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What are the key financial crime offences applicable to companies and their directors and officers? (E.g. Fraud, money laundering, false accounting, tax evasion, market abuse, corruption, sanctions.) Please explain the governing laws or regulations.
Fraud: There are three fraud offences set out in the Fraud Act 2006 (‘FA 2006’): fraud by false representation (Section 2, FA 2006), fraud by failing to disclose information (Section 3, FA 2006), and fraud by abuse of position (Section 4, FA 2006). Fraud offences require proof of dishonesty which is an objective test (Ivey v Genting Casinos (UK) t/a Crockford [2017] UKSC 67).
The Economic Crime and Corporate Transparency Bill has proposed a new corporate offence of failure to prevent fraud. There has been government support for such an offence, but it is still making its way through Parliament at the time of writing.
Money laundering: Part 7 of The Proceeds of Crime Act 2002 (‘POCA’) sets out the money laundering offences, which can be committed by anyone. Primary offences include concealing, disguising, converting or transferring criminal property or removing criminal property from the UK (Section 327, POCA), entering into or becoming concerned in an arrangement where the person knows or suspects that the arrangement facilitates the acquisition, retention, use or control of criminal property by or on behalf of another person (Section 328, POCA), and acquiring using or possession criminal property (Section 329, POCA).
The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 (the ‘Money Laundering Regulations’) sets out requirements on regulated firms to combat money laundering.
The Terrorism Act 2000 sets out offences relating to terrorist financing and includes, at section 18, a specific money laundering offence of being concerned in an arrangement which facilitates the retention or control of terrorist property.
False accounting: The offence of false accounting is found in The Theft Act 1987 at Section 17 and also requires proof of dishonesty.
Tax evasion: There are a wide range of offences relating to tax fraud which cover conduct such as deliberately submitting false tax returns, falsely claiming repayments or reliefs, hiding income, gains or wealth offshore and smuggling taxable goods. The offences include fraudulent evasion of income tax (Taxes Management Act 1970), fraudulent evasion of value added tax (Value Added Tax Act 1994) and fraudulent evasion of excise duty on imported goods or smuggling (Customs and Excise Management Act 1979). There are also offences of providing false documents or information to HM Revenue & Customs (‘HMRC’) and a common law offence of cheating the public revenue. The Finance Act 2016 introduced additional criminal offences relating to offshore income, assets, and activities.
Part 3 of the Criminal Finances Act 2017 (‘Criminal Finances Act’) contains corporate offences of failure to prevent facilitation of UK tax evasion and failure to prevent facilitation of overseas tax evasion. There is a defence if the corporate can prove that it had in place reasonable prevention procedures.
Market abuse: Criminal market abuse offences are found in the Financial Services Act 2012 and include market manipulation (involving making misleading statements), misleading impressions or misleading statements regarding benchmark rates. Insider dealing offences are found in the Criminal Justice Act 1993.
Bribery and Corruption: The Bribery Act 2010 sets out the offences of giving and receiving bribes, and the bribery of foreign public officials (Sections 1-4).
The Act also sets out a corporate criminal offence of failing to prevent bribery where an associated person commits a bribery offence (Section 7). The corporate will have a defence if they can show they had ‘adequate procedures’ in place to prevent bribery.
Sanctions: The Sanctions and Anti-Money Laundering Act 2018 (‘SAMLA’) is the legislation which allows the UK to implement international and domestic sanctions regimes, in line with UK international standards. Specific sanctions regimes are then implemented via regulations, for example The Russia (Sanctions) (EU Exit) Regulations 2019.
Anti-competition: Anti-competition offences or cartel offences can be found in the Enterprise Act 2002 (such as price fixing or bid rigging). There is no requirement to prove dishonesty (Enterprise and Regulatory Reform Act 2013).
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Can corporates be held criminally liable? If yes, how is this determined/attributed?
Yes. Corporates can be held criminally liable if they have committed a specific corporate criminal offence, such failing to prevent bribery (Bribery Act) or failing to prevent tax evasion (Criminal Finances Act).
Corporates can also be held vicariously liable for the acts of its employees and agents. This applies to strict liability offences (offences which do not require proof of intention, recklessness, or even negligence) in, for example, the areas of health and safety regulation.
In some cases, where an individual commits an offence and is identified as the ‘directing mind and will’ of the corporate, the corporate may be held liable based on this identification doctrine. In such scenarios, the individuals are often the most senior members of the corporate, often at board level.
The Economic Crime and Corporate Transparency Bill, which at the time of writing, is making its way through the UK Parliament, includes a proposed corporate offence of failure to prevent fraud as well as a proposed clause which would extend the reach of the identification doctrine for certain economic crimes, to include acts of senior managers.
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What are the commonly prosecuted offences personally applicable to company directors and officers?
The Companies Act 2006 sets out offences which apply to company directors and officers; the general directors’ duties are found at Sections 170-181. Other specific offences that relate to company directors include: fraudulent trading (Section 993); failing to keep adequate accounting records (Section 387); and the provision of misleading, false or deceptive information to auditors (Section 501).
Many of the offences referred to at Q1 above can be committed by individuals, including company directors and officers.
In some instances, for example fraud, bribery or false accounting, where a corporate commits an offence the directors (or equivalent company officers) can also be held liable if the offences were committed with their consent or connivance.
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Who are the lead prosecuting authorities which investigate and prosecute financial crime and what are their responsibilities?
The leading authorities which investigate, and in some cases also prosecute, financial crime are: the Serious Fraud Office (‘SFO‘), the City of London Police (‘COLP‘), the National Crime Agency (‘NCA‘), the Financial Conduct Authority (‘FCA‘), His Majesty’s Revenue and Customs (‘HMRC‘), Competition and Markets Authority (‘CMA‘) and the Office of Financial Sanctions Implementation (‘OFSI‘).
The SFO investigates cases of serious or complex fraud, bribery and corruption and associated money laundering. They are also responsible for investigating, in partnership with HMRC, and prosecuting the corporate criminal offences of failing to prevent tax evasion. The Director of the SFO changes every 4-5 years and in September 2023, Nick Ephgrave QPM will take over Lisa Osofsky as SFO Director.
Since 2008, COLP has been the national lead police force for investigating fraud. It co-ordinates the policing response to fraud and conducts investigations in England and Wales. It also hosts the national fraud reporting system, Action Fraud. Police cases are prosecuted by the Crown Prosecution Service (‘CPS‘).
The NCA investigates and prosecutes serious and organised crime, including money laundering, fraud, bribery and sanctions evasion. As with police cases, the NCA’s criminal cases are prosecuted by the CPS. It also has a specialist proceeds of crime unit which conducts civil recovery investigations connected to money laundering. The National Economic Crime Centre is part of the NCA. It coordinates the UK’s response to economic crime and is responsible for the Joint Money Laundering Intelligence Taskforce (‘JMLIT‘) which is a partnership between law enforcement and the financial sector to exchange and analyse information relating to money laundering and wider economic threats.
HMRC investigates tax fraud and tax evasion. It can prosecute its own cases or refer cases to the CPS for prosecution. HMRC has civil and criminal avenues available to it to tackle tax evasion.
The FCA has investigatory and prosecutory powers in connection with financial crime in the regulated sector and in particular offences contained within the Financial Services and Markets Act 2000. It also has responsibility for enforcing breaches of the Money Laundering Regulations by firms it regulates and has powers to investigate and prosecute money laundering offences. The FCA has oversight over the regulated and unregulated financial services industry and also has a range of non-criminal regulatory sanctions available for breaches of its rules.
OFSI is responsible for implementing financial sanctions in the UK and investigating breaches. Since the Russian invasion of Ukraine in 2022, OFSI has increased its enforcement capabilities and closely coordinates its activities with other UK law enforcement agencies as well as foreign law enforcement agencies, most notably in the United States. OFSI has the ability to impose monetary penalties for breaches of sanctions. The most serious cases are referred to the NCA for criminal investigation.
The CMA investigates and prosecutes breaches of competition law and criminal cartel behaviour in the markets.
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Which courts hear cases of financial crime? Are trials held by jury?
Criminal cases in the UK are heard in the magistrates’ court and the crown court. The magistrates court deals with summary offences, these tend to be on the lower level of seriousness and are heard by either a single Judge or three magistrates.
The crown court deals with more serious, indictable-only, offences and these are tried before a jury. A Judge in a crown court has greater sentencing powers.
Economic crimes are mostly ‘either-way’ offences, meaning they can be tried in either the magistrates’ court or the crown court. Defendants have a right to elect whether they wish to be tried in a magistrates’ court or the crown court in the case of an either-way offence. The magistrates court can also refer cases to the crown court where it determines that it does not have sufficient sentencing powers.
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How do the authorities initiate an investigation? (E.g. Are raids common, are there compulsory document production or evidence taking powers?)
Cases will normally go through a vetting process, usually conducted by the relevant agency’s intelligence unit, before the case is formally accepted for investigation. This will usually include covert information gathering to ascertain whether the case is one the relevant agency should take on. This vetting stage will include consideration of whether the UK has jurisdiction over the alleged offences and where the evidence (e.g. witnesses and documents) is located.
Once accepted for formal investigation law enforcement agencies have a range of investigative powers available to them, including the ability to apply for search warrants and require the provision of documents and information.
The SFO, FCA, CMA, police and HMRC all have the ability to apply for search warrants authorising entry and search of the premises.
The SFO has powers under Section 2 of the Criminal Justice Act 1987 (‘CJA 1987’) to compel the production of documents and to compel an individual to attend an interview and answer questions or otherwise furnish information without the need for a court order.
Under Section 2A of the CJA 1987 the SFO can also use these powers in the pre-investigation vetting phase in cases of bribery. The Economic Crime and Corporate Transparency Bill currently making its way through parliament would extend these pre-investigation powers to cases involving suspected fraud.
As the supreme court case of R (on the application of KBR, Inc) v Director of the Serious Fraud Office ([2021] UKSC 2) makes clear the power to compel documents does not have extra-territorial effect and cannot be used to compel a foreign company to produce documents it holds outside of the UK.
The FCA has similar powers under Sections 171-175 of the Financial Services and Markets Act 2000 (‘FSMA‘). The CMA also has similar powers under the Sections 26 and 26A of the Competition Act 1998. In certain circumstances the CMA also has the power to enter a business premises without a warrant (Section 27).
For certain crimes, such as money laundering, false accounting, bribery and breaches of sanctions, the CPS can authorise a police officer or NCA officer to issue a disclosure notice (Section 62 of the Serious Organised Crime and Police Act 2005) to compel the production of documents and/or answers to questions. For all other offences they can apply for production orders under the Police and Criminal Evidence Act 1984 (‘PACE‘).
The SFO, FCA, police and NCA also have investigatory powers under the Proceeds of Crime Act 2002 in respect of money laundering investigations which allows them to apply for account freezing orders, account forfeiture orders, and unexplained wealth orders.
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What powers do the authorities have to conduct interviews?
Suspects: Authorities can interview suspects under caution, following procedures governed by PACE. Interviews under caution can be conducted voluntarily or following arrest (only the police have powers of arrest).
Witness interviews: Witnesses may be interviewed voluntarily (where answering questions is not mandatory) or compulsorily (where they are under a duty to attend and answer questions).
Unlike in interviews under caution, there is no ability to exercise a ‘right to silence’ in compulsory interviews, such as a SFO Section 2 interview. Compulsory interviews are normally used where the interviewee would otherwise be subject to a duty of confidentiality (e.g. an employee of a suspect company or an accountant) or where a potential witness refused to attend a voluntary interview. Compulsory interview powers do not require an interviewee to answer questions and provide information covered by legal professional privilege.
Failure to answer questions in a compelled interview (excluding the provision of information which is subject to legal professional privilege) or providing false or misleading information is itself a criminal offence. For this reason, compulsory interviews are generally not used to interview suspects as the answers cannot normally be used against the interviewee (unless it is in a prosecution for providing false or misleading information).
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What rights do interviewees have regarding the interview process? (E.g. Is there a right to be represented by a lawyer at an interview? Is there an absolute or qualified right to silence? Is there a right to pre-interview disclosure? Are interviews recorded or transcribed?)
Interviews under caution are governed by PACE and PACE Code of Practice C, which states that the person being interviewed under caution has the right to legal advice. The right to legal advice applies to those under arrest or those being interviewed voluntarily under caution. Before an interview under caution the interviewee and their legal representative must be given sufficient information to enable them to understand the offence and why the interviewee is suspected of committing it. The timing of this pre-interview disclosure will depend on the circumstances and complexity of the case. This pre-interview disclosure does not necessarily have to include copies of relevant documents or other evidence but, normally in cases involving economic crime, where the interview under caution is a voluntary one and there are a large number of documents which require explanation, copies of these documents will be given some weeks in advance of the interview.
In an interview under caution, there is no requirement to say anything (i.e. right to silence) however it may harm their defence if they do not say something which they later rely on in court (i.e. leading to the court drawing adverse inferences). Interviews under caution must be recorded following procedures set out in PACE Codes E (audio recording) and F (visual with sound). In the event that the interviewee is subsequently charged or prosecuted a copy of the recording should be provided to them or their legal adviser.
Compelled interviews of witnesses, for example SFO interviews under Section 2, do not have an automatic right to legal representation, however the SFO has published guidance which clarifies when a lawyer may accompany their client (i.e. in the case of providing legal advice or pastoral support).
Lawyers who accompany a witness at compulsory interviews will be required by the SFO to provide an undertaking that they are not conflicted (for example, where a corporate is under investigation the lawyer accompanying the witness would have to provide an undertaking that they were not also retained by the corporate). The SFO digitally records compelled interviews. Lawyers who accompany a witness are only allowed to take handwritten notes.
Unlike an interview under caution, there is no right to silence in a compelled interview (see above), as failure to provide information when asked may constitute an offence. However, statements made in such interviews are not normally admissible against the interviewee in future criminal proceedings unless those proceedings relate to false or misleading statements made by the interviewee.
There is no requirement to provide pre-interview disclosure before a compelled interview, however, in practice where there are a large number of documents which the interviewers wish to ask questions about pre-interview disclosure will normally be given.
Voluntary witness interviews are the least protective of the interviews as the interviewee has no right to representation. There is also no requirement to record voluntary interviews.
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Do some or all the laws or regulations governing financial crime have extraterritorial effect so as to catch conduct of nationals or companies operating overseas?
Generally, laws governing financial crime apply to acts committed in England, Wales and Northern Ireland.
However, some offences, most notably Bribery Act offences, Criminal Finances Act offences and money laundering offences can have an extraterritorial element.
Bribery Act offences (bribing another person, accepting a bribe, and bribing a foreign public official) apply extraterritorially, meaning that even if the act or omission occurred outside of the UK, it would still be a Bribery Act offence if it occurred in the UK, and that there is a sufficiently close connection with the UK (Section 12 of the Bribery Act). Examples of a close connection would include having British employees or UK subsidiaries.
The Section 7 corporate offence of failing to prevent bribery also has extraterritorial effect, as it captures the acts of associated persons of UK companies, or companies carrying on a business in the UK, no matter where in the world they take place. Guidance published by the Ministry of Justice in 2011 confirmed that neither having shares listed on the London Stock Exchange nor having a UK subsidiary would necessarily mean a foreign company is carrying on a business, or part of a business, in the UK. Whether a foreign parent company is deemed to be carrying on such a business may depend on how much control it operates over its UK subsidiary and whether the subsidiary is effectively operating independently (Akzo Nobel NV v Competition Appeal Tribunal [2014] EWCA Civ 482).
The failure to prevent the facilitation of (both UK and foreign) tax evasion offences under the Criminal Finances Act has a similar extraterritorial reach and therefore can apply to conduct which occurs outside of the UK.
Under POCA, the consideration of whether the offending behaviour constitutes a money laundering offence is whether it would constitute a criminal offence in the UK if it had occurred here. Therefore, even if the laundering takes place overseas, POCA may still apply.
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Do the authorities commonly cooperate with foreign authorities? If so, under what arrangements?
The UK generally co-operates with foreign law enforcement authorities. This can be in the form of police-to-police enquiries (for intelligence gathering) or by way of mutual legal assistance (used when court orders or other powers exercisable by the authorities in the receiving country are required in order to obtain admissible evidence).
The UK engages with the EU primarily through the EU-UK Trade and Cooperation Agreement (‘TCA‘) which came into force on 1 May 2021 and sets the framework for EU-UK cross-border law enforcement and sets out processes in relation to extradition requests and mutual legal assistance (‘MLA‘) requests, which are intended to replace previous tools such as European arrest warrants and European investigation orders.
The UK engages with non-EU agencies via MLA requests, normally governed by treaties with the relevant state, and other information sharing arrangements. MLA requests are made and received by UK law enforcement authorities via a formal letter of request which is sent via the UK Central Authority, see the Crime (International Co-Operation) Act 2003.
In addition to direct police to police enquires police forces can gather information via the NCA, can also share information with Europol and Interpol under data sharing arrangements.
The FCA has a number of multilateral and bilateral agreements in the form of Memoranda of Understanding with a number of overseas regulators, including the European Banking Authority, and the European Securities and Markets Authority. It also has MoUs with many overseas jurisdictions including Canada, Australia, Singapore, and the United States.
In respect of tax offences, the Joint Chiefs of Global Tax Enforcement (‘J5’) was formed in 2018 as a multinational enforcement group to combat transnational tax crime. HMRC was a founding member of J5 alongside the Canadian, US, Australian, and Netherlands tax authorities.
OFSI is engaged in an OFAC-OFSI Enhanced Partnership, announced in October 2022, which committed to more information sharing and enforcement in multilateral implementation of global financial sanctions.
The SFO frequently cooperates with international jurisdictions in the past concerning international economic crime. For example, in November 2022 Glencore was convicted and fined £281 million in the UK as a result of bribery of officials in its African operations. The SFO worked in parallel with the US Department of Justice, and closely with the Dutch and the Swiss authorities on the investigation.
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What are the rules regarding legal professional privilege? Does it protect communications from being produced/seized by financial crime authorities?
Legal professional privilege (‘LPP‘) is a fundamental right afforded to a client between them and their lawyer. Only the client may waive privilege and it cannot be reasserted by the lawyer or another third party.
There are two types of LPP: Litigation privilege covers confidential communications or documents between lawyers and clients or between lawyers and third parties where the communication is created for the dominant purpose of ongoing or reasonably contemplated civil or criminal litigation; legal advice privilege covers communications between lawyers and their clients for the purpose of giving or receiving legal advice.
In the context where the corporate is the client receiving legal advice, privilege only applies to confidential communications between certain individuals and the lawyer and may not extend to all employees. When asserting legal advice privilege, the party asserting the privilege must be able to show that the relevant document or communication was created or sent for the dominant purpose of obtaining legal advice (R (Jet2.com Ltd) v Civil Aviation Authority [2020] EWCA Civ 35).
Claims of privilege have been and still are the subject of litigation. Against this backdrop clients are strongly advised to take advice about the application of LPP. In the context of corporates conducting internal investigations, it may be a consideration to retain external lawyers in order to have the strongest claim to privilege over the investigation and its findings.
Privileged documents are generally exempt from the prosecuting authorities’ powers to compel the production of documents, however there may be circumstances where it would be prudent to disclose documents under a limited waiver of privilege, for example in the context of cooperating with authorities. Corporates will need to consider this very carefully when they are dealing with cross-border investigations, as privilege rules vary between jurisdictions and a supposedly ‘limited’ waiver of privilege could be much wider than intended – a frequent concern in cases with a US dimension.
The UK has a ‘crime-fraud exception’ to legal professional privilege where a client consults with a lawyer to further a criminal purpose. In these circumstances, communications between the client and the lawyer will not attract legal professional privilege: this applies even if the lawyer does not know of the client’s criminal purpose.
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What rights do companies and individuals have in relation to privacy or data protection in the context of a financial crime investigation?
The UK General Data Protection Regulation (‘UK GDPR‘), which reflects the EU GDPR in all material respects, applies to individuals’ rights to privacy and imposes strict data protection obligations in relation to the collection, retention and disposal of personal data.
The Data Protection Act 2018 implements the UK GDPR and controls how personal data is used by businesses (employers monitoring their employees), or the government. For example, the transfer of personal data from the UK to a country outside the European Economic Area is prohibited, unless the recipient, jurisdiction, or territory is able to ensure an equivalent level of data protection or ‘appropriate safeguards’ are in place.
Breaches of the UK GDPR can leave the corporate liable to fines (the higher of £17.5 million or 4% of annual worldwide corporate turnover).
In the context of a financial crime investigation, there is an exemption within the DPA 2018 where information is required in connection with the prevention, investigation, detection or prosecution of criminal offences which would overcome any restrictions on a corporate providing information to a UK law enforcement agency.
In terms of the corporates wishing to conduct a review of employee emails as part of an internal investigation it is possible to do this where there is a legitimate interest. In determining whether there is a legitimate interest, corporates should consider the purpose and necessity of the proposed review and should balance this against the individual’s rights. Generally, a targeted review of employee communications (e.g. emails) to ascertain whether a criminal offence has occurred would be considered a legitimate interest. The Information Commissioner’s Office (‘ICO’) which is responsible for enforcing the DPA 2018 recommends that corporates carry out a ‘legitimate interests assessment’ and document the decision and reasoning behind it.
When seeking to take investigatory steps which may interfere with privacy, for instance when seeking to intercept communications or obtain communications data, law enforcement authorities are required to comply with the requirements in the Investigatory Powers Act 2016.
Individuals who are considered suspects in a criminal investigation are generally entitled to a reasonable expectation of privacy regarding the investigation until the point of charge (confirmed in Bloomberg LP v ZXC [2022] UKSC 5). Such cases are highly fact-specific however, and the need for free press reporting must be balanced against potential prejudice to the investigation and the individual’s right to privacy.
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Is there a doctrine of successor criminal liability? For instance in mergers and acquisitions?
There is no doctrine of successor criminal liability. However, in the case of acquisitions, where there has been historical criminal conduct in the target company and proceeds of that conduct remain within the company post-acquisition (e.g. ongoing profits from a historical contract which was obtained by bribery) this may expose the purchaser to a money laundering offence under POCA. It may be a defence for the corporate to make a suspicious activity report (‘SAR‘) to the NCA requesting a defence and to self-report the issue to the SFO. An example of this approach resulting in the conviction of a vendor, with no action taken against the purchaser or the company, was revealed in 2019 with the conviction of Carole Ann Hodson, who pleaded guilty to bribery in relation to a scheme to secure £12m worth of contracts for the company while under her ownership.
Should the criminal conduct continue post-acquisition, the acquiring company may be liable for that conduct.
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What factors must prosecuting authorities consider when deciding whether to charge?
Prosecutors in the UK are required to apply a two-stage test when determining whether to charge; this is known as the Full Code Test which is set out in the Code for Crown Prosecutors. The first stage is the evidential test – is sufficient evidence to provide a realistic prospect of conviction? If that test is passed the second test is whether the prosecution is in the public interest. This involves consideration for the factors for and against prosecution.
In the case of the prosecution of corporates, the SFO and CPS issued joint guidance in 2010, which lists further factors to be taken into account when assessing the public interest in prosecuting a corporate. This will include an assessment of whether there is a history of similar conduct, whether it was part of established business practice and whether the corporate had an effective compliance programme.
In March 2011, the SFO and CPS also issued joint prosecution guidance in respect of Bribery Act offences which provides further guidance on the factors for and against prosecution for Bribery offences.
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What is the evidential standard required to secure conviction?
The burden of proof is on the prosecuting authority, and it must show the defendant was guilty beyond a reasonable doubt.
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Is there a statute of limitations for criminal matters? If so, are there any exceptions?
No, there is no statute of limitations for criminal matters. However, for lower-level matters (i.e. summary offences) normally dealt with by magistrates’ court, the relevant time limit is either set out in the statute itself, or within 6 months of the criminal act.
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Are there any mechanisms commonly used to resolve financial crime issues falling short of a prosecution? (E.g. Deferred prosecution agreements, non-prosecution agreements, civil recovery orders, etc.) If yes, what factors are relevant and what approvals are required by the court?
Deferred Prosecution Agreements (‘DPA‘) were introduced in the UK by the Crime and Courts Act 2013 and became available to prosecutors on 24 February 2014. It is a discretionary tool used instead of a formal prosecution, to respond to allegations of criminal conduct by a corporate. The effect is that the corporate must agree to a set of rules (often involving ongoing co-operation, remediation and sometimes monitorship) and the prosecution is deferred for a period of time, after which the matter is concluded without prosecution.
To date the majority of DPAs entered into relate to SFO cases. They must be initiated by the prosecutor who must follow a similar two stage test as that set out in the Code for Crown Prosecutors. Firstly, they must consider whether the evidential threshold is met, and secondly, whether the public interest would be served if the prosecutor entered into a DPA. In the case of DPAs the evidential test does not need to be to the Full Code standard, a DPA can be offered where the prosecutor determines that there is reasonable suspicion, based on admissible evidence, that an offence had been committed and that there are reasonable grounds for believing that a continued investigation would provide further admissible evidence within a reasonable time frame.
Civil recovery orders are a non-conviction based asset forfeiture under POCA. They may be used by bodies including the NCA, SFO, CPS, FCA and HMRC. Proceedings are before the high court and the burden of proof is to a civil standard (the balance of probabilities). The proceedings are against the property itself rather than against an individual or a corporate. Civil recovery is often used when it is not possible to secure a conviction, but the property represents proceeds of crime.
In cases of tax fraud, HMRC can utilise their Code of Practice 9 approach (‘COP9‘), which is a procedure for individuals in the case of a tax fraud, where a criminal investigation can be avoided in lieu of the admission of dishonestly, repayment of the tax and additional financial penalties.
The FCA has a range of civil and regulatory enforcement powers at its disposal which range from issuing statutory notices (such as warning notices, decision notices and supervisory notices) to issuing financial penalties for breaches of its rules. In determining whether or not to take action resulting in a financial penalty the FCA will consider a range of factors relating to the nature, seriousness and impact of the breach and the conduct of the person after the breach (this includes how quickly the FCA was notified of the breach and the degree of cooperation with the FCA during the investigation and remediation taken).
In relation to breaches of financial sanctions, OFSI has the power to impose monetary penalties. In determining the level of the penalty, OFSI will look at the impact and values of the breach. As with the SFO and FCA, it will also take into account whether there was voluntary disclosure of the breach.
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Is there a mechanism for plea bargaining?
There is no formal mechanism for plea bargaining in the UK. However, in serious and complex fraud cases, plea discussions may occur in order to obtain an early resolution of a case or narrow the issues in dispute. Please refer to the Attorney General’s Guidance on Plea discussions in the case of serious or complex fraud, published in November 2012. These plea discussions do not include the ability to agree the sentence which remains responsibility of the court.
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Is there any requirement or benefit to a corporate for voluntary disclosure to a prosecuting authority? Is there any guidance?
There is no general requirement for corporates to make a self-report where a financial crime is suspected. However, some corporates, for instance those in the regulated sector may be required to notify their regulator.
Financial firms regulated by the FCA have a regulatory requirement to disclose information that the FCA would reasonably expect to be notified for. They are also subject to money laundering reporting obligations (such as making SARs when money laundering is suspected).
In the case of sanctions, firms may have to notify OFSI and apply for a licence or exception before the proposed activity is conducted.
Whether a corporate has made a self-report is a factor that is taken into account when assessing the public interest in whether the corporate is prosecuted or whether a DPA or other civil or regulatory outcome is open to them. Self-reports are also considered as a mitigating factor in any assessment of penalty.
A self-report alone does not guarantee a particular outcome and prosecutors will also look at other factors such as the level of co-operation with the investigation and the remedial steps the corporate has taken. For the reasons given below legal advice is strongly recommended if a Self-Report is being considered and also, if made, in liaising with relevant law enforcement agencies.
The decision on whether and when to self-report will need careful consideration and will depend on various factors including the scope and outcome of any internal investigation, the reputational consequences for the corporate, and other stakeholder interests.
Where a corporate wishes to self-report, the timing will also be important. Guidance states that a report should be made in a reasonable time of the offending coming to light. However, there is no guidance on what constitutes a reasonable time. The SFO guidance on self-reporting indicates that it would expect that the Corporate would have undertaken some internal investigations to establish the facts before making a report. Any such internal investigation undertaken with a view to making a self-report will need to be carefully scoped and controlled to avoid, for example, the risk that in conducting an internal investigation potential evidence not in the control of the corporate, but which the SFO would have the power to obtain, is lost.
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What rules or guidelines determine sentencing? Are there any leniency or discount policies? If so, how are these applied?
For individuals, the Court will refer to the Sentencing Council’s sentencing guidelines for determining the appropriate sentence, including their specific guidelines published in October 2014 for fraud, money laundering and bribery. If there is no specific guideline, the court should consider the Sentencing Council’s overarching principles.
For corporates, the Court will refer to the Sentencing Council’s guidance for corporate offenders: fraud, bribery and money laundering. This is a 10-step process which is summarised below:
Compensation: A compensation order may be made to require the offender to pay compensation to the victim for any personal injury, loss or damage resulting from the offence. This is a priority over other types of financial penalty. If there is no compensation order made, reasons must be given.
Confiscation: A confiscation order (pursuant to section 70 of POCA) may be made by the crown court or on request from the prosecutor. This relates to the benefit fomr the offending, for example the profit from a contract obtained by bribery. This figure is often also the harm figure (see below) and is used as the starting point for the calculation of any fine.
Categorisation of the offence: This is determined with reference to culpability and harm factors. Culpability is demonstrated by the offending corporation’s role and motivation (with reference to a list of non-exhaustive characteristics in the guidance) and is split into 3 categories: Category A – High culpability, Category B – Medium culpability, and Category C – lesser culpability. Harm is represented by a financial sum calculated by reference to the amount obtained or intended to be obtained (or loss avoided or intended to be avoided). Where the actual or intended gain cannot be established, the appropriate measure may be 10-20 per cent of the relevant revenue, however the guidelines also acknowledge that in large cases of fraud of bribery where the harm is to the markets generally, there may be a larger harm figure adopted by the court.
Determine starting point and category range: Following the determination of culpability at Step 3 above, the court will use a table setting out the starting points for the penalty. The starting point will then be multiplied by the relevant harm figure also determined at Step 3. Following this, the court will then consider adjustments for any aggravating or mitigating factors present (these factors are non-exhaustive and may have the effect of moving the sentence outside the previously identified category range).
Adjustment of the fine: At this stage, the court is guided to ‘step back’ and consider the overall effect of its orders, which are intended to remove all gain, apply the appropriate additional publishment and deter future conduct. Consideration should be given to the impact of the fine on employees, service users and customers (but not shareholders).
Any other factors: The court may consider whether there should be a reduction in the sentence, by virtue of any assistance given to the prosecutor for example.
Reduction for guilty plea: The court should take into account any reduction that comes with a guilty plea.
Ancillary orders: The court must consider making any accompanying ancillary orders.
Totality principle: If the sentence is for more than one offence, consider whether the total sentence was just and proportionate to the offending behaviour.
Reasons for sentence: The court must give reasons for and explain the effect of the sentence (Section 52 of the Sentencing Code).
The guideline for corporate offenders is also used to calculate financial penalties issued under a DPA (Schedule 17 of the Crime and Courts Act 2013 states that the financial penalty of a DPA must be comparable to a fine the court would have imposed on conviction following a guilty plea).
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In relation to corporate liability, how are compliance procedures evaluated by the financial crime authorities and how can businesses best protect themselves?
In the context of corporate criminal offences such as failing to prevent bribery or failing to prevent the facilitation of tax evasion, it will be a defence for the corporate if they are able to show that they had adequate procedures (in the case of bribery) or reasonable procedures (in the case of facilitation of tax evasion).
The UK’s Ministry of Justice (‘MOJ‘) published guidance in 2011 designed to clarify what would constitute adequate procedures to prevent bribery and outlined six principles:
- Proportionate procedures
- Top-level commitment
- Risk assessment
- Due diligence
- Communication (including training)
- Monitoring and review.
More recently, in 2020, the SFO published their guidance on Evaluating a Compliance Programme which echoes the MOJ guidance issued in 2011. The SFO guidance makes it clear that an assessment of the efficacy of a corporate’s compliance programme, at the time of the offending, at the time of reporting and looking forward will be a key consideration in determining outcome. The SFO guidance does not provide any specific details on what a compliance programme should look like but does emphasise that it should be effective and not simply a ‘paper exercise’. The guidance indicates that it would expect corporates to have conducted an assessment to determine what is appropriate for the field in which it operates and that there should be written records of the compliance programme and its operation.
As illustrated by R v Skansen Interiors Ltd, which was the first contested prosecution for failure to prevent bribery, recording compliance measures, communicating and updating policies and procedures, and appointing a compliance officer are all issues which are likely to be relevant before a jury in defending a compliance programme.
HMRC has published similar guidance on the corporate offences of failure to prevent criminal facilitation of tax evasion in 2017 which is based on the same six principles above.
The British Bankers’ Association also published Anti-Bribery and Corruption guidance in 2014 for the banking sector in complying with Bribery Act and FCA obligations.
The FCA has published a Financial Crime Guide, which utilises its ‘credible deterrence’ strategy, a way to demonstrate the enforcement action taken by the FCA as well as give examples for best practice for systems and controls which help firms detect, prevent and deter financial crime. Other FCA requirements are set out in its Principles for Business and Senior Management Arrangements, Systems and Controls Sourcebook. Although the FCA is not a designated prosecutor for Bribery Act offences it can take regulatory action for failures in firms’ systems and controls in relation to bribery, even if no bribery has actually occurred.
For those corporates which bid for public contracts in the UK, even those convicted of certain economic crimes such as bribery, the corporate will not face permanent debarment if it can show it has taken remedial steps. This is referred to in the Public Contracts Regulations 2015 as ‘self-cleaning’.
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What penalties do the courts typically impose on individuals and corporates in relation to the key offences listed at Q1?
Fraud Act offences are punishable by up to 10 years’ imprisonment and/or a fine.
Bribery Act offences are punishable by up to 10 years’ imprisonment and/or an unlimited fine (corporates can also receive an unlimited fine).
Theft Act offences are punishable by up to 7 years’ imprisonment.
POCA money laundering offences are punishable by up to 14 years’ imprisonment and/or an unlimited fine (corporates can also receive an unlimited fine).
Corporates convicted of failing to prevent the facilitation of tax evasion are subject to an unlimited fine.
Market manipulation offences (under the Financial Services Act) are punishable by up to 7 years’ imprisonment and/or an unlimited fine (corporates can also receive an unlimited fine).
Criminal cartel offences are punishable by up to 5 years’ imprisonment.
Sanctions offences under SAMLA may be punishable by up to 10 years’ imprisonment and/or a fine. OFSI has discretion to issue a penalty which is the greater of £1 million or 50% of the value of the funds involved in the breach of financial sanctions.
In practice, the above is a starting point and sentencing can be dependent on a multitude of factors as discussed in the Sentencing Council guidelines and above.
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What rights of appeal are there?
For cases in the magistrates’ court, defendants can appeal to the crown court where the appeal will be heard by a Judge and 2-4 different magistrates.
Cases heard in the crown court may be heard in the court of appeal however leave, or permission, must be granted by the court of appeal to hear the appeal, or the trial judge must provide a certificate allowing the appeal. The criterion for appealing a conviction is that it must be shown that the conviction reached is unsafe. The criterion for appealing a sentence is that it was legally wrong or manifestly excessive.
If the prosecuting authority decides that a sentence passed was too low, the Attorney-General may refer the case back to the court of appeal to review the sentence.
Appeals from the court of appeal go through a similar process where leave to appeal must first be obtained, after which they may be heard in the supreme court.
The Criminal Cases Review Commission (CCRC) is an independent body which is not part of the Crown. They investigate possible miscarriages of justice, in circumstances where an appeal at the Court of Appeal has been lost.
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How active are the authorities in tackling financial crime?
In the years since the pandemic, it is fair to say that the SFO has not been as active as other regulators in tackling financial crime. While the SFO did obtain some large settlements (such as those of Glencore and Airbus), it also had some high-profile failures such as the collapse of the Serco case and the result of the Sir David Calvert-Smith review into the Unaoil trial. 2023 however may prove to be a different story, as the start of the year for the SFO began with dawn raids and several charging decisions.
Nick Ephgrave QPM of a policing background, has been announced as successor to Lisa Osofsky in July 2023 and it is possible that, when he takes over in September 2023, he will take a more proactive approach to investigations than we have seen in recent years.
The FCA remain active in tackling financial crime, publishing ‘Dear CEO’ letters and updates in relation to hot topics such as the growing popularity of crypto assets and advertising crypto currencies and products to young investors.
There is no statute of limitations in the UK so a snapshot of enforcement activity offers little comfort in relation to future enforcement. The SFO and other law enforcement agencies have frequently been known to investigate and seek to prosecute historic offences.
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In the last 5 years, have you seen any trends or focus on particular types of offences, sectors and/or industries?
Certainly, in the last two years, sanctions have been a huge topic following the Russian-Ukrainian war. As that conflict keeps progressing, the sanctions landscape is ever evolving, with the EU on its 11th package of sanctions and the first Russian individual being de-listed from the designated list, it is clear the position is still dynamic. The UK’s OFSI has grown notably since these developments, both in size and in its importance vis a vis other global sanctions regulator like OFAC. The NCA are also proactive in the sanctions space and in 2022 established a Kleptocracy Cell with a particular focus on “corrupt elites” and their professional facilitators.
Money laundering has been and, as the UK’s Economic Crime Plan 2 2023-2026 confirms, remains a key focus of law enforcement. This includes the establishment of a Crypto Cell to pool expertise and enforcement tools to tackle the criminal abuse of crypto assets.
ESG is an area of growing interest for many, and the ethical push, especially the Environmental factor, is reflected in the regulatory clampdown on these issues both by the FCA but also bodies such as the Advertising Standards Agency (‘ASA‘) and the Competition and Markets Authority (‘CMA‘).
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Have there been any landmark or notable cases, investigations or developments in the past year?
In November 2022, Glencore Energy UK Ltd, the UK branch of the mining company, was sentenced to pay a fine of £280 million following its guilty plea to seven counts of bribery in relation to its operations in Africa. Viewed as a success for the SFO, this represented the UK’s first corporate conviction for a primary bribery offence (rather than just a ‘failure to prevent bribery’ offence) and the largest corporate fine imposed in the UK to date.
In March 2023, the SFO made the controversial decision to close its prosecution into three former executives at G4S, the security company accused of defrauding the UK government over a prisoner-tagging contract. The SFO cited this no longer being in the public interest, however critics have pointed to the numerous disclosure issues which have plagued the case since it began.
The collapse of the G4S case also represents the third time that the SFO has failed to prosecute individuals of a company that itself has already been prosecuted or signed a DPA (see also Tesco in 2018, and Serco in 2021). This is perhaps illustrative of a more general problem with the identification doctrine (see more below).
The SFO, in their 2022 Annual Report published in July 2023, stated that following the independent investigations into the SFO’s handling of the Unaoil investigation and the R v Woods and Marshall trial, all 29 recommendations of the Attorney-General have been implemented and recognised by the HMCPSI.
In July 2023, it was announced that Lisa Osofsky will be replaced by Nick Ephgrave QPM as the new Director of the SFO. Mr Ephgrave’s policing background as the former Met Police Chief has been met with cautious optimism by practitioners and he will take up the role in September 2023.
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Are there any planned developments to the legal, regulatory and/or enforcement framework?
The Economic Crime and Corporate Transparency Bill is, at the time of writing, in the final stages of its passage through the UK parliament. It seeks to introduce a failure to prevent fraud offence and put the corporate identification principle (used to establish corporate wrongdoing) on statutory footing.
The proposed failure to prevent fraud offence would apply in a similar manner to the existing corporate offence of failing to prevent bribery. It will be a defence for the corporate if they can show that they had reasonable ‘prevention procedures’ to prevent fraud on a civil ‘balance of probabilities’ standard. As currently drafted, this offence would only apply to large organisations (more than £36 million in turnover, more than £18 million in total assets and more than 250 employees) and apply to both regulated and non-regulated bodies.
A clause was also introduced which states that a corporate would be held liable for the acts of a ‘senior manager, acting with the actual or apparent scope of their authority’. This extension of the identification principle to include senior management represents a modernisation of the legislation to reflect the complex corporate governance structures of today.
The Bill also contains proposals to extend the SFO’s section 2A powers to compel the production of documents and information in the pre-investigation (i.e. vetting) stage of cases involving suspected fraud.
On the regulatory side financial promotions relating to certain crypto assets are being brought within the scope of FCA regulation and as of 3 April 2023 there were 41 crypto asset firms registered with the FCA under the anti-money laundering regulations. The FCA’s 2023/24 business plan indicates that in addition to the focus on crypto assets it will be focusing on money laundering more widely and intends to “increase its use of data to better identify which firms are more susceptible to receiving the proceeds of fraud and ensure that they are doing more to stop the flow of illegitimate funds in its tracks”. It also intends to increase the volume of its proactive assessments of firms’ anti-money laundering systems and controls and develop further data-led analytical tools to use in its anti-money laundering supervisory work. This data led approach will also be used to proactively supervise firms’ sanctions systems and controls.
The FCA also plans to significantly improve its capability to detect and prosecute fixed income and commodities market manipulation, through increased data capture, improved analytics, a dedicated non-equity manipulation team and increased enforcement resources.
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Are there any gaps or areas for improvement in the financial crime legal framework?
The use of third-party devices and messaging apps in a business context has been the subject of increased regulatory focus. The use of such devices and apps in businesses is often accompanied by a lack of data retention policies and procedures or oversight in relation to the use of such communications, create an environment ripe for misconduct (such as market abuse, insider trading, spoofing, bribery, etc). This is especially the case in businesses which are not already subject to regulatory oversight.
Enforcement activity in the US relating to the use of personal devices has ramped up since October 2022 following the US SEC and CFTC issuing of number of fines totalling over US $1.8 billion. The FCA has indicated that they are also conducting investigations into the banks that were fined.
More recently in August 2023, Wells Fargo and Societe Generale indicated they will also settle with the SEC and CFTC in relation to the use of these messaging apps. Given the inherently global nature of business communications and joined-up regulatory appetite, these hefty fines in the US represent a sign of things to come in the UK.
In terms of environmental, social, and governance (ESG) considerations, we are seeing a dramatic increase in enforcement activity by regulators such as the ASA, the CMA and the FCA for overblown ‘greenwashing’ claims. While the public interest in these issues is growing exponentially, we predict this enforcement activity and potentially legislative reform, will continue to grow.
United Kingdom: White Collar Crime
This country-specific Q&A provides an overview of White Collar Crime laws and regulations applicable in United Kingdom.
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What are the key financial crime offences applicable to companies and their directors and officers? (E.g. Fraud, money laundering, false accounting, tax evasion, market abuse, corruption, sanctions.) Please explain the governing laws or regulations.
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Can corporates be held criminally liable? If yes, how is this determined/attributed?
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What are the commonly prosecuted offences personally applicable to company directors and officers?
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Who are the lead prosecuting authorities which investigate and prosecute financial crime and what are their responsibilities?
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Which courts hear cases of financial crime? Are trials held by jury?
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How do the authorities initiate an investigation? (E.g. Are raids common, are there compulsory document production or evidence taking powers?)
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What powers do the authorities have to conduct interviews?
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What rights do interviewees have regarding the interview process? (E.g. Is there a right to be represented by a lawyer at an interview? Is there an absolute or qualified right to silence? Is there a right to pre-interview disclosure? Are interviews recorded or transcribed?)
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Do some or all the laws or regulations governing financial crime have extraterritorial effect so as to catch conduct of nationals or companies operating overseas?
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Do the authorities commonly cooperate with foreign authorities? If so, under what arrangements?
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What are the rules regarding legal professional privilege? Does it protect communications from being produced/seized by financial crime authorities?
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What rights do companies and individuals have in relation to privacy or data protection in the context of a financial crime investigation?
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Is there a doctrine of successor criminal liability? For instance in mergers and acquisitions?
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What factors must prosecuting authorities consider when deciding whether to charge?
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What is the evidential standard required to secure conviction?
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Is there a statute of limitations for criminal matters? If so, are there any exceptions?
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Are there any mechanisms commonly used to resolve financial crime issues falling short of a prosecution? (E.g. Deferred prosecution agreements, non-prosecution agreements, civil recovery orders, etc.) If yes, what factors are relevant and what approvals are required by the court?
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Is there a mechanism for plea bargaining?
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Is there any requirement or benefit to a corporate for voluntary disclosure to a prosecuting authority? Is there any guidance?
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What rules or guidelines determine sentencing? Are there any leniency or discount policies? If so, how are these applied?
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In relation to corporate liability, how are compliance procedures evaluated by the financial crime authorities and how can businesses best protect themselves?
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What penalties do the courts typically impose on individuals and corporates in relation to the key offences listed at Q1?
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What rights of appeal are there?
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How active are the authorities in tackling financial crime?
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In the last 5 years, have you seen any trends or focus on particular types of offences, sectors and/or industries?
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Have there been any landmark or notable cases, investigations or developments in the past year?
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Are there any planned developments to the legal, regulatory and/or enforcement framework?
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Are there any gaps or areas for improvement in the financial crime legal framework?