Transatlantic investigations: a toolkit

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Nilly Tabatabai
Penningtons Manches Cooper, London
nilly.tabatabai@penningtonslaw.com

Oliver Cooke
Penningtons Manches Cooper, London
oliver.cooke@penningtonslaw.com

As financial crime increasingly transcends global boundaries, cooperation between national law enforcement agencies also expands significantly. This is particularly true of cooperation between UK and US law enforcement agencies. This toolkit summarises the roles and key powers of the investigatory and law enforcement agencies in the UK and the US which are most relevant to companies and individuals doing business in both jurisdictions.

United States

The Department of Justice (DOJ)

• The US legal system is divided into federal and state law. The US Constitution forms the basis of federal law, which is created at a national level and is applicable to all 50 states. State laws on the other hand are only in effect within that particular state. When a state law is in direct conflict with federal law, the federal law prevails.
• The DOJ is the main agency responsible for enforcing the federal law in criminal and civil litigation in US federal districts.
• The DOJ is currently headed by the Attorney General, who is appointed by the President and confirmed by the Senate.
• The DOJ oversees a number of investigative and law enforcement agencies. Two of these agencies, the Federal Bureau of Investigation (FBI) and US Marshals Service, are authorised to execute arrest and search warrants. In order to obtain a warrant, officers must sign an affidavit stating they have a ‘probable cause’ to believe the suspect has committed or is about to commit a crime. This ‘probable cause’ must come from specific facts and circumstances, rather than from the officer's suspicion. A judge will then issue a warrant if they agree with the officer’s assessment. The evidential threshold for establishing ‘probable cause’ is quite low.
• As part of their function, the DOJ’s agencies also have the power to bring a criminal charge by indictment. The Fifth Amendment to the US Constitution requires the federal government to seek an indictment from a grand jury in order to prosecute someone for a crime. An indictment comes typically before an arrest and the standard of proof is much lower for criminal trials since the grand jury’s role is to determine whether there is ‘probable cause’ (rather than to prove guilt) in order to bring the criminal charges. Since states are not required to use a grand jury to obtain indictments, many state grand juries function in a similar manner to federal grand juries but tend to vary by the number of jurors and the type of majorities required.
• The DOJ’s powers also include the power to compel disclosure by issuing administrative subpoenas ordering persons or entities to provide documents or information in relation to a case. Failure to respond to a subpoena is punishable as contempt by either the court or the agency issuing the subpoena – this usually includes a monetary sanction and, in very rare cases, imprisonment. The DOJ can also seek injunctions, impose monetary penalties and asset forfeitures.

Securities and Exchange Commission

• Created under the Securities Exchange Act 1934 during the Great Depression, the Securities and Exchange Commission (SEC) is a federal agency protecting the American public against fraudulent and manipulative practices in the securities markets. The SEC consists of five presidentially-appointed Commissioners, heading each of its five Divisions.
• Unlike the DOJ, the SEC’s powers are limited to bringing civil enforcement actions in a US federal district court or administrative proceedings heard by an independent administrative law judge. The SEC normally determines whether to bring civil charges by a vote of the Commissioners, on the basis of recommendations from staff attorneys.
• The SEC’s main role is its investigative powers and the group’s Division of Enforcement investigates violations of securities laws and regulations such as the manipulation of market prices and insider trading. The SEC can issue a formal order of investigation compelling the production of documents and compelling witnesses by subpoena to testify. The SEC also has the power to bring actions against alleged violators, including injunctions against future fraud violations, disgorgement of ill-gotten gains; placing restrictions on an individual’s ability to work in the securities industry and monetary penalties. In cases of insider dealing for example, the SEC can seek penalties of up to three times the profit gained or loss avoided per violation.
• While the SEC does not have criminal authority like the DOJ, it may refer matters to state and federal prosecutors. One example of this is the enforcement authority bestowed on both the SEC and DOJ under the Foreign Corrupt Practices Act (FCPA) in relation to corporate entities maintaining accurate books and records. While the SEC has authority to investigate and bring civil enforcement actions against violators of accounting provisions, the DOJ is responsible for criminally prosecuting ‘wilful’ violations of the accounting provisions and the SEC rules adopted.
• In civil cases under the FCPA, the SEC has authority to subpoena records and testimony, conduct investigations, and initiate civil enforcement actions seeking to enjoin prohibited activities and/or seeking disgorgement or civil monetary penalties ranging from US$50,000 to US$500,000) per violation for business entities. In criminal cases, a ‘wilful’ violation of the FCPA accounting provisions constitutes a felony under section 32(d) of the Exchange Act, punishable by a fine of up to US$25m against entities, and a maximum fine of US$5m and up to 20 years’ imprisonment against natural persons.

United Kingdom

The Serious Fraud Office

• Established by virtue of the Criminal Justice Act 1987 (CJA), the Serious Fraud Office (SFO) is a specialist prosecuting authority tackling the most serious or complex fraud, bribery and corruption in England, Wales and Northern Ireland. In considering whether to authorise an investigation, the head of the SFO, the ‘Director’, will take into account the actual or intended harm that may be caused to the public, or the reputation and integrity of the UK as an international financial centre, or the economy and prosperity of the UK and whether the complexity and nature of the suspected offence warrants the application of the SFO’s specialist capabilities to investigate and prosecute.
• The Director also has discretion to take over matters from other law enforcement agencies.
• The SFO’s role is similar to the DOJ’s, as it both investigates and prosecutes criminal wrongdoing, which is relatively unusual in UK law enforcement. As part of its special powers the SFO may issue ‘section 2 notices’ pursuant to sections 2(2) and 2(3) of the CJA, the Director of the SFO can require the provision of documents, written responses and/or attendance at an interview during an investigation.
• Section 2 notices are also applicable to documents held extraterritorially by a UK company or to foreign companies in respect of documents held outside the UK if there is a ‘sufficient connection’ between that company and the UK.^[1] 
• The recipient of a section 2 notice cannot refuse to answer matters raised within the interview or provide documents required and the only lawful excuse for declining to respond to a section 2 notice or questions at an interview is that to do so would constitute a waiver of privilege. While this may seem draconian, a degree of protection is afforded given that those provided with a section 2 notice are normally (at the stage at which such notices are issued) witnesses rather than suspects and any answer given by the subject during ‘section 2 interviews’ cannot generally be used against them in criminal proceedings. Providing false or misleading answers in response to a section 2 notice is a criminal offence in its own right.
• Non-compliance with a section 2 notice is a criminal offence under section 2(13) CJA and may lead the SFO to seek a warrant authorising the police to enter premises and seize the relevant materials.
• Similar to the SEC, the SFO does not have the power of arrest. However, pursuant to section 1(4) CJA, the Director of the SFO can request the police to make an arrest or obtain a warrant to conduct a search.

National Crime Agency

• Created by the Crime and Courts Act 2013 (CCA), the National Crime Agency (NCA) is a non-ministerial government department focusing on serious, organised, and financial crime. There is a degree of overlap between the work conducted by the NCA and SFO and previous governments planned to merge the two agencies (while some wished to abolish the SFO completely). Such proposals have subsequently been abandoned.

• Like the DOJ and SEC, the NCA is split into different ‘commands’, including the Economic Crime Command which deals with fraud and corruption, Proceeds of Crime Centre and Organised Crime Command.

• Under section 10 CCA, the director general of the NCA may designate that any officer has the powers of a police constable; an officer of Her Majesty’s Revenue and Customs (HMRC); and an immigration officer. It gains these powers via delegation, rather than possessing them in its own right. These powers include the right to gain entry to property, search property and premises, seizing materials, detaining and arresting suspects, executing warrants and conducting interviews. 

Financial Conduct Authority

• The FCA’s main role is to regulate the UK’s financial services industry.

• Pursuant to part XI and section 284 of the Financial Services and Markets Act 2000 (FSMA), the FCA has broad powers allowing it to require those under its supervision (or whose conduct falls within its regulatory scope) to provide it with information and to conduct investigation into those individuals and entities.

• The FCA may impose a wide range of sanctions including public censure; financial penalties; and/or the removal or variation of a firm or individual’s authorisation to conduct regulated activity. For less serious breaches, the FCA may issue warnings in private. 

• Certain breaches of the FCA’s regulations may constitute criminal conduct, which the FCA has the power to investigate and prosecute, pursuant to FSMA. These offences include carrying on regulated activity without authorisation (or unless an exemption applies), inviting or inducing participation in investment activity in breach of financial promotions rules, misleading the FCA and market abuse.

International cooperation

In addition to the means stated above, authorities in the UK and the US can also make what are generally described as mutual legal assistance (MLA) requests in obtaining evidence and assistance from law enforcement agencies in other jurisdictions. In the UK, the MLA regime is enshrined in sections 7 and 8 of the Crime (International Cooperation) Act 2003 (CICA). Most requests can be made by a designated prosecuting authority (in the UK this includes the Director of the SFO and the FCA) using a formal ‘Letter of Request’. Before assistance can be sought from another jurisdiction, it must appear to the designated prosecuting authority making the application that:

• an offence has been committed or there are reasonable grounds for suspecting that an offence has been committed; and
• proceedings in respect of the offence have been instituted by the designated prosecuting authority or that the offence is being investigated.^[2]

As a matter of domestic law it is not necessary for an MLA treaty to exist between the UK and the requested country in order to make a request under section 7 CICA, although requests are more likely to be successful where a treaty basis exists. 

As demonstrated above, leveraging both UK and US intelligence and investigative resources seems like a natural solution for both parties. These efforts are being further strengthened: on 3 October 2019, both countries signed the US/UK Bilateral Data Access Agreement, the first agreement reached under the CLOUD (Clarifying Lawful Overseas Use of Data) Act which enables more efficient access to electronic data for use in criminal investigations between UK/US criminal law enforcement agencies.