This article was originally published on 14 August 2019, and was updated on 17 August 2022.
It is now widely accepted that financial crime is not ‘victimless’, but rather is wrongdoing which has a pervasive detrimental effect on legitimate commerce, and civilised society in general. As a result of this, many jurisdictions have introduced legislation establishing broad anti-financial crime regimes, policed by expert law enforcement agencies often possessing special investigative and prosecutorial powers.
In the last decade, the UK has developed a reputation for possessing an increasingly capable and active enforcement environment. More recently, the US and the UK have engaged in significant exercises of financial and other regulatory self-evaluation. For example, recently a working group was formed to deepen bilateral regulatory cooperation between the US and the UK with a view to the further promotion of financial stability. With prospects for a trade deal between the two jurisdictions increasing as the UK further distances itself from its former EU partners, the volume of transatlantic commerce has the potential to increase to hitherto unseen levels, leading to increased interplay between a number of enforcement issues and bodies on both sides of the pond.
As such, it is important that those conducting business in, with, or where there is a factual connection to, the UK, have a base knowledge of the authorities they may be dealing with, should their activities come under investigation. This is not an exhaustive list of UK investigatory and enforcement bodies (others include the Insolvency Service Criminal Enforcement Team, the Financial Reporting Council, and the Environment Agency) but does deal with those that are most likely to be relevant to organisations doing business in the UK.
Established by virtue of the Criminal Justice Act 1987 (CJA), the Serious Fraud Office (SFO) began operations in 1988. This body generally only deals with the most serious and complex cases of fraud, bribery and corruption that require the application of the SFO’s ‘specialist skills, powers and capabilities’. It instigates or intervenes in only a small number of cases which it adjudges harm, or are intended to cause significant harm to the public; ‘the reputation or integrity of the UK as an international financial centre’; or ‘the economy and prosperity of the UK’. Whether to investigate and instigate proceedings is a matter for the discretion of the head of the SFO, the director (currently former Federal Bureau of Investigations deputy general counsel, Lisa Osofsky). The director of the SFO also has the power to take over the conduct of matters meeting the above criteria, from other law enforcement agencies, at any stage.
The SFO is unusual, at least in comparison to most UK law enforcement agencies, in that it both investigates and prosecutes criminal wrongdoing. As part of its investigatory role, it conducts specialist forensic activities in respect of data and accounting. To that end, it has on staff a number of experienced investigators, barristers, solicitors, accountants, data scientists, and IT professionals, amongst others.
The SFO possess a number of powers which differentiate it from other UK law enforcement bodies. Most notable is that colloquially known as the ‘Section 2 notice’ (so-called due to its origin being section 2 of the CJA). Under sections 2(2) and 2(3) of the CJA, the director of the SFO, may:
Section 2 notices can require the provision of documents, written responses, or attendance at interview. The recipient of a section 2 notice cannot refuse to answer the matters raised therein including by stating ‘no comment’. The only lawful excuse for declining to answer a question asked under the powers granted to the SFO in section 2 CJA is that to do so would constitute a waiver of privilege.
Whilst this requirement may seem draconian, the effect is somewhat mitigated by the fact that those invited to section 2 notice interviews are typically witnesses rather than suspects. Further comfort can be taken from the provision that any answer given in response to a question in a section 2 interview cannot be used against the interviewee in criminal proceedings (save for in criminal proceedings brought against the interviewee because the answers provided were misleading). Given this, case law has established that those attending section 2 notice interviews do not possess an absolute right to have a lawyer attend with them, although one may be (and frequently is) permitted to attend, at the SFO’s discretion.
Non-compliance with a section 2 notice requiring the production of documents may lead the SFO to seek a warrant authorising the police to enter premises and seize the relevant materials. Section 2(13) CJA also provides that simple failure to comply with section 2 CJA is a distinct criminal offence, as is knowingly or recklessly making a materially false or misleading statement in response to a request made under section 2 CJA (pursuant to section 2(14)).
Whilst the SFO therefore possesses significant investigatory tools at its disposal, there are certain powers it does not possess, such as the power of arrest. However, pursuant to section 1(4) CJA, the director may, if she ‘thinks fit, conduct any such investigation in conjunction with either the police or with any other person who is, in the opinion of the director, a proper person to be concerned in it’. By virtue of this provision, the SFO may, for example, request the police make an arrest, or obtain a warrant to conduct a search. Whilst the SFO does not, strictly, have the power to direct the operations of the police under this provision, the police will, in practice, acquiesce with the SFO’s requests, save in exceptional circumstances.
Since 2016, a number of parties (mainly corporate entities) under SFO investigation have sought to challenge the agency’s powers through civil and public law avenues. These include most notably, Soma Oil and Gas, and Unaoil. In respect of both, the court found that the SFO’s powers may be exercised with wide discretion, and successful challenges to such discretion would only be possible in ‘highly exceptional’ circumstances.
There are 45 regional police forces in the UK. These bodies each have their own units dealing with particular types of crime. City of London Police, for example, have specialist fraud capability (including for example, the UK’s primary anti-fraud reporting system, 'Action Fraud’) whilst the Metropolitan Police Service has an expert ‘Art & Antiques’ unit. On particularly serious or complex matters, forces may also work together, informally, formally, or by establishing teams which draw personnel and resources from a range of different regions.
Despite each force having its own specialist capabilities, their primary role is the investigation and prevention of general crime. Fraud and other forms of financial crime are generally not an operational priority for the regional police forces, albeit that investigating and preventing it does fall within their remit.
The police have a wide and extensive range of investigatory powers, the most relevant of which are contained in the Police and Criminal Evidence Act 1984, and its associated ‘Codes’ (‘PACE’ and the ‘PACE Codes’).
Arguably the most important power conferred on the police by PACE is that contained in part III of the legislation, the power of arrest. Section 24 PACE provides that a constable may exercise the power of arrest without a warrant in the following circumstances:
However, the power of arrest conferred by section 24 PACE can only be exercised where one of a number of specified “reasons” are satisfied. Those reasons are:
Section 17 PACE also grants the police powers to enter premises to effect an arrest in certain, limited, prescribed circumstances.
In addition to the power of arrest conferred under section 24 PACE, section 1 PACE gives a constable the right, in a place other than that which amounts to private property, to search a person, vehicle, or anything which is located in or on a vehicle, if the constable has ‘reasonable grounds for suspecting’ that doing so would cause the discovery of ‘stolen or prohibited articles’.
The final key power of the police is to enter a property, search it, and seize relevant material. To exercise this power, a constable must, pursuant to section 8 PACE, make an application to a Justice of the Peace that they are satisfied that:
However, the police may also exercise their powers of search, without a warrant, over any premises ‘occupied or controlled by a person who is under arrest for an indictable offence’ if a constable believes that there is on the premises material (save for that subject to the protection of legal professional privilege) relating to the offence for which the individual has been arrested, or to some other indictable offence connected or similar to that offence. When this power is exercised, the police may seize anything they find.
Whenever a constable is on premises lawfully, they may seize anything if they have grounds for reasonably believing that it has been obtained in consequence of the commission of an offence; or that it constitutes evidence in relation to an offence which is being investigated (or any other offence), and that its seizure is necessary to prevent it being concealed, lost, damaged, altered or destroyed. Where any material is seized, the person from whom it is seized has a right to a record of what has been seized. Similarly, the person from whom the material is seized has a right to request copies of, or access to, seized material. However, pursuant to section 21(8) PACE, this right is qualified, in that there is no duty for the police to grant access to, or provide copies of, any seized material, if to do so would prejudice any ongoing investigations or ongoing or subsequent criminal proceedings.
Following arrest, the police are likely to want to interview a suspect. Such an interview should be conducted under caution. The caution will be given in the following terms: ‘You do not have to say anything. But it may harm your defence if you do not mention when questioned something which you later rely on in court’.
The National Crime Agency (NCA), created by the Crime and Courts Act 2013 (CCA), is, like the SFO, a non-ministerial government department. Its focus is on serious, organised, and financial crime. In that respect, its remit has some overlap with the SFO, and indeed, the current Conservative government was considering the NCA subsuming the SFO (albeit that those plans have now been abandoned). The NCA’s role is to prevent and reduce crime, and to gather criminal intelligence. The NCA is sub-divided into a number of ‘commands’ and special offices, the most relevant of which are the Economic Crime Command (dealing with fraud, intellectual property, identity crime, corruption, and counterfeiting); the National Cyber Crime Unit; the Proceeds of Crime Centre; and the UK Financial Intelligence Unit.
Under section 10 CCA, the director general of the NCA may designate that any officer has the powers of a police constable; an officer of Her Majesty’s Revenue and Customs; and an immigration officer. As such, an NCA officer may possess a wide range of powers that may include: gaining entry to property; searching property and premises; seizing materials; detaining and arresting suspects; executing warrants; and conducting interviews. The NCA gains these powers through such delegation, it does not otherwise possess them in its own right. To this end, the NCA also collaborates extensively with the SFO, police, Her Majesty’s Revenue and Customs, and other UK, and international, law enforcement and regulatory bodies.
One tool the NCA (as well as the SFO, Her Majesty’s Revenue and Customs, the Financial Conduct Authority, and police forces) do nevertheless possess is that of the Unexplained Wealth Order (UWO) introduced in the Criminal Finances Act 2017 (CFA). A UWO is an order requiring a person to explain their interest in specified property, and how it was obtained. The application for a UWO is made to the High Court (a civil, rather than a criminal court) and can only be made if the court is satisfied that:
In the event that the respondent fails to comply with the UWO, or the response does not provide a satisfactory explanation, the property in question can be seized. UWOs can be accompanied by interim freezing orders, which prevent the property in question from being disposed of, whilst the respondent formulates (or fails to, as the case may be) a reply to the UWO.
Her Majesty’s Revenue and Customs (HMRC) has powers to investigate and take civil and criminal enforcement action against those whose conduct seeks to cheat the UK public revenue. HMRC will generally employ criminal powers, and seek criminal law remedies, where it suspects the cheating of the revenue is connected to wider criminality such as organised crime, large-scale fraud, business crime, or cases involving forgery.
Certain HMRC staff have powers under PACE, similar to those of police officers as described above, albeit subject to some modifications to meet the requirements of their particular law enforcement role. Those powers, broadly speaking, include powers of arrest, search and seizure.
The Financial Conduct Authority (FCA) is the body which regulates the UK’s financial services industry. Much like other bodies referred to in this note, the FCA pursuant to part XI and section 284 of the Financial Services and Markets Act 2000 (FSMA) has broad powers allowing it to require those under its supervision (or whose conduct falls within its regulatory perimeter) to provide it with information, and to conduct investigation into those individuals and entities (if necessary in concert with, or with the assistance of, other relevant experts or law enforcement entities).
Generally speaking, prior to the imposition of a sanction, the FCA will issue a ‘warning notice’. This will let the subject of the proposed enforcement action know what steps the FCA proposes to take, why, and will invite the subject to make representations prior to the actual imposition of the sanction. Should the FCA take the decision to publish a warning notice, and / or proceed with imposing a sanction on the subject, it will publish a ‘decision notice’, stating what action will be taken and why. This will be followed, either after the last appeal to the Upper Tribunal is completed, or if no such appeal is made, by a ‘final notice’. The FCA may impose a wide range of sanctions including public censure; financial penalties; and / or the removal or variation of a firm or individual’s authorisation to conduct regulated activity. For less serious, accidental, or rapidly-remediated breaches, the FCA may also issue warnings in private.
In addition to the above, certain breaches of the FCA’s regulations may constitute criminal conduct, which the FCA has the power to investigate and prosecute, pursuant to FSMA. These offences include carrying on regulated activity without authorisation (or unless an exemption applies); inviting or inducing participation in investment activity in breach of financial promotions rules; misleading the FCA; and market abuse.