.S. sanctions on non-U.S. companies without notable cross-border cooperation. The DOJ Criminal and Antitrust Divisions are giving companies more incentive than ever to beef up compliance efforts and cooperate with government investigations, while a U.S. court has signalled that such cooperation may infringe on individuals’ rights. Companies should invest in robust compliance, prioritize early disclosure of potential problems to U.S. authorities, and know that the long arm of U.S. sanctions can and will follow them across increasingly attenuated connections to the U.S.
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Current and emerging trends

We asked our global white collar crime team for their views on the main issues for in house investigations teams in 2020.

Although the picture is not uniformly the same across jurisdictions, there were some reoccurring themes. 

Managing data during an investigation

Managing data during an investigation

We expect to see increased data protection enforcement, with large fines, as the data protection regimes in many jurisdictions begin to mature. Those involved with conducting internal investigations will need to:

  • ensure protection of personal data, for example when reviewing employee devices and communications; 
  • check local laws to see whether there are any restrictions on transferring personal data across borders; and 
  • keep up to date on how these laws are being enforced – for example, the French Blocking Statute has been recently reinvigorated, and China has introduced new laws which effectively represent a blocking statute. 
Data affects enforcement

Data affects enforcement

The availability of data, and faster machine learning, will likely lead to greater enforcement as authorities can leverage data analytics to surface misconduct more easily. For example, the planned overhaul of the UK's suspicious activity reporting regime is partly aimed at the authorities being able to use data analytics to gather better financial crime intelligence from the mass of information reported. 

Financial services firms may, and indeed are being encouraged to, take advantage of machine learning for their own internal compliance purposes, but they will need to communicate to regulators what that machine learning is, and what systems and controls are in place to manage the use of machine learning and its associated risks. Regulators may challenge firms to explain how, for example, they are managing potential bias. Often financial crime compliance technology is outsourced to a third-party provider, but the responsibility remains with the regulated firm. 

 
Intermediaries remain a higher risk business relationship

Intermediaries remain a higher risk business relationship

The use of intermediaries remains a very high corruption risk. Many enforcement actions in 2019 related to payments made to third parties concealed as, for example, consultancy fees or sponsorship or charitable donations, including sports team sponsorship.  Companies must ensure that their policies and procedures around the use of such business partners are properly implemented, and reviewed on a regular basis to reflect the business as it evolves.
Increased focus on culture and compliance

Increased focus on culture and compliance

Recent enforcement suggests that just having policies and procedures in place, even if externally certified, will not necessarily be adequate either to prevent financial crime in an organisation or to provide an 'adequate procedures' defence for a company faced with prosecution under the increasingly popular 'failure to prevent' type bribery offences. How the policies and procedures are embedded in an organisation is critical to making them effective. We expect to see even more scrutiny by authorities on 'tone from the top' and corporate culture in general. 
Keeping up with expectations on cooperation with the authorities

Keeping up with expectations on cooperation with the authorities

Many developed regimes now encourage a company under investigation to cooperate with the authorities in order to obtain 'credit' which can, in turn, mean a greater chance of avoiding a corporate conviction and help to secure a discounted fine.  Some authorities have provided guidance on exactly what is expected.  There is often a tension between an authority's expectations of cooperation, and rules on legal professional privilege in some countries.  Some authorities are hardening their stance on privilege. For example, some are demanding either third-party certification of privilege claims or exercising or demanding more power to determine the applicability of legal privilege in particular cases. In-house counsel are advised to consider carefully how to manage issues of privilege and cooperation, perhaps adopting a tiered approach with 'crown jewel' privilege claims (for example communications with external lawyers) and other privilege claims which it may be less uncomfortable about waiving (for example, notes of interviews with some employees). 

Although companies are encouraged to cooperate during an investigation, we have seen concern in the U.S. that cooperation that is too close means that an 'internal investigation' is effectively a quasi-criminal investigation by the State– i.e. that the company's lawyers are effectively the agents of the enforcing authority.  In-house counsel should ensure appropriate independence to preserve the integrity of an internal  investigation, whilst at the same time not jeopardising cooperation credit. Read more.

Corporate appetite for cooperation will depend on the perceived benefits. Corporate appetite for cooperation will depend on the perceived benefits. In the UK, for example, concerns have been raised that DPA penalty discounts applied so far for companies that have self-reported are not sufficiently differentiated from a company that was convicted (following a guilty plea – eg: see Sweett Group) or a company that did not initially self-report but which was subsequently offered a DPA based on exceptional cooperation during an SFO investigation (eg see Rolls Royce). Read more. 

 

 
Calls for increased transparency of settlements

Calls for increased transparency of settlements

While companies and enforcement authorities may favour settlements, there have been calls in some countries for increased transparency and scrutiny of the settlements.  The degree of scrutiny and transparency varies by jurisdiction. For example, in the Netherlands the settlement regime is the subject of political debate meaning that, at present, there is some doubt around whether there will be any new settlements.
Dual-track investigations

Dual-track investigations

Many authorities have an avowed intent to pursue criminal prosecutions for money laundering failings in the financial services sector.  Whilst administrative penalties are still the norm, we are seeing in the UK  'dual track' investigations whereby a regulator pursues both civil and criminal lines of enquiry. This approach can present challenges for investigations lawyers, particularly in the treatment of individuals.  
Anti-Money Laundering and Counter-Terrorism Finance laws expand scope

Anti-Money Laundering and Counter-Terrorism Finance laws expand scope

More types of companies and advisors are being brought within the scope of AML and CTF regulation as the law makers try to keep up with the money launderers and those who finance terrorism. For example the implementation of the EU's 5th Anti-money laundering directive in the UK has bought crypto asset exchange providers,  custodian wallet providers, high value art market participants (e.g. art dealers and freeport operators) and high value property letting agents (previously it was just estate agents) into scope. An expanded definition of ‘tax adviser’ means that those who offer material aid or assistance on tax matters will also fall in scope.  
Sectors under the spotlight

Sectors under the spotlight

Whilst there is some enforcement in most business sectors, there continues to be a higher level of enforcement worldwide, and record breaking fines, against some of the perceived 'facilitators' of financial crime such as financial services firms, in a number of areas including in particular AML and the facilitation of tax evasion. Telecoms companies can also be caught in the crosshairs given their role as communications service providers – recent fines relating to financial sanctions breaches, and legislative developments regarding access to customer data, shows that they are clearly in the sights of some agencies.     

In China, the life sciences sector also continues to attract the attention of enforcement agencies. 

Financial reporting and auditors are facing increasing scrutiny following a number of high profile corporate collapses.  

Increasing law and more global cooperation

Increasing law and more global cooperation

Multinationals will be familiar with the financial crime laws in jurisdictions where they operate. As more countries amend their laws (for example, South Africa, Germany, UAE) it is important that compliance takes account of new requirements, in particular to understand the 'strictest' regime under which it operates which may in turn help shape the compliance programme.

There is undoubtedly more collaboration between jurisdictions now. Any investigation that has touch points in more than one jurisdiction will likely involve the authorities talking behind the scenes at the investigation, charging and settlement stages. There have been instances of an authority 'piggy backing' on an interview by another authority, outside of its own jurisdiction. This should impact decisions made during an investigations concerning interactions with authorities.

There remain some challenges for companies dealing with multiple authorities.  Laws in a number of countries (e.g. China, France) make it difficult to cooperate with foreign regulators. 

Our lawyers are used to helping our clients navigate all these issues, if you need more information please contact amy.edwards@allenovery.com.

Download the Cross-Border White Collar Crime and Investigations Review

The 'Cross-Border White Collar Crime and Investigations Review' analyses the latest developments and trends, and highlights the most significant among the current and emerging issues that white collar crime and investigations in-house counsel should prioritise in the year ahead.