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The Year Ahead

21 March 2016

Aziz Rahman considers some points of interest in the world of business and financial crime for 2016

Another year rolls on... and with it the promise of more legal developments.

As with any year, 2016 is set to have its share of talking points. But unlike many previous years, 2016 is already shaping up as one in which the regulatory authorities will face some serious questioning of their abilities.

For a start, this year has commenced just weeks after the Financial Conduct Authority (FCA) dropped its plans for a review of banking culture. Already, this decision is being seen as controversial. The FCA categorically denied anyone had exerted influence on its decision to abandon a review – only for reports to filter out that hint at Bank of England involvement. A review into HSBC’s Swiss private bank has also been scrapped.

2016 placard

Scandal
Such decisions may seem bold and decisive but they can have a habit of coming back to bite you. If 2016 is to go down as a good year for the FCA, it has to hope fervently that the banking industry does not provide further scandal. If it does, then the FCA will face even greater scrutiny about its decision not to look at banking activities in greater detail.

The FCA also has to make sure it conducts its own activities in a way that does not attract unfavourable attention. With its CEO Martin Wheatley effectively forced out last autumn and his acting replacement Tracey McDermott having indicated she is not interested in making the position her own, it remains to be seen who will be running the FCA this year.

With mutterings about increased Bank of England infl uence at the FCA, along with concerns that government is leaning on regulators to give banks an easy ride and the Treasury Select Committee taking a close interest in the FCA’s shelved reviews, there is little doubt the organisation faces awkward questions this year.

SFO
This year, however, is also set to be a notable one for the Serious Fraud Office (SFO). And whether 2016 will be noted as a favourable or unfavourable 12 months for the SFO remains to be seen. As we write, the very recent collapse of the case against many of those accused of Libor manipulation has to be seen as a hammer blow to the SFO’s credibility.

It has asked for an additional £21M in funding, to add to an extra £10M it has already had on top if its annual £3M budget for 2015–16. This has led to claims that by going cap in hand to the Treasury it is making itself open to political interference. Claims that such a situation will influence which cases it decides to proceed with can only be evaluated over time.

 

Maybe 2016 will give us the chance to see just how impartial the SFO is. At this time, the SFO is at a crossroads. Will it gain its extra funding? If it does receive it, will it be able to put it to effective use? Will the funding issue make it vulnerable to government pressure?

The SFO faces 2016 having recently secured its first deferred prosecution agreement (DPA), its first Bribery Act conviction and its first successful prosecution over Libor. Whether it builds on such success remains to be seen. The signs regarding Libor this month, however, are not good.

Euribor
One large part of the answer to that question of SFO prospects may lie with Euribor. The SFO has charged six bankers in connection with an alleged six-year scheme to manipulate Euribor benchmark interest rates. The Trial is set for September 2017 but much could happen between then and now that could have a huge effect on whether the prosecution is a high-profile success or a dismal failure.

It will be the world’s first Euribor trial – giving the SFO the chance to grab the glory or become an internationallyrecognised loser. In what could prove ominous, an earlier initial hearing at a lower court ended in confusion. The SFO had planned to charge 11 bankers, but prosecutors found out at the last minute that five foreign nationals would not show up. The SFO says it is considering its position about these five. It has to report back to court with its intentions on March 18. Already, it seems, this is to be a challenging year for SFO staff working on Euribor.

Bribery Act
Similarly, the next 12 months could prove informative for investigators looking to bring prosecutions under the Bribery Act. Defenders of the Act, which came into effect in 2011, have always said it would take time to become an effective prosecution tool. The first prosecution has been achieved, along with a deferred prosecution agreement and enforcement action.

digital graph

The challenge for the SFO – and other organisations – is to show that they can make effective use of the Act to punish corruption. An ability to do this will show both the Act and those using it in a favourable light. A failure to achieve this will call into question both the legislation and the activities of those responsible for wielding it.

Whenever we look ahead, we always emphasise the fact that we are not privy to any special information. We are not granted access to a particular rarefied atmosphere where the legal secrets are held. But we have (again) had another year where our successes have been officially recognised and we do feel that 2016 could be pivotal in the ways we have outlined.

With issues such as FIFA prosecutions, long-running corruption investigations into some of the world’s most famous companies and Forex, Libor and Tesco just some of the other issues that need resolving, there is little doubt that a lot of people have a lot riding on 2016.

Which should make the next 12 months very interesting for those who follow events in the worlds of financial and business crime.


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