Written evidence submitted by Dr Lorenzo Pasculli (Associate Head of Research, Coventry Law School; Associate, Centre for Financial and Corporate Integrity; Sessional Lecturer, Imperial College London at Coventry University - Imperial College London)
Executive summary (389 words)
This submission reviews the progress made in combatting economic crime and identifies possible ways to improve it, with a specific focus on: concerns regarding or improvements to the UK’s anti-money laundering and the sanctions regimes, including but not limited to corporate liability for economic crime.
Submission (2613 words, references excluded)
The submission provides key findings from the research by Dr Lorenzo Pasculli on various aspects of economic crime in the United Kingdom (UK), including causes, legal framework, regulatory agencies and law enforcement.
The submission seeks to contribute to reviewing the progress made in combatting economic crime and identifying effective ways to improve it, with a specific focus on the following terms of reference:
Concerns regarding or improvements to the UK’s anti-money laundering and the sanctions regimes, including but not limited to corporate liability for economic crime
The UK response to economic crime can be summarised into two main strategies: law enforcement and ‘responsibilisation’. This is particularly evident throughout the Economic Crime Plan 2019-2022. Law enforcement encompasses prevention, investigation and prosecution of economic crime by state agencies, such as the Serious Fraud Office (SFO), the Crown Prosecution Service and the judiciary. Responsibilisation seeks to compensate the difficulties in policing economic crime through traditional methods by devolving crime control responsibilities to companies and their managers through regulation, self-regulation and public-private partnerships (Pasculli and Ryder, 2020; Fouladvand, 2020). For instance, the Money Laundering Regulations 2017 require financial institutions to adopt various measures to prevent money laundering, including training, due diligence, record-keeping and internal controls. The implementation of such duties is supervised by both non-governmental self-regulatory organisations, such as professional associations, and governmental regulators, such as the Financial Conduct Authority (FCA) or The Office for Professional Body Anti-Money Laundering Supervision (OPBAS). Responsibilisation strategies are largely focused on risk assessment and management: the Money Laundering Regulations 2017 dedicate an entire chapter to this.
Ideally, law enforcement and responsibilisation should be complementary. Corporations and self-regulatory agencies should reach where traditional law enforcement cannot. On the other hand, law enforcement should intervene when non-governmental bodies and companies fail to comply with their obligations. In addition, law enforcement and responsibilisation should be complemented by broader social policies aimed at identifying and removing the root causes of economic crime – that is, any social, cultural, economic, psychological and even biological development that motivates or facilitates economic crime. Unfortunately, the UK is far from achieving an ideal balance between these three elements. Enforcement of the law of financial crime is still weak and problematic, and this undermines responsibilisation, as it weakens corporate and individual compliance. Moreover, serious efforts to tackle the root causes of economic crime are still lacking.
Corporate liability for economic crime
SFO’s annual reports show some progress (conviction rates by case have increased from 80% in 2017-2018 to 95% in 2019-2020), the prosecution of corporations and individuals responsible for economic crime is still inadequate due to various shortcomings.
The UK seeks to compensate the inability of the national criminal justice system to effectively deal with transnational economic crime by imposing restrictive sanctions – such as asset freeze or travel bans – on foreign the individuals or organisations involved. The Sanctions and Anti-Money Laundering Act 2018 (SAMLA) introduces sweeping executive powers to impose a wide range of sanctions for very broadly defined purposes. Sanctions are in strong tension with the rule of law. Although their contents are similar to criminal sentences, sanctions fall short of the safeguards of criminal law and justice and international human rights law. SAMLA allows one minister to become legislator, judge and enforcer: the same minister who introduces and regulates sanctions also designates those to whom they apply, determines how to enforce them (including by creating criminal offences), and reviews and revokes designations. Judicial review operates only ex post – after a person has already suffered the restrictive effects of sanctions – and according to very limited procedural safeguards. The proceedings can be determined without a hearing, in the absence of a party and without giving them full particulars of reasons and evidence. The post-Brexit withdrawal of the UK from the jurisdiction of the European Court of Justice – a committed guardian of individual rights and liberties against sanctions – will deprive designated persons of a further judicial remedy. Such a concentration of powers in the executive is arguably necessary. The purposes for which a minister is authorised to make sanctions regulations relate to policy areas that fall within the ordinary remit of Parliament. There is no reason to delegate these to government. Nor are such powers limited to temporary or exceptional circumstances. The review period of sanctions regulations is three years, proving that sanctions can apply to long-lasting situations. Sanctions are, therefore, a questionable shortcut to ‘punish’ transnational offenders when prosecuting them would be too difficult or, worse, to pre-emptively neutralise individuals deemed to be somehow dangerous. Moreover, research suggests sanctions have a minimal deterrent effect and can be counterproductive, as they may unintendedly incite more criminality (on all above issues see Pasculli, 2012, 2015 and 2019b; Pasculli and Ryder, 2020; Bradshaw, 2020).
Tackling the causes of economic crime
The Economic Crime Plan 2019-2022 mostly focuses on law enforcement and responsibilisation, with a strong emphasis on the assessment and management of risks caused by specific situations and practices. There is no commitment to understanding and addressing the root causes of economic crime. When deeper social and human developments are neglected and law enforcement is ineffective (see above), situational measures become a ‘tick-boxing’ exercise for companies and an easy way for government to show that ‘something is being done’ without actually taking any responsibility for more complex and delicate societal issues. Without broader social policies, responsibilisation strategies can turn into the deresponsibilisation of government (Pasculli, 2020). The difficulty in understanding the root causes of economic crime or devising adequate policies cannot be an excuse for inaction. Many studies identify the human and social causes of economic crime and suggest possible remedies. These include reducing social inequality through welfare, promoting values of self-worth and achievement different than mere financial success and social status through education at all levels, introducing moral, cognitive and behavioural training in the public and private sector and improving mental wellbeing and mental health support in business and government (on all this see Pasculli, 2019b; Pasculli and Ryder, 2019 and 2020; Topal, 2020). Moreover, economic crime is ‘transversal’, as it encompasses diverse practices that are often interconnected by common goals, instruments, assets and networks (Pasculli, 2012; Pasculli and Ryder 2019), as shown by recent studies on the links between terrorism and fraud (Ryder, 2019) or between tax evasion and corruption (Grasso and Pasculli, 2020). Different offences cannot be addressed in isolation but must be understood and tackled as a whole complex phenomenon. The Economic Crime Plan 2019-2022 is a first step towards a more comprehensive approach and the ‘long-term research strategy’ it promised by December 2019 is fundamental to understand the root causes and the transversality of economic crime. Unfortunately, the strategy has not been delivered yet. Coherent and systematic mechanisms to facilitate interactions between academia and policymakers are missing.
Conclusions and recommendations
Government could also promote a Bill to reform the Crime and Courts Act 2013 so as to include the above principles. DPAs should be widely publicised to raise public awareness of the seriousness of economic crimes, the responsibilities of companies involved, and the legal consequences.
Bradshaw, A. (2020). ‘Financial sanctions as a weapon for combatting grand corruption’. In: Ryder, N. & Pasculli, L. (eds) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 127-141.
Fouladvand, S. (2020). ‘Corruption, regulation and the law: The power not to prosecute under the UK Bribery Act 2010’. In: Ryder, N. & Pasculli, L. (2020) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 71-88.
Grasso, C. (2016). ‘Peaks and troughs of the English deferred prosecution agreement: the lesson learned from the DPA between the SFO and ICBC SB Plc’. Journal of Business Law, 5, pp. 388–408.
Johnson, D. (2020). ‘What role does competition law have to play in the prosecution of financial crime in the UK?’. In: Ryder, N. & Pasculli, L. (eds) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 36-53
Palmer, A. (2020). ‘Justice deferred is justice denied? The jury’s out’. In: Ryder, N. and Pasculli, L. (eds) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 89-112.
Pasculli, L. (2012). Le Misure di Prevenzione del Terrorismo e dei Traffici Criminosi Internazionali. Padova: Padova University Press.
Pasculli, L. (2015). La normalizzazione della prevenzione eccezionale del crimine globale. Improvvisazione ‘con una mano legata’ in quattro tempi e finale sull’emerso diritto della prevenzione criminale negative. In: Bonini, S., Busatta, L. & Marchi, I. (eds) L’eccezione nel diritto. Trento: Editoriale Scientifica, 319-360.
Pasculli, L. (2019a). ‘Seeds of systemic corruption in the post-Brexit UK’, Journal of Financial Crime. 26(3), 705-718.
Pasculli, L. (2019b). ‘Brexit, integrity and corruption. Local and global challenges’. In: Pasculli, L. & Ryder, N. (eds) Corruption in the Global Era: Causes, Sources and Forms of Manifestation. Abingdon: Routledge, 212-232.
Pasculli, L. (2020). ‘The Global Causes of Cybercrime and State Responsibilities. Towards an Integrated Interdisciplinary Theory’. Journal of Ethics and Legal Technologies. 2(1), 48-74. Available at: https://jelt.padovauniversitypress.it/system/files/papers/JELT-02-01-03.pdf
Pasculli, L. & Ryder, N. (2019). ‘Corruption and globalisation: towards an interdisciplinary scientific understanding of corruption as a global crime’. In: Pasculli, L. & Ryder, N. (eds) Corruption in the Global Era: Causes, Sources and Forms of Manifestation. Abingdon: Routledge, 3-23.
Pasculli, L. & Ryder, N. (2020). ‘The global anti-corruption framework: Lights, shadows and prospects’. In: Ryder, N. & Pasculli, L. (eds) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 3-13.
Ryder, N. (2018) ‘Too scared to prosecute and too scared to jail?’ A critical and comparative analysis of enforcement of financial crime legislation against corporations in the USA and the UK. The Journal of Criminal Law. 82(3), 245-263.
Ryder, N. (2019). ‘Terrorism financing and the fraud dossier’. Paper presented at the 8th Annual Wales Fraud Forum Conference.
Topal, J. (2020). ‘The practice of anti-corruption and integrity of government:
On the moral learning side of the story’. In: Ryder, N. & Pasculli, L. (2020) Corruption, Integrity and the Law: Global Regulatory Challenges. Abingdon: Routledge, 268-285.
 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017.
 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, sch 1.
 The Oversight of Professional Body Anti-Money Laundering and Counter Terrorist Financing Supervision Regulations 2017.
 Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017, ch 2.
 SFO (2020) Deferred Prosecution Agreements: https://www.sfo.gov.uk/publications/guidance-policy-and-protocols/sfo-operational-handbook/deferred-prosecution-agreements/
 SFO (2019) Annual Report 2018-2019 and SFO (2020) Annual Report 2019-2020, both available at: https://www.sfo.gov.uk/publications/corporate-information/annual-reports-accounts/
 Cf. SFO (2018) Annual Report 2017-2018; SFO (2019) Annual Report 2018-2019; SFO (2020) Annual Report 2019-2020, all available at: https://www.sfo.gov.uk/publications/corporate-information/annual-reports-accounts/
 HM Department for Business, Energy & Industrial Strategy (2020) Whistleblowing: list of prescribed people and bodies. Available at: https://www.gov.uk/government/publications/blowing-the-whistle-list-of-prescribed-people-and-bodies--2/whistleblowing-list-of-prescribed-people-and-bodies
 Sanctions and Anti-Money Laundering Act 2018, ss 10(2)(a)-(b), 11 and 12.
 Ibid., s 17.
 Ibid., ss 22-25.
 Ibid., s 40 and Counter-Terrorism Act 2008, ss 66 to 68.
 See joined cases C-402/05 P and C-415/05 P Yassin Abdullah Kadi and Al Barakaat International Foundation v Council of the European Union and Commission of the European Communities  ECR I-06351 and C-584/10 P, C-593/10 P and C-595/10 P European Commission and Others v Yassin Abdullah Kadi  ECLI:EU:C:2013:518.
 Sanctions and Anti-Money Laundering Act 2018, s 24(4).
 EU-funded Project VirtEU: https://www.virteu.com/research-context
 SFO (2020) Reporting serious fraud, bribery and corruption. Available at: https://www.sfo.gov.uk/contact-us/reporting-serious-fraud-bribery-corruption/
 SEC (2020). Office of the Whistleblower. Available at: https://www.sec.gov/whistleblower
 Huis voor Klokkenluiders (2020). Available at: https://www.huisvoorklokkenluiders.nl/english