Economic crime | New priorities – a real risk of "go to jail, do not pass go" for PE executives
Published on 10th Jul 2018
In December 2017, the government announced the creation of new National Economic Crime Centre (NECC). This is a multi-agency body, which includes the Serious Fraud Office (SFO), that is housed in the National Crime Agency. The government appears intent on using this body to target dirty money, in particular through the use of the new Unexplained Wealth Order provision that does not require a criminal conviction to be able to confiscate tainted funds.
In September 2018, Lisa Osofsky takes over as the new Director of the SFO. Lisa is an American national and former Deputy General Counsel at the FBI.
Putting these two aspects together what can we expect?
- a more US-style approach: companies being dealt with by way of deferred prosecution agreements (DPA) rather than full prosecution, but with increased prosecution of senior executives;
- greater co-operation between the US and UK: likely increased criminal intelligence-sharing, making detection of wrong-doing potentially more likely;
- a significant crackdown on money laundering across: the crackdown will affect many business sectors, with real estate potentially being the first target;
- increased use of the corporate offences: failure to prevent bribery and/or the facilitation of tax evasion.
Sanctions that can be imposed on companies include unlimited fines, confiscation of profit and possible debarment. Individuals convicted of economic crime can expect to receive a custodial sentence. In the bribery area, senior executives at Sustainable Agroenergy PLC and FH Bertling Ltd received prison sentences or suspended prison sentences of up to 13 years; two former directors of XYZ Ltd (one of the four companies to date to be dealt with through a DPA) face their trial this year; and many of the most senior executives at Rolls Royce will find out in the next 12 months whether they will be prosecuted for their alleged part in corruption within the company.
Why is this relevant to PE?
Any business in which a PE house invests will be an Associated Person (AP) for the purposes of triggering the corporate offence of failure to prevent an offence under the Bribery Act.
If an AP acts corruptly, a PE house could face conviction, and an unlimited fine, unless it can show that it had adequate procedures in place to prevent bribery – a defence that has not to date been successfully run. It is essential that PE investors understand where the risks lie and what they should be doing to monitor compliance with the relevant anti-bribery legislation. It is not enough to only insist that each AP has its own anti-corruption policy.
Prosecution of the AP itself could also see the PE investment lost or at least significantly impaired.
If a business in which a PE house holds a stake becomes tainted with dirty money, again an investment could be compromised. More significantly, if someone at the PE house (typically the executive appointed to the board of the AP as "investor director") could be found to have had a reasonable suspicion that criminal activity was occurring, that individual could face personal prosecution, and jail time of up to 14 years, for money laundering.
The Osborne Clarke business crime team, headed by Jeremy Summers, one of only the handful of City-based true specialists in this area, can assist with helping you undertake risk assessments, put in place relevant policies and provide training to help you mitigate the growing risks that all businesses now face from the increased focus on economic crime.
