European Union: Criminal Enforcement And Investigations: Key Considerations In The EU And The UK In 2024

CRIMINAL/REGULATORY INVESTIGATIONS IN THE UK

On October 23 2023, the Economic Crime and Corporate Transparency Act 2023 (the "Act") was granted Royal Assent in the UK. Among other things, the Act renders large organizations liable to prosecution where (i) a specified fraud offence is committed by an associated person (defined as an employee, agent or subsidiary of the relevant organization, an employee of a subsidiary, or a person who otherwise performs services for or on behalf of the organization), (ii) for the organization's benefit, and (iii) the organization did not have reasonable procedures in place. The date for implementation of the Act is not yet clear but it is expected to come into force in the first half of 2024. Over the next few months, we also expect guidance to be produced by the UK government detailing what "reasonable procedures" look like, to assist organizations in assessing, and where necessary, improving their own compliance frameworks. As with the introduction of the Bribery Act over a decade ago, we expect 2024 to be a period of intense work with organizations reviewing and, as necessary updating, their existing compliance policies and procedures.

We also expect an increase in the number of investigations being opened into companies and partnerships as a result of the recent expansion (as of December 26, 2023) of the identification principle in the UK, whereby organizations may be subject to criminal liability where its "senior managers" commit a criminal offence while acting within the actual or apparent scope of his or her authority. Prior to this expansion, criminal culpability could only be founded based on the conduct of individual(s) representing an organization's "directing mind and will"- a much more limited class of senior individuals that "senior managers". A "senior manager" is an individual who plays a significant role in: (i) the making of decisions about how the whole or a substantial part of the activities of the body corporate or partnership are to be managed or organized; or (ii) the managing or organizing of the whole or a substantial part of those activities.

With a likely increase in the number of new investigations being opened overseen by a new and experienced Director at the UK Serious Fraud Office (the "SFO"), we consider that we can also expect to see more dawn raids. We can also expect to see more compelled requests for the provision of documents and / or information at a pre- investigative stage, following the extension of the SFO's powers to request such information in all its cases (and not, as previously, only in cases of international bribery and corruption).

From the regulators, we expect a continued focus on financial crime. The UK Financial Conduct Authority highlighted in its 2023 / 2024 Business Plan that financial crime remains one of its priorities, likely with a focus on AML, fraud and sanctions, as well as the effectiveness of a regulated firm's policies and procedures to identify and prevent financial crime. With such a focus, we expect enforcement actions in these areas to rise, as well as more non-traditional criminal authorities being willing to begin enforcement actions with the prize of multi-million-pound fines firmly in mind.

INDIVIDUAL ACCOUNTABILITY AND WORKPLACE CULTURE IN THE UK

Promoting a healthy workplace culture – a place of diversity and inclusion with sound controls and good governance, where individuals can feel free to speak out, where remuneration does not encourage irresponsible behavior and where firms value robust adherence to its regulatory responsibilities – has for many years been a stated aim of the UK Financial Conduct Authority (the "FCA") since, in the view of the FCA, a healthy culture is critical both to consumer protection and to well-functioning markets.

In 2024, we predict a growth in the scrutiny placed on workplace cultures, particularly in relation to non - financial misconduct. In September 2023, the FCA and the UK Prudential Regulation Authority (the "PRA") published a set of proposals¹ aimed at boosting diversity and inclusion, including a number of proposals relating specifically to the issue of non-financial misconduct. The FCA proposes to explicitly include non-financial misconduct within its rules and assessments, with the implication that such misconduct could result in a firm being deemed not to be "fit and proper" to be regulated. The proposals include making it explicit that "bullying and similar misconduct within the workplace is relevant to fitness and propriety and that similarly serious behavior in a person's personal or private life is also relevant". Further, the FCA proposes to bring offences such as sexually or racially motivated offences, or findings from a tribunal or court that a person has engaged in discriminatory practices, within its fitness and proprietary assessments. We expect a growth in the number of enforcement actions by the FCA and PRA in relation to non- financial misconduct, and a corresponding rise in the number of challenges mounted by individuals as to the relevance of an individual's private life to his or her employment or accreditation.

Outside the regulated sector, organizations are increasingly recognizing the threat of poor personal conduct or ethical issues to their very existence. In 2023, we saw a number of examples of senior corporate executives being forced to leave their positions following personal conduct or ethical allegations, and often following lengthy and expensive investigations. This trend is set to continue in 2024, particularly with the unyielding growth of social media and the pressure that this often puts on organizations to "do the right thing". Organizations are well advised to consider ethical behavior in major operational and strategic decisions and in its appointments and promotions, as well as provide training to embed their purpose and values.

ESG AND SUSTAINABILITY ACCOUNTABILITY FOCUS IN THE UK

2023 saw continued focus on ESG, with organizations focusing on sustainable finance, supply chain resilience, new environmental regulations and reporting requirements, and implementing more ethical business practices. That focus will continue into 2024, with new laws, regulations and incentives being introduced to encourage greater sustainability.

For full details on ESG and Sustainability developments, read our note here.

Footnote

1. https://www.fca.org.uk/publication/consultation/cp23-20.pdf

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