Extraterritoriality: The UK Perspective

27.1 Overview

English criminal law applies to all persons within the territory of England and Wales. However, the UK authorities can also investigate and prosecute offences committed overseas.

In the context of economic crime, the past three decades saw a sustained legislative policy of extending the jurisdiction of the UK authorities. Most recently, this has included the introduction of the Economic Crime (Transparency and Enforcement) Act 2022 (the Economic Crime Act),[2] which introduces registration and information requirements for overseas entities buying (or holding[3]) property in the United Kingdom and reforms to the unexplained wealth order regime and sanctions (as described further below).

Proposals are also on the table for the Economic Crime and Corporate Transparency Bill later in 2022–2023 to reform Companies House powers, establish enhanced verification requirements for company ownership and control and the creation of new powers to seize and recover crypto-assets. Given the global and decentralised nature of crypto-assets, such powers will need to have extraterritorial application in order to be effective.

For certain economic crimes, authorities may bring prosecutions in the United Kingdom notwithstanding that all the relevant criminal conduct occurred overseas. The most obvious example is the Bribery Act 2010 (UKBA). In line with the United Kingdom’s extension of its jurisdictional reach, the authorities have increased their coordination and co-operation with other countries’ prosecutors. The trend towards greater cross-border information sharing and coordinated investigations is likely to continue in accordance with ongoing domestic and international obligations.[4]

27.2 The Bribery Act 2010

The UKBA created offences of (1) offering, promising or giving a bribe and (2) requesting, agreeing to receive or accepting a bribe either in the United Kingdom or abroad, in the public or private sectors, more specifically:

  • sections 1 and 2 – bribing another person (active bribery) and being bribed (passive bribery);
  • section 6 – bribery of a foreign public official; and
  • section 7 – failure of commercial organisations to prevent bribery.

Each of the above offences has extraterritorial application, as outlined below.

27.2.1 Offences under sections 1, 2 and 6

UK prosecutors may pursue an offence under sections 1, 2 or 6, even where part of the relevant conduct took place outside the United Kingdom. This is the position provided that:

  • a person’s acts or omissions outside the United Kingdom would form part of such an offence if they had occurred in the United Kingdom;[5] and
  • the person has a ‘close connection with the United Kingdom’.[6]

A ‘close connection with the United Kingdom’ is defined in the UKBA and includes British citizens and UK companies.[7]

27.2.2 Corporate offence under section 7

This offence is committed by a ‘relevant commercial organisation’ if a person associated with the organisation (an associated person)[8] bribes another person intending to obtain or retain business, or an advantage in the conduct of business, for the organisation. In those circumstances, the organisation’s only defence to this strict liability offence is to show that it had in place ‘adequate procedures’ designed to prevent bribery on its behalf.[9]

A ‘relevant commercial organisation’ includes a company or partnership (wherever incorporated) that carries on any part of its business in the United Kingdom. On the basis of current publicly available information, the courts are yet to consider a case where it is disputed that a commercial organisation indicted under section 7 was carrying on business within the United Kingdom.[10] Until the courts hear argument on that specific point, practitioners continue to refer to the Ministry of Justice guidance regarding the corporate offence. That guidance recommends a ‘common sense approach’ and notes that a ‘demonstrable business presence’ is required. Neither having the company’s shares listed on the London Stock Exchange nor having a UK subsidiary would necessarily mean that a foreign company is carrying on business for the purposes of section 7 of the UKBA.[11]

It is irrelevant whether the acts or omissions forming part of the section 7 offence took place in the United Kingdom or elsewhere.[12] Therefore, it is possible for either of the following scenarios to form the factual basis for a section 7 offence:

  • any business formed or incorporated in the United Kingdom, where the bribery is conducted entirely outside the United Kingdom by an associated person who has no connection with the United Kingdom and who is performing services outside the United Kingdom; and
  • any business formed or incorporated outside the United Kingdom, but that carries on part of its business in the United Kingdom, where the bribery is conducted entirely outside the United Kingdom by an associated person who has no connection with the United Kingdom and who is performing services outside the United Kingdom.

In January 2020, the Serious Fraud Office (SFO) agreed a record-breaking deferred prosecution agreement (DPA) with Airbus SE, including a total penalty of almost €3.6 billion,[13] in relation to five counts of the failure to prevent offence across five jurisdictions.[14] In June 2021, the SFO agreed a DPA with Amec Foster Wheeler Energy Limited in relation to one count of conspiracy to make corrupt payments and nine counts for failure to prevent bribery (section 7 offence) regarding the use of corrupt agents in conduct which spanned Nigeria, Saudi Arabia, Malaysia, India and Brazil. Under the terms of the DPA, AFWEL will pay a financial penalty and costs amounting to £103 million in the United Kingdom, which forms part of the US$177 million global settlement with UK, US and Brazilian authorities.

When advising companies on self-reporting to the authorities, practitioners should be aware of the practical risks to confidentiality. Bringing material located abroad into England and Wales may lead to legal arguments relating to its collateral use in subsequent civil or regulatory proceedings, as in Omers Administration Corporation and others v. Tesco Plc.[15] While that case related to documents held in England, the High Court ordered that documents provided to Tesco by the SFO during negotiations for a DPA should be disclosed by Tesco in a separate and subsequent civil action, brought by its shareholders.

27.3 The Proceeds of Crime Act 2002

27.3.1 Money laundering offences under Part 7

Money laundering has a broad meaning under UK law. The money laundering regime is designed to tackle the routes through which the proceeds of criminal activity are handled. The principal offences are found in sections 327 to 329 of the Proceeds of Crime Act 2002 (POCA), being:

  • concealing, disguising, converting, transferring or removing from the United Kingdom, any criminal property (section 327);
  • entering or becoming concerned in arrangements that one knows or suspects facilitate the acquisition, use, etc., of criminal property (section 328); and
  • acquiring, using or possessing criminal property (section 329).

Property is ‘criminal property’ if it represents a person’s benefit from criminal conduct. ‘Criminal conduct’ is conduct that either is an offence in the United Kingdom or would be an offence if it had taken place within the United Kingdom.[16] Although the prosecution must adduce evidence of a predicate offence from which the proceeds of crime emanate, a prosecutor need not prove the type of predicate offence in every instance. Instead, the prosecutor will need to provide the court with detailed particulars explaining why the property should be regarded as criminal in origin, and that evidence should be sufficiently potent to demonstrate that the only reasonable inference is that the property arose from criminality.

The location of the underlying criminal conduct is immaterial. Instead, the pertinent issue is whether the conduct would constitute a criminal offence in the United Kingdom had it occurred here. This principle was confirmed by the Court of Appeal in R v. Rogers,[17] which emphasised the wide territorial scope of the money laundering regime. Mr Rogers, a UK citizen resident in Spain, permitted money generated by a fraudulent scheme in the United Kingdom to be paid into a Spanish bank account that he controlled, and allowed another person to withdraw money from that account. Mr Rogers was convicted under section 327(1)(c) of POCA of converting criminal property. He appealed against his conviction, arguing that the court did not have jurisdiction to hear Part 7 offences against a non-UK resident where the relevant conduct occurred entirely outside the United Kingdom.

In dismissing the appeal, the Court stated that the offence of money laundering is ‘par excellence an offence which is no respecter of national boundaries’[18] and therefore Parliament must have intended that the section 327 offence would have extraterritorial effect. As such, there was sufficient jurisdictional nexus to try Mr Rogers as the acts resulting in the property becoming criminal property plainly took place, and had an impact on victims, in the United Kingdom, and that the laundering of the proceeds by Mr Rogers in Spain was directly linked to those acts in the United Kingdom.[19] Rogers was recently applied in the extradition case of Balaz v. District Court of Zloven (Slovakia)[20] in which the court, in dismissing Mr Balaz’s appeal, confirmed that the offences in sections 327 to 329 of POCA have extraterritorial effect. Although the issue of jurisdictional nexus did not arise on the specific facts in Balaz,[21] the ruling is notable because section 329 of POCA (possessing criminal property) was held to apply in circumstances where the nexus to the UK was tenuous.[22] This signals that the UK courts are willing to afford wide extraterritoriality to POCA offences.

Rogers and subsequent cases indicate that a person may be guilty of a money laundering offence under sections 327 to 329 of POCA in circumstances where both the predicate offending and the laundering of the criminal property take place outside the United Kingdom.[23]

There exists a limited exception described as the ‘overseas conduct defence’. A person will not be liable under sections 327 to 329 if:

  • he or she knew or reasonably believed that the relevant criminal conduct occurred abroad; and
  • that relevant criminal conduct was not, when it took place, unlawful under the criminal law of that other country.[24]

This defence, however, does not apply to conduct that (despite being legal under local law) would constitute an offence punishable by a maximum sentence of over 12 months’ imprisonment in the United Kingdom if it had occurred there.[25] In practice, therefore, most cases (e.g., bribery, corporate fraud, tax evasion) relevant to readers will remain squarely within the wide extra­territorial scope of POCA.

27.3.2 Civil recovery orders under Part 5

Separately, the civil recovery regime set out in POCA[26] enables UK prosecutors to seek orders from the High Court to recover property that either is or represents property obtained through unlawful conduct. As applications for civil recovery orders and freezing orders are determined through civil, not criminal, proceedings before the High Court, the standard of proof is the balance of probabilities. The High Court may issue such an order against any person or property wherever domiciled or situated, if there is or has been a connection between the facts of the case and any part of the United Kingdom.[27] Combined with the wide jurisdictional scope of the definition of ‘unlawful conduct’,[28] civil recovery orders are a powerful and attractive tool in the hands of UK prosecutors. The civil recovery regime was bolstered by the introduction of account freezing and forfeiture orders as part of the Criminal Finances Act 2017,[29] which enables prosecutors to apply to freeze the contents of bank accounts if they have reasonable grounds for suspecting that funds in an account are recoverable (as defined in section 304 of POCA) or intended for use in unlawful conduct. In October 2021, the Crown Prosecution Service and City of London Police working with private sector partners secured the largest-ever proceeds of crime account forfeiture in the United Kingdom. Following an investigation involving lines of enquiry in multiple jurisdictions across three continents, account freezing orders were obtained against two accounts held by Du Toit & Co LLP (a South African law firm operating from UK offices) and Xiperias Ltd (a Cypriot registered company). Both companies agreed to forfeit €34 million, to settle litigation alleging that the funds in two bank accounts were derived from unlawful conduct.[30]

An additional civil recovery power introduced by the Criminal Finances Act 2017 in January 2018 was the unexplained wealth order (UWO).[31] On application to the High Court, prosecutors[32] can seek a UWO to compel a respondent individual or corporate entity (whether or not UK-domiciled) to disclose information about their property[33] including the nature of their interest in it and means of acquiring it. Part 2 of the Economic Crime Act broadened the scope of the UWO regime by enabling prosecutors to obtain a UWO against ‘responsible officers’ of an entity (including directors, managers or partners) in or outside of the UK where the respondent is a corporate entity. UWOs may be available where:

  • there is reasonable cause to believe the respondent holds specific property valued at or above £50,000;
  • there are reasonable grounds to suspect that (1) the respondent’s known income is insufficient to acquire that property or (2) the property has been obtained through unlawful conduct;[34] and
  • either the respondent is a ‘politically exposed person’ or there is reasonable suspicion that the respondent (or a person connected to him or her) is or has been involved in serious crime in the United Kingdom or abroad.

Where granted, the UWO compels the respondent to explain the nature of their interest in the property, and to explain how they obtained it. Failure to do so creates a presumption that the property was obtained unlawfully, and it is therefore a valid target for civil recovery proceedings under Part 5 of POCA.

Where a UWO is granted against property outside the United Kingdom, and the UK prosecutor believes there is a risk of dissipation or frustration by concealing the relevant assets, that prosecutor may make a formal request for assistance from the other country’s government.[35] At the time of writing, only nine UWOs have been issued, relating to four cases. None have been obtained since the end of 2019; however, with the reforms introduced to the UWO regime by the Economic Crime Act we may see more UWOs being sought and obtained in the future.[36]

27.4 Tax evasion and the Criminal Finances Act 2017

The Criminal Finances Act 2017 also introduced a new corporate offence focused on tax evasion. As with the UKBA’s corporate offence, this represents another significant departure from the traditional ‘directing mind’ identification doctrine for corporate criminal liability under English law.

Part 3 of the Criminal Finances Act 2017 creates two corporate offences of failure to prevent the facilitation of tax evasion. The offences are modelled on section 7 of the UKBA and apply to both domestic and overseas tax evasion. The offences are (1) failure to prevent the facilitation of UK tax evasion offences (section 45) and (2) failure to prevent the facilitation of foreign tax evasion offences (section 46).[37]

If the offence took place outside the jurisdiction, however, UK prosecutors must still prove to the criminal standard that both the taxpayer and the associated person committed an offence. The prosecutor will also need to prove dual criminality of the conduct. The offences consist of three component parts. First, the prosecution must prove criminal evasion by a taxpayer; and there must have been dishonest[38] facilitation of tax evasion by an associated person.[39] Where these two components are satisfied, the relevant body is criminally liable (unless it can show that it had ‘reasonable preventative procedures’ in place, or that it was unreasonable to expect the company to have had such procedures in place).

A ‘relevant body’ is a company or a partnership, wherever it may be incorporated or formed.[40] A ‘person associated’ with the relevant body is an employee, an agent or any other person performing services for or on behalf of that relevant body.[41] Again, this is broadly comparable to the concepts in the UKBA. Section 46 of the Criminal Finances Act 2017 provides that a company or partnership that carries on business in the United Kingdom will commit an offence if a ‘person associated’ with it commits a ‘foreign tax evasion facilitation offence’, unless the company or partnership had reasonable procedures in place to prevent the facilitation offence. A foreign tax evasion facilitation offence means conduct that amounts to:

an offence under the law of a foreign country . . . relates to the commission by another person of a foreign tax evasion offence under the law of that country, and . . . would, if the foreign tax evasion offence were a UK tax evasion offence, amount to a UK tax evasion facilitation offence.[42]

27.5 Financial sanctions

Financial sanctions restrict the provision of financial services, or access to global capital markets, or both. More specifically, those restrictions can include bans on investments in a particular country, or the denial of banking relationships. Trade sanctions restrict the trading of certain products or commodities (e.g., arms, oil and diamonds) from targeted countries (e.g., Iran, Russia and Syria) and control the export of certain products (e.g., military or dual-use items) to targeted countries.[43]

For the purposes of this chapter, we focus on financial sanctions.[44] On 1 January 2021, the United Kingdom’s legal framework regarding financial sanctions was consolidated under the Sanctions and Anti-Money Laundering Act 2018 (SAMLA). Previously, the United Kingdom used secondary legislation to implement various sanctions programmes made by the United Nations Security Council and the European Union. This post-Brexit sanctions framework has given the United Kingdom a new and broad discretion to amend and update its domestic regime. The UK Foreign, Commonwealth and Development Office has implemented a number of regulations to replace the EU sanctions regimes (as implemented in the United Kingdom) with domestic regulations. The United Kingdom has also adopted country-specific regulations to replace the equivalent EU regulations that restrict activities in respect of certain countries or territories as well as certain terrorist organisations.[45]

In July 2020, the UK government announced the Global Human Rights Sanctions Regulations 2020 (the Regulations),[46] pursuant to SAMLA.

The Regulations empower the Foreign Secretary to designate persons (whether or not UK persons) according to specific criteria and impose asset freezes and travel bans.[47] By July 2021, it was reported that 72 individuals and six entities had been sanctioned under the Regulations in connection with 11 separate instances of human rights violations.[48]

In April 2021, the United Kingdom enacted the Global Anti-Corruption Sanctions Regulations 2021[49] specifically targeting individuals suspected of involvement in serious corruption. The new regime is designed to complement the Regulations. The scope of the regime is wide and allows for an individual or entity to be designated if there are reasonable grounds to suspect that the person is involved in serious corruption. Indirect involvement through, for example, an entity owned or controlled directly or indirectly by a person who is or has been so involved, is also captured.[50] As with the Regulations, the new regime operates through specific asset freezes and travel bans on individuals and entities.[51]

In response to Russia’s invasion of Ukraine in February 2022, the United Kingdom enacted a series of statutory provisions amending its Russia sanctions regime (the Amendments).[52] The Amendments expand the scope of existing sanctions to target any person involved in obtaining a benefit from or supporting the government of Russia. The Amendments have a deliberately broad scope and express extraterritorial application, applying to conduct by UK persons whether or not they are in the United Kingdom, and certain powers relating to maritime enforcement apply to British ships in international or foreign waters.[53]

The Economic Crime Act also implemented a number of changes to the sanctions regime including an urgent designation procedure (which is applicable to persons subject to similar sanctions by the United States, European Union, Australia, Canada or any other specified country).

The United Kingdom may also issue financial sanctions under certain specific statutes, such as the Terrorist Asset-Freezing Act 2010[54] or via regulations targeted at specific jurisdictions. Those advising businesses concerned about liability should carefully review the text of the specific statutory instrument, and the underlying regulation, in each case. Broadly, however, UK financial sanctions impose criminal liability for a person who:

  • makes funds or economic resources available, whether directly or indirectly, to a designated person;
  • deals with funds or economic resources belonging to or controlled by a designated person; or
  • acts in a way, whether directly or indirectly, to circumvent the relevant financial sanction prohibitions.[55]

While the jurisdictional scope of UK financial sanctions is broad, they do require some element of UK nexus. The sanctions apply to:

  • anybody present in the United Kingdom, namely all persons (natural and legal) ‘who are within or undertake activities within the UK’s territory’; and
  • all UK nationals and all UK legal entities (including branches, and the UK subsidiaries of foreign companies), wherever they may be in the world and irrespective of where their activities occur.[56]

In its guidance, the Office of Financial Sanctions Implementation (OFSI) states that a sanctions breach need not occur within UK borders for its authority to be engaged, but that any such breach must have a ‘UK nexus’, which OFSI will determine on the facts of each case.[57] This may provide some degree of comfort to foreign businesses with no UK footprint. Notably, SAMLA provides for sanctions being imposed regarding (1) conduct within UK jurisdiction by any person and (2) conduct anywhere in the world but only if the conduct is by a ‘United Kingdom person’.[58]

The Policing and Crime Act 2017 introduced a wider range of enforcement options, specifically (1) making sanctions offences eligible for consideration for a DPA,[59] (2) making sanctions offences eligible for (civil) Serious Crime Prevention Orders under the Serious Crime Act 2007[60] and (3) empowering OFSI to impose (civil) financial penalties.[61] In April 2020, OFSI utilised its powers under the Act and announced that it had imposed a £20.4 million penalty on Standard Chartered for breaches of EU ‘sectoral sanctions’ on Russian companies in the banking, oil and defence sectors.[62] This is by far OFSI’s largest and most significant sanctions enforcement action to date.

27.6 Mutual legal assistance, cross-border production and the extraterritorial authority of UK enforcement agencies

Mutual Legal Assistance (MLA) allows one state to seek co-operation from another in the investigation or prosecution of criminal offences via a formal letter of request.[63]

The framework governing the United Kingdom’s approach to MLA is contained in statute, primarily the Crime (International Co-operation) Act 2003 (CICA) and various bilateral and multilateral treaties.[64] The United Kingdom does not, however, need a formal treaty basis to co-operate. The UK Home Office Central Authority is primarily tasked with receiving, and acceding to,[65] MLA requests.[66]

Outgoing MLA requests (i.e., those from the United Kingdom to a foreign state) seeking evidence must be issued by a court or a designated prosecuting authority.[67]

Evidence obtained from or by the United Kingdom pursuant to an MLA request cannot be used for any purpose other than that specified in the request without consent of the foreign authority.

In practice, persons subject to a request from a foreign authority, whether formal or informal, should ensure that they do not disclose material that is legally privileged, and ensure they take all appropriate steps to protect their rights under UK law, including as to the privilege against self-incrimination. For example, one method of MLA is to compel witnesses to attend court.[68] Importantly, however, a witness cannot be compelled to give evidence where he or she could not otherwise be compelled to testify under either UK law or that of the requesting state.[69]

MLA is not, of course, the only avenue for UK authorities to extend their information-gathering overseas. In February 2019, the Court of Appeal decided the case of Jimenez.[70] The Court held that HM Revenue and Customs (HMRC) was entitled to serve an ‘information notice’[71] on a British individual resident overseas to obtain information about his tax position. Mr Jimenez, a UK national resident in the United Arab Emirates, challenged service of that notice at his address in Dubai. HMRC had served the notice as part of its investigation into Mr Jimenez’s tax affairs. In 2017, the High Court quashed the notice on the basis that Schedule 36 to the Finance Act 2008 was silent as to its extraterritorial effect. The Court of Appeal subsequently overturned that decision on the basis that the purpose of Schedule 36 is to prevent tax evasion, which is often cross-border in nature and, in the absence of any express restriction on the geographical effect, the legislation must confer effective investigatory powers on HMRC. In short, the Court of Appeal held that Parliament intended that specific information-gathering power should be available for investigating the UK tax position of relevant persons resident overseas.[72] The decision in Jimenez contrasts with the decision in KBR v. SFO,[73] in which the Supreme Court held that the SFO’s powers under section 2(3) of the Criminal Justice Act 1987 were not intended to extend extraterritorially to compel a non-UK company to produce documents held overseas. The SFO’s case had relied in part on the Court of Appeal’s decision in Jimenez[74] but the Supreme Court in KBR distinguished Jimenez on the basis that HMRC’s powers were only exercisable in relation to someone liable for tax in the United Kingdom (and who therefore had an identifiable relationship with the United Kingdom) and that non-compliance was not a criminal offence, such that the general presumption that UK legislation is not intended to have extraterritorial effect did not apply.

The Crime (Overseas Production Orders) Act 2019 introduced an information gathering tool for UK agencies. Since data is increasingly managed, processed and stored by entities located outside the United Kingdom, the Act enables specified investigative agencies[75] to apply to a Crown Court judge for an overseas production order (OPO). An OPO enables receipt of electronic data directly from an overseas communications service provider. The government has stated that this will be subject to robust judicial oversight, and that there are existing statutory protections for legally privileged or journalistic material.

The United Kingdom has entered into a data access agreement with the United States[76] that will enable UK law enforcement agencies to request electronic data, via warrant, from US tech companies, speeding up the investigation and prosecution of serious criminals and replacing the existing MLA regime.

27.7 Corporate transparency

27.7.1 Beneficial ownership disclosure requirements

While there are legitimate reasons for wanting to separate the legal and beneficial owners of an asset, registers of beneficial ownership provide transparency and play an important role in the fight against corruption, tax evasion and money laundering. The United Kingdom has (or intends to have) registers of beneficial ownership for three different types of assets: companies, trusts, and property and land. One of the primary purposes of SAMLA was to curb money laundering in British overseas territories such as the British Virgin Islands, the Cayman Islands and the Crown dependencies.[77] As such, in December 2020, the UK government published an Order in Council requiring all overseas territories to establish public registers of beneficial ownership. At the time of writing, British overseas territories have committed to introduce registers by the end of 2023. Crown dependencies have also committed to do so after the European Union reviews the implementation of its own public registers, in 2022 or 2023.

The Economic Crime Act requires all non-UK entities that own or buy real property in the United Kingdom to join a public register listing the entity’s beneficial owners. Aimed at preventing criminals from hiding their property ownership behind chains of obscure shell companies, registration requires the identification and disclosure of beneficial owners, being those that:

  • hold more than 25 per cent of the shares or voting rights in that entity;
  • have the right to appoint or remove the majority of the directors of that entity; or
  • have the right to exercise or actually exercise significant influence or control over that entity.

The rules will apply retrospectively to property bought up to 20 years ago in England and Wales. Property owners will have six months to comply with the new rules. Non-UK entities that already own property in the United Kingdom will have six months from the date of the Act’s commencement to apply for registration or dispose of their property.[78]

The Economic Crime and Corporate Transparency Bill aims to introduce further measures to promote corporate transparency including providing Companies House with enhanced investigative and enforcement powers and introducing identity verification for company ownership and control.

27.7.2 Transaction screening

The National Security and Investment Act 2021 (which came into force in January 2022) created a new screening regime that allows the government to review and potentially prevent or unwind certain transactions that may give rise to a risk to national security. Certain transactions falling within 17 ‘sensitive’ sectors of the UK economy now require the government’s clearance prior to completion, otherwise they will be void.[79]

The screening regime applies where the target entity or asset is from, in, or has a sufficient connection with, the United Kingdom. A qualifying entity must carry on activities in, or supply goods or services to people in, the United Kingdom, and a qualifying asset must be used in connection with such activities.[80] The Department for Business, Energy and Industrial Strategy published specific guidance on when target entities and assets outside the United Kingdom are within the scope of the new regime, which indicates a relatively broad approach in this regard. For example, an overseas company producing goods for export to a UK company could be caught, as could machinery located overseas producing equipment used in the United Kingdom.

Whether an entity will have a sufficient connection is likely to be fact-specific. For example, the guidance cites that an overseas entity is likely to be a qualifying entity if its staff travel to the United Kingdom and undertake business activities similar to working in a regional office (such as performing services for a UK client regularly) but is not likely to be one if the staff solely conduct market research or are part of a sales team seeking new clients.[81]


Footnotes

[1] Jessica Lee is a senior associate and Chloë Kealey is an associate at Brown Rudnick LLP. The authors thank Jennifer Morris-Hernandez for her assistance with this chapter.

[2] The Act’s introductory text begins: ‘An Act to set up a register of overseas entities and their beneficial owners and require overseas entities who own land to register in certain circumstances; to make provision about unexplained wealth orders; and to make provision about sanctions.’

[3] The regime applies retrospectively to property in England and Wales where an overseas entity became registered as proprietor as a result of an application made on or after 1 January 1999.

[4] For example, the Common Reporting Standard (formally the Standard for Automatic Exchange of Financial Account Information) is an Organisation for Economic Co-operation and Development initiative aimed at hindering tax evasion and money laundering.

[5] s.12(2)(b) Bribery Act (UKBA).

[6] s.12(2)(c) UKBA.

[7] s.12(4) UKBA. A person has a close connection with the United Kingdom if, and only if, the person was one of the following at the time the acts or omissions concerned were done or made: a body incorporated under the law of any part of the United Kingdom, a British overseas territories citizen, a British national overseas, a British overseas citizen, a person who under the British Nationality Act 1981 is a British subject, a British protected person under the British Nationality Act 1981, an individual ordinarily resident in the United Kingdom, or a Scottish partnership.

[8] An ‘associated person’ is defined in the UKBA as a person who performs services for or on behalf of the company in any capacity (i.e., an employee, agent or subsidiary), which is to be determined by reference to all the relevant circumstances and not merely the nature of his or her relationship with the company. A section 7 offence will be committed only if the associated person intended to obtain or retain business or another advantage in the conduct of business for the relevant organisation.

[9] s.7 UKBA. Although ‘adequate procedures’ is not defined in the UKBA, the Ministry of Justice’s guidance (March 2011) broadly outlines what businesses need to demonstrate to mount a successful ‘adequate procedures’ defence, for example proper risk-assessment procedures, due-diligence protocols and top-level commitment. To date, the only case in which a corporate defendant has raised the statutory defence is R v. Skansen Interiors Ltd [2018]. While this was a jury conviction before the Crown Court and therefore provided no judicial guidance as to what compliance measures might constitute ‘adequate procedures’, it is a useful demonstration of the importance of substance over form where compliance policies and procedures are concerned.

[10] The section 7 offence is in addition to, and does not displace, liability that might arise under the UKBA where the commercial organisation itself commits an offence by virtue of the common law ‘identification’ principle. For more information on the common law ‘identification principle’ see the Introduction of this book.

[11] Ministry of Justice Guidance to the Bribery Act 2010 (March 2011), paras. 34 to 36.

[12] s.12(5) UKBA.

[13] €991 million of which was to be paid to the Serious Fraud Office (SFO) as disgorgement of profits, a fine and the SFO’s legal and investigative costs.

[14] Ghana, Indonesia, Malaysia, Sri Lanka and Taiwan.

[15] [2019] EWHC 109 (Ch).

[16] s.340(2) and (3) Proceeds of Crime Act 2002 (POCA).

[17] [2014] EWCA Crim 1680. This case was applied in Jedinak v. Czech Republic [2016] EWHC 3525 (Admin) and Balaz v. Slovakia [2021] EWHC 1862 (Admin) and followed in Sulaiman v. France [2016] EWHC 2868 (Admin).

[18] [2014] EWCA Crim 1680 at para. 52.

[19] Observations made by Lord Woolf CJ in R v. Smith (Wallace Duncan) (No.4) [2004] 2 Cr App R 17, [2004] EWCA Crim 631 that the English courts have moved away from definitional obsessions about jurisdiction and instead will apply English criminal law where a ‘substantial measure of the activities constituting a crime take place in England’ were also applied by the Court in Rogers.

[20] [2021] EWHC 1862.

[21] In his appeal, Mr Balaz contended that the circumstances of his case would not have resulted in a money laundering charge in the United Kingdom if the conduct was captured by a substantive offence (i.e., fraud). In turn, it was contended that the requirements for extradition could not be satisfied. In declining to overturn the extradition order, the court stated that all that was required was an assessment of the conduct and not whether, as a matter of jurisdiction, it would have attracted a charge in the United Kingdom.

[22] Slovakia sought to extradite Mr Balaz (a Slovakian national residing in Germany) from the United Kingdom for an alleged fraud generating €1,000. The victims, also Slovakian nationals, had travelled to Germany having seen an online advertisement. The predicate offence that concerned false representations took place during a meeting in Germany and the criminal property generated as a result was a sum of cash handed over in Germany. There was no evidence of the money entering any other jurisdiction. Aside from the nationalities of the alleged perpetrator and victims and the fact that the online advertisement had been seen by people in Slovakia, there appeared to be little nexus to Slovakia.

[23] Sulaiman v. Tribunal de Grande Instance [2016] EWHC 2868 (Admin) in which Dingemans J confirmed that Rogers is ‘binding’ authority ‘for the proposition that offences of money laundering extend to extraterritorial actions’ (at para. 18), Jedinak v. District Court in Pardubice [2016] EWHC 3525 and Balaz v. District Court of Zloven [2021] EWHC 1862 (Admin) in which it was ‘conceded that [Rogers] was of general application to any offence under the money laundering provisions’. In Jedinak, despite the arguments by the defence that ‘the court was clearly to an extent motivated by the recognition that some part of the offending [in Rogers] (and indeed the damage cause by the offending) impacted on this country and nationals of this country’, the court held that ‘it is clear in my judgment that the decision relating to the possible extraterritorial effect of the money laundering offences was independent of that’.

[24] ss.327(2A), 328(3) and 329(2A) POCA.

[25] The Proceeds of Crime Act 2002 (Money Laundering: Exceptions to Overseas Conduct Defence) Order 2006.

[26] Part 5 POCA.

[27] s.282A POCA, inserted by s.48 Crime and Courts Act 2013, following the UK Supreme Court decision in Perry v. SOCA [2012] UKSC 35. s.282A and Schedule 7A POCA have retrospective effect – see, para. 7(7) of Schedule 7A POCA.

[28] Defined as (1) conduct within the United Kingdom that is unlawful under UK criminal law or (2) conduct outside the United Kingdom that is unlawful in that other country and would have been unlawful in the United Kingdom, had it occurred here. This is, therefore, a dual criminality test. The insertion of s.241A POCA (by s.13 Criminal Finances Act 2017 (CFA)) adds ‘gross human rights abuse or violation’ to the definition of unlawful conduct for the purposes of Part 5 POCA (civil recovery). This was the first time the United Kingdom targeted assets held anywhere in the world owned by those involved in repressive regimes; this follows the approach in the United States under the Magnitsky Act of 2012.

[29] See Part 1, Chapter 3 CFA and ss.303Z1–303Z19 POCA.

[31] See Part 1 CFA, which amends POCA.

[32] Under s.362A(7) POCA, enforcement agencies permitted to apply for a UWO include the National Crime Agency (NCA), the SFO, HM Revenue & Customs (HMRC), the Financial Conduct Authority (FCA) and the Director of Public Prosecutions.

[33] By express cross-reference to s.414 POCA, it is clear that ‘property is all property wherever situated’.

[34] (2) was introduced by s.47 Economic Crime Act 2022.

[35] ibid., s.362S, inserted by s.3 CFA.

[36] At the time of writing, the NCA has successfully defended two UWOs: National Crime Agency v. Hajiyeva [2020] EWCA Civ 108; and National Crime Agency v. Mansoor Hussain and others [2020] EWHC 432 (Admin).

[37] In June 2022, the Law Commission published its long-awaited proposals on reforming corporate criminal liability in England and Wales (the Options Paper). While the Options Paper rejects the much discussed failure to prevent economic crime offence, it outlines 10 options for strengthening corporate liability, which notably includes the expansion of the failure to prevent model to fraud. This would include the extension of the model to include the offences of: fraud by false representation, obtaining services dishonestly, cheating the public revenue, false accounting, fraudulent trading, dishonest representation for obtaining benefits, and the fraudulent evasion of excise duty. The Law Commission has, however, warned that it should not be presumed that any future failure to prevent offence will have extraterritorial effect, and that any new offence should only be extended to cover conduct overseas where there is a ‘demonstrable need for extraterritoriality’. The government is currently considering the proposals in the Options Paper.

[38] The test for dishonesty must now be viewed in light of the Supreme Court’s decision in Ivey v. Genting Casinos (UK) Ltd t/a Crockfords [2017] UKSC 67, which disapproved the second limb of the well-known test in R v. Ghosh [1982] EWCA Crim 2. Although the observations of the court were technically obiter, the Court of Appeal (Criminal Division) has indicated that Ivey correctly reflects the law – see R v. Pabon [2018] EWCA Crim 420. The test in Ivey was affirmed in Barton and Booth v. R [2020] EWCA Crim 575.

[39] The ruling of the Court of Appeal in Barton and Booth v. R [2020] EWCA Crim 575 in April 2020, in endorsing Ivey, affirmed that the test for dishonesty should be judged by reference to society’s standards rather than the defendant’s understanding of those standards. The ruling renders organisations and their senior executives or employees more vulnerable to conviction when charged in cases involving fraud and other dishonesty-related offences.

[40] s.44(2) and (3) CFA.

[41] s.44(4) CFA.

[42] s.44(6) CFA.

[43] A decision by the European Court of Justice, which upheld the EU sanctions against Russia regarding its annexation of Crimea in 2014, demonstrates the rationale in practice. See PJSC Rosneft Oil Company v. Her Majesty’s Treasury and Others, Case C-72/15, 28 March 2017.

[44] For trade sanctions, see the Export Control Act 2002 (and the related Export Control Order 2008) and the Customs and Excise Management Act 1979. The Customs and Excise Management Act 1979 imposes criminal liability where a person exports goods from the United Kingdom ‘when the exportation or shipment is or would be contrary to any prohibition or restriction for the time being in force’. The Export Control Order 2008 (ECO 2008) imposes those restrictions. The ECO 2008 specifies a three-tier categorisation of goods, with Category A products including items designed for torture, Category B including arms and ammunition, and Category C being items that have a dual civil/military use. See Part 4 and Schedule 1 ECO 2008. Trade sanctions apply to (1) anybody present in the United Kingdom, i.e., all persons (natural and legal), (2) all UK subjects anywhere in the world and (3) any legal entity incorporated under UK law.

[45] A number of regulations have been enacted under SAMLA that mirror sanctions measures previously in force in the United Kingdom under EU Regulations. Those enactments merely give the new measures an independent statutory footing under UK law.

[47] The designation criteria in Regulation 6(3) are broadly defined and include anyone who ‘is responsible for or engages in’ human rights abuses; ‘facilitates, incites, promotes or provides support for such an activity’; ‘provides financial services, or makes available funds, economic resources, goods or technology, knowing or having reasonable cause to suspect that those financial services, funds, economic resources, goods or technology will or may contribute to such an activity’; ‘provides financial services, or makes available funds, economic resources, goods or technology to a person [responsible for or engaged in human rights abuse]’; or ‘profits financially or obtains any other benefit from an activity’ violating human rights.

[50] The Regulations define involvement in serious corruption widely. Corruption, however, includes bribery and the misappropriation of property. As such, the Regulations revoke the United Kingdom’s specific misappropriation-related sanctions regulations.

[51] As of August 2022, there have been 27 individual designations under the Global Anti-Corruption Sanctions Regulations 2021. The accompanying statutory guidance is available at https://www.gov.uk/government/publications/global-anti-corruption-sanctions-guidance.

[52] As of August 2022, there have been 14 amendments, the latest being The Russia (Sanctions) (EU Exit) (Amendment) (No. 14) Regulations 2022, which entered into force on 21 July 2022. These update the Russia (Sanctions) (EU Exit) Regulations 2019, the United Kingdom’s key statutory provision regarding sanctions against Russia.

[54] The other relevant UK statutes, which also take a broad jurisdictional approach, are the Counter-Terrorism Act 2008 and the Anti-terrorism, Crime and Security Act 2001.

[55] Office of Financial Sanctions Implementation (OFSI), Financial Sanctions: Guidance, August 2022, p. 36. The maximum term of imprisonment was recently increased from two to seven years – see ss.144 and 145 of the Policing and Crime Act 2017 (PCA 2017).

[56] OFSI, Financial Sanctions: Guidance, August 2022, p. 10.

[57] OFSI enforcement and monetary penalties for breaches of financial sanctions: Guidance, June 2022. A previous version of the Guidance stated (at para. 3.8) that OFSI ‘will not artificially bring something within UK authority that does not naturally come under it’. This statement regarding OFSI’s jurisdiction over financial sanctions breaches has been removed from more recent versions of the guidance.

[58] s.21 Sanctions and Anti-Money Laundering Act 2018 (SAMLA).

[59] s.150 PCA 2017.

[60] s.151 PCA 2017.

[61] s.146 PCA 2017. For breaches of financial sanctions committed after 15 June 2022, s.54 of the Economic Crime Act 2022 amends s.146 PCA 2017 empowering OFSI to impose monetary penalties for breaches of financial sanctions on a strict liability basis. This represents significant departure from the previous position where s.146 required persons to have knowledge or reasonable cause to suspect they were in breach of financial sanctions.

[62] OFSI, HM Treasury, Report of Penalty for Breach of Financial Sanctions Regulations (section 149(2) PACA 2017 report) Imposition of Monetary Penalty – Standard Chartered Bank, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/876971/200331_-_SCB_Penalty_Report.pdf.

[63] While MLA is used for gathering and exchanging information, and requesting and providing assistance in obtaining evidence located abroad, extradition is the legal process by which an individual is transferred from one state to another for the purposes of being tried or serving a sentence already imposed. The Extradition Act 2003 sets out the UK extradition legal framework. MLA is generally not appropriate if the material can be obtained directly via law enforcement co-operation for intelligence purposes or if the material otherwise is admissible in that form.

[66] Through operation of s.52 of, and the conditions specified in Schedule 4 to, the Serious Crime Act 2007. Following the end of the Brexit transition period on 31 December 2020, the provisions of the European Union’s Framework Decisions 2003/577/JHA (on Mutual Recognition of Freezing Orders) and 2006/783/JHA (on Mutual Recognition of Confiscation Orders) and the replacement Regulation 2018/1805 ceased to apply to the United Kingdom. Requests for assistance in relation to restraint and confiscation should be made directly to the UK Central Authority under the provisions of Title XI of Part 3 of the UK–EU Trade and Cooperation Agreement.

[67] The Director and any designated member of the SFO, the FCA and the Bank of England are examples of designated prosecuting authorities.

[68] s. 15 Crime (International Co-operation) Act 2003 (CICA 2003).

[69] Schedule 1 CICA 2003.

[70] R (on the application of Tony Michael Jimenez) v. First Tier Tax Tribunal (Tax Chamber) and HMRC [2019] EWCA Civ 51.

[71] Pursuant to para. 1, Schedule 36 to the Finance Act 2008.

[72] The Court also dismissed Mr Jimenez’s argument that HMRC’s conduct amounted to an exercise of UK official acts in the territory of another sovereign state. The Court held that service of the information notice did not seek to impose any criminal liability on a foreign national, and did not offend against the territorial sovereignty of the United Arab Emirates. Interestingly, the leading judgment given by Lord Justice Patten noted that ‘the more recent decision[s] of the Supreme Court in Bilta and the Divisional Court in KBR confirm that the jurisdiction to serve a notice requiring the provision of information from a person resident abroad or even to impose liability on the recipient will not raise eyebrows where they serve to protect a sufficient national interest. In my view, the present case falls squarely within that category of case’.

[73] R (KBR, Inc) v. Director of the Serious Fraud Office [2021] UKSC 2.

[74] Mr Jimenez has sought permission to appeal the Court of Appeal’s ruling but at the time of writing, the appeal is still pending.

[75] These include the SFO, the NCA, the police, HMRC and the FCA.

[76] Agreement on Access to Electronic Data for the Purpose of Countering Serious Crime [CS USA No. 6/2019] (https://www.gov.uk/government/publications/ukusa-agreement-on -access-to-electronic-data-for-the-purpose-of-countering-serious-crime-cs-usa-no62019), accessed on 21 July 2020. This Agreement is facilitated by the Crime (Overseas Production Orders) Act 2019.

[77] Guernsey, the Isle of Man and Jersey.

[78] Failure to comply with the registration obligations will constitute a criminal offence for the entity and each officer of that entity. The offence will be punishable by a daily fine (not exceeding £2,500), imprisonment of up to five years or both. The Secretary of State may exempt a person from registration if she considers that it is necessary to do so ‘in the interests of the economic wellbeing of the United Kingdom’.

[79] Acquisitions completed before 12 November 2020 are exempt.

[81] Another complexity is that, whereas a non-UK entity counts as a qualifying entity if it carries on activities in the United Kingdom or supplies goods or services to persons in the United Kingdom, for an acquisition of such an entity to require mandatory notification it must actually carry on UK activities (i.e., suggesting mere supply of goods or services to UK persons is insufficient) that fall within one of the 17 sensitive sectors.

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