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.
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.
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.
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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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
- Data affects enforcement
- Intermediaries remain a higher risk business relationship
- Increased focus on culture and compliance
- Keeping up with expectations on cooperation with the authorities
- Calls for increased transparency of settlements
- Dual-track investigations
- Anti-Money Laundering and Counter-Terrorism Finance laws expand scope
- Sectors under the spotlight
- Increasing law and more global cooperation
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
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
Increased focus on culture and compliance
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
Anti-Money Laundering and Counter-Terrorism Finance laws expand scope
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
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.
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