White-Collar Crime 2021

Last Updated October 21, 2021

UK

Law and Practice

Authors



Stokoe Partnership Solicitors is a London and Manchester-based multidisciplinary practice specialising in criminal defence and civil litigation. The firm currently employs ten lawyers, including five partners. The firm handles a broad range of serious and complex criminal defence cases, including white-collar and financial crime, large-scale serious and organised crime, proceeds of crime-related work and extradition. At any one time, the firm is instructed in some of the most high-profile and important current cases. In addition to its criminal practice, Stokoe Partnership Solicitors has a specialist civil litigation team with extensive experience spanning a range of practices, including complex arbitrations and commercial litigation, civil fraud, insolvency, civil forfeiture and recovery and tax fraud. The firm has close links with leading sets of barristers, and trusted partners in areas such as cyber-intelligence and media relations and is able to respond immediately to situations requiring urgent responses.

In terms of criminal offences, unlike in some other jurisdictions, there is no distinction in the law of England and Wales between felonies, misdemeanours and other crimes. There are distinctions between summary only offences (which can only be tried in Magistrates’ Courts), indictable only offences (which can be tried only by a judge and jury in the Crown Court) and either way offences (which can be tried in either).

These distinctions are mostly relevant only to the allocation of prosecutions to an appropriate tribunal and not to the fundamental nature of the offence – albeit more serious crimes, carrying higher maximum penalties, are generally tried on indictment. The distinction can, however, have significant implications. For example, it is usually not possible to be found guilty of attempting to commit a summary only offence.

Generally, an offence will require the commission of a prohibited act and the simultaneous presence of the necessary mental element. The specific elements of each offence will be determined by the statute (or by established precedent for a common law offence). The position in relation to the criminal liability of corporate entities is outlined above.

Although many offences require a mental element (eg, all offences of dishonesty), numerous offences are “strict liability”, which require no mental element. For example, this applies to many road traffic offences. Another example is under Section 7 of the Bribery Act, which creates an offence of failure of a commercial organisation to prevent bribery. If a person associated with the corporate entity pays a bribe which benefits it, then that entity is guilty of an offence irrespective of its knowledge of the bribe, unless it can prove that it had adequate procedures in place to prevent bribes by its employees or agents, or those associated with it.

A person may be held liable for attempting to commit an offence, in the event that the attempted offence is not completed. The test is whether the act is more than merely preparatory to the commission of an offence. Indeed, the law makes it clear that a person can be guilty of an attempt even where committing the offence itself would have been impossible.

There is no general statute of limitations in relation to criminal liability in this jurisdiction. However, this is subject to two important caveats. First, a Magistrates’ Court cannot hear a summary offence case unless the information has been laid (ie, proceedings initiated by the prosecutor) within six months of the commission of the offence. This means that for summary only offences ( ie, those offences which Parliament has deemed sufficiently minor that they can be tried only in a Magistrates’ Court and for which there is no right to elect trial by jury), there is an automatic limitation period of six months.

Second, although there is no limitation period for offences that can either only be tried in the Crown Court, or in the Crown Court if the defendant chooses (or if the Magistrates consider that it is too serious for them to deal with), the Court retains the power under common law to stay a prosecution ( ie, stop it) if the delay gives rise to an abuse of process. This would only occur where the Court considered that the age/delay would make it either unfair to try the defendant at all, or where the delay was such that a fair trial would not be possible.

However, stays for delay are exceptional and the Courts regularly hear allegations that are decades old. Even where a delay is wholly unjustifiable and the fault of the complainant/prosecutor, a stay for delay will not be granted in the absence of serious prejudice to the defendant that could not be cured within the trial process.

In respect of extraterritorial reach, England and Wales does not adopt the aggressive approach to jurisdiction of some other jurisdictions (particularly the USA). The general rule remains that a crime is deemed to have been committed within the UK’s jurisdiction provided a “substantial part of the offence” was committed there, even if the main or final constituent part took place abroad.

However, the position may be different in respect of certain offences, particularly white-collar offences. A prime example is money laundering. Under the Proceeds of Crime Act 2002 (POCA), money laundering is an act which constitutes an offence under the legislation; or an attempt, conspiracy or incitement to commit any of those offences; or aiding, abetting, counselling or procuring their commission. The act constituting an offence need not have been committed in the UK, nor must it be a criminal offence in the jurisdiction in which it took place, provided that it would constitute an offence if done in the UK.

This concept has subsequently been confirmed in case law: a case where the proceeds of frauds against victims in England and Wales were sent to Spain. The defendants were charged with laundering the proceeds of the fraud, and the monies were already in Spain by the time that the offence was committed. The Court of Appeal held that Parliament intended POCA to have an extraterritorial effect. The effect of this decision is that the prosecution need not concern itself with the location of the commission of the specified money laundering offence so long as it would constitute an offence if done in the UK.

That said, there is a territorial defence where the allegedly criminal conduct takes place outside the UK and in a country where such conduct is lawful. If a defendant knows, or believes on reasonable grounds, that the relevant criminal conduct occurred outside the UK and where the conduct was lawful under local law, they may have a defence.

Another example of white-collar offences for which this jurisdiction casts a wider net than the general principle would ordinarily permit, are those which fall under the Bribery Act 2010. The Act confers a wide scope if the organisation is incorporated or formed in the UK, or if any part of the organisation’s business is carried out in the UK (irrespective of where in the world the acts or omissions forming the offence were committed).

In England and Wales, criminal liability can apply to individuals and legal entities. A corporation has its own legal personality and can be criminally liable in its own right, entirely separate from individuals. It is presumed that a company has criminal liability unless legislation specifically indicates to the contrary.

Corporate Mens Rea

The question of whether a corporate entity is subject to corporate liability will be determined by whether it is capable of being attributed with the necessary “state of mind” required for guilt (mens rea). Two potential routes exist to establishing corporate criminal liability.

Vicarious liability

As a rule of thumb, where vicarious liability for an offence can apply, a company can be liable for the acts of its servants or agents in exactly the same way as for an individual, but only where this is set out in the relevant law governing that offence. This often applies where the offence is one of strict liability (offences which do not require proof of intention, recklessness, or negligence). Usually, any corporate prosecution will be linked to the separate prosecution of a controlling officer and/or other employees.

The identification principle

In assessing the state of mind of a corporate entity to determine whether it has the requisite state of mind to be guilty of an offence, a prosecutor will need to identify and establish a directing mind and will of the company, and then prove corporate criminal liability through their conduct and state of mind. As a matter of pragmatism, a corporate entity cannot be charged with any offence that is not capable of being punishable with a fine since a company or statutory corporation cannot be imprisoned.

A corporate entity can also properly be indicted as a party to a criminal conspiracy, but only if there are at least two identified conspirators who are human beings (one of whom who must be the “directing mind and will” of the company and acting within the scope of their authority.) Individuals and companies may be held liable for the same offence and it is not uncommon for both the corporate and individuals to be charged simultaneously.

When to Pursue a Legal Entity or an Individual, or Both

The policy determining when to pursue a legal entity or an individual, or both, is set out in guidelines agreed by the Director of Public Prosecutions (DPP) and the Director of the Serious Fraud Office (SFO). These state that effective prosecution of companies will have a deterrent effect, protect the public and support ethical business practices. However, prosecution of a company should not be seen as a substitute for the prosecution of criminally culpable individuals such as directors, officers, employees or shareholders. As a general rule it is considered best practice to prosecute companies and individuals at the same time but it is recognised this may not always be possible, especially where delay could result in unfairness to one or more of the parties.

In English law, it does not follow that personal liability for managers and directors will arise just because the legal entity is deemed liable for an offence. Although vicarious liability can flow from employees to the corporate entity, it does not automatically follow that managers and directors will be similarly vicariously liable. In assessing the criminal liability of an individual, the criminal law looks to the individual’s actions and intent. As noted above, the managers/directors will often be the directing minds and will of the corporate. Accordingly, it is their intent which forms the basis of corporate liability.

Successor Liability

In the context of a merger or acquisition, a successor entity may be held liable for offences committed by the target entity that occurred prior to the merger or acquisition. Sometimes, an acquisition may involve the dissolution of a corporate entity resulting in no legal entity being left to bear liability. But in most cases, the corporate entity will continue to exist, either as a subsidiary or as part of the successor entity. In such circumstances, the corporate offender will still bear liability and its owner/successor will therefore be liable for the fine/costs flowing from that corporate liability in the same way that it would be liable for any other liability of the entity.

Notably, where a company has been taken over, and the new entity or parent company has identified the criminality and brought it to the attention of the relevant authorities (and not profited from the wrongdoing), that will be highly relevant to whether the authorities are willing to agree to a deferred prosecution agreement (DPA), rather than prosecuting the corporate.

It is important to distinguish between seeking compensation within the criminal proceedings and by way of separate civil action. In any case where a defendant is convicted of an offence which involves personal injury, loss or damage to property, the sentencing court may make a compensation order. The order is “to pay compensation for any personal injury, loss or damage resulting from that offence or any other offence which is taken into consideration by the court in determining sentence.”

Since 2012, in any case in which the court has the power to make such an order, it is obliged to consider doing so. In determining the amount of compensation, the order “shall be of such amount as the court considers appropriate, having regard to any evidence and to any representations that are made by or on behalf of the accused or the prosecutor.” In conducting that assessment, the court must have regard to the defendant’s means. Accordingly, unlike in relation to civil liability whereby a victim can obtain an order for the full amount of a loss irrespective of the defendant’s ability to pay, a compensation order will not necessarily cover the full amount lost, especially if the defendant has limited assets. Although the court can make an order for longer, it should generally not be looking at payment over a period of more than two or three years, and so the court should generally assess what is a “realistic” amount that could be paid over that time period.

Notably, a compensation order is limited to the amount lost and not already recovered. This can include the loss of interest on any sums stolen. It should also be noted that a compensation order can only be made in respect of loss from an offence for which a defendant was convicted and/or an offence that was taken into consideration.

In terms of the ability to secure compensation via civil proceedings, the following applies.

Where a victim has suffered financial loss as a result of white-collar crime, there will almost inevitably be a civil cause of action against the offender (eg, via the tort of deceit or fraud, or by way of a restitutionary claim).

Such a claim can be brought irrespective of whether the offender has been convicted (or even charged) with the wrongdoing. However, in the absence of a conviction, the victim will have to prove the wrongdoing to the civil standard. Following conviction, the fact of the conviction will be admissible and will automatically satisfy the civil burden of proving the misconduct, which means that the claimant victim would need to prove only the consequent losses. It is not unusual for criminal and civil proceedings to run in parallel. For the claimant, it might be advantageous to wait until the conclusion of criminal proceedings before pursuing civil claims against a corporate or individual wrongdoer. But because criminal proceedings can take a substantial length of time, claimants often issue civil proceedings before then.

All criminal courts have the power to order compensation following a criminal conviction.

In relation to civil claims, if the claim is under GBP100,000 it will be brought in the County Court; for more than GBP100,000, it will usually be brought in the High Court. Class actions or equivalent procedural means are admitted in the UK jurisdictions for white-collar matters although they are far less common in this jurisdiction than they are in the USA.

In terms of recent developments in white-collar crime, the following are significant.

Assessing Dishonesty

The test to be applied by courts in assessing dishonesty has been clarified by the Court of Appeal in the case of Barton and Booth [2020] EWCA Crim 575. The Court essentially affirmed that the test in criminal law is now the same as that in civil fraud, namely, simply to ask whether the conduct was honest or dishonest when applying the objective standards of ordinary decent people, applying the facts as they were known by the defendant at the time. In doing so, the Court of Appeal abandoned the old test of dishonesty which had applied in criminal cases since 1982. The previous test was two limbed: whether (i) the defendant’s conduct was objectively dishonest by the standards of reasonable and honest people; and if so, (ii) did the defendant realise that their conduct was dishonest by the standards of those same people?

This is a significant change for white-collar crime, although the law had been moving in that direction for some time. It is particularly relevant for those defendants whose defence is that their conduct was in line with standard practice in their sector or workplace.

Compulsory Production Powers of the SFO

In February 2021, in the case of SFO v KBR, the Supreme Court overruled the decision of the High Court that that the SFO’s compulsory production powers under Section 2(3) of the Criminal Justice Act 1987 extended to foreign companies in respect of documents held outside the jurisdiction when there is a sufficient connection between the company and the jurisdiction. The question the Court had to consider was therefore whether Parliament intended to confer on the SFO the power to compel a foreign company to produce documents held abroad on pain of a criminal penalty in this jurisdiction. The Court unanimously concluded that it had not.

The Identification Principle for Corporate Criminal Liability

The Law Commission is currently examining the identification principle for corporate criminal liability. It has been argued that the complex management structures of large companies effectively insulate the directing mind and will from allegations of knowledge or complicity in offending. Whatever the outcome of the Law Commission review, any change will require legislation and is unlikely to come onto the statute book for several years.

Enforcement Authorities

The police investigate a broad range of economic crime and have specialist financial crime investigators.

The Crown Prosecution Service (CPS) prosecutes in police and HM Revenue and Customs cases. It has an economic crimes division specialising in fraud and white-collar offences.

The Serious Fraud Office (SFO) exists to investigate and prosecute serious fraud. It is also the main prosecution agency for offences of serious bribery and corruption.

The Financial Conduct Authority (FCA) is the primary regulator relating to financial markets and has statutory functions as a prosecutor for offences relating to these markets.

In recent years, the National Crime Agency (NCA) has adopted a more prominent role in both the strategic response to financial crime, as well as operational investigations and enforcement.

Civil or Administrative Enforcement against White-Collar Offences

A system of civil and regulatory enforcement exists which deals with a wide range of white-collar criminal conduct either alongside, or separate from, any criminal prosecution. Such enforcement is generally conducted by regulators such as the FCA (see above), the Prudential Regulation Authority (PRA), or professional regulators (for example, the Financial Reporting Council is the regulator for accountancy professionals and often takes regulatory action against accountants for conduct that also amounts to criminal conduct).

In addition, white-collar criminal conduct often involves misconduct by company directors, and so it is common for the Official Solicitor and/or Insolvency Service to take action against companies and the company directors accused of wrongdoing to dissolve/disqualify them. This can either be in parallel to criminal proceedings or free-standing.

There are some agencies which have both criminal and regulatory functions (eg, the FCA), but this does not necessarily create a conflict since criminal and regulatory proceedings can, and regularly do, run in parallel. Of course, the legal tests to be applied in these different jurisdictions may be different. For example, the criminal standard of proof is whether the court is satisfied so it is sure (previously “beyond reasonable doubt”, although the meaning is the same), whereas regulatory proceedings are almost always on the balance of probabilities. 

Regional police forces also usually have their own specialist fraud divisions.

There are not currently separate criminal judges/courts for white-collar crime, and fraud cases can be tried before any criminal court/judge. That said, the majority of serious white-collar criminal cases in England & Wales are tried at Southwark Crown Court, which is effectively the designated fraud court for London, at which the judges are all highly experienced at dealing with white-collar crime. For the most serious, complex and/or high profile cases, High Court judges may be brought in to try the cases.

There are plans to build a new City of London Law Courts, which has been described as the flagship for Her Majesty’s Courts and Tribunal Service and the Ministry of Justice. It will contain Crown, Magistrates, County and Civil Courts all in a single building, together with a new HQ for the City of London Police on the same site. The development has been described as providing “significantly improved facilities and will be equipped to deliver justice in the modern age, with a focus on economic crime and fraud.”

Investigations are usually instigated when an appropriate agency becomes aware of an alleged offence, either by way of a report from a victim, a self-report, or a report/tip-off (eg, from a whistle-blower). Different agencies have their own policies as to whether to initiate an investigation. For example, the SFO’s policies make clear that they are selective in the cases they chose to investigate. Their policy statement makes clear that: “... the SFO can only take on a very small number of cases where:

  • The scale of loss is very large
  • The impact on the UK economy could be significant
  • The UK’s reputation as a safe place to do business could be affected
  • The level of factual or legal complexity is high
  • There is a strong public interest in pursuing the case”

However, even if the SFO decide not to take a case on, they will often refer it to another agency (eg, the police/Action Fraud)

The most commonly used investigative powers for the purposes of investigating white-collar crime are set out below.

Production Orders

Production orders, under either the Police and Criminal Evidence Act or POCA, are the most frequently used powers for obtaining documents in relation to white-collar crime. These orders involve the investigator applying to a court for an order requiring production of specified material in the possession of the recipient. Under the test that is applied, there must be reasonable grounds to suspect that an indictable offence has been committed and that the documents to which the order relates are likely to be relevant evidence and of substantial value to an investigation into that offence.

Disclosure Notices

A disclosure notice is defined by the Serious Organised Crime and Police Act 2005 as a notice in writing requiring the person to whom it is given to do all or any of the following:

  • answer questions with respect to any matter relevant to the investigation;
  • provide information with respect to any such matter as is specified in the notice; and
  • produce such documents, or documents of such descriptions, relevant to the investigation as are specified in the notice.

The criteria for issuing a disclosure notice are as follows:

  • there are reasonable grounds for suspecting that a person has committed a qualifying offence;
  • that the person subject to the notice has information which relates to a matter relevant to the investigation of the offence; and
  • there are reasonable grounds for believing that information which may be provided by the person who is the subject of the notice is likely to be of substantial value (whether or not by itself) to the investigation.

Not all offences qualify for disclosure notices, but the list of qualifying offences does include money laundering, tax frauds and false accounting. The issuing of a disclosure notice must be authorised by the DPP, or by an authorised prosecutor to whom authority has been delegated. There is also a similar power under Proceeds of Crime legislation where the investigation relates to the confiscation or civil recovery investigation.

Search and Seizure

Application can be made to a Magistrates’ Court for a warrant (depending upon the type of material sought, to enter premises and seize relevant documents. Although the specific applicable test will depend on the provision applied, the investigator must generally show that there are reasonable grounds for believing that an indictable offence has been committed and there is material on the premises that it is likely to provide relevant evidence of substantial value (whether or not by itself) to the investigation. A similar power exists under Proceeds of Crime legislation where the investigation relates to the confiscation or civil recovery investigation.

Unexplained Wealth Orders

Unexplained Wealth Orders (UWO) were introduced at the beginning of 2018, creating a number of powers whereby a court can order a person to set out the nature and extent of their interest in property, and detail how it was obtained. They apply in circumstances where the court is satisfied that:

  • the respondent is either a politically exposed person, or someone connected to a serious crime;
  • the respondent has an interest in property worth over GBP50,000; and
  • there are reasonable grounds to suspect that the Respondent’s known sources of lawfully obtained income would have been insufficient for them to obtain the property.

The UWO can also require the production of documents relating to the property and its acquisition.

SFO Powers

In addition to the above enforcement powers (eg, obtaining warrants for search and seizure), the SFO has the power to “require [a] person whose affairs are to be investigated… or any other person whom he has reason to believe has relevant information to answer questions or otherwise furnish information with respect to any matter relevant to the investigation…” and to “require [a] person under investigation or any other person to produce…any specified documents which appear to the Director to relate to any matter relevant to the investigation...” It is a free-standing criminal offence to fail to comply with such a notice, to provide false or misleading information, or to destroy relevant documents.

The SFO has powers to require such an individual to attend for such an interview under Section 2 of the Criminal Justice Act 1987 (see 1.6 Recent Case Law and Latest Developments). Otherwise, any interview will necessarily be voluntary unless the individual has been arrested and interviewed under caution (albeit under such circumstances, the individual is entitled to remain silent and the only sanction is the potential drawing of adverse inferences should the matter go to trial).

Strictly speaking, internal investigations are neither necessary nor mandatory. Nevertheless, they can be very significant in the decisions taken by the authorities as to whether to prosecute or not. The fact of an internal investigation leading to self-reporting is an important feature in the court approving a DPA (see 2.7 Deferred Prosecution). It has been emphasised in a number of DPA judgments that early co-operation, including proper internal investigation, was an important feature justifying a discount on the financial penalty.

The UK’s previous membership of the EU meant that the courts and authorities within the UK had access to the EU’s Mutual Legal Assistance (MLA) provisions (eg, the European Arrest Warrant (EAW) and arrangements for co-operation and information sharing). Post-Brexit, the UK is no longer an EU member and so access to those measures is subject to agreement with the EU, or with individual EU member states.

The current list of bilateral MLA and extradition agreements to which the UK is party is now considered on a state-by-state basis. The UK does not operate any universal blocking statutes or equivalent regulation that cover extradition and MLA. However, the provisions of the Human Rights Act, which protects fundamental rights and freedoms, would still apply.

The precise mechanism for the initiation of white-collar prosecutions may depend on the nature of the prosecutor and the specific offence. As noted above, any prosecuting agency making a decision to charge will do so in accordance with the full code test for Crown Prosecutors.

In CPS cases (ie, police or HMRC investigations), prosecution is normally initiated by way either of a charge at a police station or by way of the issue of a summons or postal requisition to attend at the Magistrates’ Court. Prosecutions by the SFO or other agencies are generally initiated either by the issuing of a summons or requisition notice to attend at the Magistrates’ Court. Notably, some offences require the personal or delegated consent of either the DPP or the Attorney General prior to charge. Offences requiring pre-charge consent include offences under the Bribery Act.

DPAs have been available in this jurisdiction since 2014. They provide a mechanism by which an organisation (a body corporate, a partnership or an unincorporated association, but not an individual) can avoid prosecution for certain economic offences through an agreement with the relevant prosecuting authority. In this jurisdiction, the prosecuting authorities are the DPP and the SFO.

The key features of DPAs are that:

  • they enable a corporate body to make full reparation for criminal behaviour without the collateral damage of a conviction (for example, sanctions or reputational damage that could put the company out of business, destroying the jobs and investments of innocent people);
  • they are concluded under the supervision of a judge, who must be convinced that the DPA is "in the interests of justice" and that the terms are "fair, reasonable and proportionate";
  • they avoid lengthy and costly trials; and
  • they are transparent public events.

As of September 2021, 14 DPAs have been approved by the courts.

There is no formal process for plea bargaining in the UK. As an adversarial system, it is a matter for the prosecutor to determine what charges will be brought and whether to accept pleas to lesser offences. To that extent, it is open to any defendant to agree to plead guilty to a “lesser” offence in return for a more serious offence either not being charged or discontinued.

It should be noted that prosecuting authorities are bound by the “Full Code test” for Crown Prosecutors, which means that before any charge can be brought, the prosecutor must be satisfied that there is sufficient evidence to provide a realistic prospect of conviction (the “evidence” test) and also that the prosecution is in the public interest (the “public interest” test). A prosecutor can only charge an offence which meets both limbs of the test. However, in considering the appropriate charge to bring, or whether to accept a plea to a “lesser” offence than that charged, a prosecutor must have regard to the public interest. Given the limitations on resources and court time, a suitable plea to a lesser offence may well be in the public interest.

However, whilst there is scope to negotiate as to the charge to which a plea is to be entered, there is no scope to negotiate as to sentence (save insofar as the maximum sentence is a function of the offence). Sentencing is entirely a matter for the judge and not for the prosecutor. In this jurisdiction, a prosecutor has no right to ask for any particular sentence, still less to bind the hands of a sentencing judge.

Accordingly, whilst a prosecutor can agree to accept a plea to a lesser offence (which may carry a lower sentence than a more serious charge), the judge will be free to sentence on the basis of the facts of the offence, and the defendant cannot negotiate with the prosecutor to secure a particular sentence. The only real scope for negotiation with a prosecutor in relation to sentence might be in reaching agreement to how the facts of the case are put in accordance with the sentencing guideline and to limit whether the prosecution were seeking confiscation proceedings following conviction.

Although a defendant cannot negotiate with a prosecutor in relation to a sentence (still less negotiate with a judge), there is a mechanism whereby a defendant can seek a "Goodyear indication" from the sentencing judge. This would indicate what the maximum sentence would be if the defendant pleaded guilty on a particular agreed basis. However, judges are not obliged to give such indications even if asked, and many will not do so. If an indication is given, and the defendant pleads guilty on that basis, then the judge is bound by the indication (although this does not prevent the prosecution from appealing if the sentence passed is wrong in law or “unduly lenient”).        

Criminal company law and corporate fraud offences include the following:

  • bribery, influence peddling and other such related offences;
  • market abuse and insider dealing;
  • tax fraud;
  • cartel offences such as price-fixing, market sharing, customer sharing, limiting production, limiting supply and bid-rigging;
  • cybercrimes and computer fraud;
  • market manipulation;
  • aiding and abetting; and
  • money laundering.

As described elsewhere in this guide, UK criminal law does not necessarily distinguish between the corporate and the individual in the designation of offences, or in their constituent elements. Rather the distinction arises in the evidential test for proving guilt, for example the “identification principle” (see 1.4 Corporate Liability and Personal Liability).

There are, however, some offences which are specifically designed for corporates such as the failure to prevent offences relating to bribery and the facilitation of tax evasion. As discussed, distinctions also arise in terms of sentence; ie, a corporate can, effectively, only be fined.

The UK Bribery Act contains four main offences:

  • a general offence of bribing;
  • a general offence of being bribed;
  • an offence of bribing a foreign public official; and
  • a corporate offence of failing to prevent bribery by persons associated with relevant commercial organisations.

The individual offences are committed when a person (individual or corporate) either (i) offers, promises or gives another person; or (ii) requests, agrees to receive or accepts, a financial or other advantage, with the intention of procuring or rewarding the improper performance of a “relevant function” by any person.

“Relevant function” is defined very widely: wherever there is an expectation that the relevant person will act in good faith, impartially or in accordance with a position of trust (in the UK or abroad), this will be covered. “Improper performance” occurs when a relevant function is performed in breach of such expectation. With regard to the offence of bribing a foreign public official, it is sufficient that the relevant advantage is intended to obtain or retain an advantage in the conduct of business by influencing a foreign public official. Unlike the US Foreign Corrupt Practices Act (FCPA), there is no exception for “facilitation payments”; ie, these are illegal under UK legislation.

Jurisdiction for the Principal Offences can be based on either:

  • any act or omission which forms part of the offence taking place in the UK; or
  • a close connection to the UK (eg, residency, incorporation, citizenship).

The Failure to Prevent Offence carries strict liability: a bribe paid anywhere in the world by a commercial organisation’s “associated person” with the intention of benefiting the organisation (even without its knowledge) will cause the organisation to commit an offence, and the only defence is that it had in place “adequate procedures” to prevent bribery. The maximum sentence for Bribery Act offences is ten years’ imprisonment and/or fine up to the statutory maximum (or, in the case of a corporate offender, simply a financial penalty).

The Bribery Act creates a strict liability offence of failure of commercial organisations to prevent bribery. Under this offence, if a person (A) associated with a company bribes another to the benefit of the company, then the company is guilty of an offence, irrespective of whether it knew of or approved of the bribe, unless the company can prove that it had adequate procedures in place designed to prevent persons associated with it from undertaking such conduct.

It should be noted that person A need not be an employee or agent of the company in order for the company to be liable if A is associated with the company by performing services for it.

A person commits the criminal offence of insider dealing if they have inside information and:

  • that information is price-sensitive in relation to shares;
  • they deal in those shares, or encourage someone else to deal in them or pass inside information to another person; and
  • the dealing takes place on a regulated market or through a professional intermediary such as a broker.

The maximum sentence for the offence is seven years’ imprisonment and/or an unlimited fine.

There are numerous offences relating to tax fraud, with different common law and statutory offences for different types of tax. The main offences are set out below.

Cheating the Revenue

This is a common law offence, so the maximum sentence is life imprisonment. However, the guidelines suggest a range of sentences depending on the value and complexity ranging from community service where the fraud is valued at under GBP20,000 and the defendant’s role is minor, through to 17 years’ imprisonment for tax frauds valued at over GBP50 million.

Cheating includes any form of fraudulent conduct which results in diverting money from the revenue and in depriving the revenue of money to which it is entitled; it requires deliberate conduct by the defendant to prejudice, or take the risk of prejudicing, the revenue's right to the tax in question knowing that they had no right to do so; it is a conduct offence, and no actual loss need be proved.

Fraudulent Evasion of Income tax

This is an offence under the Taxes Management Act 1970, for which the ingredients are simply that the defendant was knowingly concerned in the fraudulent evasion of income tax by themselves or another. The maximum sentence is seven years’ imprisonment or a fine, or both.

Fraudulent Evasion of VAT

This is an offence under the VAT Act 1994, for which the ingredients are simply that the defendant was knowingly concerned in the fraudulent evasion of VAT by themselves or another. The maximum sentence is seven years’ imprisonment or a fine, or both.

Failure to Prevent the Facilitation of Tax Evasion

The Criminal Finances Act 2017 created two new offences. The first relates to the evasion of UK tax and the second to the evasion of foreign tax.

Three stages apply to these offences:

  • STAGE 1 Evasion – the criminal evasion by a taxpayer (either an individual or a legal entity) under existing law;
  • STAGE 2 Facilitation – the criminal facilitation of tax evasion by an associated person of the relevant body who is acting in that capacity; and
  • STAGE 3 Failed prevention – the relevant body failed to prevent a person associated with it from committing the criminal facilitation act.

Only a “relevant body” can commit the new offences. This is defined as “a body corporate or a partnership”, wherever incorporated or formed. The offences therefore apply to companies, partnerships and not-for-profit organisations. A relevant body can only commit the new offences if a person associated with it criminally (deliberately and dishonestly) facilitates a tax evasion offence. A person is “associated” with a relevant body if that person (an individual or corporate body) performs services for, or on behalf of, the relevant body.

The facilitation comprises being knowingly concerned in, or taking steps with a view to, the fraudulent tax evasion of another, as well as aiding, abetting, counselling or procuring another person’s offence of tax evasion. However, the associated person does not commit a tax evasion offence when they inadvertently, or even negligently, facilitate another person’s tax evasion.

There is a complete defence to the offences for a relevant body if:

  • it has in place reasonable preventative procedures as it was reasonable in all circumstances to expect it to have; or
  • it was not reasonable, in all the circumstances, to expect it to have any preventative procedures in place.

The offence is modelled on the Section 7 of the Bribery Act offence of corporate failure to prevent bribery and the statutory defence is similar to the equivalent defence of “adequate procedures to prevent” bribery, contained in the Bribery Act. The offence is punishable by a fine.

The Money Laundering Regulations 2017 require relevant persons in regulated sectors to retain records for between five and ten years.

In particular, records need to be kept of any documents and information obtained by the relevant person to satisfy the customer due diligence requirements in the regulations and sufficient supporting records (consisting of the original documents or copies) in respect of a transaction (whether or not the transaction is an occasional transaction), which is the subject of customer due diligence measures or ongoing monitoring to enable the transaction to be reconstructed.

There is a power to impose civil penalties for breaches. Additionally, a person who has contravened the requirements imposed on them is also guilty of an offence under the Money Laundering Regulations 2017 punishable by up to two years’ imprisonment or a fine, or both.

An individual will be guilty of the revised criminal cartel offence created by the Enterprise Act 2021 if they agree to make or implement arrangements which involve:

  • price fixing;
  • market sharing;
  • customer sharing;
  • limiting production;
  • limiting supply; or
  • bid-rigging.

There is no requirement to show that the individual acted dishonestly, or even that the individual intended to restrict competition as a result of the agreement. It is sufficient if the arrangements would fix prices/limit supply, etc, if they operated as the parties to the agreement intended, even if the agreement is never actually implemented.

The maximum sentence for the offence is five years’ imprisonment and/or an unlimited fine.

Trading standards prosecutions can be brought by the Office of Fair Trading (OFT), together with the local authority regulatory body for trading standards. They can also be brought by the Food Standards Agency. These regulatory bodies can investigate and prosecute in a number of areas across wholesale or retail businesses. The potential offences include dealing in counterfeit goods, breaching copyright, and breaching trade mark regulations.

The Consumer Protection from Unfair Trading Regulations 2008 place a duty on traders to behave ethically when dealing with customers and outline penalties should they fail to do so. For example, they forbid "misleading actions" and "misleading omissions" that cause or are likely to result in, the average consumer taking a "transactional decision" that they would not have taken otherwise. They also prohibit pyramid schemes and aggressive selling practices, and infer a general duty not to trade unfairly.

For the most serious cases imprisonment is an option, with maximum periods of up to two years for some trading standards offences       

Cybercrime is an umbrella term used to describe two closely linked, but distinct ranges of criminal activity.

The Government’s National Cyber Security Strategy defines these as follows.

  • Cyber-dependent crimes – crimes that can be committed only through the use of information and communications technology (ICT) devices, where these are both the tool for committing the crime, and the target of the crime (eg, developing and propagating malware for financial gain; hacking to steal, damage, distort or destroy data; and/or network activity).
  • Cyber-enabled crimes – traditional crimes which can be increased in scale or reach by the use of computers, computer networks or other forms of ICT, such as cyber-enabled fraud and data theft where the underlying crime will be prosecuted under the appropriate legislation.

Cyber-dependent crimes are covered by the Computer Misuse Act 1990. These include:

  • causing a computer to perform a function with intent to secure unauthorised access to computer material;
  • unauthorised access with intent to commit or facilitate commission of further offence;
  • unauthorised acts with intent to impair the operation of a computer;
  • unauthorised acts causing, or creating risk of, serious damage; and
  • making, supplying or obtaining articles for use in offences.

Other offences arise under the Investigatory Powers Act 2016 which covers the interception of communications and the Data Protection Act 2021, regarding the unlawful obtaining, disclosing, procuring disclosure or selling of personal data.

Sanctions regimes affecting UK businesses or persons may be imposed to bring about a change in policy or activity by the target country, government, entities or individuals.

They are reviewed, lifted, revoked or adapted in the light of changes in the behaviour of the target country. They will typically have been created by one of the following: the United Nations Security Council (UNSC), the Council of the EU under its Council Common Foreign and Security Policy, the US Office of Foreign Assets Control (OFAC), or the UK government. Other countries impose their own sanctions regimes, about which UK businesses need to keep themselves informed if they are trading in these jurisdictions.

Restrictions may include a requirement to notify or seek the consent of HM Treasury (HMT) before receiving money from certain countries (such as Iran). The legislation is deliberately drawn widely and, in some cases, prohibits financial institutions and individuals from dealing in any way with the funds or assets of a designated person. Sanctions may also be applied to direct and indirect investment by companies as well as the provision of goods and technologies.

There are serious consequences for entities that breach sanctions. The financial sanctions regime requires absolute compliance to avoid the risk of prosecution. Criminal liability arises under UK law if sanctions are breached by designated entities or by individuals or companies transacting with prohibited entities or receiving money without notifying or seeking authorisation from HMT.

The Financial Services Act 2012 creates three offences of market manipulation which criminalise the making of false or misleading statements, or impressions with an intention to induce another to engage in market activity:

  • the making of a misleading statement, or the dishonest concealment of material facts;
  • the creation of a misleading impression (Section 90); and
  • the making of a misleading statement or impression in relation to benchmarks specifically (Section 91).

The maximum sentence for any of these offences is seven years’ imprisonment and/or an unlimited fine.

A conspirator or person assisting in the commission of a corporate offence will be liable for the same sanctions as the principle if they conspire with or assist another to commit a corporate offence.

The main offences are found under the Proceeds of Crime Act are:

  • concealing the proceeds of criminal conduct – this is committed where a person conceals, disguises, converts, transfers or removes criminal property;
  • becoming involved in an arrangement to assist another to retain the benefits of criminal conduct – this is committed where a person enters into an arrangement which they know or suspect facilitates, in any way, the acquisition, retention, use or control of criminal property; and
  • acquiring criminal property – a person is guilty of this if they acquire, use or possess criminal property.

Property is “criminal property” if it represents, in whole or in part, the benefit/proceeds of conduct that was either criminal conduct within the UK, or which would have amounted to an offence if it had occurred in the UK; and the offender knows or suspects it represents such a benefit/proceeds. The maximum sentence for these offences is 14 years’ imprisonment and/or unlimited fine.

There is a further offence of failing to disclose knowledge or suspicion of money laundering. This only applies to persons operating in the regulated sector who fail within their obligations to properly deal with information relating to money laundering.

The ingredients of the offence are:

  • the person must know or suspect, or have reasonable grounds for knowing or suspecting, that another person is engaged in money laundering;
  • the information came to them in the course of business in the regulated sector;
  • they can identify either the identity of the money launderer or the whereabouts of the money (or the information is reasonably capable of assisting in so identifying the launderer or whereabouts of the proceeds); and
  • they have failed to make a disclosure to a nominated officer or other person authorised by the NCA as soon as practically possible after receiving the information.

The maximum sentence is five years’ imprisonment and/or a fine.

There are specific obligations in the UK to prevent money laundering, both within and outside the regulated sector. Money laundering is a criminal offence under the Proceeds of Crime legislation. It is also an offence for someone in the regulated sector who knows, suspects or has reasonable grounds to suspect money laundering, to fail to disclose it to the authorities. Numerous offences exist under anti-money laundering laws and regulations (particularly the Money Laundering Regulations), which impose duties to prevent money laundering and create criminal offences for failure to comply. These offences include the obligation to maintain and retain records, for example, of customer due diligence and other transactional records. Many of the offences are strict liability, and a breach of the regulations can attract either regulatory fines or, following prosecution or conviction, sentences involving financial penalties, imprisonment, or both.

Each offence is liable to have its own specific defence, but the general/common defences are all matters which relate to a failure by the prosecution to prove an important element of the offence (usually dishonesty). Generally, the existence of an effective compliance programme may be relevant to an assessment of honesty. In respect of the failure to prevent offences for corporates such as in the Bribery Act, and in respect of the failure to prevent the facilitation of tax evasion, a compliance programme will be relied upon in the statutory defence of having adequate or reasonable procedures in place.

The are no exceptions, or de minimis exceptions, for white-collar offences in this jurisdiction and there are no exempt industries and/or sectors, although the extent of the criminality is a matter that will be considered by any prosecutor in assessing whether incurring the cost of a prosecution is in the public interest (the second limb of the full code test – see 2.8 Plea Agreements).

Self-reporting and/or co-operation with investigators or prosecuting authorities are a mitigating factor for both individuals and corporates. They may also influence whether a prosecution takes place at all, in particular in the case of corporates who might seek a DPA, as discussed elsewhere in this chapter.

Statutory protection afforded to whistle-blowers emanates from employment law. The whistle-blowing legislation protects workers. A worker in this context includes not only employees but also consultants (who undertake to provide work personally), contract workers and agency workers, among others. A disclosure of the commission of a criminal offence is a qualifying disclosure and affords the whistle-blower protection from victimisation from their employer.

There are no specific incentives for whistle-blowers to report white-collar offences in the UK other than a tactical advantage in negotiations with prosecutors where the whistle-blower was complicit in the malpractice. Also, such co-operation would attract credit in reducing any sentence imposed by the court – if the case was prosecuted and the whistle-blower either pleaded guilty or was convicted. Companies are obliged to implement policies and internal procedures which protect whistle-blowers.

The test for the burden of proof is the same in white-collar cases as in all criminal cases. The prosecution bears the burden of proof, and the standard of proof is that the court must be sure. This used to be described as “beyond reasonable doubt”, but the term now used is “satisfied so you are sure” – the meaning is the same.

Sentencing is a matter for the judge, but the Sentencing Guidelines Council publishes sentencing guidelines for all offences which the court is bound to apply. For example, there are specific guidelines covering fraud, bribery, and money laundering. As discussed elsewhere in this chapter, DPAs currently only apply to companies, not individuals.

Stokoe Partnership Solicitors

Second Floor
1-3 Staple Inn, Holborn
London WC1V 7QH

+44 (0)20 3427 5710

+44 (0)20 3427 5711

enquiries@stokoepartnership.com www.stokoepartnership.com
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Trends and Developments


Authors



Stokoe Partnership Solicitors is a London and Manchester-based multidisciplinary practice specialising in criminal defence and civil litigation. The firm currently employs ten lawyers, including five partners. The firm handles a broad range of serious and complex criminal defence cases, including white-collar and financial crime, large-scale serious and organised crime, proceeds of crime-related work and extradition. At any one time, the firm is instructed in some of the most high-profile and important current cases. In addition to its criminal practice, Stokoe Partnership Solicitors has a specialist civil litigation team with extensive experience spanning a range of practices, including complex arbitrations and commercial litigation, civil fraud, insolvency, civil forfeiture and recovery and tax fraud. The firm has close links with leading sets of barristers, and trusted partners in areas such as cyber-intelligence and media relations and is able to respond immediately to situations requiring urgent responses.

Cryptocurrencies and White-Collar Crime

Cryptocurrencies, as we have known them, are one of the biggest Ponzi schemes in history. A number of recent global political and regulatory moves look set to bring them crashing down to earth, while also preventing their use for criminal purposes. In 2018, The Wall Street Journal warned that the “crypto crime wave is here” writing that “from stickups and drug deals to white collar scams, cryptocurrency-related crime is soaring–and law enforcement is scrambling to keep up.” Since then, governments around the world have belatedly awoken to the manifold threats which crypto-assets pose. Many governments are now promising a wave of stringent regulation of private sector cryptocurrencies while simultaneously taking steps towards the launch of their own state-backed digital currencies.

Cybercrime as a geopolitical issue

A recent wave of high-profile incidents of crypto fraud and ransomware attacks look set to be met with regulatory action. The 2021 G7 meeting issued a final communique which promised that the G7 nations would collaborate “to urgently address the escalating shared threat” of ransomware attacks. The purported anonymity of cryptocurrencies is what facilitates ransomware attacks.

Ransomware attacks are now considered a geopolitical issue since many of them have been linked to Russia. Fears are growing that the Russian state is – tacitly or otherwise – permitting gangs of cybercriminals to attack the infrastructure of its geopolitical rivals. Russia has been accused of being involved in cyber-attacks such as the 2020 SolarWinds attack which successfully hacked into US government computer systems, and those of several major US companies. Cybercrime is becoming a major geopolitical and a defence issue, and the role of crypto-assets in such crimes is becoming more widely recognised.

International concern

In January 2021, Janet Yellen, now the US Secretary of the Treasury, said that cryptocurrencies are “a particular concern” with many being used “at least in a transaction sense, mainly for illicit financing. And I think we really need to examine ways in which we can curtail their use”. ECB President Christine Lagarde called for the regulation of cryptocurrencies at a global level earlier this year, saying that “There has to be regulation. This has to be applied and agreed upon... at a global level because if there is an escape that escape will be used”.

We may therefore expect very significant tightening of the regulation of crypto-assets in the near future. However, for the most part, such regulation has yet to arrive in earnest.

The UK’s moves towards regulation

The UK does not yet have a regulatory regime dedicated to the regulation of cryptocurrencies. The Financial Conduct Authority (FCA) was however appointed as the major regulator of the cryptocurrency market in January 2021. It has responsibility for compliance as regards of anti-money laundering and counter terrorist financing regulations. The FCA has in recent months become active in regulating the cryptocurrency market. Firms must register with the FCA before they may operate in the UK. The reality is that while regulatory change is on the way, it is currently in its infancy.

Cryptocurrency as a driver for white-collar crime

Cryptocurrencies therefore continue to offer opportunities for criminal activity, including white-collar crime. The global cryptocurrency market is now big business, being worth some USD1.5 trillion annually. New types of crypto-assets and cryptocurrency exchanges arrive on the scene all the time. In 2020, in the UK alone, around GBP113 million was lost in fraudulent cryptocurrency investments.

Frauds involving cryptocurrencies such as the PlusToken Ponzi scheme have cost billions internationally. The PlusToken fraud defrauded investors of an estimated USD2.9 billion. Cryptocurrencies have helped to facilitate money laundering on a remarkable scale. Much of this crime can properly be considered to be white-collar crime.

Academic researchers in the USA have examined criminal cases involving cryptocurrencies decided in the US District and Circuit Courts in order “to determine the applicability of Gottschalk’s convenience theory of white-collar crime to cryptocurrency crime litigation and to empirically analyse whether the conditions under which cryptocurrency offenses occurred show support for the convenience theory.”

Gottschalk’s convenience theory of white-collar crime posits that “that the extent of individual convenience orientation determines to what extent a person of respectability and high social status in the course of his or her occupation will make a decision to violate the law whenever alternative decisions are less convenient. A more stressful and greedy financial motive, an improved organisational opportunity to commit and conceal crime, and a stronger personal willingness for deviant behaviour are assumed to influence the extent of white-collar crime intention.”

Cryptocurrencies promise that transactions can be anonymous and untraceable. These alleged attributes of crypto-assets clearly make it easier to conceal crime, and the proceeds of crime, thereby making it more attractive to white-collar criminals.

The 2019 academic analysis of US District and Circuit Court cases involving cryptocurrency crimes and fraud supports the convenience theory of white-collar crime. Researchers found that:

“Defendants in various schemes were motivated by financial gain, either for the company or for personal use. Their roles and positions in the businesses allowed them access to resources that helped them perpetrate fraud through the following mechanisms:

(1) operating front companies;

(2) relationship building by defendants;

(3) over representing profits that investors would obtain from purchases of virtual currencies, representing that cryptocurrencies were safe and reliable investments when they were risky, and overestimating abilities and capacities to provide services promised to investors in securities fraud;

(4) breaching fiduciary duties to their clients and corporate stockholders by misappropriating profits for their own personal gain; and

(5) engaging in dark web transactions that guaranteed anonymity. Defendants also employed various neutralization techniques to justify their crimes.”

As they are regarded as anonymous and because they are as yet largely unregulated, cryptocurrencies are seen as helpful in facilitating money laundering – and indeed any illicit transactions – by helping to keep the transactions undetected by law enforcement and by concealing the identities of the parties to the transactions. These factors alone surely mean that the advent of cryptocurrencies has inevitably driven white-collar crime.

Crypto-assets markets and white-collar crime

However, the research indicates that a great deal of white-collar crime goes beyond money laundering and in fact largely relates to the crypto-asset markets themselves. Much of the white-collar crime relating to cryptocurrencies involves misrepresentations regarding the value, stability and viability of crypto-assets and related financial instruments.

The world is moving online at a remarkable pace. People are increasingly comfortable investing online, and also sadly investing in questionable things such as cryptocurrencies or their derivatives. This is despite the clear warnings issued by regulators such as the FCA. The FCA offers very clear advice to anyone thinking about investing in crypto-assets, which is that “Cryptoassets are considered very high risk, speculative purchases. If you buy cryptoassets, you should be prepared to lose all your money.”

The appetite for cryptocurrencies is rarely dented by their remarkable volatility. Earlier this year, the cryptocurrency Ether dropped 22% in a single day while Bitcoin lost over 40% of its value a single week. The FCA has thankfully now banned the sale of crypto derivatives to consumers on the basis of its “concerns surrounding the volatility and valuation of the underlying cryptoassets.” Yet, in reality, there is nothing stopping a UK consumer simply going online and buying them internationally.

The FCA’s head of enforcement and market oversight, Mark Steward, recently admitted that 111 unregistered cryptocurrency providers were operating in Britain. Mr Steward said that it was a “very real risk" that there are “a number of firms that are clearly doing business in the UK without being registered with us and they are dealing with someone: banks, payment services firms, consumers”. This is a pointed warning to those banks and the other white-collar service providers involved.

Crypto-asset platforms which registered with the FCA in December 2020 were able to continue to offer services in the UK under a Temporary Registrations Regime while the FCA assessed their applications. However, many applicants have apparently been abandoning their applications to the FCA, with the difficulty of meeting anti-money laundering requirements causing many to drop out.

The FCA has not been sitting on its hands while it assesses applications. In June, it banned the cryptocurrency exchange Binance from conducting regulated activities in the UK.

The need for a dedicated regulatory regime

A difficulty for the FCA in dealing with cryptocurrencies is that it must often do so using legislation designed to regulate more conventional financial instruments. For example, the question of whether a cryptocurrency falls within its remit may depend on whether it comes under the anti-money laundering (AML) rules, Electronic Money Regulations, 2011 or the Financial Services and Markets Act, 2000. Yet, both of these regulatory instruments were designed before cryptocurrencies were in wide use.

How the British legal system has adapted

While a purpose-built regulatory regime would be welcome, the British legal system has however proven itself adaptable to the challenges presented by cryptocurrencies. In 2019, the English High Court considered whether crypto-assets could be legally regarded as property. The case of AA v Persons Unknown [2020] 4 W.L.R. 35 involved an application for a proprietary injunction to recover bitcoins which had been extorted during a ransomware attack on a Canadian insurance company. The Canadian company’s British insurer had paid over a ransom payment of USD950,000 in bitcoin through an expert intermediary. At the time, this amounted to 109.25 bitcoins.

The expert consultants who had made the payment managed to find the bitcoins which had been extorted at a cryptocurrency exchange. They discovered that 96 of the 109.25 Bitcoins were still in an account and so they asked the High Court to grand a proprietary injunction to enable them to be recovered. The English High Court duly held that bitcoins were indeed “property” under English law and so granted the injunction, which meant that the bitcoins were recovered.

In the course of this case, the court favourably cited the UK Jurisdiction Task Force’s report entitled “Legal statement on cryptoassets and smart contracts”. This 2019 report analysed how the British legal system should regard crypto-assets, concluding that crypto-assets have the legal characteristics of property and that their novel technological features did not prevent them from legally being property. This judgment therefore beings crypto-assets within the purview of the English courts.

The EU and US approach

The European Commission has launched a comprehensive proposed regulatory regime for crypto-assets. The detail of this proposed regime will be discussed and debated by EU member states and the European Parliament in the coming years. The new regime is not expected to come into force until 2024. Although the EU legislative process often moves slowly, since it involves so many states and other institutional actors, its regulatory regime can prove influential internationally. Certainly, the EU’s data protection regime is often seen as representing an international benchmark.

While the precise detail of the EU’s cryptocurrency regime is yet to be determined, the likely shape of the eventual EU regime seems clear from the published proposals. The EU looks set to require companies offering a cryptocurrency in the EU to have a physical presence in the EU, while meaningful governance and capital requirements are also proposed.

Legislation moving through the US Senate looks set to require cryptocurrency exchanges to report the details of each transaction. This requirement is expected to be in force by 2023. Such a requirement could undermine the use of cryptocurrencies for illegitimate purposes.

What the future holds

We are just a few years away from the creation of tight regulatory regimes, dedicated to the regulation of cryptocurrencies. In the meantime, financial regulators are beginning to look closely at the sector. They are already making greater use of their existing powers to regulate crypto-assets.

It seems unlikely that the bubble which has emerged around cryptocurrencies will survive the serious regulatory efforts which are set to rock the industry, and which will deprive it of anonymity. Nor is it impossible that regulators will find ways to force exchanges to reveal the identities of those involved in unlawful historical transactions made through cryptocurrencies.

The coronavirus pandemic has forced the world to rapidly make large-scale shifts to online working, online shopping and online services. In an increasingly online world, the more widespread use of digital currencies is inevitable. Yet the financial regulators of major powers are evidently not going to shy away from the management of digital currencies or leave the task to the private sector.

The impact of state-backed digital currencies

The greatest danger to the existing private sector cryptocurrencies are the moves by the world’s major powers to create their own digital currencies. China is already trialling its digital yuan. The EU is considering the creation of a digital euro. The chair of the Federal Reserve, Jerome Powell, recently described the creation of a digital dollar as a “high priority project”. These state-backed currencies will offer the digital security of blockchain technologies while also having the financial security of being backed by major central banks. The advent of these digital currencies, combined with the wave of regulation which is now heading for cryptocurrencies, will create a perfect storm.

These factors will likely ultimately reveal the reality that cryptocurrencies have no actual intrinsic value. Co-ordinated international moves against tax evasion and money laundering prefigure similar moves to regulate cryptocurrencies. Businesses and consumers alike will be far more likely to place their trust in a digital dollar or a digital euro rather than a cryptocurrency like Dogecoin – which started off as a joke – but this year at one point increased by 1,600%. The joke may seem less amusing to investors in the end.

A true value of zero

Cryptocurrencies as we know them today are fundamentally without substance. More stringent regulation will therefore cause the speculative market for cryptocurrencies to crash. There is a view this will lead to all cryptocurrencies not backed by states reaching their true monetary value, which is precisely zero. Cryptocurrencies have been used to facilitate Ponzi schemes and other frauds. Yet the greater scandal is that cryptocurrencies as we have known them to date are in and of themselves one of the biggest Ponzi schemes in history.

We may therefore expect that the use of cryptocurrencies in white-collar crime is ultimately destined to crash along with them. Yet, for the next few years, until serious regulatory regimes and capacities are put in place, and until state-backed digital currencies emerge, the use of cryptocurrencies in white-collar crime is set to continue.

Such activities may ultimately have serious repercussions for those involved since crypto-assets are not nearly as anonymous as some imagine. Cases where law enforcement agencies and the courts have managed to track crypto-asset transactions and identify those behind them are likely to increase as the technical capacity of the police and regulators increases. 

Ben Weiss, CEO of CoinFlip, said unambiguously, "It's not anonymous. It's pseudo-anonymous. You can't buy any large amount of bitcoin without KYC or ID or driver's licenses... Bitcoin is actually more transparent in many ways than typical things in the financial system.” The illusion that cryptocurrencies are completely anonymous may yet come to haunt those who dare to use them to cover up white-collar crime.

Stokoe Partnership Solicitors

Second Floor
1-3 Staple Inn, Holborn
London WC1V 7QH

+44 (0)20 3427 5710

+44 (0)20 3427 5711

enquiries@stokoepartnership.com www.stokoepartnership.com
Author Business Card

Law and Practice

Authors



Stokoe Partnership Solicitors is a London and Manchester-based multidisciplinary practice specialising in criminal defence and civil litigation. The firm currently employs ten lawyers, including five partners. The firm handles a broad range of serious and complex criminal defence cases, including white-collar and financial crime, large-scale serious and organised crime, proceeds of crime-related work and extradition. At any one time, the firm is instructed in some of the most high-profile and important current cases. In addition to its criminal practice, Stokoe Partnership Solicitors has a specialist civil litigation team with extensive experience spanning a range of practices, including complex arbitrations and commercial litigation, civil fraud, insolvency, civil forfeiture and recovery and tax fraud. The firm has close links with leading sets of barristers, and trusted partners in areas such as cyber-intelligence and media relations and is able to respond immediately to situations requiring urgent responses.

Trends and Development

Authors



Stokoe Partnership Solicitors is a London and Manchester-based multidisciplinary practice specialising in criminal defence and civil litigation. The firm currently employs ten lawyers, including five partners. The firm handles a broad range of serious and complex criminal defence cases, including white-collar and financial crime, large-scale serious and organised crime, proceeds of crime-related work and extradition. At any one time, the firm is instructed in some of the most high-profile and important current cases. In addition to its criminal practice, Stokoe Partnership Solicitors has a specialist civil litigation team with extensive experience spanning a range of practices, including complex arbitrations and commercial litigation, civil fraud, insolvency, civil forfeiture and recovery and tax fraud. The firm has close links with leading sets of barristers, and trusted partners in areas such as cyber-intelligence and media relations and is able to respond immediately to situations requiring urgent responses.

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