Welcome back to the quarterly white collar and financial crime updates, where the Dentons UKIME Regulatory and Investigations team has pulled together news and updates from our respective specialist areas which we think may be of interest to you. As usual our team has used our combined background and experience in private practice, in-house and at each of the key AML, ABC and sanctions regulators (including the FCA, SFO and HMG) to give you our perspective on key updates and horizon scanning to help inform your financial crime compliance requirements. 

In this update, we are excited to announce that our Ireland office has worked alongside us to produce similar financial crime update from their region, which is sure to be of benefit to our clients operating across multiple jurisdictions. 

What this update covers:

• Anti-Money Laundering 
• Bribery and Corruption 
• Sanctions
• Corporate Fraud
• Internal Investigations

Anti-Money Laundering 

• On 30 June 2023, HM Treasury published a consultation on the reform of the anti-money laundering and counter-terrorism supervisory system setting out four possible models for a future system:
  
  
  1. OPBAS plus: No structural changes to the AML supervisory system, but OPBAS to be given a range of new powers to increase the effectiveness of AML supervision by professional bodies. 
  2. AML regulation is undertaken by three statutory supervisors (the FCA, Gambling Commission and HMRC) and 22 professional bodies. This option models the consolidation of professional body supervisors to two or six entities – either an accountancy services regulator and a legal services regulator each with UK-wide remits, or an accountancy and legal services supervisor for each of the three UK jurisdictions. 
  3. AML supervision of professional bodies is undertaken by a single body. This would include supervision of all accountancy and legal firms, but may pull in some other sectors which currently fall within HMRC's remit. This would likely be a public body which would operate independently, but accountable to HM Treasury. 
  4. The creation of a single anti-money laundering supervisor (SAS) to conduct all AML/CFT supervision across sectors. This option would have the greatest impact, as the FCA and Gambling Commission under this model would also cease supervising for AML/CFT compliance. This would create a dual regulation model for all firms supervised for other purposes by either professional bodies or the statutory authorities and, for some financial institutions, would create triple regulation, where they are already dual regulated by the PRA and FCA. 
     
     Firms are invited to respond to the consultation, and we would encourage compliance officers and MLRO's in regulated firms to review the consultation and respond to the questions in the survey by the closing date of 30 September.  

• The UK Financial Services and Markets Bill was granted Royal Assent on 29 June 2023 (UK Gov press release). The bill, now known as the Financial Services and Markets Act 2023, looks to restructure the UK's financial services and markets regime. Importantly, the new act will enhance the powers of the FCA in respect of the regulation of cryptoassets, which have until now only been regulated for money laundering and financial promotions. We know that many crypto firms have found the AML compliance framework and the FCA's approach to the sector challenging, so we expect some bumps in the road and significant FCA outreach to industry as we move towards full regulation of these firms. 
• Across the statutory AML supervisors, significant fines continue to be imposed for AML failures this summer. Most recently, Done Bros (Cash Betting) Limited (trading as Betfred) was fined £3.25 million by the Gambling Commission for social responsibility and AML failures, including having set its financial alerts thresholds too high and failing to consistently obtain appropriate "know your customer" identification (Gambling Commission press release, 18 July 2023). In the financial services industry, the FCA imposed a fine of £2.5 million on Bastion Capital London Limited for serious financial crime control failings in relation to cum-ex trading, including failing to put in place adequate systems and controls to identify and mitigate the risk of being used to facilitate fraudulent trading and money laundering (FCA press release, 13 July 2023). 
• JMLSG has proposed new guidance with respect to cryptoasset transfers. The guidance is intended to assist firms in applying the "travel rule" which imposes requirements on a cryptoasset business in relation to the information they must send, receive and verify as part of a cryptoasset transfer. We would urge AML regulated cryptoasset businesses to review the proposed guidance and to consult on whether any amendments are necessary to make it practical and usable. 
• MLROs will no doubt be following with interest the issues being discussed in connection with offboarding, and in particular the closure of PEP accounts, as highlighted by the recent coverage of Nigel Farage. We note with interest that the FCA has reached out to PEPs to gather first-hand experiences of how the regime has been applied, with a view to considering whether changes to guidance are required. It has also sent information requests to banks in relation to how and when it is offboarding customers. Last week, the FCA also announced that it was commencing a thematic review of the treatment of domestic PEPs with enforcement action foreshadowed where "significant deficiencies" are identified. Firms should be mindful of the FCA's focus on this topic area in horizon scanning, both in the short term and in respect of any findings that are published in due course. 
• Reminder: The register of overseas entities was introduced last year. With the first anniversary of the register falling on 1 August 2023, the requirement for overseas entities owning property in the UK to file an annual update statement has started to apply. All caught overseas entities are required to file the statement with Companies House (even if there have been no changes to their beneficial owners or managing officers) within 14 days of the due date, which is the anniversary of the date they registered. 

Bribery and Corruption

• In September, the SFO's new Director, Nicholas Ephgrave (former Assistant Commissioner of the Metropolitan Police), will take office. Dentons' London office was quoted in the Global Investigations Review on what, by many, has been considered a controversial non-lawyer appointment leading the office. We are expecting to see new direction and focus in bringing streamlined decisions with the commitment to "reduce the average and median length of [its] investigations to three years".
• The SFO's annual accounts for the year 2022-23 have been published. The SFO acknowledges the failings identified in reviews that concluded last year and there is a continued focus on the recovery of proceeds of crime, including the use of non-conviction-based orders. Recruitment plans with a focus on technology-led solutions have been committed to, with the most recent hiring of a cryptocurrency lead for the SFO. 
• One to watch: Senior executives have been charged in the mining industry for serious criminal offences, after a six-year investigation that included the execution of search warrants. A former Chief Executive Officer and Chief Financial Officer of London Mining Plc, as well as a business consultant, have been brought before the court for bribery offences in connection with payments made to secure preferential treatment in Sierra Leone. This case marks a demonstration of the SFO holding senior executives to account – something that has been a sharp focus for investigators and prosecutors in recent years, and has ultimately resulted in the resurrection of changes to the Identification Doctrine and the directing mind and will provisions. 
• The SFO continues to step up its pursuit on civil recovery, having recently being recognised as the UK’s official top-performer for recovering criminal assets. It has successfully issued a claim in the High Court for civil recovery under Part 5 of the Proceeds of Crime Act 2002 against the daughter of the president of Uzbekistan, and another in relation to assets both in the UK and in other jurisdictions. Both individuals are serving prison sentences in Uzbekistan for related fraud and money laundering offences. In August, following a High Court ruling in its favour, the SFO has taken control of £20 million worth of luxury property that has been frozen since 2017. 
• In another High Court application, the SFO has recovered property in England using its non-conviction-based power for an investigation which was linked to a bribery investigation that resulted in a Deferred Prosecution Agreement with Sarclad in relation to the use of a Chinese agent, who helped the British technology company pay bribes to secure business in China. Contracts secured between 2004 and 2012 were valued at £17 million for technology services in the steel production industry. In the third DPA secured by the SFO, Sarclad was ordered to pay £6.5 million in penalties.

Sanctions

• The UK government published a new round of Russia sanctions in June. This round amended the definition of non-government-controlled Ukrainian territory, and added a new purpose to the Russian sanctions legislation "promoting the payment of compensation by Russia for damage, loss or injury suffered by Ukraine on or after 24th February 2022 as a result of Russia’s invasion of Ukraine". The addition of a new stated purpose signals a slight change in approach: the aim is not only to deter Russian actions in Ukraine, but also to promote compensation in the aftermath. This establishes a basis for maintaining the sanctions after the conflict (no matter what the outcome). 
• The long-awaited legal services ban (initially announced on 30 September 2022) came into force on 30 June. Unlike the EU legal services ban, it does not restrict the provision of legal services to Russian companies. Instead, it prohibits UK persons from providing legal advisory services to any non-UK persons where the underlying activity would be prohibited under UK sanctions against Russia if it was carried out by a UK person, or in the UK. There is an exemption for the provision of advice on complying with UK sanctions and for advice in or in anticipation of proceedings. Additionally, following considerable outcry about the breadth of the measure, the Export Control Joint Unit (ECJU) published a general licence on 11 August allowing UK persons to give legal advice in relation to compliance with non-UK sanctions (e.g. EU and US compliance advice), criminal law advice and advice on compliance with any statutory obligation. There is a reporting obligation for using the licence. For other advice, there is a wind-down period until 29 September 2023 (again with a reporting obligation), but after that any exemptions will be by individual licence only.  There remains considerable concern about "unintended effects" of this measure, and MoJ has recently convened a working group (in which Roger Matthews of Dentons is participating) to consider/make proposals for a further statutory amendment.
• There is a renewed focus on circumvention in both UK and EU regimes, and the UK government has published guidance for exporters on how to ensure compliance with Russian sanctions. This covers due diligence, the procurement cycle, "front" companies and key risk indicators.
• Delisting challenges and cases are starting to come through more regularly. Notably, Oleg Tinkov, founder of Tinkoff Bank, was removed from the UK sanctions list on 20 July. Mr Tinkov had publicly criticised Russia's invasion of Ukraine, and had renounced his Russian citizenship in protest against it. The FCDO commented to the FT that "having considered all of the factors in this case, including the actions Mr Tinkov has taken following his sanctions designation, we have revoked his designation. We keep all sanctions designations under review". Former Sberbank executive, Lev Khasis, has also been delisted. However, successful delisting applications look likely to remain rare: Formula One driver Nikita Mazepin had an application for interim relief rejected by the High Court in June 2023, and the High Court also rejected a challenge to a UK sanctions listing by Synesis (a Belarusian technology company) in March 2023.
• The FCA has now completed its thematic review of sanctions systems and controls in financial services firms. The FCA made a number of findings and recommendations which our sanctions team will explore in more detail in a forthcoming briefing, but key themes are, as expected: the implementation of effective governance and oversight around sanctions; the adequate resourcing of teams; and the importance of effective customer due diligence to ensure that all sanctions individuals in a business relationship are identified. Where breaches occur, regulated firms are expected to report them to FCA as well as making a voluntary disclosure to OFSI or ECJU.

Corporate Fraud

• In a step that is clearly linked to the Online Safety Bill, the government is in discussions to launch an online fraud charter with the intention of encouraging social media platforms and other tech companies to "take action to block scams, make it easier to report frauds and ensure that fraudulent content is removed swiftly". This is part of a range of measures proposed by the government as to how fraud is policed, which includes the introduction of a new National Fraud Squad to work alongside the SFO to use intelligence to identify fraudsters. These steps appear to reinforce work already being undertaken by the FCA in relation to financial promotions – it has been working with social media and search platforms to encourage them to remove online financial promotions which are either misleading or outright scams. 
• There has been a focus on combatting authorised push payment (APP) fraud, with the Payment Services Regulator (PSR) taking the lead in introducing measures to combat this issue. In June, the PSR published a policy statement outlining its reimbursement requirement within the Faster Payments system, which will require payment services firms to reimburse certain victims of APP fraud with the costs split between the sending and receiving institutions. Additional protections for vulnerable customers are also included in the policy statement. While the obligations will not come into force until 2024, all firms affected by the changes should start to consider how the rules may impact them.

Internal Investigations

• In partnership with our Employment team, the Investigations team continues to see a month-on-month increase in internal investigations in respect of allegations of sexual misconduct or inappropriate behaviour. This may be in part impacted by the increase in firms putting in place anonymous reporting systems in line with the European Whistleblowing directives. Whilst the increased reporting of misconduct is clearly a positive in terms of weeding out poor culture, we remind firms of the additional considerations and protections they should be applying when investigating complaints which stem from whistleblowing reports in order to avoid breaching the Public Interest Disclosure Test (PIDA). The protection of whistleblowers is, of course, a requirement for financial services firms, but PIDA claims may be made against any employer and financial penalties for failings can be high. We note recent high awards in tribunals, including against government and public bodies as well as private companies, including construction firms. 
• We are paying close attention to amendments to the Economic Corporate Crime and Transparency Bill, due to receive Royal Assent this year, which are expected to expand the scope of the identification doctrine i.e. who can be considered the "directing mind and will of the company" to include senior managers (not just a company's board) for at least bribery, fraud and AML offences (sanctions offences have also been proposed). Senior managers as defined under the bill are individuals who play a significant role in: "(a) the making of decisions about how the whole or a substantial part of the activities of a [company] are to be managed or organised; or (b) the actual managing or organising of the whole or a substantial part of those activities." Where such senior individuals are found guilty of a relevant offence, the company itself would also be found liable. This expansion of potential liability in our view underscores the need for all firms to ensure that they have in place effective controls for the prevention, detection and investigation of economic crime in order to minimise exposure.
• The use of private messaging platforms for business purposes remains an ongoing cause for concern for investigations teams in regulated and non-regulated firms. Our Investigations team has put together some recommendations for firms in light of the PRA final notice against Wyelands Bank plc earlier this year.