 |
| Matthew Cowie |
Newly elected Prime Minister Sir Keir Starmer has been a leading criminal defense lawyer and the director of public prosecutions. We therefore can expect an administration where the prime minister is likely to have strong views on policy and legislation in the financial crime space and criminal justice more broadly.
Starmer's key appointments to serve in relevant ministerial and law officer roles are not from a white collar background: Shabana Mahmood, the justice secretary, is likely to have a full inbox trying to deal with prison overcrowding and a faltering court system.
New Attorney General Richard Hermer KC is a heavyweight human rights, public and private international law specialist. Only Home Secretary Yvette Cooper remains from the opposition team that authored "Labour's Policy Review: Tackling Serious Fraud and White Collar Crime" in 2022.[1]
A review of the 2024 Labour Party Manifesto is detail-light on the government's direction of travel on financial crime.[2] Labour acknowledges the scale of the fraud problem comprising 40% of all crimes in the U.K., promising to introduce a "new expanded fraud strategy" that will include consideration of serious fraud, but does not elaborate further.
David Lammy, the foreign secretary, has recently promised that the government will host an international summit on financial crime.
From the manifesto, policy papers and recent public pronouncements we can, however, divine the government's thinking on a number of financial crime issues.
Resourcing Enforcement Agencies
Given the government's commitment to financial prudence and limited increases in public spending, a step change in resourcing law enforcement agencies or addressing civil service pay are likely to be low on the government's agenda.
Whereas, challenging the National Crime Agency, the Serious Fraud Office, the Crown Prosecution Service and HM Revenue & Customs to raise revenue and recover the proceeds of crime are more likely to be to the forefront.
The exception to increasing headcount and budget for law enforcement was stated in Labour's 2024 policy paper titled "Labour's Plan to Close the Tax Gap," where Labour noted HMRC's assertion that for every marginal £1 ($1.30) that HMRC spends on compliance activity, there is a return of £9 in additional tax revenue.[3]
The government, therefore, has committed to the investment of £555 million per year over five years in additional HMRC tax officer resources to achieve £5 billion in revenue by the end of the parliamentary term.
It remains unclear whether this thinking will be read across to the SFO, which, since the deferred prosecution agreement, or DPA, era, has made the agency net profitable.
Corruption and Kleptocracy
Lammy, in his May 2024 address to the Institute for Public Policy Research's conference on combating transnational kleptocracy, signaled Labour's commitment to greater transparency from U.K. corporate entities and "sustained initiatives against dirty money."[4]
Lammy added that the Labour Party would introduce "a fresh approach based on action, enforcement and a crackdown on the enablers." His speech emphasized Labour's wish to see the professional enablers of kleptocracy and corruption "face the full force of the law."
So far, the NCA's kleptocracy unit has had modest results. We can expect enhanced scrutiny of the performance of the unit under Labour.
Labour is likely to follow the U.S. Department of State's approach of banning kleptocrats and enablers, as well as credibly enhancing transparency over property ownership in the U.K.
As per the manifesto commitment to "work with our allies and international financial centers to tackle corruption and money laundering, including in Britain, Crown Dependencies, and in British Overseas Territories," Lammy signaled a drive to create a common transparency regime, enhanced international mutual legal assistance and scrutiny of corporate and trust vehicles to assist investigators and law enforcement.
No doubt these issues will be discussed at the financial crime summit Lammy has promised as well as an ambitious policy proposal to create an international anti-corruption court.
Sanctions
The prime minister spoke with Ukrainian President Zelensky on his first day in office, July 5, and reconfirmed the U.K. government's commitment to supporting Ukraine. We can expect further rounds of sanctions and an emphasis on enforcement. Currently, the maximum fine that can be levied by the Office of Financial Sanctions Implementation is £1 million.
Lammy has indicated openness to providing financial rewards of up to 25% of the total fine to whistleblowers who identify sanctions breaches. Labour is sensitive to criticism that the sanctions regime still enables Russians to exploit loopholes. The trajectory of implementing effective measures against illicit property and money flows, as well as those who circumvent the system, is clear.
Tax
The Labour Party is concerned to maximize enforcement of outstanding tax revenue. It noted in its 2024 tax gap policy paper that there has been very little reduction in the level of the tax gap.
In cash terms the tax gap stands at £36 billion outstanding, up £5 billion from 2023. A proportion of this outstanding tax will be recovered by a head count increase in tax officers described. However, we anticipate enhanced scrutiny of enforcement activity and available enforcement tools to "restor[e] a genuine deterrent to tax evasion,'' as Labour proposes in its "Plan to Close the Tax Gap" paper.[5]
Notably, the failure to prevent tax fraud offense introduced in the Criminal Finances Act 2017 has not resulted in any successful enforcement proceedings.
Labour is also considering whether DPA's could be extended to cover individuals' tax evasion offenses, but it is unclear how this suggested policy would differ from HMRC's civil and criminal enforcement tracks.
Fraud
Labour has announced its intention to create a COVID-19 fraud commissioner. The party envisages that the COVID-19 commissioner will coordinate law enforcement agencies such as the Insolvency Service, NCA, SFO and CPS to hold to account those responsible for the fraud and waste of public money that occurred during the pandemic.
Although the Economic Crime and Corporate Transparency Act 2023 has come into force, the Labour Party will have the opportunity to issue guidelines about what will constitute the "reasonable procedures" defense to the failure to prevent fraud offense that the act introduced.
One piece of legislation, the Criminal Justice Bill 2023, did not progress before the general election was called. Labour may now oversee its passing into law, either as it is or seek to amend the legislation, which, inter alia, widens the scope of corporate liability for a number of criminal offenses.
Serious Fraud Office
The new government's relationship with the SFO is moot. Historically, former Prime Minister Theresa May wanted to fold the agency into the NCA or the CPS and bring it under government Home Office control. Starmer may think similarly given his prior leadership of the CPS. Notably, Nick Ephgrave, the new director of the SFO has always worked in law enforcement and therefore with the CPS.
Under Emily Thornberry's tenure as shadow attorney general, she argued the need for legal reform and resourcing and upskilling efforts to help the SFO become a more effective agency.
Thornberry proposed that the SFO needed resources to take on the biggest cases, such as better paid lawyers and lawyers returning from the private sector to drive up conviction rates. She additionally called for asset recovery and DPA monies to be recycled into the SFO budget.
The Labour Party would have to change civil service and government rules on allocation of financial and ancillary penalties to achieve these policy proposals.
Commentators have long debated the future of the SFO; however, we estimate that its independence is likely assured as long as annually the agency secures more revenue by proceeds of crime actions and from DPAs than its modest budget.
Fines and Proceeds of Crime
The party's 2022 policy review referred to the need for a "well-policed City" supporting the businesses that play by the rules.[6]
Some of the policy review may have been superseded by the new Economic Crime and Corporate Transparency Act, but corporate liability based on more broad and accessible vicarious liability theories were heavily promoted by Thornberry and may still be viable policy alternatives for future legislation, such as the Criminal Justice Bill. Additionally, the party's thinking on toughening penalties for white collar crime and "ploughing more of the proceeds of crime back into law enforcement" still appear highly relevant.
Whistleblowers
The issue of whistleblowers is one that has gained increasing attention this year, and not just in the run-up to the election. Just over a week before the election was called, SFO Director Nick Ephgrave told the House of Commons' Justice Committee that the U.K. should pay whistleblowers for providing evidence of wrongdoing.
Ephgrave, echoing the U.S. Dodd-Frank Act whistleblower provisions, stated payments to whistleblowers should be made from any corporate settlement, to compensate them for the risk of coming forward.
Conclusion
The Labour Party has typified the last 14 years of Conservative government as ambivalent to white collar crime. Although new measures have been brought into force, in every area of financial crime enforcement, the party will be looking for results and, of course, revenue.
Matthew Cowie is a partner at Rahman Ravelli Solicitors.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.
[1] https://www.policyforum.labour.org.uk/uploads/editor/files/Tackling_serious_fraud.pdf.
[2] Labour Party Manifesto 2024: Our plan to change Britain: https://labour.org.uk/updates/stories/labour-manifesto-2024-sign-up.
[3] https://labour.org.uk/wp-content/uploads/2024/04/Labours-Plan-to-Close-the-Tax-Gap.pdf.
[4] https://www.ippr.org/past-events/combating-transnational-kleptocracy.
[5] https://labour.org.uk/wp-content/uploads/2024/04/Labours-Plan-to-Close-the-Tax-Gap.pdf.
[6] https://labour.org.uk/wp-content/uploads/2022/08/WEB-16760_22-NATIONAL-POLICY-FORUM-2022-REPORT-v6.pdf.
For a reprint of this article, please contact reprints@law360.com.
