Corporate Crime Investigations

What are corporate investigations?

Corporate investigations is a generic name given to investigations that are carried out into the activities of a company.

It may be conducted by a number of different agencies such as the police, SFO, HMRC, FCA, Trading Standards, NCA or any other investigatory body including internally with the instruction by the board to a firm of solicitors.

Any company may be liable to an investigation.

It could be prompted by issues around regulatory compliance or suspect criminal offences, such as bribery and corruption, fraud, money laundering or others.

There may be a criminal inquiry into practices carried out by directors, officers or employees.

Company crises, and issues exposed by whistle-blowers, can potentially open up a company to unwelcome scrutiny resulting in self-reporting and a subsequent criminal investigation and proceedings.

Types of investigation

There are numerous types of investigations that may be launched into your company.

All of them are disruptive, and each has potentially very damaging consequences for your business.

Understanding what they are, the scope of the powers that those conducting the investigation have, and how best to respond to any investigation is key if you are to secure the most favourable outcome for your company.

Corporate investigations and inquiries

The legal and regulatory landscape is constantly evolving.

This can present new issues for companies, particularly listed companies.

The current climate for listed companies is unprecedented in terms of the amount of scrutiny that is now placed on them.

Whether that oversight comes from regulatory authorities, investors, or public opinion, it means that companies have to be prepared for an investigation to be launched at any time.

Corporate crime investigation

Issues of bribery, fraud, money laundering, accounting fraud, and breaches of sanctions may all lead to investigations.

Three important pieces of legislation have sought to overcome the historical difficulty in establishing corporate criminal liability.

These created three specific corporate crime offences:

• Corporate manslaughter ( Corporate Manslaughter and Corporate Homicide Act 2007)
• Failure to prevent bribery ( Bribery Act 2010)
• Failure to prevent the facilitation of tax evasion (Criminal Finances Act 2017)

For most other corporate offences there are two distinct legal principles by which a company might be prosecuted for criminal offences.

1. Vicarious liability: This applies principally to offences where there is no requirement to prove any mental element (such as knowledge, intent or dishonesty), beyond the particular facts that amounted to the convention. It is most commonly found in quasi-regulatory areas of criminal law such as environmental law, and health and safety.

2. The identification principle: This includes offences that involve a mental element such as dishonesty, intent or knowledge within their definition. These have historically been difficult for prosecuting authorities to establish, because it needs to be proven that the intent and state of mind of those directing the actions that are under investigation can be imputed to the company itself.

Financial and regulatory investigations

The agency with primary responsibility for the investigation of potential misconduct within the financial services sector in the UK is the Financial Conduct Authority (FCA).

Over recent years, it has taken a more robust and proactive approach to investigations, opening up more companies to the risk of an investigation.

The FCA’s powers are not limited to enforcement against authorised firms and the individuals who work at them.

As part of its role in promoting market integrity, it has the power to investigate and bring enforcement proceedings against listed corporates and their officers concerning compliance with their listing and disclosure obligations.

The FCA can also investigate and prosecute anyone for the criminal and civil offences of insider dealing and market manipulation. It can also prosecute authorised firms and their officers for certain breaches of the Money Laundering Regulations.

Market investigations

Market investigations look into mergers and anti-competitive practices to make sure competition and markets work well for consumers.

Market investigations are carried out by the Competition and Markets Authority (CMA). In regulated sectors, regulators with concurrent competition enforcement powers can also carry out first stage market investigations.

The CMA may investigate a merger between your business and another to make sure it’s fair.

A merger will usually only qualify for a CMA investigation if either:

• the business being taken over has a UK annual turnover of at least £70 million
• the combined businesses have at least a 25 per cent share of any reasonable market

Merging businesses can include acquisitions, takeovers and joint ventures.

Competition investigations

Competition authorities around the world have extensive and intrusive powers to investigate suspected competition law breaches.

The focus of an investigation is usually the company itself, but in some jurisdictions, authorities also have the power to investigate individuals.

The scope of these investigations is wide and can take years. They are intensive and extremely disruptive.

Companies that are found to have breached competition law can be liable to significant fines and individuals can face imprisonment.

Tax investigations

Many businesses will be subject to a tax audit from time to time, but full-blown tax investigations will be launched if your corporate tax affairs are deemed to be inaccurate.

In HMRC literature, Corporation Tax Investigations are described as compliance checks.

The compliance checks will usually be conducted by tax inspectors who will normally have years of training to enable them to deal with the complex tax affairs of companies.

Large-scale interventions and in-depth investigations by UK tax authorities and overseas tax authorities can be costly, time-consuming and extremely deleterious to the reputation of your business.

It’s imperative a resolution is sought with the relevant authority as quickly as possible to prevent the cost and publicity of a full-blown litigation.

Be prepared

It’s important that every company is aware of the range of risks and has a strategy in place should an investigation be launched.

The likelihood of allegations being made, and investigations being launched, is increasing in the current climate.

Companies, organisations and individuals need to be swift to respond to any such allegations or reports of wrongdoing by establishing the facts and then making the most appropriate response.

Depending on the type of investigation you are subject to, an internal investigation may be one strategy to establish the facts, and to help shape your response.