KEY CONSIDERATIONS FOR BUSINESSES GOING INTO 2024

This article considers some of the economic crime developments and news stories of 2023 to assist businesses in understanding the current financial crime landscape and its potential impact on them.  It contains some suggestions for businesses to consider as we head in to 2024.

1. The big news of 2023 was the introduction of the failure to prevent fraud offence for large organisations (those with more than 250 employees, a turnover of more than £36m and/or assets of more than £18m).  Such businesses will commit a criminal offence if an associated person (such as an employee or agent) commits a fraud offence intending to benefit that business. The business will have a defence if it can show it had reasonable prevention procedures in place.  The offence is not yet in force  – the government first needs to publish guidance as to what constitutes reasonable procedures – but it is likely to be introduced in early 2024. Businesses wishing to get ahead may start thinking of the areas where the business may be at risk of those within in committing fraud.
2. It is not just the introduction of the failure to prevent fraud offence which puts businesses at increased risk of criminal liability. From December 2023, a business can be held criminally liable if a senior manager (someone who plays a significant role in managing a business’s activities or making decisions about how they are to be managed) commits certain offences including fraud, theft, money laundering, false accounting, tax evasion, bribery and breach of sanctions regulations.  Previously an organisation could only be liable if it was proved that the offence was committed by a person representing its “directing will and mind”, a much narrower category of individual.
3. The government’s commitment to toughening its stance in relation to financial crime was confirmed in its second Economic Crime Plan, published in March 2023, with promises to reduce money laundering, recover more criminal assets, combat kleptocracy and sanctions evasion and cut fraud. Central to the success of this plan was the passing of the Economic Crime  and Corporate Transparency Act in October 2023. This not only introduces the prevention of fraud offence but strengthens the powers of law enforcement agencies and Anti-Money laundering (AML) supervisors and giving greater powers to Companies House so it can be a more active gatekeeper of companies across the UK.
4. September 2023 saw the first deadline for the payment of the Economic Crime Levy. The Levy was first announced in the 2020 Budget as a means of raising £100m to fund the government’s strategy for tackling economic crime. Businesses that are regulated under the Money Laundering Regulations (MLR) and have an annual turnover of more than £10.2 million must submit an Economic Crime Levy Return to their supervisor (HMRC, FCA or the Gambling commission) and to pay a fixed fee of between £10,000 and £250,000.
5. The crackdown on businesses which breach the AML rules continues. The FCA issued significant fines in 2023 on businesses with inadequate AML controls, including £7.6m on Guaranty Trust Bank (UK) Ltd, £4m on Al Rayan Bank plc and £6.4m on broker ADM Investor Services International. It is not just large-scale organisations operating in the financial sector that are at risk.   In June 2023 HMRC published details of 240 business fined a total of £3.2 million in the last 6 months of 2022 for AML breaches including failing to carry out risk assessments, failing to conduct proper due diligence checks and failing to register at the proper time. The businesses were of a range of sizes and  included money service businesses, accountants, tax agents, estate and letting agents, financial consultancies, art dealers and auctioneers. HMRC’s powers to cancel registrations and prohibit individuals from management means that they can essentially terminate the operation of a  business in breach of the AML regime, as shown by HMRC’s announcement in February 2023 that a tax agency who breached AML rules was prohibited from continuing to trade as a repayment agent.  Businesses falling in the scope of the MLR must ensure that they are registered with the relevant supervisor, assess their risk of money laundering and implement policies and procedures to mitigate against those risks.
6. The most serious cases of breaches of the AML regime can result in a criminal prosecution.  2023 saw the first ever successful prosecution of an individual for tipping off a client about a money laundering investigation. Solicitor William Osmond was sentenced to 9 months in prison (suspended for 18 months) for telling his client about an SFO investigation.
7. Several high-profile investigations and prosecutions began in 2023, including SFO investigations into suspected fraud at law firm Axiom Ince, funeral plan provider Safe Hands Plans and global aviation supplier AOG Technics Ltd. Charges of bribery were brought against the former CEO and CFO of listed company London Mining plc and charges of fraud were brought against 4 individuals from Patisserie Valerie. In June 2023 the FCA announced it had 71 open investigations into suspected insider dealing and reiterated its priority to seek the maximum possible penalty imposed on the firms and individuals causing the greatest harm.  The SFO obtained convictions against the CEO and two senior executives of British Steel trading business Bali Steel for a $500m bank fraud, all receiving prison sentences. The FCA secured the convictions of Peter and Andrew Currie, sentenced to imprisonment for a fraudulent investment scheme operated through their company Collateral. While HMRC was criticised over the steep fall in its number of successful prosecutions – from 749 in 2018-2019 to 240 in 2022-2023 – it pointed out that it had secured £4bn through the increased use of its civil powers in tacking tax avoidance, tax evasion and non-compliance.
8. The use of civil powers by regulators to recover criminal assets as an alternative to a criminal prosecution is a trend that is set to continue.  In financial year ended March 2023 £97.2 million was recovered through accounts and asset forfeiture orders and cash seizures, and £63.9m through civil recover order receipts, the highest amount recovered in the last 6 years. The advantage for law enforcement is that no criminal conviction of any individual is necessary, and the standard of proof of demonstrating the assets derive from illegitimate activity is the balance of probabilities rather than the criminal standard of beyond reasonable doubt.
9. No doubt we will hear more about the renewed concentration on stopping fraud in 2024. Fraud is estimated to account for 41% of all crime experienced by adults in England and Wales but receives less than 1% of police resources. The government’s 2023 Fraud Strategy set out the aim of cutting fraud by 10% and announced the establishment of a new national fraud squad with over 400 specialist investigators, as well as the replacement of Action Fraud, which has been extensively criticised since its inception.  Tech companies in particular face increased obligations to put in place extra protections for their customers, recognising that advances in technology have the unfortunate side effect of providing fraudsters with more access to victims and data.
10. And finally, although the regulations and initiatives introduced in response to the Covid Pandemic of 2020 may have faded into a distant memory, the consequences continue. The Insolvency Service is committed to pursue those individuals who abused Covid-19 financial support schemes offered to businesses, particularly company directors alleged to have fraudulently obtained bounce back loans. A significant number of individuals have already been investigated and prosecuted, with further prosecutions expected to take place this year. It is strongly recommended that any individual invited to an interview by the Insolvency Service obtains legal representation.