Financial Crime Time - Your update from RPC: 2024 Q1

On 4 March 2024, the first changes being made by the Economic Crime and Corporate Transparency Act 2023 (the ECCTA) were introduced to enable Companies House to better combat fraud, including:

• greater powers to scrutinise information it receives and request supporting evidence;
• greater scrutiny of company names that may give a false or misleading impression;
• new rules for registered office addresses, in particular, all companies must have an appropriate address at all times and cannot use a PO Box address as their registered office address;
• a requirement for all companies to supply a registered email address;
• a requirement for subscribers to confirm, upon incorporation, that they are forming a company for a lawful purpose and the company must confirm that its intended future activities will be lawful;
• the ability to share data with other government departments and law enforcement agencies; and
• greater powers to tackle and remove factually inaccurate information

The government has issued a circular informing the police and other relevant public authorities of certain provisions of the Online Safety Act 2023 (OSA 2023). The OSA 2023 received Royal Assent on 26 October 2023 and creates three categories of offences:

1.  Requirement to report Child Sexual Exploitation and Abuse (CSEA)

It is a requirement under section 66, OSA 2023, for providers of services regulated under OSA 2023 to have systems in place to ensure that they report all detected CSEA content to the NCA. Failure to do so will become a criminal offence under section 69, OSA 2023. This offence is not yet in force as further implementation work needs to be carried out.

2.  Various offences relating to Ofcom's enforcement powers

The OSA 2023 establishes Ofcom as the regulator for online safety, granting it new enforcement powers. Part 7, OSA 2023, creates various offences in relation to these enforcement powers, for example:

• failing to comply with a requirement of an information notice;
• providing false information in response to an information notice; and
• suppressing, altering or destroying information required by an information notice.

A "Senior Manager" of an entity can also commit an offence if the entity commits any of the above offences and the individual has failed to take all reasonable steps to prevent that offence from being committed. "Senior Manager" is defined in section 103, OSA 2023, as an individual that plays a significant role in the making of decisions regarding how the entity's relevant activities are managed or organised, or the actual managing or organising of the entity's relevant activities.

These offences came into force on 10 January 2024.

3.  Communications offences

Part 10, OSA 2023, creates various communications offences, including the following:

• sending false information with the intention to cause harm;
• sending communications which threaten death or serious harm;
• sending flashing images with the intention of causing the viewer to suffer harm; and
• encouraging or assisting serious self-harm.

These offences came into force on 31 January 2024.

The Serious Fraud Office (SFO) has launched a criminal investigation into suspected fraud involving AOG Technics Ltd (AOG), a global aviation supplier.

AOG supplies parts globally for the CF56, a passenger aircraft engine and the CF6, a cargo aircraft engine.

In 2023 the UK Civil Aviation Authority, the United States' Federal Aviation Administration, and the European Union Aviation Safety Agency, issued safety alerts regarding unapproved AOG parts that companies may have purchased and installed. Following these alerts some companies, as a precaution, took potentially affected planes out of service.

On 6 December 2023, the SFO, accompanied by officers from the National Crime Agency (NCA), carried out a raid at a site in Greater London. Materials were seized in relation to suspected fraudulent supply of parts by AOG which had not been properly approved for use in passenger aircraft engines.

One individual was arrested and questioned following the raid and the criminal investigation remains ongoing.

The Southwark Crown Court has ordered the confiscation of over £466,000 from former Balli Steel Plc (BS) executives.

BS collapsed in 2013, owing $500 million to over 20 creditor banks. This led to an SFO investigation and allegations that the company had fabricated contracts for non-existent steel shipments to secure short-term bank loans which were then used to fund the company's operations. The contracts were certified, not by an independent shipping company, but by an in-house shipping company incorporated in the Cayman Islands and operated from the company’s UK office.

In March 2023, Nasser Alaghband, CEO of BS, and fellow senior executives Melis Erda and Louise Worsell, were sentenced to over 12 years in prison collectively. The sentencing court heard that the executives had benefitted personally from the frauds by paying themselves large salaries and extracting additional funds from the company.

On 19 January 2024, the SFO charged Reginald Larry-Cole and Scott Martin, two former directors of Raedex Consortium, with fraud in relation to the nationwide car leasing scheme Buy2Let Cars.

The scheme offered investment in popular cars which were bought and leased to the public. It operated over the course of nine years, during which time it attracted a large number of investors who paid in around £88 million. Many were first-time investors who believed they were making a secure investment.

The scheme was widely marketed through television, radio and newspaper adverts and was advertised during the Covid pandemic as a safe way for key workers to get to work. Mr Larry-Cole and Mr Martin were accused of providing false information to investors and encouraging people to invest in the scheme even though they knew that the investments were not backed up by the cars that investors had been promised. 

On 1 February 2024, the NCA arrested and charged Dmitry Ovsyannikov with seven counts of circumventing sanctions under the Russia (Sanctions) (EU Exit) Regulations 2019 and two counts of money laundering.

Mr Ovsyannikov is a Russian national who was formally the governor of Sevastaopol, a strategically important harbour, and a politician for Russia's ruling party, United Russia. He was designated under UK sanctions in 2020.

The charges include accusations that Mr Ovsyannikov opened a bank account with the Bank of Scotland in February 2023 and then transferred £76,000 to that account. It is also alleged that he used £1,517.44 of those monies to register as a driver for auto insurance in January 2024.

The Administrative Court has considered the relationship between financial sanctions and freedom of expression in Phillips v The Secretary of State for Foreign, Commonwealth and Development Affairs [2024] EWHC 32 (Admin).

Mr Phillips is a British national and video blogger who produces content from Donetsk and Luhansk, areas of Ukraine controlled by proxy Russian administrations. His content is widely shared on various social media platforms, with the total number of views of his videos in excess of 110 million.

The Secretary of State for Foreign, Commonwealth and Development Affairs (FCDA), allege that Mr Phillips is a propagandist for Russia, supported by the Russian authorities.  

In April 2022, Mr Phillips published on social media platforms a 44-minute video of an 'interview' with Aiden Aslin, a British national who had been serving with the Ukrainian Armed Forces before being taken prisoner by Russian forces following the fall of Mariupol. The 'interview' took place while Mr Aslin was a prisoner and in handcuffs. Aslin has since been released and stated that the 'interview' had been conducted under duress.

As a result of his video, Mr Phillips was formally designated for sanctions. This was despite the fact that he is a British national and the designation would significantly impact his rights. As a result of the designation, Mr Phillips' bank account was frozen and his YouTube account went "into indefinite demonetisation", effectively eliminating his source of income.

In June 2023, Mr Phillips brought a claim against the Secretary of State for FCDA, seeking an order quashing the designation decision and requiring the FCDA to strike his name from the Sanctions List.  

Mr Phillips claimed the designation breached his rights under the European Convention on Human Rights (ECHR)

In the view of the Administrative Court, the designation of Mr Phillips was proportionate to the legitimate aim of protecting the UK's national security and was therefore compatible with the ECHR. Further, the Court noted that Mr Phillips had not been sanctioned for his own political views, but rather because his video amounted to propaganda supportive of the Russian invasion of Ukraine. As such, the Court refused the application to set aside Mr Philip's designation for sanctions.  

HMRC has released information, in response to a Freedom of Information request, which shows that it has failed to charge any company with the criminal offence of failing to prevent the facilitation of tax evasion, under the Criminal Finances Act 2017, which came into force on 30 September 2017.

The data shows that, as of 1 January 2024, HMRC had 11 live investigations into corporations suspected of committing the offence. Since 30 September 2017, HMRC has reviewed 94 'opportunities' to open investigations but has decided not to pursue any of them.