Information exchange in criminal matters - who knows your business?

June 2015 | EXPERT BRIEFING | FRAUD & CORRUPTION

financierworldwide.com

Business now more than ever is a global concern. We buy and sell goods globally at the touch of a computer screen; businesses can book a trade from one jurisdiction into another and arrange for the consequent payments to be transferred between financial accounts within seconds. Whilst the advantages for the global economy are beyond question, the ability to financially step in and out of jurisdictions quickly has proven to be of particular interest to the organised and well informed criminal minds.

All too often those tasked with the investigation and prosecution of criminal conduct find themselves having to navigate national and international laws that slow down and sometimes stop their ability to obtain the evidence needed to apprehend offenders or simply restrain assets timeously.

International information exchange agreements – some examples

As a result, cross-border cooperation and exchange of information is increasingly a key component of law enforcement work. Below we provide a brief overview of some of the agreements the UK has in place with other territories to support and manage this process and improve efficiency.

A recent example is the Memorandum of Understanding (MOU) signed in March 2015 between the City of London Police and the US Immigration and Customs Enforcement (ICE) to enhance bilateral collaboration in major criminal investigations.

Aside from MOUs and the more informal sharing of intelligence across agencies both domestically and internationally, there are more formal mechanisms in place such as Mutual Legal Assistance Agreements (MLAs) in criminal matters. These enable international support and assistance to be provided, either on request or spontaneously, in order to obtain evidence to assist in a criminal matter. Currently the UK is a party to 10 MLAs (which cover territories in the European Union (EU), the United Nations (UN) and the Commonwealth) and a further 39 Bilateral Agreements, with territories such as Brazil, India and the UAE. The terms of these Agreements can vary depending on the jurisdiction in question but all are designed to open up information exchange channels.

Multijurisdictional investigations are often coordinated through the offices of Eurojust in the Hague (the EU’s Judicial Cooperation Unit), which was established to improve cooperation across EU Member States. Often a Joint Investigation Team is set up to bring together investigators and prosecutors from various jurisdictions (including the US) where there is a requirement for a coordinated approach. This is particularly useful in grand style corruption cases.

Further, the UN Convention against Corruption provides a comprehensive set of measures designed to provide technical assistance for the collection, exchange and analysis of information, as well as in other areas such as training. Alongside this, the Financial Action Task Force (FATF), an intergovernmental body established in 1989 by the ministers of its Member jurisdictions, adopted a number of recommendations on 16 February 2012 which deals with cooperation and requires jurisdictions to provide the widest possible range of international cooperation to their foreign counterparts.

In an attempt to tackle cross-border tax evasion, global finance ministers endorsed a common reporting standard for the automatic exchange of tax information on a reciprocal basis at the G20 meeting in Australia in September 2014 as a means of creating another information gateway. Tax information will therefore start to be automatically exchanged between jurisdictions from 2017 and as a result it is likely that financial information will become even more coordinated internationally across government agencies; subject to the obvious data privacy caveats.

What does this mean for your business?

With myriad databases available to law enforcement agencies, it is unlikely to be long before data warehouses are electronically joined and with the press of that proverbial button all manner of intelligence will be at the prosecutors fingertips and potentially available to prosecutors outside of the primary investigating jurisdiction. The European Investigation Order legislation was ratified last year and will be following hard on the heels of the introduction of the automatic exchange of tax information. One might then expect more coordinated requests for information accompanying requests for investigations to be carried out within EU jurisdictions on behalf of other member jurisdictions.

When all of this enabling legislation and administration around the exchange of information (which is just the tip of the iceberg) is coupled together and is considered with the ability to obtain information through the use of ‘whistleblowers’ and criminal informants, it becomes very clear that most investigations will be intelligence driven and potentially will have human intelligence sources. Importantly, the majority of grand corruption style cases will engage cross-border exchange of information with foreign law enforcement either to verify evidential material, obtain statements from suppliers or to gather covert background details. Therefore, the corporate that decides to take its chances in not being discovered is taking a very grave risk financially and reputationally, not to mention the risk that is placed on its senior executives, who may be considered personally responsible by law enforcement agencies for failing to deal with these issues adequately or indeed at all.

A case study of potential cross-border cooperation

We can see the potential effects of information exchange by using a contemporaneous example in India where certain corporates have seen their officers arrested on suspicion of offences under the Indian Official Secrets Act 1925 and their reputations placed on the line for allegedly obtaining government licensing information through criminal conduct.

This may not seem immediately relevant to UK companies but due to possible informal ‘police to police’ discussions, global news reporting and the increasing power of social media, they may soon find themselves caught up in these events. As informal conversations continue, it is likely that the UK prosecutors will become aware of further details regarding the investigation and might use this information to begin their own investigations in the UK where the Indian parent company has interests. In these circumstances, a formal request for information could be made, or worse still it could lead to a dawn raid to capture information.

Being involved in an investigation of this kind could have a significant impact on the reputation of a company and on the industry sector as a whole. Businesses may be completely unaware of the information stored on their systems yet the company and its’ officers could be held liable if they were found to be in possession of incriminating information. It is therefore crucial that businesses undertake their own reviews, make their own investigations and, where appropriate, disclose to the authorities to mitigate the impact a dawn raid or an investigation would have.

Tips for corporates

It is important that UK businesses are proactive in managing risks and that steps are taken to protect the company and its officers. In so doing, businesses may find the following steps helpful: identify who in their business is doing what on its behalf and where; understand what data is currently held in the UK on its own behalf and on behalf of the group; have in place policies and procedures to manage the corporate criminal risk covering offences such as bribery and corruption, money laundering, sanctions, tax crimes and fraud; implement a plan to manage dawn raids in the event a prosecutor seeks to execute a search warrant either at their own behest or on behalf of a foreign prosecutor; and proactively investigate known breaches of internal policies and procedures and international corporate crime legislation and seek independent legal advice as to whether a disclosure to regulators or prosecutors is appropriate.

Conclusion

The exchange of information across jurisdictions might currently be a slow process at times but the ability of law enforcement agencies to share information spontaneously and quickly is developing fast and cooperation in the fight against organised crime, terrorist financing, money laundering, tax crimes, fraud and corruption is becoming ever more sophisticated and coordinated. Unlawful conduct undertaken in a distant place and outside of the direct gaze of the UK authorities presents a clear and present risk for any business, but those who knowingly conceal it in the hope that it will not be noticed are playing a very risky end game indeed, particularly as the exchange of information regimes are becoming even more interconnected.

Given the ever-changing approach to combating corporate crime, if businesses do not take steps to proactively manage such risks, and disclose wrongdoings where appropriate, they leave themselves exposed to someone else disclosing first either in the UK or abroad and being subject to requests for information and dawn raids together with all of the business disruption and potential damage to reputation that such things will undoubtedly cause.

Agnes Quashie is a partner and Practice Group Leader of PwC Legal’s Regulatory and Commercial Disputes team, Keith V McCarthy is a director and Chris Cartmell is a senior solicitor at PwC. Ms Quashie can be contacted on +44 (0)20 7212 1511 or by email: agnes.quashie@pwclegal.co.uk. Mr McCarthy can be contacted on +44 (0)20 7804 3914 or by email: keith.v.mccarthy@uk.pwc.com. Mr Cartmell can be contacted on +44 (0)20 7212 8849 or by email: chris.cartmell@pwclegal.co.uk.

Agnes Quashie

PwC Legal

Keith V McCarthy and Chris Cartmell

PwC