Disputes Yearbook 2023:
Corporate crime and investigations

Economic crime reforms and new avenues for corporate criminal liability

After years of debate, calls for legal reform, and months of discussion in Parliament, significant new economic crime reforms were introduced in October 2023. The Economic Crime and Corporate Transparency Act 2023 introduces: (i) a new corporate offence of failure to prevent fraud; and (ii) an expansion of the basis on which companies can be found criminally liable. As regards (i), the new offence will not come into force for some time since it is subject to the publication of accompanying guidance. However, its scope is potentially broad, imposing liability on large organisations whose "associated persons" commit a fraud offence intending to benefit the company in circumstances where the company does not have "reasonable prevention procedures" in place. Further detail on the scope of the offence can be found in our previous briefings here and here. The reforms relating to (ii) above will come into force by the end of December 2023. From that point, if a senior manager of a body corporate or partnership, acting within the actual or apparent scope of their authority, commits a specified economic crime offence (including bribery, fraud, money laundering and sanctions breaches), then the organisation itself will be criminally liable. This is a significant departure from the existing identification doctrine which has historically made it challenging to bring criminal prosecutions against companies in England and Wales. For further detail see our briefing.

Disputes arising from the application of sanctions

The unprecedented scale of the Russian sanctions regime is beginning to give rise to disputes, particularly in the financial services context, where UK/EU/US parties have sought to terminate, or been unable to perform, contractual obligations for sanctions compliance reasons. This is causing a new wave of court decisions on the impact that asset freezing measures may have on the conduct of litigation with designated persons and the way in which those sanctions should be interpreted (although these have not always had a purely clarificatory effect, see for example here). A recent judicial review case has also provided further insight into the extent to which sanctions designations may be challenged, and into OFSI's licensing discretion (see Court takes a tough stance in challenge to sanctions decisions on judicial review principles). 

We have also seen a number of interesting recent decisions in which the court has demonstrated its willingness to allow contractual obligations to be fulfilled in ways which do not contravene applicable sanctions regimes, but which may go beyond the scope of a strict approach to the agreement between the parties (particularly where there would otherwise be detriment to those who have no association with a designated person or the sanctioned jurisdiction). See for example: High Court considers impact of Russian sanctions regimes in UK, EU and US on payment obligations under standby letter of credit and Force majeure: Court of Appeal finds party was required to accept non-contractual performance in exercising reasonable endeavours to “overcome” force majeure event.

Sanctions enforcement

In August, OFSI used its power to publish a disclosure notice for the first time, publishing details of a financial breach where it has decided not to impose any monetary penalty. This was accompanied by amendments to its Enforcement Guidance, making clear OFSI's intention to use this type of report to communicate its expectations about sanctions compliance. However, it remains the case that there have been comparatively few enforcement actions taken by OFSI to date, meaning that there remains significant interest in whether and in what circumstances enforcement will occur in respect of financial sanctions breaches.

FCA focus on financial crime systems and controls

The FCA has shown continued willingness to take enforcement action against firms in respect of their financial crime systems and controls. The agency's recent enforcement actions cover areas such as customer due diligence and enhanced due diligence, transaction monitoring, the robustness of periodic reviews and remediation exercises, and the governance and oversight of financial crime matters within the firm. This is likely to remain an area of regulatory focus, with additional scrutiny of firms' sanctions systems and controls in particular. We explore some of these topics in more detail in this webinar.