The Limits of the Law – The role of compliance in the 21st Century
Solicitor General’s keynote address to the 33rd Cambridge Symposium on Economic Crime
It is a pleasure to have the opportunity to speak to you today, on the first morning of the 33rd Cambridge Symposium on Economic Crime, here in the magnificent grounds of Jesus College Cambridge. Thank you to Professor Barry Rider for inviting me to speak and the organisers and sponsors for their support for the event.
Last summer I was appointed as the UK’s Solicitor General under the coalition Government. In May of this year, following the General Election, I was delighted to be re-appointed as Solicitor General for the new Conservative Government.
The offices of the Solicitor General and the Attorney General are ancient posts within British Government. Together with the Advocate General for Scotland, the Attorney and Solicitor General are known as the Law Officers and we act as the chief legal advisers to the Government.
I am one in a long line of Law Officers who have delivered a speech at this symposium. Only last year my colleague, Jeremy Wright QC MP, delivered his first speech as Attorney General at this event and my immediate predecessor as Solicitor General, Sir Oliver Heald QC, spoke at this conference in 2013.
Therefore I am delighted to be here this morning to uphold the established tradition of Law Officers which is support for and participation in the Cambridge Symposium.
The Symposium is a remarkable event. Each year it attracts an impressive group of experts from a range of different backgrounds, including government, civil society, business and academia. The Symposium is now in its 33rd year but, in the modern globalised economy, tackling economic crime is more difficult and more important than ever before.
The theme of this year’s Symposium is The Limits of the Law, and the role of compliance in the 21st century.
As the first speaker, I will try to develop this subject, and touch on some of the issues that I expect others will address in more detail later this week.
Firstly I want to say a little about the evolving threat posed to society by economic crime.
Threat of Economic Crime
In the UK and around the world, awareness of economic crime and the damage it causes is greater than ever before. Greed and dishonesty can be found in every sector of business and society from institutionalised mis-selling of financial products to public sector corruption.
The financial crisis exposed a number of instances of serious economic crime. However, approximately 7 years on from the start of the financial crisis other instances of alleged economic crime continue to emerge. In an illustration of the breadth and international nature of the challenge we face, we have recently seen arrests of officials at the very top levels of FIFA connected to allegations of endemic corruption and bribes paid to secure votes for the award of the football World Cup. In the UK in the past year there have been allegations that a major bank assisted its clients to use offshore accounts to evade tax.
Problems with the practices and culture of the financial services industry have been well documented. Perhaps the most high profile example domestically is the LIBOR scandal.
Earlier this year the Serious Fraud Office brought the first criminal prosecution in the UK Courts of an individual for criminal offences connected to the dishonest manipulation of the LIBOR benchmark. In a landmark result, Tom Hayes was the first individual to be charged and stand trial in the UK as a result of the SFO’s ongoing criminal investigation. The former derivatives trader at UBS and Citigroup was found guilty by a jury of all 8 counts of conspiracy to defraud and was sentenced to a total of 14 years in prison. Two further trials of 11 people concerning the manipulation of LIBOR are due to take place later this year and early next.
The Limits of the Law
This brings me to the first part of the theme of this years’ symposium which is the limits of the law.
Investigating and prosecuting cases of complex economic crime to the criminal standard of proof is extremely difficult due to the scale of the evidence, the number of witnesses and the sheer complexity of the underlying subject matter.
There are huge volumes of evidence, much of it held in digital formats that can be difficult to access. The challenges for investigators of tracking all of the relevant material down, accessing it and reviewing it are significant.
It is a difficult, laborious and very expensive process to bring all of this to trial, and then to cut through the associated complexity and jargon and to persuade a Jury to convict. The trial of Tom Hayes concerned criminal activity which took place between 2006-2010 so that some of the underlying transactions were already nearly 10 years’ old.
Often these challenges are exacerbated by the fact that the defendants are very wealthy and powerful and have the resources to employ top legal teams to bring all manner of technical challenges to the prosecution.
And the challenges for those charged with tackling economic crime continue to increase. Technology continues to provide more ways to communicate which are difficult to trace. The storage capacity of digital media devices increases and so there is more evidence to review.
As law makers and law enforcers we must challenge ourselves and ask whether our existing legal processes are still the best way to do things? Or can we find ways to innovate, improve our capabilities and use modern technology to our advantage and to deliver efficient solutions?
Development of the Criminal Law & Law Enforcement response
As society and technology develops so ways of doing business change, and the complexities and challenges of economic crime increase.
The United Kingdom is the home of a global financial and business centre, and has a responsibility to play a leading role in efforts to tackle fraud and corruption. Economic crime is a problem that affects the lives of all of us. It creates injustice, perpetuates poverty and embeds self-interested elites.
That is why this Government has made it a priority to tackle fraud and corruption and to improve detection of money laundering.
We continuously review whether we have the laws, processes and resources in place to give law enforcement agencies the tools needed to ensure the criminal law does act an effective punishment and deterrent.
The Inter Ministerial Group on Anti-Corruption of which I am a member, is an example of the Government’s commitment to fighting economic crime. Together with the Government’s Anti-Corruption Champion, Sir Eric Pickles, I am personally committed to driving through reforms to protect the reputation of the UK as a good place to do business.
Other notable legislative developments in this areas in the last few years include:
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The Bribery Act 2010 introduced a new offence of failure by a commercial organisation to prevent bribery.
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Deferred Prosecution Agreements were introduced into the law in England and Wales in 2014.
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The Small Business and Enterprise Bill 2015 implemented a central registry of company beneficial ownership to identify and tackle misuse of companies to hide criminal assets. Enhanced transparency of company ownership will help us to tackle tax evasion, corruption and money laundering.
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The Government will soon publish its first ever National Risk Assessment of Money Laundering and Terrorist Financing which concludes that whilst the UK’s response to money laundering and terrorist financing is well developed, more needs to be done, particularly in relation to “high end” economic crime where the proceeds are often held in banks accounts, real estate or other investments rather than cash. The National Risk Assessment will inform an Anti-Money Laundering Action Plan which will aim to plug intelligence gaps, enhance the law enforcement response to the most serious threats, reform the Suspicious Activity Reports regime and address inconsistencies in supervision.
Partnership with private sector
We should also recognise that compliance, and keeping all of their operations on the right side of the law, is not an easy task for very big companies which operate in many different countries.
These organisations face compliance requirements which can be very onerous, with different jurisdictions imposing different complex systems of rules and regulation.
Governments and law enforcement demand a lot of regulated companies, such as reporting transactions where there are grounds to suspect money laundering. This puts companies at risk of civil action from parties who consider their transactions have been wrongfully blocked.
In an attempt to alleviate these pressures, and assist the private sector with its compliance challenges, earlier this year the Government introduced civil immunity to protect financial institutions against damages claims where they make Suspicious Activity Reports in good faith
The Government is exploring ways in which we can share more information with the private sector to assist them to mitigate the risks of economic crime and money laundering taking place within their operations.
The introduction of Deferred Prosecution Agreements, and the leniency programme at the Competition and Markets Authority are other examples of the Government seeking to encourage good compliance and co-operation between the public and private sectors.
The Role of Regulation
Alongside traditional criminal enforcement we have other regulatory tools to deter and punish economic crime.
In the UK, the Financial Conduct Authority is the regulator responsible for the financial services sector.
Last year the Financial Conduct Authority announced that it was fining a group of banks over £1billion in connection with manipulation of FOREX bench mark rates. This was announced as a collective package of fines together with fines issued by regulators in the US. The total amount of the fines was $2.6 billion
These numbers are eye watering, but it is unclear to what extent they are operating as an effective deterrent to poor corporate culture and individual behaviours.
The size and wealth of some financial institutions involved is such that even very large fines be regarded as an operational overhead, and the potential rewards mean these fines are a price worth paying.
Also, it is arguable that those who suffer most from regulatory fines are individual shareholders of these companies who see the value of their investments reduced, and the dishonest individuals responsible for the underlying criminal activity may go unpunished.
Ultimately this means we need to be able identify the individuals who were responsible for underlying criminal acts and hold them to account for their actions and the way in which they have allowed their businesses to operate.
In today’s complex business environment, where may companies operate in multiple jurisdictions with multi-layered management structures, this is much more easily said than done.
However Society demands that individuals who commit economic crime are investigated, prosecuted and punished in exactly the same way as other dishonest criminals. Justice must be done and be seen to be done to all. There must be equality before the law.
This is why I believe that the maintaining effective criminal law enforcement is of fundamental importance. The criminal law must complement other tools, such as regulation and compliance, as the ultimate sanction for those who commit the most serious economic crimes.
Conclusion
This Symposium provides a valuable opportunity for policy makers and practitioners from different countries to meet, share experiences and ensure we are working together as effectively as possible to tackle modern economic crime.
Thank you for your attention and for inviting me here today. I hope this week’s symposium will be a thought-provoking and enjoyable experience for all of you.