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2020 has been an unusual and uncertain year. In the last of our series of three articles we look at how two events, the Covid-19 pandemic and the U.S Presidential election, have impacted on business crime and cross-border investigations.
The need for social distancing and the cessation of regular ways of working, both for enforcement agencies and national judicial systems, have impacted to a greater or lesser extent on the conduct of investigations across the globe.
The nature of enforcement agencies’ work and the need to keep information and evidence secure and confidential have posed particular challenges for some. For example, the UK’s Serious Fraud Office (“SFO”) has had to reduce the number of staff working at its offices, with the majority of personnel working from home, leading to disruption to document review processes. The collection and consideration by investigators of physical data - hard copy documents, personal laptops, memory sticks and mobile phones and so on – has been particularly affected. These sources of evidence are usually assessed by agency investigators in person, something which has been nearly impossible during the pandemic. Face-to-face interviews with witnesses and suspects, and searches of properties have also been suspended, being unfeasible under social distancing requirements. Meanwhile, conducting interviews by video conferencing or telephone is not favoured by the SFO, due to the risk they may be recorded or otherwise compromised, for example, by the presence of a third party in the room able to give advice or suggestions.
In addition, at the onset of the pandemic, courtrooms in the UK were closed virtually overnight and it has taken some time to re-open them in a Covid-secure way. Technology has now been rolled out to many courts to enable criminal hearings to take place remotely, although some have argued that remote hearings involving screen-only access may impact on a defendant’s right to a fair trial under the European Convention on Human Rights and there are concerns that individual jurors could be left vulnerable and open to outside influence, intimidation or manipulation. Complex, multiparty cases are proving almost impossible to hold virtually. All this is leading to a backlog in criminal cases being investigated and prosecuted, which may take some time to resolve.
Conversely, in the U.S., investigations by the Department of Justice (“DOJ), Securities and Exchange Commission (“SEC”) and other authorities have largely continued uninterrupted. While there are fewer in-person interviews being conducted, U.S. authorities have managed to shift most presentations, meetings and discussions to virtual platforms. In addition, while some jurisdictions have resumed limited in-person proceedings, most courts use virtual proceedings when possible. All of the federal appellate courts, and at least 86 of the country’s 94 district courts, are holding at least some hearings remotely.
Enforcement agencies and NGOs across the globe have reported increased incidences of financial crime since the pandemic began. A report by the Financial Action Task Force (“FATF”) published in May 2020 found that the Covid-19 pandemic has exposed the global economic system to significant financial threats: increased fraud, including the impersonation of officials and the proliferation of investment scams; increased cybercrime; and the misuse of online financial services and virtual assets to move and conceal illicit funds.
Europol noted similar concerns in its report of April 2020, which found that the pandemic’s impact has been particularly prominent in cybercrime. Phishing and ransomware campaigns, particularly ones which exploit the anxieties and fears of victims, have increased, along with distributed denial of service, child sexual exploitation and activity on the dark web. Interpol has disclosed that between January 2020 and April 2020, its partners in the private sector reported receiving 907,000 spam messages and discovered 48,000 malicious links “related” to the Coronavirus outbreak.
Several major U.S. regulators, including the SEC, Financial Industry Regulatory Authority and Financial Crimes Enforcement Network, have warned against the increased risk of criminal activity targeting the financial sector amid the disruption of the pandemic. The US Financial Crimes Enforcement Network (FinCEN) issued a statement in March 2020 warning of scams "similar to those that occur in the wake of natural disasters," including investment scams.
In the UK, a National Audit Office report published on 18 November 2020 questioned the process by which the UK government awarded £18 billion of public contracts relating to the pandemic, including the bulk purchase of personal protective equipment (PPE). A lack of transparency, potential bias and conflicts of interest in the tendering process have all been raised as concerns. Meanwhile, the UK Parliament has issued a Call for Evidence requesting information on the emerging trends in consumer facing economic crime as a result of the Covid-19 crisis, such as authorised push payment fraud and exploitation of the government's virus loan scheme. We may also see an increase in alleged insider dealing offences as the pandemic progresses, as people attempt to cash in on advances being made in medical science to bring the crisis under control.
The incoming Biden administration is likely to ramp up white-collar and related regulatory enforcement. Such enforcement could involve enhanced enforcement directed at, among other areas, financial services company practices, insider trading and other securities matters, corporate crime and environmental protections.
SEC Enforcement
Under a Biden administration, the SEC is expected to take an even more active approach to enforcement than seen recently, with a potential increase in sanctions. The SEC may shift its focus from “main street” to Wall Street, with more emphasis on scrutiny of financial services company practices. Traditional areas such as financial reporting and insider trading are expected to be prioritised, while President-elect Biden’s concern for climate change may spur action tied to disclosures related to environmental, social and governance investing.
DOJ Enforcement
Under the Trump administration, white collar enforcement decreased. While there have been some notable enforcement actions in the past four years, the Trump administration has placed more emphasis on prosecuting violent crime and immigration cases than corporate wrongdoing. The DOJ under President-elect Biden is expected to focus more on big business and on other white-collar enforcement, such as domestic corruption, overseas bribery, money laundering and corporate fraud.
In addition, President-elect Biden has proposed creating an Environmental and Climate Justice Division within the DOJ that would coordinate with the Environmental Protection Agency to hold corporate polluters accountable, and environmental issues promise to be a key area of focus going forward.
It is likely that 2021 will see global law enforcers attempting to regain some of the ground they have lost this year while attention has been diverted elsewhere. One advancement to result from the pandemic has been the significant expansion in the use of technology by public authorities and private businesses and a willingness to embrace alternative working practices. Speaking at a conference recently, Lisa Osofsky, Director of the SFO, said that although the pandemic has impacted the way foreign law enforcement agencies are communicating with each other, the SFO and international counterparts are still “able to join hands when the pressure is on". In the U.S., President-elect Biden is expected to focus more on business crime than did his predecessor. One thing is clear: whatever the difficulties, global enforcement authorities will need to work together if they are to tackle the challenges 2020 has delivered.
This article first appeared in Thomson Reuters Regulatory Intelligence here.