White-collar crime enforcement in the UK

November 2017  |  FEATURE |  FRAUD & CORRUPTION

Financier Worldwide Magazine

November 2017 Issue

Although often characterised as a victimless crime, white-collar criminality is no such thing. Rather, it is illicit behaviour that can have the direst of consequences for businesses and individuals alike.

Yet despite its gravity, white-collar crime often goes unpunished. In the UK, this has historically been the case, with authorities more inclined to avoid prosecuting corporate entities in favour of a settlement, an approach that was especially common in the aftermath of the financial crash. However, in the years that followed, regulators and prosecutors have demonstrated a greater willingness to fight cases involving dishonesty and breaches of integrity, a stance held, it would seem, until fairly recently.

Indeed, according to data compiled by Pinsent Masons, the number of white-collar crime prosecutions in the UK fell by 12 percent over the past year, despite an increase in reported cases. Drilling down, the data shows that prosecutions fell from 9489 in 2015 to 8304 last year. At the same time, the number of reported offences increased 4 percent to 641,539 in 2016 up from 617,112 in 2015.

On account of its findings, Pinsent Masons has suggested that serious questions need to be asked over the funding available to enforcement bodies such as the Serious Fraud Office (SFO) to pursue white-collar criminals. Should further funding be unforthcoming, many practitioners believe that the SFO’s very existence may be in jeopardy.

Data of this nature, however, is open to interpretation.

“There are no reliable statistics on the prevalence of white-collar crime because there is no obligation to report, other than money laundering or, in certain cases, under Financial Conduct Authority (FCA) rules,” says Monty Raphael QC, special counsel at Peters & Peters. “Reported crime is not an accurate measure of actual offence levels and all the statistics show us is that the reporting of offences has increased. In relation to numbers of prosecutions, the published statistics are unreliable and go rapidly out of date because these offences are complex and take a long time to investigate before a prosecution is brought.”

Nevertheless, a trend toward fewer white-collar prosecutions is also being seen in the US, with stateside prosecutors seemingly more interested in traditional crimes, rather than white-collar offences.

Typical white-collar chicanery

Over the past 12 months, the most commonly-reported offence in the UK was online fraud which, according to a recent National Audit Office report, cost private sector businesses an estimated £144bn and individuals £10bn.

“The UK’s Office of National Statistics (ONS) recorded a 5 percent rise in reports of fraud to the police in 2016/17,” adds Ben Henriques, an associate at Corker Binning. “The number of reported frauds has been increasing for the last five years. The ONS also estimates that there were 3.4 million frauds in the UK in 2016/17, accounting for about a third of the total number of crimes, around 11 million.”

Dan Hyde, a partner at Penningtons Manches LLP, points out that the headline, big ticket fraud, bribery or money laundering prosecutions grab the attention, even though these are a tiny fraction of reported and unreported criminality. “Many offences, especially those involving cyber crimes, are cross-border and often are not prosecuted,” he says. “This raises jurisdictional issues as well as perpetrators who are state backed or have state immunity or are simply too big to take down. I have little doubt that ransomware or cyber enabled attacks on businesses and their valuable data and IP are the most prevalent. In generic terms, financial fraud is a rampaging statistic.”

That said, there have been a number of significant, high-profile white-collar crime prosecutions in the UK in recent times. These include a £497m deferred prosecution agreement (DPA) between Rolls-Royce and the SFO, and a £129m DPA between Tesco and the SFO in January and March 2017, respectively.

Understaffed and underfunded

“The simple truth is that, like many other government bodies, UK prosecutors are underfunded,” says Peter Binning, a partner at Corker Binning. “The SFO often has to seek case-specific blockbuster Treasury funding for its bigger investigations, while the Crown Prosecution Service (CPS) has been overstretched for years and has no specific focus on white-collar crime.”

In addition to funding as well as staffing shortfalls, there is also the reality that the police, the SFO and the FCA are all judged by results (such as with the UK Bribery Act). Therefore, given that white-collar crime is often complex and challenging, and may also involve difficult charging decisions due to the public interest test criteria and the fact that many suspects are persons of previous good character, there needs to be an appreciation on behalf of those taking funding decisions that many investigations will not result in prosecutions.

“Where prosecutions are brought the evidential challenges may be high,” explains Mr Hyde. “That takes commitment and funding. In a world of statistics, white-collar policing is a difficult sell. If the police do investigate, it is usually because witnesses have been lined up and evidence identified. Unless a case is a slam dunk, the view is often that resources should be spent elsewhere.”

Also important to note, suggests Mr Henriques, is that a cultural shift towards self-reporting and cooperation with the authorities may have resulted in fewer prosecutions being brought. “Companies seek to avoid prosecution for reputational reasons, while self-reporting can relieve the pressure on prosecutorial budgets. The advent of the DPA in the UK, whereby corporate entities avoid a conviction in return for full cooperation, has been a major influence on how companies deal with criminal investigations. There have, to date, been relatively few DPAs, but this may well change as lawyers, courts and companies adjust to the new system.”

Enforcement credibility

Should the apparent trend of falling white-collar crime prosecutions continue, then questions must surely be asked as to the credibility and perhaps the very future of enforcement bodies such as the UK’s SFO. Indeed, as part of its calculations toward finding the best ways to spend “limited resources”, the Conservative party’s 2017 manifesto pledged to merge the SFO with the National Crime Agency (NCA) – a plan described as “crazy” and a “backwards step” by commentators.

“The SFO is still under threat, even if it is not immediate,” opines Mr Raphael. “This means it will have lost a number of trained personnel and might find it difficult to recruit replacements. The CPS must also be suffering from financial constraints. The picture would probably look even worse if other agencies with prosecutorial powers, and limited staff and budgets, such as HMRC or the ICO, were included in these numbers.”

As a consequence of a lack of finance and a squeeze on staff numbers, enforcement bodies are increasingly being forced to recruit part-time staff and hire directly from the private sector, leading to significant skills deficits, inefficiencies and ultimately an inability to effectively prosecute all but the most important or clear-cut cases. Moreover, as criminal investigations by the FCA continue to increase, the test is going to be whether it has the resources and expertise to be able to investigate and prosecute such cases appropriately or whether a significant number are closed with no further action being taken.

The SFO has faced similar resource pressures for a number of years, with many calling for funding to be increased to address the potential risk of investigations not being pursued because the UK government will not approve access to blockbuster funding. “With the profile and credibility of the SFO and FCA having increased in relation to prosecuting financial crime over the past few years, it would be a significant step backwards for these agencies if funding was not available for them to maintain this momentum,” asserts Michael Ruck, a senior associate at Pinsent Masons LLP.

For Mr Hyde, the SFO faces an uncertain future and requires proper funding if it is to survive and flourish. “It has a difficult role as it is tasked with investigating and prosecuting the most serious, complex and challenging of frauds,” he says. “I do believe the SFO has historically lacked the resourcing, both in terms of money and expertise, to perform at an optimal level. It is an expensive task, but an organisation tasked with enforcement has to be well-funded and worthy of the public’s confidence.”

While financial constraints remain the likeliest cause of the fall in UK white-collar crime prosecutions, budgetary stringency itself is the result of deeper political factors, suggests Mr Binning. “According to a study conducted for the ONS, white-collar prosecutions peaked at 11,261 in 2011 – two years after the financial crash. After the financial nightmare of 2008/2009, various regulatory settlements made with banks provided the evidential springboard for the prosecution of individuals. There was a perceived political imperative to prosecute individuals found to have been criminally responsible for the financial crash and bring the banks to heel. Those cases demanded huge resources. Over time, however, the attention of prosecutors has turned to other matters; especially international corruption.”

The future of UK white-collar crime enforcement

What, then, is the likely future of white-collar crime enforcement in the UK? In the context of a fall in prosecutions and limited resources being available to enforcement bodies, prospects may be bleak, despite 2016 seeing the imposition of fines and confiscations totalling over £130m and sentences totalling over 115 years.

In the view of Mr Hyde, the future will involve greater emphasis on technology and an attempt to remove or prevent end to end encryption, so that all communications can be intercepted or monitored. “Crime is becoming increasingly digital – cyber and remote. Funds can be stolen or acquired by stealth, not force. Policing will follow suit and be more focused on monitoring, intercepting and predicting. There needs to be a new approach to enforcement. It should be better funded and utilise those with investigative skill sets that can better meet demands.”

New approach or not, Mr Henriques believes that, overall, white-collar crime is still an important priority for prosecutors. “The activity of markets, regulators and prosecutors has never been greater and companies see the threat of criminal prosecution as one of the biggest risk areas facing business,” he suggests. “Perhaps as important as the views of prosecutors is the attitude of the media, which continues to demand high levels of corporate accountability and this will not diminish.”

At present, however, the reality of white-collar crime enforcement in the UK is defined by agencies that are under-prepared, under-resourced and underfunded to truly get to grips with the enormity of the issue. As Mr Raphael laments: “There has never been a time in my experience, going back half a century, where resources matched the scale of the problem, even taking into account that we may never understand the full extent of the wrongdoing.”

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Fraser Tennant