Article – SFO’s Enforcement Strategy Focuses on Corporate Liability
SFO’s Enforcement Strategy Focuses on Corporate Liability
The U.K. Serious Fraud Office has a lot going for it right now: a director hellbent on tackling complex fraud, bribery, and corruption, an enhanced budget, new partnerships to tackle international bribery and corruption cases, and significant new enforcement powers to boot. And all of this comes at a time when liability risk for senior managers and U.K. organizations is at an all-time high.
The real gamechanger for the SFO’s corporate criminal powers is the Economic Crime and Corporate Transparency Act 2023 (ECCTA), which SFO Director Nick Ephgrave called “the most significant boost to the Serious Fraud Office’s ability to investigate and prosecute serious economic crime in over 10 years.”
SFO Director Nick Ephgrave will make his first public remarks at C5’s International Conference on Anti-Corruption on June 17 in London.
This article explores new SFO powers in relation to the ECCTA, how they enhance liability of senior managers and UK organizations, and what broader implications they have on corporate compliance programs.
Failure to Prevent Fraud Offense
One of the SFO’s newest enforcement tools, coming into force Sept. 1, is the “failure to prevent fraud” offense under the ECCTA, which establishes that large organizations will be held to account if they profit from fraud committed by their employees, agents, subsidiaries, or other “associated” persons.
The failure to prevent offense is extraterritorial in scope. Organizations not incorporated in the UK or do not conduct business in the UK still face risk of prosecution if the offense has a UK nexus.
The list of economic crimes covered by the ECCTA is extensive. False accounting and false statements by company directors may in some ways be “most problematic,” Toby Duthie, founding partner of FRA, said on a recent webinar held by the C5 Group.
When things go wrong, there’s a tendency to look back “with the benefit of hindsight” in deciding that an accounting judgment was erroneous or misleading, even when not done deliberately so, Duthie added.
Ephgrave once remarked that the failure to prevent fraud offense may bring deferred prosecution agreements “back with a bit of a vengeance.” That will be something to keep an eye on as the SFO begins to wield this new enforcement tool.
The ECCTA establishes a defense, however, for organizations that can show they have “reasonable” fraud prevention procedures in place. Thus, companies should refer to guidance published by the Home Office, highlighting six principles for structuring reasonable fraud-prevention procedures, all of which already should be familiar to chief compliance officers. Nonetheless, it does not hurt to review these principles.
The ECCTA additionally expands the SFO’s investigative powers. As of January 2024, the SFO can compel individuals or companies to provide information or documents relevant to all SFO cases, not just suspected cases of international bribery and corruption, as previously was the case. The SFO stated in a LinkedIn post that these expanded “pre-investigation” powers enable the agency to restrain at-risk assets more quickly, speeding up the early stages of its investigations.
Identification doctrine
As of December 2023, the SFO’s enforcement powers were further bolstered by expansion of the “identification doctrine,” a test for attributing criminal liability to an organization. Section 196 of the ECCTA establishes that a “senior manager” acting within the actual or apparent scope of their authority commits a relevant offense, “the organization is also guilty of the offense.”
This is a much lower bar for prosecutors to meet than proving that an offense was committed by the “directing mind and will” of the organization. “The number of people in a company whose criminality can now be attributed to their employer has increased significantly,” warned SFO General Counsel Sara Lawson.
“Given the significant role that accountants play and the reliance placed upon their work,” a “significant number” of senior managers will be in the finance and accounting functions, Duthie said. Those people will be not just CFOs, but treasurers and heads of accounting, so that liability risk will flow down below the senior management and board level, he said.
Barry Vitou, a partner at HFW in London who leads the firm’s Global Investigations and White-Collar practice, recommended on the webinar that “if companies haven’t done it already to give some thought to who their senior managers are.” Once senior managers have been identified, they should be educated about this heightened risk to then develop risk mitigation strategies.
Another bill, which has only recently been introduced in the House of Commons, would expand corporate criminal liability risk even further, applying to “any offense” committed by a senior manager, not just limited to economic crimes under the ECCTA. It underscores the point that corporate liability is a significant focus right now, Vitou stressed.
Additional enforcement tools
The SFO has received a £9.3 million funding boost to deliver on its mission, bringing its total to £88.9 million for 2025-26. Ephgrave stated that the funding will, in part, go toward improving the SFO’s case management system (CMS) and exploring machine-learning technology to assist with disclosures. Streamlining casework through the adoption of a new CMS and harnessing the uses of new technologies were among the key priorities mentioned in the SFO’s 2024-29 Strategy.
Alongside its expanded enforcement powers, the SFO continues to build international partnerships. On March 20, the SFO, France’s Parquet National Financier, and the Office of the Attorney General of Switzerland jointly announced the establishment of a new International Anti-Corruption Prosecutorial Taskforce.
Just weeks earlier, U.S. President Donald Trump issued an executive order pausing Foreign Corrupt Practices Act (FCPA) enforcement for 180 days. In that executive order, President Trump lambasted FCPA enforcement as “overexpansive” and an impediment to U.S. foreign policy objectives. For many years, the SFO has relied on the close coordination with U.S. authorities to resolve some of its largest bribery and corruption cases, including Airbus and Glencore.
In a press release, the SFO stated that the new taskforce will “strengthen existing ties between these countries and lead to greater joint working on cases, as well as sharing of insight and expertise.”
Thus, even with U.S. retreat of FCPA enforcement, the SFO’s new powers and partnerships heighten liability risk like never before. Senior managers and UK organizations should prepare accordingly.
C5 will be holding its “International Conference on Anti-Corruption” on June 17-18 in London. To Learn More, please visit: https://www.c5-online.com/ac-london/agenda/