Global Corporate Crime and Investigations update – May 2024

Our global Corporate Crime and Investigations team is pleased to present our latest global round-up. This six-monthly publication calls on experts from around the network to provide updates on significant new developments and enforcement trends in their jurisdictions. Where available, the updates link to blog posts with more detail. As ever, please do not hesitate to contact the authors, or your local HSF contacts, if you wish to discuss any of the issues raised.

In summary: enforcement continues to be a key theme around the world – in this issue we bring you a view of the UK's changing enforcement regimes, the focus placed by both the US and China on national security issues, and legal reforms in Australia, South Africa and Japan (among others) likely to give rise to increased enforcement activity.

UK

A number of UK enforcement authorities have expressed intentions to increase the efficacy and speed of enforcement or otherwise enhance their efforts in this area.

• The UK's Serious Fraud Office (the "SFO") has published a new five-year strategy. The strategy calls out the importance of combatting complex fraud, bribery and corruption schemes which impact large numbers of citizens and / or damage confidence in the UK's financial systems. The strategy mentions the need for the SFO to carry out investigations more swiftly and decisively and to better harness innovative technology. It mentions making better use of covert powers to obtain evidence more quickly and suggests exploring ways in which whistle blowers may be incentivised. It also mentions increased use of the DPA regime and finding ways of reinforcing ways in which corporates can engage voluntarily with the judicial process. The SFO also intends to push for amendments to the existing disclosure regime. Further details on the strategy are available here, and for more on recent consideration of the UK's criminal disclosure regime.

• The UK's Financial Conduct Authority (the "FCA") is proposing changes to its enforcement processes with a view to providing greater transparency and amplifying the deterrent impact of their work. The proposal is to publish the identity of the subject of an investigation when an enforcement investigation is opened; (ii) publishing updates on the progress of investigations; and (iii) announcing when cases have been closed with no regulatory or other action. More detail on these proposals, which have raised a number of concerns, can be found here, along with HSF's response to the consultation.

In relation to sanctions enforcement, in December 2023, the UK Government announced the creation of the Office of Trade Sanctions Implementation ("OTSI"). OTSI will be responsible for civil enforcement of trade sanctions (enforcement of financial sanctions will continue to be within the remit of the Office of Financial Sanctions Implementation) and will have powers to investigate potential trade sanctions breaches, issue civil penalties, and refer cases to HM Revenue and Customs for criminal enforcement where needed. The new unit is expected launch in 2024 once the new legal requirements are in place. The UK has also recently seen the announcement of its first criminal prosecution relating to breach of Russia sanctions, with a former Russian deputy minister facing a total of nine charges of sanctions evasion and money laundering.

EMEA

EU

A recent decision by the Spanish Constitutional Court has brought the transfer of corporate criminal liability in the context of business acquisitions into focus.

The judgment by the Spanish Constitutional Court passed in December 2023 related to fines imposed by the Spanish Council of Ministers on Banco Santander regarding an alleged breach of money laundering provisions by Banco Popular – before it was acquired by Banco Santander. Banco Santander acquired Banco Popular based on an asset deal and Banco Popular was absorbed by Banco Santander and ceased to exist as a separate entity. The Constitutional Court found that liability had transferred to Banco Santander as the business activities of both entities were "substantially identical from an economic perspective".

Similar concepts exist under both Italian and German law. The Italian courts have taken a slightly narrower approach in that they have held that an acquiror may be held liable for pecuniary sanctions in relation to the wrongdoing of the acquired entity where the acquired entity is dissolved and its assets have been transferred with fraudulent intent (e.g. aimed at avoiding sanctions). In Germany, there is an express provision in the Administrative Offences Act ("Ordnungswidrigkeitengesetz") that provides for the ability to impose a fine on the universal or partial legal successor where the transferring legal entity ceases to exist. Most, though not all, other cases of restructuring are covered by the case law of the Federal Court of Justice, which accepts a transfer of liability for fines if the old and the new legal entity are almost identical from an economic point of view ("Nahezu-Identität").

While the transfer of criminal liability will depend on the nature of the transaction, the direction of European case law means that it is prudent to determine with the highest possible degree of certainty: (i) what criminal liability may be present in the acquired, merged or absorbed entity; (ii) if the business activities performed by the acquiring and absorbed entities are "substantially identical from an economic perspective"; and (iii) if other circumstances should be taken into account that may mitigate the acquiring entity's potential criminal liability for historic wrongdoing of the target entity.

Middle East and Africa

AML Grey Listing of UAE and South Africa - different approaches taken and outlook

The Financial Action Task Force ("FATF") added the UAE and South Africa to its 'Jurisdictions under Increased Monitoring' (the so-called 'Grey List') in March 2022 and February 2023, respectively. The Grey List consists of jurisdictions that have been identified by the FATF as having strategic deficiencies in their controls to prevent money laundering, terrorist financing and proliferation financing. While the UAE succeeded in being removed from the Grey List during the FATF's review in February 2024, South Africa remains on the Grey List.

• Since it was included on the Grey List, the UAE has:
  • implemented a National Action Plan aimed at bolstering the UAE's anti-financial crime framework with a new Executive Office responsible for its implementation;
  • introduced a new penal code and established new specialist courts to preside over cases concerning money laundering; and
  • introduced the Federal Prosecution for Economic Crimes and Money Laundering – a new prosecuting entity specialised in tackling economic crimes and money laundering.

It is expected that the UAE's removal from the Grey List will result in an increase of foreign capital inflows by virtue of greater international confidence in the country's legal and regulatory framework. For more information on the UAE's removal from the FATF grey list, please see our blog post.

• South Africa has also taken steps to implement the FATF's recommendations by:
  • introducing new laws such as the General Laws (Anti-Money Laundering and Combating Terrorism Financing) Amendment Act 2022;
  • establishing the multidisciplinary Fusion Centre which brings together various law-enforcement agencies; and
  • further development of the National Anti-Corruption Strategy.

However, South Africa has failed to take steps to prosecute any of the government officials identified in the State Capture Inquiry Report handed to the South African President in June 2022. As a result, and despite the FATF concluding in November 2023 that South Africa was largely compliant with 35 out of its 40 recommendations, it appears that South Africa has not succeeded in reassuring the FATF that it will be proactive in combatting corruption. According to South Africa's National Treasury, it is on track to address the outstanding action items on the FATF's list by February 2025.

Companies with business in, or connections to, South Africa should also note an important recent legislative development, in the form of the creation of a new offence of "failing to prevent corruption". As set out in more detail here, the offence is somewhat similar to the "failure to prevent bribery" offence in section 7 of the UK's Bribery Act 2010, such that companies carrying out business in South Africa would be well advised to review their anti-corruption procedures to assess whether these would withstand judicial scrutiny under this new offence.

Asia

China and Hong Kong

Amended state secrets laws in China and Article 23 legislation in Hong Kong

China has amended its Law on Guarding State Secrets (the "State Secrets Law") with effect from 1 May 2024.  This amendment is part of a series of legislative changes in China in recent years dealing with issues relating to espionage, national security and the protection of state secrets.

The revised State Secrets Law continues to contain protections against the unlawful acquisition or disclosure of state secrets.  For these purposes, state secrets are defined as "matters involving national security and interests, which if leaked might harm the nation's security and interests in fields such as politics, economics, national defense, and diplomacy and other fields".  In addition, Article 64 of the Law introduces new protections for "work secrets" (i.e., secrets which are not state secrets but which “would cause a definite adverse impact if leaked”) held by government agencies and departments.  This is a broad definition and could encompass all non-classified information held by government agencies or departments provided that the unauthorised release of this information would have a negative impact on the relevant agency or department. Further rules on how work secrets are to be managed will be published in due course.   

Hong Kong has recently enacted national security legislation in the form of the Safeguarding National Ordinance (the "Ordinance").  The Ordinance has effect from 23 March 2024 and is intended to work alongside the National Security Law introduced in June 2020, which remains in force.  The Ordinance contains offences in five main areas, as set out below.

• Treason-related offences.
• Insurrection and offences dealing with incitement to mutiny, incitement to disaffection and acting with "seditious intent."
• Theft of state secrets and espionage offenses.
• Sabotage or interference with a computer system endangering national security. 
• External interference offences and engagement with organisations conducting activities endangering national security.

Japan

Revisions of the Unfair Competition Prevention Act provide for stricter penalties for bribery of foreign public officials and an expanded scope

In response to the OECD Working Group's recommendations to the Government of Japan about better implementing the OECD Anti-bribery Convention, amendments to Japan's Unfair Competition Prevention Act will take effect from April 2024.  The penalties for both natural and legal persons for bribery of foreign public officials will be increased: (i) in the case of natural persons, from imprisonment with labour for up to seven years or a maximum fine of JPY 5 million, to imprisonment with labour for up to 10 years or a maximum fine of JPY 30 million (approximately US$195,000); (ii) in case of legal persons, from a maximum fine of JPY 300 million to JPY 1 billion (approximately US$6,493,000). Bribery of foreign public officials committed by non-Japanese employees of Japanese companies will be subject to penalties even if the non-Japanese employees are located outside Japan.

US

Recent actions and statements by the U.S. Department of Justice (“DoJ”) have highlighted an increased focus on corporate crime matters that implicate national security.

 At a symposium in October last year, Deputy Attorney General referenced “the rapid expansion of national security-related corporate crime” as “the biggest shift in corporate criminal enforcement that [she had] seen during [her] time in government,” specifically highlighting a number of areas of corporate crime, including:  (i) terrorist financing; (ii) sanctions evasion; (iii) circumvention of export controls; (iv) cyber- and crypto-crime; (v) FCPA violations; and (vi) intellectual property theft.

The prosecutorial focus on national security matters is evidenced by an increase in resources at DoJ's National Security Division and a number of recent enforcement actions including:

• in October 2022, the first-ever corporate guilty plea to material support for terrorism from a French company; 
• in September 2023, a corporate guilty plea in the first-ever criminal resolution for sanctions violations from illicit sales and transport of Iranian oil; 
• in October 2023, a takedown of a Hong Kong-based business operation that circumvented export controls to funnel millions of dollars-worth of microelectronics with military applications to Russia; and 
• various cyber and crypto-related law enforcement actions, including disrupting cryptocurrency exchanges to interfere with criminal money laundering of over $4 billion and preventing over $100 million in cryptocurrency ransom payments by infiltrating a prominent ransomware group.

On 14 May 2024, HSF New York held its 9th Annual Corporate Crime & Investigations Conference.  During the conference, New York Office Managing Partner Scott Balber led a panel discussion of corporate crime and national security issues.  The panel included John O’Donnell, Susannah Cogman, Jonathan Mattout, and Kyle Wombolt, partners from across the HSF network with significant expertise in these issues, along with guest speakers Annemarie McAvoy and Sharif Nesheiwat, former prosecutors and experts in financial crimes and compliance.

Australia 

There have been key developments in the Australian corporate crime landscape in relation to sanctions and corporate bribery.

• Recent court decisions confirm a broad application of Australia's Autonomous Sanctions Act 2011 and its accompanying Regulations, particularly as they apply to Russian sanctions but more generally also. The Australian Parliament has also passed amendments to the Act to clarify and support the validity of sanctions designations (see further on this in our recent update).
  • In a landmark decision (see our summary here) it was confirmed that “indirectly mak[ing] an asset available for the benefit of a designated person” included a situation where export sanctioned goods (in this case alumina) where provided to an entity, the minority shareholders of which were designated persons. Unlike other jurisdictions (most notably the U.S.), Australia does not apply a “50% rule” to ownership which requires an entity to be 50% or more owned or controlled by a designated person to trigger the applicability of sanctions.
  • Another decision (details of which can be read here) concerned an Australian listed company which owned all of the shares in three Russian companies in the business of extracting and producing coal in Russia. It was found that the movement of the coal within Russia fell foul of Regulation 12A which prohibits the import, purchase or transport of export sanctioned goods. The court held that the term "transport" did not require the restricted goods to be moved across borders. 
• After several delays the Australian Federal Parliament has passed the Crimes Legislation Amendment (Combatting Foreign Bribery) Act 2024 (Cth) which introduces a corporate "failure to prevent foreign bribery" offence similar to the offence in section 7 of the UKBA. This means that a company may be held liable for foreign bribery by an "associate" person unless the company can show that it had "adequate procedures" in place to prevent the bribery.  The new provisions will commence on 8 September 2024. The Government is required to publish guidance on “adequate procedures”, and released an updated draft guidance for consultation on 29 April 2024. The consultation period closes on 9 June 2024. For HSF’s detailed insights on changes to foreign bribery laws, you can read this article.

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