24 Nov 2016
Since the ground breaking recommendations of the Roskill Report in 1986, the United Kingdom (UK) has introduced a plethora of financial crime legislation and regulation that aims to make its financial services sector unappealing to organised criminal gangs, white collar criminals and terrorists. Examples of legislation include the Criminal Justice Act 1987, which resulted in the creation of the Serious Fraud Office (SFO). The failures of the SFO have been well documented and examples include several prosecutorial failures including Guinness, Blue Arrow, Maxwell and Levitt. Furthermore, the SFO has been in the headlines for its handling of the bribery allegations against BAE Systems and its abandonment of the investigation into arms sales in Saudi Arabia. In 2012, the SFO was severely criticized over its poor handling of the Tchenguiz brothers investigation. However, it is important to emphasize that the SFO has increased the frequency of its investigations and prosecutions, against a political background of severe financial restrictions imposed by successive coalition governments.
The Financial Services and Markets Act 2000 (FSMA) provided the then city regulator, the Financial Services Authority (FSA), with a vast and extensive array of enforcement and investigative powers. For example, the FSA was able to instigate civil and criminal proceedings for a wide range of financial crime offences and for breaches of its Handbook. It is interesting to note that while the FSA claim they were not a fraud prosecutor, research I conducted in 2014 found several instances where the city regulator was able to successfully prosecute for fraud related offences. These include the case of William Anthony ‘Robin’ Radclyffe, who was convicted after pleading guilty to a series of offences under the Theft Acts, the Financial Services Act 1986 and FSMA 2000. However, the FSA was replaced by the Financial Conduct Authority (FCA) as a result of the Financial Services Act 2012. The FCA has continued to use the ‘credible deterrence’ strategy of the FSA and have clearly prioritised imposing ‘media friendly’ fines on firms.
Another example of new legislation is the much heralded Proceeds of Crime Act 2002, which codified the UK’s money laundering legislation and introduced a more robust approach to the confiscation of the proceeds of crime. However, the effectiveness of the new approach was called into question when the Assets Recovery Agency was replaced by the Serious Organised Crime Agency (SOCA) for failing to achieve the unrealistic targets set by successive Labour Home Secretaries. SOCA has since been replaced by the National Crime Agency by virtue of the Crime and Courts Act 2013.
Before becoming Prime Minister in 2010, David Cameron stated that the City of London faced a ‘Day of Reckoning’ and that severe penalties would be imposed for those bankers whose reckless activities caused the 2008 financial crisis. David Cameron claimed that when ‘rules are broken, and culprits are found, they are properly punished’. This raises a very important question: how many of the corporations or individuals responsible for the 2008 financial crisis, or who contributed to it, have ever been held accountable? The answer at the time of writing this blog, a mere handful.
Cameron’s statement was followed by a further bold claim by George Osborne: ‘we take white collar crime as seriously as other crime and we are determined to simplify the confusing and overlapping responsibilities in this area in order to improve detection and enforcement’. The government finally created a number of new criminal offences under the Financial Services (Banking Reform) Act 2013. However, the appropriateness of the criminal offence relating to a decision causing a financial institution to fail (s. 36) must be questioned: the offence will only be used when a financial institution fails. Given that the government continues to pursue a policy of bailing out failing institutions, it may never be applied.
The Criminal Finances Bill (2016) represents the most comprehensive legislation aimed at tackling financial crime since the 2002 Proceeds of Crime Act. The Bill represents the conclusion of several financial crime measures that have been introduced since the last general election. For example, this includes the publication of the ‘National Risk Assessment for Money Laundering and Terrorist Financing’ in October 2015, the publication of the ‘Action Plan for anti-money laundering and terrorist finance’, the creation of the Panama Papers Task Force and the Anti-Corruption Summit in London. The Bill introduced a number of measures aimed at improving the ability to investigate the proceeds of crime, provisions to improve the use of suspicious activity reports, obligations to enhance the confiscation of the proceeds of crime, instruments to tackle the facilitation of tax evasion and amendments to the counter-terrorist financing legislative framework. The Criminal Finances Bill has introduced a number of important measures that could improve how the UK seeks to tackle financial crime. However, the effectiveness of these measures could be determined not by the desire and ambitions of politicians, but of the response by law enforcement agencies, who have adopted an apathetic stance towards instigating criminal proceedings against financial criminals.
Nicholas Ryder, Professor in Financial Crime, UWE
You can claim CPD minutes for reading this article, by signing up to our CPD WalletFREE CPD Wallet