Corporate Crime and Investigations: The greatest enforcement threats of 2023 and the emerging risks of 2024

Ruby Hamid:

Hello and welcome to Ashurst Legal Outlook and to this podcast in the Corporate Crime and Investigations series. My name is Ruby Hamid. I co-lead Ashurst's global corporate crime team and I'm based in London. And I'm excited today to be bringing you a conversation about investigations, trends and enforcement outlook across the globe. Today, I'm joined by a fantastic panel of former prosecutors and regulators who are going to be talking to you about the trends in their jurisdictions and bringing those particular insights that only former prosecutors can.

Our panel comprises KS Shin, who has had 27 years of experience as a public prosecutor and is now the office managing partner of Ashurst's career joint venture firm in Seoul. We are honored to have his perspectives on enforcement risk in one of the world's most powerful economic states. Marianne Bloos is the former chief prosecutor of the Netherlands, and she's talking to us today about priorities and trends in one of the most forward-looking and active enforcement jurisdictions in the world. Marianne is now a partner at the Dutch firm Houthoff and is a good friend of Ashurst. Dr. Eleanor Robinson joined Ashurst this year from the Financial Conduct Authority where she spent 13 years as a financial regulator and investigator. And Tristan Bramble also joined us this year in our risk advisory practice as a consultant. He's a US qualified lawyer and a former US government attorney, including working for a number of years at the US Department of Justice.

So let's get started. Marianne, I'm going to start with you and ask you about what you think the greatest enforcement threats facing corporates this year in the Netherlands have been. And if you wouldn't mind, if you could tell us whether there's anything specific and different about financial institutions and the threats they're facing. I think that would be really interesting.

Marianne Bloos:

Thank you, Ruby. Well, one of the current great enforcement threats for corporates in the Netherlands, and I think in the EU in general, is the enforcement of the violations of sanctions and the focus on the violations of the European sanctions against Russia. In the Netherlands, the Fiscal Intelligence Investigations Service is the agency charged with the investigation of possible sanctioned violations. And currently, the field is set to have 40 to 70 ongoing investigations into the possible violations of sanctions against Russia. And we currently have clients facing prosecution. The field seems to be learning on the job. The current investigation focused on smaller infringements. The focus on the financial institution is still going on, and it's about violations of AML legislation and KYC requirements. And we've seen the prosecution of the big banks, first ING and ABN Amro received fines, but now they're investigating Rabobank. And for ABN Amro, the investigation regarding the board of directors is still ongoing. So it takes a lot, a lot of time. It's clear that the fields uses expertise gains in an investigation and uses this expertise to prosecute similar cases.

Ruby Hamid:

That's interesting, Marianne, I'm sure others will have something to say about that focus on specific sectors by enforcement authorities. Are financial institutions focusing on any particular enforcement risks?

Marianne Bloos:

Well, the greatest risk for financial institutions is the enforcement of violations of AML legislations and KYC requirements. That's still the focus for years, and I think it will stay there again for some years. So we've seen the big banks, ING and ABN Amro, and now it's Rabobank. But in my opinion, focusing on just one sector is a bit lazy, but they use the expertise gained in an investigation and use it again.

Ruby Hamid:

That's an interesting theme. Tristan, do you want to tell us a bit about the US, that theme of pushing the same enforcement risk in one particular sector? I think is something we've seen in the US.

Tristan Bramble:

Yes, indeed. We know that in the US the leading sanction enforcers are the Office of Foreign Assets Control, OFAC, and the DOJ Task Force KleptoCapture and OFAC civil enforcement numbers are on the rise, been 16 civil enforcement actions, penalties totaling 43 million last year. And of course the DOJ Task Force KleptoCapture that was formed in March last year is focusing on seizing Russian oligarch assets and they've had a number of high value successes.

However, I'd like to highlight one of the key tenets of the KleptoCapture campaign, which is perhaps different to Marianne's experience in Europe with respect to collaboration. Much is said about US authorities focus and cooperation. And just last week, Ellen and I noted the release of a blog post highlighting the one-year anniversary of the OFAC-OFSI Enhanced Partnership commitment. As they say, financial sanctions work best when implemented multilaterally. So DOJ is increasing resources, adding six prosecutors to target economic sanctions related to financial misconduct. And this investment shows the department is willing to put their money where their mouth is. But I would highlight that it's not all straightforward. DOJ is currently in battle with the owner of a super yacht, foreshadowing the tough sanctions enforcement trend that will continue into next year.

Ruby Hamid:

That's very interesting. Tell us then about financial institutions. Obviously, plenty of focus on them when it comes to sanctions, but any other key risks?

Tristan Bramble:

Yes, Ruby, specifically for financial institutions, there are at least three themes that come to mind. First is breaking news headlines related to financial fraud and emerging interaction with cryptocurrencies. The DOJ attorney General Merrick Garland has stated that just in the past month, the Justice Department has successfully prosecuted CEOs of two of the world's largest cryptocurrency exchanges in two separate criminal cases. It was the 21st of November that Merrick Garland announced a Binance prosecution. And prior to that, on the 2nd of November, we heard the breaking news conviction of the former king of crypto, Samuel Bankman-Fried. And that was announced by the attorney, US attorney for the Southern District of New York, Damien Williams.

We'll also say for financial institutions, AML and AB&C continue to be the bedrock anti-corruption enforcement areas, their important tools for prosecutors to reach corruption outside the US. But I won't belabor these points because there's certainly a well established enforcement record there. But finally, I'd highlight for banks the crackdown on off channel communications and ephemeral messaging applications, your WhatsApp, Signal applications, there's been 1.8 billion in fines against large firms and Wall Street banks by the SEC and CFTC. And the regulatory issue is that communication on personal devices are not available for subpoena by US regulators and banks should have all professional communications available to regulators for review and investigation.

Ruby Hamid:

That's really interesting. Tell us KS, what's happening in Asia? Where's the focus of enforcement against corporates in Korea?

KS Shin:

The unique thing in Korea is that criminal investigations focus more on individuals. Prosecutors have successfully indicted very senior executives of large companies. As you may know, the chairman was hands-on, was indicted for governance issues. In many cases, the route to investigation is from governance. Companies may make [inaudible 00:08:32] deals within the company group, and in that case, prosecutors sometimes may find that a particular deal shows breach of trust, fiduciary duty of the chairman, and the benefit belongs to the chairman himself, which may begin a criminal investigation.

There are quite a few, well-known senior executives of major domestic corporations who have been indicted for bribery and corruption charges and even punished with imprisonment.

Relevant factors are big corporations are mostly owner managed, so the people at the top are directly receiving information and making decisions, and the prosecutors vigorously focus on those who are involved in the decision making process. These are not a new concept in Korea. Especially in 2022, a new Health and Safety Management Act was implemented. The unique feature of this act is that the top decision makers of company are now criminally responsible for accidents resulting in major injuries or casualties. The possibility that senior management, while an individual owner may be punished with imprisonment, has drawn the attention of many large corporations, especially in the construction industry or those with large factories where casualties or major physical injuries is always a risk.

Ruby Hamid:

KS that focus on decision-making of individuals in senior positions has a real resonance with what's happening in the UK in relation to the failure to prevent fraud offense. Eleanor, tell us what's been the focus for corporates this year and tell us if you wouldn't mind, from your experience in particular, what's been the focus of attention for financial institutions?

Eleanor Robinson:

Thanks, Ruby. So as you say, the biggest news here is the failure to prevent offense and the new Economic Crime and Transparency Act, which will be coming into force early next year, which we've already talked about in another podcast. This is going to bring about a huge change in corporate liability and firms are going to be needing to focus on getting their controls in place. The big news with the Serious Fraud Office is that it's got a new leader, Nick Ephgrav, who's a former police head. This is the first time that the SFO has ever had a director that's not a lawyer. So I think we can expect some changes there in terms of the intensity and the rigor of investigations. So the SFO are going to have a busy year next year.

In terms of other matters that have been huge for corporates, of course it's been sanctions. It's been a time of unprecedented geopolitical change. So sanctions has been a big focus and the Office of Financial Sanctions Implementation, or OFSI, has new powers where there's now a strict liability test for civil enforcement. So it now has the power to impose a fine without needing to prove that the person or the entity actually had knowledge or reasonable cause to suspect they were in breach. And OFSI actually showed its teeth recently by using its enforcement powers for the first time, taking action to name and shame a fintech firm for allowing a 250 pound transaction from a cash point in breach of sanctions. So although this was a small amount, it had a big message in terms of to corporates generally. And also, the financial institutions authorized by the Financial Conduct Authority have been given a strong mandate to make sure that they have firm systems and controls in place to ensure that they are compliant with sanctions legislation.

Ruby Hamid:

Thanks, Eleanor. Tristan, the US authorities have always been focused on self-reporting. I'm sure our audience will be interested in knowing what's likely to happen to that trend in the upcoming year. Can you tell us?

Tristan Bramble:

So the US has always encouraged both compliance programs, which include internal investigation teams and early self-reporting. Back in 2015, the DOJ hired a compliance consultant by the name of Hui Chen to assist prosecutors in evaluating compliance programs. And these compliance programs, as you know, will often include an internal investigation team. And I had the privilege of overlapping service with Hui Chen during that time. But even with the internal teams, DOJ expects little delay with respect to reporting obligations. DOJ wants early access to the best evidence, early reporting is best. And Ruby, as you say, the news is that authorities have said within six months or sooner, they expect good reporting. And there's a new M&A Safe Harbor provision that will give the presumption of a declination with that early reporting. The DOJ has emphasized there are significant benefits in both terms of penalty reductions and the form of resolution. And the DOJ has a voluntary self-disclosure policy with specific benefits for companies that voluntarily self-disclose misconduct, fully cooperate with investigations and remediate misconduct.

Ruby Hamid:

Thanks, Tristan. I'm going to ask us to look ahead now to 2024. And I'm interested Marianne, in you starting us off with what are going to be the big trends in 2024 in the Netherlands and also in Europe.

Marianne Bloos:

I think that one of the greatest biggest enforcement risks for corporates going into 2024 is an environmental crime. There is a feasible trend of mass criminal complaints filed against companies for of their emissions on people and the environment, and that criminal law knows the discretionary principle, which means that the public prosecutor can choose which cases to prosecute. That the mass criminal complaints have an effect on this discretionary principle because public prosecutors feel the urge to follow up on these cases. And the current trend is also that there is a focus towards prosecution of both companies and individuals. So it well be never a focus on just the individual, but a focus on prosecution of both companies and individuals. And well, we see that happening in investigations against big companies like Tata Steel and [inaudible 00:15:40], both companies and the directors are under investigation.

Ruby Hamid:

KS, is environmental crime a focus in Korea or will there be a different theme next year for you?

KS Shin:

In Korea, I don't think environmental crime is a focus for corporations. Usually there is a greater focus on threats according from domestic issues, many political and social issues rather than environmental or international sanctions. Usually, the corruption, huge corruption cases lead to investigations against major related companies and sometimes several, multiple CEOs also got into investigation and sometimes indicted. That's how corruption cases become an enforcement threat for corporations in Korea. And another distinction is that cartel offenses have always been an increase in enforcement these days. Administrative fines were imposed on taxi service provider Kakao, which is a major IT company in Korea, this year. One more new trend is focused on health and safety issues I just mentioned, especially targets of large construction companies and big factories which may be susceptible to serious accidents with casualties or major physical injuries.

Ruby Hamid:

Thank you, KS. Tristan, tell us what will we see coming out of the US in the next 12 months?

Tristan Bramble:

Yes, indeed. Well, of course more sanctions and enforcement cases. And I would echo some of the comments of my colleague, Alexander Demchenko, earlier in the sanctions investigations episode of the series. We know that sanctions is a foreign policy tool and therefore the geopolitical concerns with respect to Russia, China and Israel will come into play. Second, we're going to of course, see the US move more on fraud and crypto cases as the message has been sent to the virtual currency industry. And finally, I want to highlight that the DOJ criminal division leadership often signal their priorities to the corporate community through prepared remarks at ABA and IBA events. And the most recent one was here in London actually at the American Bar Association, ABA 10th White Collar Crime Institute. And the Acting AAG spent the last four paragraphs of her white collar speech speaking to the future of the new department-wide M&A, mergers and acquisitions, Safe Harbor provision that I described earlier. So I think this is a very strong signal of what to expect.

Ruby Hamid:

Thanks, Tristan. Great crystal ball gazing. Eleanor, can you finish up by telling us what's going to be happening here in the UK? You've told us about the failure to prevent fraud. Big news here for the investigations community, but what else?

Eleanor Robinson:

That's right, Ruby. And I think we are going to see more sanctions actions as well potentially from OFSI. But I think one of the other hot topics I'd like to mention has been in the world of non-financial misconduct. So recently the Financial Conduct Authority and the Prudential Regulatory Authority published a new consultation with proposals on diversity and inclusion. But along with that, propose new roles for non-financial misconduct, making it explicit that behaviors such as bullying, harassment and sexual misconduct are behaviors that the regulator can take action against and that firms need to consider when they're looking at the fitness and propriety of their staff. And the FCA has already shown an appetite to bring cases in this area with recent case laws.

So I think that this is something that regulators are going to be looking at more and more in next year. And I suspect this will filter into corporates more generally because as the new rules come in, I think there's going to be a much greater awareness of what accepted conduct is in the office. I think there's going to be a much greater focus on speak up culture and whistleblowing and also about the mental health protections in place for staff. So I think there's going to be a real sea change there in the culture of financial institutions that's going to filter into the corporate world.

Ruby Hamid:

Thank you, Eleanor. That's a fantastic place to finish. Well, that's all we've got time for. Thank you very much to KS Shin, Marianne Bloos, Eleanor Robinson and Tristan Bramble for joining me in this episode. If any of our listeners would like to get in touch, then you'll find our details on the Ashurst website. And if you'd like to learn more, then look out for the next podcast in this series. If you don't want to miss future episodes, do subscribe now on your favorite podcast platform looking for Ashurst Legal Outlook. And to keep the conversation going, please leave us a review or a rating and let us know if there are any other topics on investigations you'd like us to cover. Until then, thank you for listening.