Welcome to the first in the series of Dentons white collar and financial crime updates. Our team have used their combined background and experience in private practice, in-house and at each of the key AML, ABC and financial services regulators and prosecutors (including the FCA, SFO and HMG) to select news and updates which we think may interest you.

We hope that you will find the below useful. If you have any questions or would like to talk to the team about a white collar or financial crime matter, then please do get in touch.

What this update covers

Anti-Money Laundering

Bribery and Corruption

Sanctions

Economic Crime and Internal Investigations

Anti-Money Laundering

• Fines in the money laundering space continue to be imposed at pace across industry. The Solicitors Regulation Authority has recently imposed a fine of £20,000 for failing to have appropriate AML policies, training and systems in place, including failing to put in place a compliant firm-wide AML risk assessment. This was the largest fine that has been imposed by the SRA since its fining powers were increased in 2022 (Law Society Feature, 27 April 2023). In the gambling space, William Hill was fined £19.2 million by the Gambling Commission for AML and social responsibility failings, including permitting large deposits without appropriate checks and AML training failures (Gambling Commission press release, 28 March 2023). HMRC recently announced that it has imposed fines totaling £3.2 million in the last 12 months on 240 business, with the majority of those imposed for failure to register in a timely fashion (HM Revenue & Customs press release, 8 June 2023).
• New revisions have been proposed to JMLSG guidance in connection with discrepancy reporting and electronic verification of customer identification:

1. Where identity is verified electronically, or where the customer is not present (as happens with increasing regularity), the proposed amends to the guidance recommend the use of biometric data (including facial recognition) or two-step verification (as is already in place with many of our clients) to manage the risk of impersonation fraud.
2. Discrepancy reporting is concerned with the reporting of material discrepancies between the beneficial ownership recorded at Companies House or HMRC and information which becomes available as a result of customer due diligence. The reporting requirement remains in place, but the proposed amends suggest that such discrepancies will only become reportable when "material" – taking into account the risk posed by the customer and the justification provided by the discrepancy.

• The NCA updated its glossary codes for use in SAR reporting in April of this year. MLROs should replace their existing glossary with the updated codes in the link, to minimise the risk of delays in reporting (Suspicious Activity Report (SAR) Glossary Codes and Reporting Routes, April 2023).
• In the financial services space, the Bank of Lithuania earlier this month fined and revoked the licence of a subsidiary of a UK firm for "serious and systematic" AML failings. The UK firm still has an FCA-issued licence and it will be interesting to see how the findings of the Lithuanian regulator impact on the UK entity's fitness and propriety (BNN Bloomberg News, 1 June 2023).
• FATF, the global money laundering and terrorist financing watchdog, published its consolidated assessment of ratings that describe countries' effectiveness and technical compliance with its AML recommendations. Compliance colleagues may want to consider the ratings as part of ongoing risk assessment work. The work notes no significant downgrades (although, of course, our clients will be aware that the FATF suspended the membership of the Russian Federation earlier this year). The UK received one upgrade to its ratings (FATF publication).

Bribery and Corruption

Updates on the Serious Fraud Office (SFO)

(i) SFO Proceeds of Crime Unit

• Has used its powers to enforce a pre-charge Restraint Order. The SFO secured a 10-month suspended prison sentence against the former CEO of London & Capital Finance Plc (the seller of unregulated mini-bonds whose collapse resulted in customer losses of £237 million and the set-up of a government redress scheme) (Serious Fraud Office news release, 17 May, 2023). The CEO was convicted at Southwark Crown Court for concealing funds received after the Order was imposed. He transferred £95,000 through his wife's bank account, rather than pay it into the restrained bank account.
• Dips its toes into intercepting funds from a sanctioned bank to return £500,000 to alleged victims of email fraud using powers of forfeiture and seizure under the Proceeds of Crime Act legislation, a non-conviction-based remedy that the agency is using.

(ii) SFO prosecution teams

• Two senior executives have been charged following a seven-year long corruption investigation in relation to alleged corrupt payments made in Sierra Leone for London Mining Plc. Operations were maintained globally in Brazil, China, Colombia, Greenland and Saudi Arabia. The accused will appear before Southwark Crown Court next month.
• Charged a suspect for breaching the Section 2 Powers during the Raedex Consortium investment scheme investigation.
• Dentons' former Associate General Counsel at the SFO, was part of the change management team responsible for implementing parts of the recommendation in relation to leading investigations. A further implementation update on the Altman Review has been published. The Review was commissioned following the collapse of the prosecutions of former Serco directors. The SFO states that it is on track to implement all the recommendations relating to the SFO's disclosure processes, including resourcing, training, quality assurance, use of technology and updating guidance.
• There appears to be more traction with government agencies, including the SFO and GCHQ, to use Artificial Intelligence in investigations.

Other updates

• Entain plc, the betting and gaming group which is the ultimate owner of bookmakers such as Ladbrokes and Coral, announced it was facing a criminal investigation from HMRC and the CPS under section 7 of the Bribery Act (failure to prevent bribery). The investigation, already ongoing for four years, relates to the group's former Turkish business and is expected to result in a large fine. It is reported that the CPS are in talks with the company to sign a Deferred Prosecution Agreement. This would be the first time that the CPS has exercised its powers to enter into a DPA to date.
• In April, the Wolfsberg Group published updated ABC compliance guidance for financial institutions (Publication of the Wolfsberg ABC Guidance, 17 April 2023). While not binding, the new guidance is certainly something firms should be mindful of. Notable updates set out recommendations around periodic risk assessments to identify emerging bribery and corruption, even after the onset of a matter; timely root cause analysis where bribery or corruption has been identified; policies on gifts and hospitality (particularly in a remote working environment); and reviews of transaction structures and finances, such as the use of both corporate vehicles and proceeds of equity or debt financing.
• The European Commission has published a proposed anti-bribery and corruption directive which, if implemented, would harmonise the ABC framework across member states. The proposed directive seeks to require states to tackle bribery in the public and private sector, gives states jurisdiction over cross-border offences and would ensure consistent corporate liability for bribery offences committed for firms' benefit. The directive is in its early stages and states are not yet aligned on acceptance and implementation.

Sanctions

• The UK government published a new round of sanctions in April – the first of 2023. The focus of the April package is trade sanctions – it aims to ban exports to Russia of items used on the battlefield and to affect the Russian economy by expanding import bans. The restrictions include:

• a prohibition on importing a new category of "revenue-generating goods" from Russia. The list of items is very wide-ranging, covering for example specified chemicals, many wood products including plywood, parts of gas turbines, floating drilling platforms, specified polymers, dishwashers and optical fibres;
• expansions of existing export bans which prohibit the export, supply and delivery, and making available to, or for use, in Russia of an expanded range of goods. These are items Russia has been found to use on the battlefield, and include for example aircraft and vehicle parts, radio equipment and other electronic equipment;
• from 30 September 2023, there will be a prohibition on the import of iron and steel products, where the metal originated in Russia but was processed in a third country. This is an extension of the previous import restriction.

• The UK government also announced (but has not yet implemented) a fresh round of sanctions via a statement in conjunction with the G7. The new round of sanctions will ban imports of Russian diamonds and end all imports of Russian-origin copper, aluminium and nickel, building on existing bans of Russian iron and steel.
• Our regulated clients may be aware that the FCA has started undertaking sanctions compliance reviews. The work appears to be similar in structure to thematic reviews in other areas and we understand that analytic testing is being run to test sanctions screening for direct and fuzzy matching. We understand that some results will be published in the next couple of weeks.
• Recent public statements by the DOJ indicate that sanctions breaches are firmly on the horizon for cross-border investigations, with future cases likely to be opened which cover ABC, AML and sanctions failings.

Economic Crime and Internal Investigations

• In April of this year, Mary Robinson MP introduced a Private Member's Bill calling for the repeal of the Public Interest Disclosure Act (PIDA) and calling for a new Office of the Whistleblower – intended to be a regulatory body responsible for the setting and enforcement of standards linked to whistleblowing. In our view, this bill is unlikely to succeed, but calls for strengthening the current whistleblowing regime to bring it into line with the European directive and international best practice are growing, and we would expect strengthening of the PIDA regime in the coming years.
• A trend we are noticing in our investigations and conversations with our clients is how to manage, secure and use messages sent on personal or work devices in the context of internal investigations. In particular, this problem arises where employees may hold information relevant to an investigation on personal devices (particularly where a firm uses Bring Your Own Device technology rather than providing dedicated work phones). This may lead to a disparity of information where an investigating authority is able to use powers to obtain information that is unavailable to employers in the absence of employee consent. We have also noted that, whilst there is an expectation for financial services firms to be able to document all relevant communications (and the FCA has already been asking questions of regulated firms as to what controls they have in place to manage and retain messages sent on mobile devices), the DOJ recently appears to have expanded this expectation further, and has issued guidance that, in the context of corruption investigations, will look at how firms deal with the issue of personal messaging as part of the evaluation of their compliance programmes. Although not directly applicable in the UK, this is perhaps indicative of how agencies may move towards an expectation that this issue is considered and addressed.
• The failure to prevent fraud offence is still making its way through the legislative process, but seems likely to be implemented by September. See an article written by the Dentons team on the subject here. Significant focus at the moment is on the reform of the identification doctrine, ensuring that senior managers of corporates are in scope, such that their actions can be attributed to the actions of the corporate.