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The global compliance landscape is becoming ever more complex, and some of the most significant recent developments in ABC and AML legislation have happened in the UK. All companies who operate in the UK need to be aware of these laws, as well as growing consumer expectations of ethical behavior, if they are to successfully mitigate risk while growing their business.
Addressing corruption in business
The UK Bribery Act, which came into force in 2011, significantly strengthened the UK’s anti-bribery and corruption regime. The law made it an offence to bribe foreign public officials and introduced a strict liability corporate offence if a company fails to prevent bribery. The penalties are severe: an individual can be imprisoned for up to ten years and face an unlimited fine, while a company can face an unlimited fine. The Act provides an incentive for companies to strengthen their compliance program by establishing a statutory defense for those with adequate anti-bribery procedures in place. Ken Clarke, the UK’s former Justice Minister, wrote at the time of the Act’s implementation: “Organizations which have adequate procedures in place to prevent bribery are in a stronger position if isolated incidents have occurred in spite of their efforts.”
The Bribery Act is modeled on the US Foreign Corrupt Practices Act (FCPA), which had long been regarded as the gold standard of ABC legislation. Like the FCPA, the Bribery Act has a global jurisdiction. It applies to any company that operates part of its business in the UK, regardless of where the bribe takes place. But the Act has an even wider remit than the FCPA. The FCPA only covers the act of giving a bribe, while the Bribery Act also covers receiving a bribe. Unlike the FCPA, the Bribery Act does not require proof that the person bribing a foreign public official did so with a “corrupt” intent.
Trend towards DPAs
In 2014, the UK’s Serious Fraud Office (SFO) introduced deferred prosecution agreements (DPAs) for which companies accused of bribery and corruption can apply. DPAs aim to encourage companies to self-report any discovery of financial crime, cooperate fully with investigations, and improve their compliance processes. If the company complies with the terms of the agreement over a given period, and a judge is satisfied that justice has been served, the criminal proceedings will be withdrawn, and a conviction will be avoided. DPAs have so far been agreed with four companies.
Focus on money laundering
The EU’s Fourth and Fifth Anti-Money Laundering Directives will apply to the UK while it remains in the European Union. Although it is due to formally leave in March 2019, it will still follow EU regulations until a transition period ends on December 31, 2020. But companies should not expect the UK to become a soft touch on AML once it leaves the EU because new rules have been introduced, known as the 2017 Regulations, to bring the UK into line with the FATF’s standards and EU rules on AML. The Regulations apply to financial institutions, auditors, external accountants, tax advisers and lawyers conducting business in the UK. They require companies to write an assessment of money laundering risk and prescribe some features of effective internal controls. They specify when different categories of customer due diligence must be conducted and what steps must be taken. They also specify beneficial ownership information that trusts must provide for inclusion on a central register.
Enforcement agencies were given greater powers to tackle money laundering and terrorist financing with the introduction of the Criminal Finances Act in September 2017. The Act allows regulators and prosecutors to apply to the High Court for an “unexplained wealth order” (UWO), which requires a PEP or other individual to explain the origin of assets valued greater than £50,000 if these appear to be disproportionate to their lawful income. This year, the National Crime Agency secured its first UWO over two London properties worth £22 million that were believed to be owned by a foreign PEP. This law puts pressure on banks to ensure they do proper due diligence on high-risk customers.
There have long been concerns that the London property market is used by criminals to launder money gained from illicit activities such as terrorism. But this perception could be about to change, because the government is planning a register of beneficial ownership for overseas entities. Last month it published a draft bill and launched a consultation on a register which would require an overseas entity to provide information on their beneficial ownership before they are able to purchase property in the UK. Failure to comply would be a criminal offence.
Modern slavery statements
Companies operating in the UK are increasingly required to demonstrate their commitment to ethical business and sustainability. Modern slavery is a particular concern for the UK authorities, with the number of modern slavery prosecutions rising by more than a quarter in the past year. The Modern Slavery Act, which took effect in October 2015, requires a company doing business in the UK with a global turnover of at least £36 million to publish a slavery and human trafficking statement that specifies how forced labor risks in their supply chain are being addressed. The statement must be updated annually. If a business fails to produce a statement, the Secretary of State may seek an injunction requiring it to comply. If it still does not comply, this could be punishable by an unlimited fine.
The regulatory landscape is not the only reason why companies should operate with greater transparency with regards to forced labor, worker safety and environmental impact. Investors and consumers are putting more pressure on companies to demonstrate that they are ethical, sustainable and care about their social impact. So, it could give a company a competitive advantage if it behaves ethically, promotes sustainability and reports its CSR activities publicly.