Oliver Heald – 2013 Speech on Fighting Economic Crime

Below is the text made by Oliver Heald, the then Solicitor General, in Cambridge on 2 September 2013.

I would like to thank Professor Barry Rider for inviting me to speak to you this morning on the first day of the 31st Cambridge International Symposium on Economic Crime. I would also like to thank the organising institutions and sponsors for their vital support for this event.

The Cambridge Symposium on Economic Crime is an internationally recognised event. Each year the symposium attracts the foremost experts from a range of different backgrounds, including government, law enforcement, business and academia. Some have travelled a very long way to be here today, despite significant other demands on their time. The importance of this symposium is demonstrated by the fact that it attracts such an eminent group of attendees. Those who are here have a valuable opportunity to meet with peers from around the world, to exchange knowledge and experiences, to improve our respective understanding of the threat posed by economic crime to the global economy and to develop our responses to it.

The subject of this year’s symposium is ‘Economic Crime in the Modern World, and the Role of the Private Sector – Partners and Problems’. As the first speaker this morning I will try to develop this theme, and outline some of the issues that others will address in more detail later this week.

First, I will describe what I see to be the magnitude of the challenge faced by those of us who are responsible for tackling economic crime in today’s globalised economy.

The challenge posed to society by economic crime

In the United Kingdom, the profile of economic crime is now higher than ever before. Since the global financial crisis began in late 2007 it seems that financial institutions, markets and businesses have endured years of perpetual crises. Rarely has a week passed without the emergence of some new allegation of financial misfeasance, fraud or corruption.

In particular, the problems in the banking industry have received huge publicity. The most high profile current issue in the United Kingdom is the LIBOR scandal; the allegations that bankers have colluded to manipulate the London inter-bank lending interest rate.

In the summer of 2012 the UK’s Serious Fraud Office commenced a major investigation into the LIBOR allegations of criminality. I am very encouraged that the Serious Fraud Office is making good progress and has charged some individuals with criminal offences. It is vital that law enforcement agencies are seen to have both the will and capability to investigate offences relating to complex financial transactions.

Similar scandals concerning the manipulation of bench mark rates have been exposed in other jurisdictions. In today’s complex global economy, where these bench mark rates are used in so many derivative financial products, it is difficult to comprehend the extent of losses that may have been caused. Certainly, the consequences are spread across the world.

Technological change and the development of complex financial products have transformed the way that business is conducted, presenting new opportunities for fraud and money laundering activity. This poses significant challenges for law enforcement organisations and for legislators.

Law enforcement agencies and regulators seek to address criminal wrongdoing by applying existing laws to criminal behaviour that was not in contemplation when those laws were passed. Legislators attempt to develop rules that will prevent these problems happening, but without knowing how business will be transacted in the future.

However the recent economic crime scandals are not limited to the technological advances or the complexities of the financial sector. Allegations of corruption have recently been made against some of the UK’s most important and respected companies and there have been cases of financial misconduct by politicians.

A great deal has been written about these economic crimes and the general public is now much more informed, and concerned. The cumulative effect of these scandals has been to weaken public confidence in the probity of political institutions, financial institutions and businesses that collectively form the fabric of society.

These are the organisations that the public trusts to make the laws that govern how society is to behave, to act in our interests when looking after our pensions and to be responsible employers. Public confidence in these institutions has been undermined by dishonesty and greed. It is vital to the stability of democratic society that public faith in these institutions is restored.

Steps that the UK has made to address the threat of economic crime.

During the past decade there have been dramatic changes in the UK’s response to the evolving threat of economic crime. An important new agency is being established to co-ordinate the fight against serious and organised crime. The UK has introduced new laws to combat bribery and corruption. UK prosecutors will soon have new tools available to deal with corporate offending.

On 7 October 2013 the new National Crime Agency will be launched. The National Crime Agency (or NCA) will be an operational crime fighting agency with a statutory responsibility for detecting and preventing serious and organised crime.

The NCA will comprise of four commands each of which will have responsibility for overseeing and co-ordinating the UK’s response to a specific area of criminal activity. The NCA’s Economic Crime Command is to be responsible for tackling fraud and cyber crime. The Economic Crime Command will work in partnership with existing agencies, including police forces and the Serious Fraud Office, to identify strategic priorities and co-ordinate operations in the fight against economic crime. A key feature of the NCA, and a significant point of difference with other law enforcement agencies, is the function of prevention and deterrence. The NCA is to be the national intelligence hub for economic crime; it will be responsible for building and maintaining a comprehensive intelligence picture of the threats, harm and risks to the UK from organised criminals. Using existing national fraud intelligence analysis, it will achieve a greater understanding of the links between organised and economic crime. In the past decade the UK has enacted a several pieces of new legislation specifically to combat economic crime – most recently, the Bribery Act 2010 and the Crime and Courts Act 2013.

The Bribery Act came into force in July 2011 and included a new offence for corporates: ‘failure of a commercial organisation to prevent bribery’. The Bribery Act also provides a statutory defence if the organisation can prove that it had put in place adequate procedures to prevent persons associated with it from engaging in bribery. This new offence, and the available defence, has placed an onus on companies to review their operations and implement appropriate compliance processes. It obliges businesses to take responsibility for ensuring they operate in a lawful and ethical fashion.

This year the UK Parliament passed the Crime and Courts Act 2013 which provides UK prosecutors with a new tool for dealing with corporate offences; deferred prosecution agreements (or DPAs).

DPAs will give UK prosecutors a new flexibility to deal with corporate offending when a civil remedy is insufficient, but where prosecution and the associated consequences (for example, reputational damage, loss of share value and redundancies) might be disproportionate. As an alternative to launching a full criminal prosecution, a UK prosecutor will soon be able to offer a company the opportunity to resolve its position by negotiating the terms of an agreement. The Act suggests a non-exhaustive range of provisions which a DPA may include for example, financial penalties, compensation to victims, implementation of a compliance programme and donations to charity. The terms of the DPA will need to be “fair, reasonable and proportionate” and will be subject to approval by the Court. If the DPA is fully adhered to over the specified time period, the company will avoid the expense, uncertainty and reputational damage associated with a full criminal prosecution.

Those are just some of the important changes that the UK has made to combat the evolving threat of economic crime. Of course governments and lawmakers are obliged to attempt to design a legal framework to make rules to fix problems. However I would now like to say a few words about the important role the private sector has in this arena. In the past some companies have chosen not to address ethical and legal problems. When companies were caught out, they adopted an approach of “deny and defend”. However, companies have a clear interest in protecting the integrity of markets and attitudes and behaviours with regard to ethics and compliance are now changing. This was demonstrated recently by the strenuous efforts that many companies took to review their practices in light of the Bribery Act and to put in place measures to prevent bribery and corruption.

For some time there have been examples of lawmakers imposing obligations on businesses to co-operate in the fight against economic crime. Approximately a decade ago in the UK, the Proceeds of Crime Act imposed an obligation upon the regulated sector to report to the appropriate authorities suspicions of laundering of criminal proceeds. This has imposed a sometimes onerous but always important responsibility on businesses, with the underlying message that they need to take positive steps to notify authorities when they become aware of potential wrong doing.

Businesses can assist in the fight against economic crime by acting responsibly. If and when a company discovers wrong doing, it should take steps to notify the authorities and can expect to receive some reasonable quid pro quo for doing so. An example of this is the widespread use of leniency programmes for those companies which provide information or assist investigations connected with cartel offences. Similarly, DPAs will provide a new mechanism which should encourage companies that discover internal wrong doing to self-report in the confidence that they will receive a fair and reasonable benefit for doing so.

Businesses can develop their internal processes to prevent economic crime; ensuring staff are trained to be fully aware of their legal and ethical obligations. Compliance and risk management must be treated as important issues. Compliance officers should be communicating regularly and substantively with senior executives.

Furthermore there is a commercial imperative for private sector companies to assist to develop solutions to prevent fraud. Technological advances have opened up new opportunities for illegal activity. Fraud is being perpetrated on an increasing scale using the internet against the public and private sectors by data and identity theft. Virtual currencies provide a new vehicle for money launderers. There are opportunities for private sector companies to develop products and services to make online processes more robust and secure, and to assist the public sector to improve its defences and reduce the cost of fraud.

Conclusion

Economic crime is more visible than ever before and the speed of technological advance, and new ways of doing business, makes the task of fighting economic crime ever more difficult. The traditional response to new types of crime is for governments to address them by making new law. However new laws usually involve creation of additional red-tape burdens for business. If businesses continue to treat compliance as an important issue, and take the initiative to find and prevent problems, this will produce a more effective response to the challenge of economic crime, and will reduce the need for governments to fashion laws which impose expensive obligations on the private sector. Thank you for your attention and for inviting me here today. I hope this week’s symposium will be a thought-provoking and enjoyable experience for all of you.