The Attorney General on the threat faced today from economic crime and how the UK Government is addressing it
I am delighted to be here to speak to you today, on the first morning of what is remarkably the 34th Cambridge Symposium on Economic Crime.
I should begin by thanking Professor Barry Rider for his invitation and his ongoing superhuman efforts in making the symposium happen each year, and the organisers and sponsors for their support for this event.
As you all know, this is an important event in bringing together people from all disciplines in promoting understanding and addressing the challenges of economic crime faced across the world.
I last spoke at the Symposium two years ago and it is clear that the nature and scale of economic crime has continued to change in that time. As such, we must be ready to adapt our response and find ways to prevent future threats from emerging and threatening our security all around the world.
I am pleased to see that the programme for this event looks to address many of the new challenges we face.
As Attorney General, I superintend the Crown Prosecution Service and Serious Fraud Office and work with Cabinet colleagues to lead the fight against economic crime and corruption. Addressing this threat is a Government priority, so I am very pleased to be here again, to talk about that threat and about how we are dealing with it.
The theme of this year’s Symposium addresses the question ‘who is responsible for economic crime?’ It is an important question and addressing it will make our response even more effective.
So firstly, I want to say a little bit about the threat faced today from economic crime, and how the UK Government, working together with our international partners, is addressing it.
Economic crime generally
As we all know, the damage caused by economic crime and corruption affects everyone in society.
It encompasses a wide range of unlawful activity and its impact reaches across the spectrum for example, by reducing the value of investments and pension funds, or by increasing the prices people pay for goods.
Its threat to UK business is evident: the Global Economic Crime Survey reports that 55% of UK respondents have experienced economic crime and that is more than the global average of 36%. 44% of those who did experience economic crime in the last two years had experienced cybercrime.
And importantly, 31% of the frauds in the last 24 months were committed by staff and 18% by senior management within companies.
So developments in the way we do business, digital technology and globalisation mean that economic crime is as much a threat as ever.
Companies are of course making efforts to address the threat, evident by their increased focus on regulatory compliance in those last two years. As detailed in the economic crime survey, nearly half of UK organisations have seen an increase in their compliance spend over that period and nearly as many – 44% – are expecting an increase in the next two years.
But to fully address the threat requires continued effort not only from regulators and in-house compliance, but it is also dependent on something even more challenging – a change in corporate culture.
Often, employees might not even realise that they are colluding in unlawful acts, so examples need to be set and education provided from the top down to prevent further abuses. And that is something that we must work together to achieve.
The threat of economic crime and its impact is too great not to act. It threatens prosperity and the rule of law and public confidence in our ability to uphold these values.
The challenge is so great that it is not one that regulators and the criminal justice system can tackle alone or in isolation from the rest of the world.
Progress on an international scale
So what are we doing at government level to address the threat? Most recently we have seen an international commitment to tackle economic crime and corruption through the Anti-Corruption Summit hosted in London in May.
The Summit resulted in the publication of the first ever Leaders’ declaration against corruption; a communiqué setting out agreements that are common across all countries; and a set of national statements setting out what individual countries are doing to tackle corruption. And this includes the following:
First of all a commitment to punish the corrupt and support those who have suffered from corruption. As part of this, the UK is consulting on stronger asset recovery legislation, including non-conviction based confiscation powers and the introduction of unexplained wealth orders.
Second, a commitment to drive out the culture of corruption, wherever it exists, from sports to defence and security.
Third, a commitment to implement measures to expose corruption, through the launch of a public central register of company beneficial ownership information for all companies incorporated in the UK and for foreign companies who already own or buy property in the UK, or who bid on UK central government contracts.
Almost all Overseas Territories and Crown Dependencies with major financial centres and an additional four countries have signed up to the ground breaking international Initiative for the Automatic Exchange of Beneficial Ownership Information.
The London Summit was followed by a bringing together of practitioners in Paris, which I attended and spoke at along with the French Justice Minister. That conference focussed on putting into practice the commitments made in London.
In relation to proceeds of crime, progress is also being made. At the London Summit twenty two countries committed to introduce new asset recovery legislation, and the UK continues to explore legislative changes to increase the effectiveness of our response on proceeds of crime.
The UK also committed to work with others to establish a Global Forum for Asset Recovery. The Forum will bring together governments and law enforcement agencies to recover stolen assets. We will co-host the inaugural meeting of the Global Forum with the United States in 2017.
We continue to focus on improving both response and cooperation, nationally and internationally – and one cannot be done effectively without the other.
As part of this, the Crown Prosecution Service deploy a network of Asset Recovery Advisors and Specialist Prosecutors overseas who work with other agencies to address the threat at source.
This work will be bolstered by the creation of the new International Anti-Corruption Coordination Centre, which will help police and prosecutors work together across borders to identify and prosecute the corrupt and to seize their assets.
All of this demonstrates the UK’s excellent relationships with partners across the globe in dealing with corruption and economic crime. And I am pleased to see so many international representatives taking part in this event.
The role of the international community is vital and the ongoing G20 Summit in China, where world leaders are meeting to drive forward measures to tackle the threat of corruption, will be testament to that.
Changes within the UK
Closer to home, as you may have noticed we have a new Prime Minister, and her commitment to tackling economic crime and corporate responsibility is evident.
The Prime Minister has spoken of her intention to “get tough on irresponsible behaviour in big business” and to tackle “vested interests” in the corporate world, with plans to put worker representatives on all main British company boards and impose tighter control on executive pay.
The Government remains committed to tackling economic crime and corruption in all its forms. A cross-government anti-corruption strategy is being developed which will set out our long-term vision for tackling corruption. This will sit alongside the Government’s existing Serious and Organised Crime Strategy which also looks to address economic crime and asset recovery.
And the desire to ensure that crime doesn’t pay is something that we should all be committed to. And in the UK, we are starting to see results with reported increases in the amount of assets confiscated from £133 million in 2012-13 to £175 million in 2015-16.
In that year, the Crown Prosecution Service recovered £111.6 million from proceeds of crime, with the Serious Fraud Office recovering an addition £19.6 million, all of which is put back into public funds or paid to victims in compensation.
The Crown Prosecution Service is also dealing with new challenges due to significant changes in its case profile which has seen an increase of fraud and forgery cases by 23% since 2011. The CPS has responded to the threat, maintaining a conviction rate of 86% and above throughout that period.
One recent case of mortgage fraud shows the impact that economic crime can have across the board. So let me tell you a bit about that case.
Five people were convicted for their part in a £300 million mortgage fraud investigation – one of the biggest fraud cases in the country. This was a complex and extensive investigation into individuals who set up and ran property acquisition, management and mortgage packaging companies in the North East of England between 2004 and 2008. Following guilty pleas to conspiracy to defraud they were sentenced to custodial sentences, the longest of which were of 10 years.
The defendants lived a lavish lifestyle on the money they had acquired from defrauding others, but they had little left to show of their illegitimate gains in the end. The fraud relied upon the acceptance of hundreds of fraudulent mortgage applications to banks and building societies which ultimately resulted in losses to those institutions in excess of £110 million.
That fraud caused misery and distress to many other people caught up in it. In real terms, people have lost their homes, marriages have broken up causing some victims to contemplate suicide.
We are also focusing on tax evasion and those accountants, tax planners and advisers who provide advice on how to avoid tax will face tough penalties under new proposals being consulted on by HMRC.
People who peddle tax avoidance schemes deprive public services of vital tax revenue and the Government is determined to make sure they pay. The vast majority of their schemes don’t work and can land their users in court facing large tax bills and other costs.
Under HMRC plans launched in a consultation in August, enablers of tax avoidance could have to pay a fine of up to 100% of the tax the scheme’s user underpaid.
Currently tax avoiders face significant financial costs when HMRC defeats them in court. However, those who advised on, or facilitated, the avoidance bear little risk. The Government is acting to make sure that tax avoidance is rooted out at source and this action will target all those in the supply chain of tax avoidance arrangements.
But, although I am confident we are responding and adapting to the threat, it is by no means diminishing and the impact on its victims remains substantial.
Corporate criminal liability
While two years ago I was telling you about the problems in the banking industry and the prospect of a high profile case concerning allegations that bankers colluded to manipulate the LIBOR lending rate, now as you have heard we can see convictions coming out from those and other cases.
Most recently, the Serious Fraud Office announced LIBOR convictions of four former Barclays Bank plc employees, sentenced to a total of 17 years in prison. That follows the conviction of Tom Hayes, the first individual to be convicted after trial for the manipulation of LIBOR last year.
The introduction of the ‘failure to prevent’ offence for bribery, and deferred prosecution agreements provide us with valuable tools to address the threat of economic crime.
We are starting to see the impact of deferred prosecution agreements and I know you are going to hear more about these in Wednesday’s workshop from representatives of the Crown Prosecution Service and Serious Fraud Office, but let me say this:
Deferred prosecution agreements help encourage the private sector to work more closely with the criminal justice service. They avoid long, costly trials which have no guarantee of a positive outcome. A DPA can also help to avoid repeat offending through the implementation of monitoring requirements and anti-corruption compliance measures on a company.
From the company’s point of view, a DPA affords more predictability by offering a shorter and less costly proceeding. Further still, the implementation of a compliance program could limit a company’s exposure to criminal risk.
The United States has seen benefits from the use of DPAs over recent years. Last time I spoke here, I described plans for DPAs to come into force and now we are also starting to see results:
In November, the Serious Fraud Office agreed the UK’s first Deferred Prosecution Agreement with Standard Bank. The counterparty, Standard Bank Plc, was ordered to pay financial orders of US$25.2m and has paid the Government of Tanzania a further $7m in compensation.
A second Deferred Prosecution Agreement as you’ve also heard was concluded in July. As a result of that DPA, the company in question will pay financial orders of £6.5m to the UK. The company was the subject of indictments including conspiracy to corrupt, bribe and failure to prevent bribery.
The impact of failure to prevent legislation under Section 7 of the Bribery Act is also being felt. As well as DPAs being agreed on the back of indictments for failure to prevent, we have seen the first successful prosecution under this legislation when in December, Sweett Group PLC pleaded guilty to an offence, after investigation by the Serious Fraud Office.
David Green, Director of the Serious Fraud Office, will talk about some of these cases and the important role that the prosecutor plays in tackling economic crime, in more detail shortly.
‘Failure to prevent’
And there is more to do in our response. The Government has just consulted on draft legislation and guidance for the new criminal offence of corporate failure to prevent the criminal facilitation of tax evasion.
In addition, the Government will soon consult on plans to extend the scope of the criminal offence of a corporation ‘failing to prevent’ offending beyond bribery to other economic crimes, such as money laundering, false accounting and fraud.
The Prime Minister has prioritised ‘building an economy for all’ and that means that businesses of all sizes should be accountable and promote responsible actions through effective corporate governance.
The current ‘failure to prevent’ bribery legislation has put companies of all sizes on a level playing field where in the past, the reliance on the identification doctrine may have made it easier to prosecute smaller companies, than to prosecute larger, more complex ones.
The identification doctrine that currently exists for other economic crime has made it difficult to attribute criminal liability to large corporations where one cannot demonstrate the ‘controlling mind’ of the individuals involved. This has meant that it has not always been possible to bring corporate bodies to justice for the criminal acts of those who act on their behalf and for their benefit.
The new bribery offence has also encouraged better governance within large corporations and this is something that we would seek to encourage further through additional ‘failure to prevent’ offences.
It is also worth noting that the weaknesses in our current law result in other jurisdictions holding British companies to account when ours has not, as in the LIBOR case. This has clear implications for the reputation of our justice system.
Our current system of limited corporate liability incentivises a company’s board to distance itself from the company’s operations. In this way, it operates in precisely the opposite way to the Bribery Act 2010, one of whose underlying policy rationales was to secure a change in corporate culture by ensuring boards set an appropriate tone from the top.
The threat of conviction is greater under ‘failure to prevent’ and as a result, companies might be more likely to not just enter into deferred prosecution agreements but also, crucially, to take the actions necessary to discourage such offending within the organisation in the first place. The prospect of being convicted of criminal offences often encourages greater cooperation between the parties involved, saving time and public money.
An extension of the failure to prevent offence can enhance the UK’s reputation in the fight against fraud and help to promote improved corporate governance.
So let me end by saying this. When considering the question ‘where does the buck stop?’ and who is responsible for economic crime, it is clear that the answer is to be found at every level, from the boardroom down. Both corporations and individuals are responsible.
The intention of the Government actions I have described is not only to prosecute and to fine for breaches of the law but to promote a culture of corporate responsibility so that we are addressing the threat earlier on and not just reacting to it through investigation and prosecution.
A change in culture is something that will take time but the results, as we are already starting to see, will be worth the effort.
As those who have been before know, attending this symposium is also worth the effort and, although I am afraid I am not able to stay for as much of it as I would like, I hope this year’s event will be as enjoyable and as rewarding as I know it has been in previous years.