Global enforcement outlook
Changes at the major authorities
Changes in leadership and approach at major enforcement agencies will impact the investigations landscape, with geopolitical shifts causing authorities to review their priorities and ways of working.
As we move through 2021, many countries will need to resolve the tension between prosecuting misconduct that occurred in the extreme conditions of 2020 and supporting economic recovery.
Prosecutors' enforcement priorities are likely to include fraud relating to fiscal support programmes and other pandemic-related wrongdoing. But these are likely to be high-volume, low-value cases of individual misconduct. As for the regulators, their priority will be ensuring financial markets are clean and well-functioning, and consumers are protected.
Overall, corporate conduct will remain under scrutiny as the push to ‘build back better’ puts the role of business in society centre stage. As such, we expect the agencies will be actively on the lookout for new cases across the full spectrum of corporate wrongdoing.
Aside from the pandemic, leadership changes at key agencies (notably in the US), an evolving enforcement toolkit that gives agencies more avenues to develop cases and shifting geopolitical relationships will all impact the investigations and enforcement landscape in 2021 – and beyond.
White-collar enforcement in the Biden era
Under President Biden, how the US chooses to work with the rest of the world is likely to change significantly. US-led global investigations may increase, as the Biden administration is widely expected to pursue financial and corporate fraud more aggressively than its predecessor.
In particular, the incoming leadership at US enforcement agencies may be able to take advantage of the US government’s recently expanded authority to investigate offshore banking activity that flows through any non-US financial institution that has a US correspondent account. That authority has been bolstered yet further by a recent US court decision, which held that a single US correspondent account transaction is a sufficient basis to bring criminal money-laundering charges in US courts.
In recent years, the US Supreme Court has created some constraints to the extraterritorial application of US law. In response, instead of scaling back their ambitions, US enforcement agencies have simply become more careful and creative in bringing these cases. Even when they fall short, they remain steadfast and look for new tools and strategies the next time around. Moreover, because the extraterritorial reach of US law is predominantly a statutory question, Congress can restore and expand enforcement powers, even where the courts have created limits. And as we have seen recently, when Congress does legislate in this area, it tends to side with the agencies and endorse the extraterritorial reach of US law.
The new administration has already raised climate change as one of its top priorities, with President Biden signing an executive order to rejoin the Paris climate agreement on his first day in office. He also plans to create an environmental and climate justice division within the Department of Justice (DOJ), and will direct the Environmental Protection Agency and DOJ to pursue cases of corporate pollution ‘to the fullest extent permitted by law and, when needed, seek additional legislation to hold corporate executives personally accountable'.
Similarly, the Securities and Exchange Commission (SEC) may increase its scrutiny of climate-related disclosures and approach traditional areas of enforcement, such as financial reporting, insider trading and the practices of financial services companies, with a renewed vigour.
UK authorities and international co-operation post Brexit
UK agencies face the dawn of a new relationship with their European counterparts at a time when national prosecutors and other enforcement agencies across Europe have been ramping up their activities.
The EU-UK Trade Cooperation Agreement contains several provisions aimed at ensuring law enforcement bodies on both sides may continue to co-operate and share information to help prevent, detect, investigate and prosecute crimes. That said, much of the detail of how this will operate in practice going forward is yet to be clarified. For companies, this may impact not only the speed of investigations but also the predictability of outcome.
As a counterpoint to this, we are likely to see more bilateral data-sharing agreements, such as the one between the US and the UK. This makes it easier for law-enforcement agencies in both countries to demand electronic data directly from technology firms in those countries by removing conflicting privacy restrictions faced by those firms.
UK enforcement agencies are not directly driven by a political agenda. But they don’t operate in a vacuum either. The joint headwinds of Brexit and the economic fall-out of the pandemic may make them more circumspect on conduct that is not at the egregious end of the scale. But one of the legacies of the events of 2020 will be a renewed focus on corporate citizenship, and there will be strong political will to ensure the agencies are playing their part in detecting and addressing corporate wrongdoing.
We can expect the UK’s Financial Conduct Authority (FCA) to continue to emphasise the importance of financial crime risk management. The FCA is also expected to continue to focus on the proper operation of the markets through its surveillance and analytics capabilities (among other things) and, similar to other authorities, it is likely to scrutinise conduct during the pandemic carefully given the potentially greater opportunities for misconduct as a result of novel working practices, and market disruption and fragility.
Following a clearing of the decks at the UK’s Serious Fraud Office (SFO) in 2020, which saw the authority conclude several long-standing cases, the SFO Director has said it ‘stands ready’ to take on COVID-19-related cases. However, given the pace at which criminal investigations generally proceed, it is likely to be quite some time before we see public outcomes in that regard.
A new EU criminal enforcer
This year, the work of the European Public Prosecutor’s Office (EPPO) will begin in earnest.
The EPPO was set up to investigate and prosecute criminal offences affecting the financial interests of the EU, for example fraud that relates to the EU’s budget and any linked offences such as corruption and money laundering.
With the EU stimulus package and EU aid to countries affected by the coronavirus massively increasing money flows, the EPPO’s head Laura Kovesi has predicted there will be plenty of work for her office to do.
These inquiries, whether at EU or national level, may affect those that helped others to participate in the stimulus programmes but missed red flags or inadvertently facilitated fraud.
While the European Public Prosecutor’s remit and staffing levels are relatively limited, the creation of this office represents a step towards greater co-operation across EU member states on white-collar enforcement.
An evolving enforcement toolkit
Many enforcement agencies will likely face resource challenges in the months ahead as government budgets come under pressure. But in many jurisdictions the authorities are, in general, now better placed to deal with the task ahead compared to the fallout from the global financial crisis of 2008.
Like their US counterparts, over the past decade, authorities in Europe and Asia have increased the tools at their disposal to tackle corporate crime, including:
- increased whistleblower protections;
- a greater focus on data analytics; and
- new mechanisms for resolving cases, and encouraging self-reporting and co-operation.
In short, the increasingly complex patchwork of enforcement activities and methodologies only adds to the problems faced by businesses subject to investigation. While meeting the expectations of myriad enforcers involves intricate decision-making, it is worthwhile investing time and effort in getting it right.
No one can erase the contradictions and conflicts in different enforcement regimes, or harmonise systems that are, by their design, in tension at times because they reflect national priorities and background legal norms. But you can navigate towards the best outcome by assessing the risks across all of the jurisdictions involved in or touched by the matter, and acknowledging the competing expectations, demands and personalities at the different agencies. You then need to resolve those conflicts through a thoughtful risk-weighted strategy that seeks to prioritise the expectations in the jurisdictions that pose the greatest threat, while being sensitive to issues of particular importance elsewhere.