King & Spalding: transatlantic business crime and investigations February 2021 column
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ARTICLE
King & Spalding: transatlantic business crime and investigations
February 2021 column
by Joel Crespo (Washington, DC), Margaret Nettesheim (London), Steven Miller (New York), Liam Petch (London), King
& Spalding
Status: Published on 23-Feb-2021 | Jurisdiction: United Kingdom
This document is published by Practical Law and can be found at: uk.practicallaw.tr.com/w-029-6835
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King & Spalding’s Special Matters and Government Investigations team shares its views on
developments in transatlantic business crime and investigations.
US enforcement trends under the The CTA addresses the patchwork corporate registration
system in the US, where each state sets its own
Biden administration requirements, including regarding the identification of
beneficial owners. One of the intended purposes of the
Introduction act is to prevent the flow of illicit money from abroad
through the US financial system. Before the CTA’s
With the recent handover of power in Washington,
enactment, some states allowed companies to report
US criminal enforcement priorities will look quite
anonymous shell corporations as their beneficial owners.
different over the next four years. One area where
President Biden is expected to change course from the Now, certain companies will be required to disclose their
Trump administration is with respect to cross-border ultimate beneficial owners to the Treasury Department’s
enforcement. Specifically, the new administration will Financial Crimes Enforcement Network (FinCEN). The
look to take a more multilateral approach to tackling companies that must report their ownership to FinCEN
international white-collar crime. While the Biden include any “corporation, limited liability company, or
administration will likely increase global enforcement on other similar entity” created in the US or any foreign
several fronts, three areas of focus will be discussed in companies that are registered to do business in the US.
this article: anti-money laundering, anti-corruption and
Notably, foreign entities that are not “doing business”
tax evasion.
in the US are exempt from this disclosure requirement.
What constitutes “doing business” varies across
Anti-money laundering states, but in New York, for example, entirely foreign
We expect anti-money laundering (AML) enforcement to entities can maintain a bank account and host director
be a key focus of the Department of Justice (DOJ) under or shareholder meetings without “doing business”
Merrick Garland, President Biden’s nominee for attorney in the state and triggering New York’s beneficial
general. Biden has pledged to focus on bringing ownership reporting requirements. However, covered
transparency to the global financial system, and he will financial institutions must still apply the normal KYC
likely rely on recent AML legislation in pursuing that requirements under the Customer Due Diligence (CDD)
objective. Rule to these foreign entities. New BSA/AML Regime
Promises Sweeping Changes, King & Spalding LLP
The newly enacted National Defense Authorization Act Client Alert, 22 December 2020.
(NDAA) for fiscal year 2021 includes a provision called
the Anti-Money Laundering Act of 2020 (AMLA), which The CTA has several provisions that are intended to
many practitioners have called the most significant expand the scope of US access to foreign documents
overhaul of AML laws in decades. Within the AMLA is a and promote greater cross-border information sharing.
separate provision known as the Corporate Transparency For example, the CTA permits FinCEN to share the
Act (CTA), which is aimed at limiting the use of shell beneficial ownership and applicant information it
companies to facilitate money laundering. See 3 White receives with foreign authorities based on properly
Collar Enforcement Laws Garland Could Wield As AG, formed requests, which are usually made pursuant to a
Law360, 6 January 2021. mutual legal assistance treaty (MLAT) between the US
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and the foreign country. FinCEN will also introduce a limit travel abroad, we anticipate that the Biden
pilot program within one year of the NDAA’s enactment administration will work to build strong transatlantic
that will allow all financial institutions operating in the partnerships for AML enforcement early on.
US to share information related to suspicious activity
reports (SARs) with their foreign branches and affiliates. Anti-corruption
Under previous law, US banks could not share SAR
information with their foreign branches and affiliates, Many observers expected a significant drop-off in
while foreign banks operating in the US could. enforcement of the Foreign Corrupt Practices Act (FCPA)
under the Trump administration due to President
Additionally, section 6308 of the AMLA allows the Trump’s longstanding disdain for the statute. However,
DOJ and US Department of the Treasury to subpoena corporate FCPA settlements continued to be robust
accounts at foreign banks that are the subject of under the Trump administration and 2020 was a record
an AML investigation, civil forfeiture action, or any year despite the COVID-19 pandemic (in large part due
federal criminal investigation. Previously, the US to resolution of investigations commenced under the
government could only subpoena foreign banks with Obama administration). The DOJ and the Securities
US correspondent accounts for records directly related and Exchange Commission (SEC), which enforce the
to those US correspondent accounts. Now, the DOJ and FCPA criminally and civilly, respectively, collected about
the Treasury Department can seek foreign records even $3.21 billion in penalties. At the same time, however,
if they are unrelated to the foreign bank’s correspondent the number of new corporate anti-bribery investigations
account. If the foreign bank refuses to comply with the reportedly fell each year between 2017 and 2019. See
subpoena or discloses the subpoena to the account Trump called global anti-bribery law “horrible.” His
holder, the US could impose heavy fines or order the US administration is pursuing fewer new investigations,
bank that maintains the correspondent account to end The Washington Post, 31 January 2020.
the banking relationship.
That trend will likely reverse under President Biden, who
While it remains to be seen how aggressively the Biden has promised to take a hard line on global corruption. In
administration will seek to subpoena foreign records, an article for Foreign Affairs in early 2020, then-candidate
particularly in situations where foreign assistance may Biden highlighted what he described as an “insidious
be essential, the ability to subpoena foreign records pandemic” of corruption that is “fuelling oppression,
could allow the DOJ and the Treasury Department to corroding human dignity, and equipping authoritarian
avoid the time-consuming MLAT process, which is also leaders with a powerful new tool to divide and weaken
subject to US relations with the foreign country. Beyond democracies across the world”. See Joseph R Biden, Jr,
the AML context, this provision could be a powerful Why America Must Lead Again: Rescuing US Foreign
tool against target foreign banks for their suspected Policy After Trump, Foreign Affairs, March/April 2020.
involvement in facilitating sanctions evasion, bribery, tax
evasion and other crimes. Though it could take time for the pace of corporate
settlements to increase as the administration ramps
Finally, another tool embedded in the 2021 NDAA is up investigations, there is good reason to believe that
the Kleptocracy Asset Recovery Rewards Act (KARRA), many of those investigations will be in co-operation
which offers financial incentives to whistleblowers with foreign enforcement authorities. In a December
who help identify and recover assets tied to foreign 2020 speech, Acting Assistant Attorney General Brian
corruption that have been hidden in the US. KARRA C Rabbitt noted that in the FCPA space, “many of our
establishes a three-year pilot program administered corporate resolutions in 2020 included co-ordination
by the Treasury Department that offers payments of up with one or more foreign enforcement authorities – an
to $5 million to whistleblowers when the government increasingly important aspect of our work”. See DOJ:
restrains or seizes stolen assets. KARRA applies to Remarks of Acting Assistant Attorney General Brian C
any form of assets, from cash in a bank account to Rabbitt at the ACI 37th Annual Conference on the FCPA,
property purchased with stolen funds, and the potential 3 December 2020.
whistleblower rewards could help bolster enforcement
efforts in criminal FCPA cases and related civil asset Further, the DOJ recently resumed a secondment
forfeiture actions. program under which it sends a senior official from the
Criminal Division’s Fraud Section to the SFO and FCA for
With President Biden’s focus on cleaning up the global two years. The DOJ started the secondment program in
financial system, we expect these new tools will feature 2017, when former Fraud Section assistant chief Albert
prominently in the administration’s AML enforcement Stieglitz spent a year each with the SFO and FCA. The
over the next four years. Because successfully executing resumption of this program is yet another sign of the
on his vision will require support from foreign authorities, DOJ’s increasing interest in co-operation with foreign
especially as the COVID-19 pandemic continues to enforcement authorities, particularly in the UK.
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Tax evasion Conclusion
High-profile media reporting in recent years, including the President Biden has vowed to chart a different course
Swiss Leaks (2015), Panama Papers (2016) and Paradise on various global issues than the Trump administration,
Papers (2017), has highlighted the fact that individuals whom he has criticised for operating unilaterally at the
and companies seeking to evade taxes continue to take expense of key US allies. In contrast to his predecessor,
advantage of offshore tax havens. President Biden has the Biden administration is expected to seek greater
promised that one of his top priorities in cleaning up multilateral co-operation on many international criminal
the global financial system will be to go after illicit tax enforcement issues. What remains to be seen is whether
havens. During his campaign in 2019, he laid out a plan to that approach is a marked change in substance, or
bring in $200 million in revenue by imposing sanctions on merely a change in form.
countries that “facilitate illegal corporate tax avoidance”.
See Jennifer Epstein, Biden to Target Tax-Avoiding
Companies With Minimum Federal Levy, Bloomberg Tax, The impact of the EU-UK
4 December 2019. trade deal on cross-border
Despite the Trump administration’s reputation as being investigations and the role of UK
lax on white-collar crime, the DOJ and the Internal authorities going forward
Revenue Service (IRS) announced their largest ever
criminal tax prosecution near the end of his term. In
October 2020, the DOJ and the criminal tax division
Introduction
of the IRS indicted the CEO of a software company on The EU-UK Trade and Co-operation Agreement
charges that he engaged in a decades-long scheme to (Agreement), announced in December 2020, has retained
conceal about $2 billion in income from the IRS via a elements of co-operation between EU member states
web of offshore companies and secret bank accounts in and the UK in investigating and prosecuting serious
Bermuda and Switzerland. See Laura Saunders, The IRS economic crime. However, the Agreement leaves a lot of
Reels in a Whale of an Offshore Tax Cheat—and Goes for ground uncovered and fails to maintain instant access
Another, The Wall Street Journal, 23 October 2020. to key information databases and enforcement tools for
UK agencies. As a result, cross-border investigations
The Biden administration is expected to ramp up
into economic and financial crimes will become more
co-operation with other countries to investigate and
cumbersome and, potentially, less effective.
prosecute this kind of tax evasion, and it will likely find co-
operation from transatlantic counterparts in the UK and Both the EU and UK have been keen to emphasise
the Netherlands. In 2018, the tax crime chiefs from the US, ongoing co-operation, despite the new barriers. In the
the UK, the Netherlands, Australia and Canada formed an UK, the SFO published a statement noting that “the
organisation to fight global crime called the Joint Chiefs of trade and cooperation agreement contains provisions
Global Tax Enforcement, known as the J5. By June 2019, to ensure we and our European partners are able to
the group announced that it was already collaborating continue working effectively towards our shared goals”.
on more than 50 global tax evasion investigations. In Europe, Jean-François Bohnert, Head of the French
Just over six months later, in January 2020, the J5 Parquet National Financier, said, “We will continue
carried out its first co-ordinated tax enforcement action to work together in the same spirit of co-operation
against a financial institution in Central America “whose because that is not called into question.” Soon, the
products and services are believed to be facilitating new arrangements and protracted legal hurdles that
money laundering and tax evasion for customers agencies will have to overcome will test how far this
across the globe”. See IRS: Global tax chiefs undertake spirit of co-operation extends.
unprecedented multi-country day of action to tackle
international tax evasion, 23 January 2020. New restrictions on the UK’s access to
We expect this type of co-operation on tax enforcement data, information and programmes
to grow more robust under the Biden administration as
it targets jurisdictions known for helping Americans hide European Investigation Orders
their wealth. This should be an easy sell for European With the end of transition period, the UK can no longer
allies, given that those governments also suffer when issue European Investigation Orders (EIOs) which
their citizens stash money offshore to evade taxes. On enable authorities in one EU member state to request
this issue, as with others, co-operation and information that investigations be carried out in another. The EIOs
sharing is essential for effective enforcement, and is also impose obligations on countries in receipt of an
even more important while the COVID-19 pandemic EIO to transfer evidence to the requesting EU member
limits in-person information and evidence collection.
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state in accordance with strict time limits. The UK, The UK was able to obtain some concessions from the
or EU member states seeking to exchange evidence European Commission during the negotiation process,
with the UK, must now rely on the 1959 Council of which allows British liaison officers to work in Europol
Europe’s Convention on Mutual Legal Assistance which, and Eurojust’s headquarters in the Hague and has
unsurprisingly for a 60-year-old convention, provides ensured UK law enforcement agencies will maintain
for more extended deadlines by which to comply with access to Europol’s secure messaging system. While this
requests for assistance. While the Agreement does is a welcome indication of future co-operation across
contain some loose provisions which may speed up the borders, the UK will no longer be able to participate in
process for responding to requests, there is no doubt the management of the agencies’ prosecution strategies
that the exchange of evidence between EU and UK and has lost access to their information databases.
authorities is set to become more protracted and slow
the speed of criminal investigations. European Arrest Warrant
The European Arrest Warrant scheme between the
The Second Schengen Information System UK and EU has been replaced with a new extradition
The UK will no longer be able to access the Second arrangement called “Surrender”. The new arrangement
Schengen Information System (SIS II), which UK authorities is similar to the agreement the EU already had in place
searched over 600 million times in 2019. SIS II provides with Norway and Iceland. The negotiation of a fast-track
enforcement agencies with real-time alerts and information extradition agreement is undoubtedly a success for the
on wanted or missing persons or objects, and will be a UK government in prosecuting individuals and directors
real loss to UK law and border enforcement authorities. located in EU member states. The new arrangements
In November, law enforcement agencies warned the UK also introduce concepts not contained in the Norway/
Parliament’s Security and Justice Committee that losing Iceland provisions, including a proportionality principle
access to the SIS II system would result in a significant which provides that the parties must now consider
“capability gap” in their IT functionality. At the end of the whether extradition is proportionate based on the
transition period, the UK had to delete around 40,000 SIS seriousness of an alleged offence and the likely penalty
II alerts from its own databases. in the event of a guilty verdict.
UK enforcement agencies will now have to rely on However, there are notable limitations under the new
Interpol’s criminal databases and alert system to arrangements. Both parties can refuse extradition of
maintain cross-border enforcement efforts. However, their own nationals, refuse extradition on the grounds
Interpol’s “red alert” system lacks the sophisticated of political offences and refuse extradition if the
levels of automation of SIS II and is instead dependent offence for which extradition is sought does not exist
on relevant updates being provided to Interpol by in both jurisdictions. 16 of the 27 member states do
member states in real-time. With SIS II, any individual or not currently extradite their own nationals outside of
object registered as wanted or missing in one member the EU; in Germany, for example, the refusal of such
state will automatically be flagged to all other member requests is enshrined in its Constitution. While the UK
states. While the possibility remains that the UK could government has sought to reassure agencies that there
enter into bilateral arrangements with EU countries to will still be a “path to justice in every case, for example,
share security information and alerts, information which by obliging EU member states to refer cases to their
pre-2021 law enforcement received immediately to own prosecution authorities”, it remains to be seen how
assist in cross-border investigations will now take longer efficient the new process will be.
to be accessed and utilised in investigations.
Indications of future co-operation
Europol and Eurojust
The UK has surrendered its membership of Europol, Joint Investigation Teams
the EU’s police intelligence agency, and Eurojust, its Perhaps the most significant aspect of the EU-UK
network of prosecution agencies that promotes judicial Agreement in ensuring future co-operation in cross-
co-operation across borders. Together, Europol and border investigations is the retention of the UK’s right to
Eurojust are responsible for enabling member states to participate in Joint Investigation Teams (JITs). Although
quickly gather and exchange information across borders the operation of JITs will be subject to EU law and
to tackle crimes. The forfeiture of high-quality data the participation of UK agencies will be on invitation
includes a loss of access to Europol’s European Financial only, the joint participation of EU and UK agencies will
and Economic Crime Centre (EFECC), which provides help ensure documents can flow cross-border while
member states with operational support in cases complying with the relevant data privacy laws. The
concerning economic crimes including tax crime, fraud, UK’s commitment to continued participation in JITs is
corruption and money laundering.
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a strong indication of its commitment to combatting crime. The EU has yet to make any equivalent
serious economic crimes and cross-border corruption in determination. The EU-UK Agreement effectively
partnership with European enforcement agencies. extends the provisions of the GDPR, allowing personal
data to flow freely between the EU and UK, for a further
Other rights maintained six months. It is hoped that in this time, the European
The EU and UK have also been able to negotiate Commission will grant a data equivalency decision to
maintained access to the Prüm network, which will assist the ability of future cross-border investigations
allow the UK to access fingerprint, DNA and (in the to operate effectively. The Commission’s decision to do
future) vehicle registration data via a decentralised so will ultimately depend on the extent to which the UK
database. Although UK agencies will now have to apply seeks to diverge from its current harmonised standards
to the applicable national authorities to access the data, and the wider political fallout as a result of Brexit.
the EU’s willingness to grant the UK access as a third
country (which it has never done for a country outside Conclusion
of the Schengen area) is another indication of future co-
While the full impact of the UK’s decision to leave the
operation between the EU and the UK. The UK has also
EU on cross-border investigations remains to be seen, it
maintained its access to passenger name records, again,
is clear that authorities will now face a more protracted
subject to data safeguards.
process and certain legal hurdles in investigating serious
economic and financial crimes effectively. Authorities in
Outstanding issues: data protection both the EU and UK have been keen to emphasise their
The sharing of sensitive data between national intent to pursue ongoing future co-operation, and in
enforcement agencies is crucial to the effective negotiating maintained access to JITs and a fast-track
operation of cross-border investigations but poses extradition process, have followed through on these
clear data privacy risks. The EU will be keen to seek statements.
assurances that UK agencies such as Government However, slower processes and legal hurdles will
Communications Headquarters, commonly known as inevitably reduce the speed at which cross-border
GCHQ, are protecting citizens’ privacy. Interpol, for investigations can be conducted. For authorities like
example, has recently been scrutinised for failing to the SFO, already under-resourced and embattled, these
protect sensitive crime data shared between partners. changes raise questions about its ability to function
The EU GDPR has been retained in UK domestic effectively in the post-Brexit environment without
data protection law by virtue of the UK GDPR. Aside being given additional powers. The UK will be keen to
from technical amendments to ensure the UK GDPR demonstrate that it is a safe place for companies to
can operate effectively under UK law, the core data conduct business outside of the EU, but absent targeted
protection principles, rights and obligations remain the reforms, its departure from the trading bloc will almost
same. The UK has also granted equivalency to the EU’s certainly hinder the ability of its law enforcement
data protection regime for the processing of personal agencies to identify and punish cross-border financial
data for the purposes of investigating and prosecuting and economic crimes.
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