Crime fighting across borders: what every corporation needs to know

February 2021  |  SPECIAL REPORT: CORPORATE FRAUD & CORRUPTION

Financier Worldwide Magazine

February 2021 Issue

This article examines the complex area of law enforcement’s approach to investigating and prosecuting cross-border financial crime and identifies key considerations for corporations and their principals and advisers in this ever evolving area.

Financial crime in a pandemic

Just as companies across the world have been adapting to the unique and unprecedented challenges brought on by the coronavirus (COVID-19) pandemic and resulting economic disruption, criminals too have adapted by looking for new means and methods to harvest illicit profits during these uncertain times. Unfortunately, opportunities for such criminal conduct abound. Criminals may seek to obtain government relief funds by fraud, to profit from insider dealing in a market experiencing great fluctuation, or to conceal from investors the true financial condition or performance of a company or a fund impacted by the pandemic, just to name a few.

Bad actors seeking to criminally gain during these times can also take advantage of the increasingly global nature of business and finance. In sum, while companies continue to expand across borders, unfortunately, so too do criminals. Fraudsters can commit crime online while physically based thousands of miles away from their victims. Crime proceeds can be whisked across the globe at literally the push of a button. With criminal groups based in multiple jurisdictions and their illicit conduct spanning many countries, law enforcement agencies across the globe continue to adapt to tackle these threats, including by seeking deeper and more efficient cooperation with colleagues in other countries.

Law enforcement cross-border cooperation

Perhaps the strongest example of cross-border law enforcement cooperation can be found in the multifaceted engagement by law enforcement and regulatory authorities in the UK and the US. In the realm of foreign bribery, for example, the US Department of Justice (DOJ) and the UK’s Serious Fraud Office (SFO) have a long history of cooperation. Indeed, over 25 years ago, the current director of the SFO, Lisa Osofsky, who is from the US, undertook a secondment from the DOJ to the SFO.

In the realm of securities fraud, the UK’s Financial Conduct Authority (FCA) has also worked to strengthen ties with law enforcement counterparts in the US. In March 2019, the FCA signed two updated memoranda of understanding with the US Securities and Exchange Commission (SEC) to strengthen the ability of these two entities to cooperate and consult regarding effective oversight across borders. On the criminal front, it has been publicly reported that the US attorney’s Office for the Southern District of New York, which traditionally handles Wall Street-related crime, has partnered with authorities in the UK and elsewhere to take on an international group of insider traders.

Perhaps most interestingly, the UK and the US recently penned the first bilateral executive agreement related to the so-called ‘Clarifying Lawful Overseas Use of Data (CLOUD) Act’ in the US, which will provide a mechanism for the UK to circumvent the cumbersome mutual legal assistance treaty process to obtain the content of email accounts in the US for the investigation of certain serious offences. As more and more countries enter into such agreements, it stands to greatly enhance law enforcement’s ability to obtain evidence across borders.

Despite the strength of cross-border law enforcement ties between the UK and the US, not all cooperation works as well as the Anglo-American efforts. Ms Osofsky recently acknowledged that there are significant barriers to cooperation: “I acknowledge there are significant barriers to cooperation. In some countries, working with those identified as ‘law enforcement officers’ can do damage. It can lead to investigations being jeopardized, witnesses facing threats or even human rights violations. In entirely trustworthy jurisdictions, there are times when issues like sovereignty and primacy pose real stumbling blocks.”

The SFO is working to overcome these barriers, building relationships with colleagues across the world from Argentina to Australia. Early in 2020, following convictions in London of two former oil executives who conspired to give corrupt payments to secure contracts in Iraq, the SFO extended its thanks to the Australian Federal Police, French Parquet National Financier (PNF), Police Judiciaries of the Principality of Monaco, the Fiscal Information and Investigation Service (FIOD) of the Netherlands, and the US DOJ for their valuable assistance in the investigation.

Impact of Brexit

After the UK formally left the European Union (EU) in early 2020, there was a transition period which ended on 31 December 2020. The relationship between the EU and the UK concerning law enforcement cooperation is now governed by the UK-EU Trade and Cooperation Agreement (the Agreement). 

The UK government argue that the Agreement ensures streamlined cooperation with law enforcement and the judiciary between the UK and EU member states to prevent, investigate, detect and prosecute criminal offences, in addition to the prevention of and fight against money laundering and financing of terrorism.  The key parts of the Agreement provide for exchange of DNA, fingerprint and vehicle registration data, transfer of passenger name record data, cooperation with Europol and Eurojust, mutual legal assistance and cooperation and exchange of criminal records information.

Critics say the new arrangements fall below that which the UK enjoyed as a member of the EU. UK law enforcement will no longer have access to key databases which hold information about suspects wanted in the EU, suspected security risks or trafficked people. The loss of access to real-time data is argued to be a major blow to UK law enforcement agencies. 

Perhaps the biggest change to note is the loss of the European Arrest Warrant Scheme for the UK. The UK is now deemed a third-party country and some EU member states that do not extradite their own nationals due to constitutional principles will now be able to avoid extradition of some individuals to the UK. However, there are other paths to justice, such as that person being prosecuted in their home country. It is yet to be seen what problems this will create in practice.

For many years, the UK has worked well with its European counterparts to tackle all kinds of criminal activity, including financial crime. Cooperation with European law enforcement agencies can work well, and it is expected that there is desire on all sides for that to continue.

Challenges in cross-border investigations

The practicalities of multijurisdictional investigations can be challenging. These are equally applicable to law enforcement as they are to those conducting internal investigations. There are differences in standards that must be met when obtaining evidence, differing rules on how witness and suspect interviews must be conducted, country specific privacy laws and the law on corporate criminal liability varies in every jurisdiction. A coordinated approach is needed when investigations are being carried out in different countries which are related to the same offending behaviour.

Law enforcement successes

The outcomes of an investigation also vary dependent on jurisdiction. Broadly, deferred prosecution agreements (DPAs) are agreements reached between a company and a prosecutorial body to resolve a matter with a financial penalty in exchange for avoiding conviction. The agreement allows a prosecution to be suspended for a defined period in exchange for an organisation meeting agreed conditions. Such an arrangement can be subject to judicial scrutiny. DPAs are a good illustration of how outcomes differ between countries. DPAs have been broadly used in the US for over a decade. In contrast, DPAs have only been available in the UK since 2014 and in France since the end of 2016. In the UK, there have only been nine DPAs. Legislation in the UK only allows for DPAs with a body corporate, a partnership or unincorporated body. They are not available for individuals.

Despite the differences in DPAs, it has been possible for global settlements to be reached. The SFO, in conjunction with the US DOJ and the French PNF, reached a global deferred prosecution agreement with Airbus following investigations into allegations of bribery and corruption. The global value of the settlement was €3.6bn. The UK’s part of the agreement covered conduct in five jurisdictions.

Best practices for a corporation facing a criminal investigation

In the face of these cross-border developments, both in terms of criminal risk and law enforcement collaboration, companies should consider having a response plan to assist in the detection and prevention of financial crime and to ensure incidents are responded to swiftly, efficiently and comprehensively. There should be a clear structure of responsibility to ensure accountability.

It may be that it is appropriate to conduct an internal investigation to understand the scope and the impact of the criminality. The findings of the investigation are likely to be put to multiple uses, including preventing repetition of further crimes, helping with reputational damage, assisting with operational disruption and identifying harm to clients of the business. The findings of such an investigation and the response to those findings are likely to be key to any law enforcement action. It is vital that any such investigation is properly conducted. It is advisable to engage external legal counsel as soon as a business suspects that it has been the victim of criminal activity or its employees or linked parties have been involved in criminal conduct. This is particularly important for the protection of legal professional privilege (also known as the attorney-client privilege).

Depending on where the business operates, where the criminal attack took place and where evidence such as electronic data is held (which with the use of cloud technologies is now commonly multiple locations) there can be several law enforcement bodies with an interest in the offending conduct.

If corporates and their advisers choose to self-report to law enforcement, they should assume that information provided in one jurisdiction will be passed to law enforcement agencies in others, which could give rise to multiple liabilities in several countries. A cohesive global strategy is required and should be coordinated with the assistance of an experienced cross-border criminal litigation team.

 

Jason Cowley and Francesca Titus are partners and Andrew Thornton-Dibb is an international attorney at McGuireWoods. Mr Cowley can be contacted on +1 (212) 548 2138 or by email: jcowley@mcguirewoods.com. Ms Titus can be contacted on +44 (0)20 7632 1685 or by email: ftitus@mcguirewoods.com. Mr Thornton-Dibb can be contacted on +1 (202) 857 1724 or by email: athornton-dibb@mcguirewoods.com.

© Financier Worldwide

BY

Jason Cowley, Francesca Titus and Andrew Thornton-Dibb

McGuireWoods

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