On 30 March 2023, HM Treasury and the Home Office published the Economic Crime Plan 2 for 2023 to 2026. The three-year plan builds on the first Economic Crime Plan published in 2019
Failing to Prepare is Preparing to Fail
Economic crime has risen to such a level that UK Finance, a trade association for the UK banking and financial services sector, considers financial fraud to be a “national security threat”. Over £750,000,000 was stolen from banking customers by fraudsters in the first half of 2021 alone, which represents almost a 30% increase from the same period in 2020. In response to this fraud epidemic, the UK Government promises that the Economic Crime and Corporate Transparency Bill (the ‘Bill’), which is currently being ushered through parliament, will implement key reforms necessary to support regulators with their fight against fraud.
Time to Cotton On: Managing Supply Chain Risks
Potential criminal activity in international supply chains can create reputational, civil, and criminal risks. This can be particularly difficult to manage when there are many links in the chain from the source of raw materials to the final product.
One regular question is whether revenue and profit generated from tainted supply chains can be regarded as the proceeds of crime; if so, anti-money laundering legislation may be engaged. This has been considered in a recent High Court case, arising in the context of a special interest group challenging a law enforcement decision not to launch an investigation into alleged supply chain criminality.
‘Party To’: the Scope of Section 213 of the Insolvency Act 1986
In Tradition Financial Service Ltd v Bilta (UK) Ltd & Others, the Court of Appeal considered the scope of section 213 of the Insolvency Act 1986 and, specifically, whether those beyond the small group of individuals with controlling or managerial functions of the liquidated company could be ‘party to’ the carrying on of a company’s businesses with intent to defraud creditors.
Stolen Cryptoassets: Further Guidance on Injunctions and Jurisdiction
In Osbourne v Persons Unknown & Others, the High Court of England and Wales confirmed that there is ‘at least a realistically arguable case’ that non-fungible tokens are to be treated as property as a matter of English law and that their inherently unique nature makes them suitable objects of prohibitory injunctions.
The Court also held that it is ‘strongly arguable’ that when a cryptoasset is stolen from a victim located in England, a constructive trust arises that is governed by English law. Further, if that cryptoasset is subsequently transferred to others, the question of whether they are constructive trustees is also a matter of English law. As such, the Court has jurisdiction over claims against those subsequent recipients of the stolen cryptoasset regardless of their location.
Court of Appeal decides that cryptoasset software developers may have a duty to help recover bitcoin
The Court of Appeal has decided that cryptoasset software developers may owe fiduciary duties or a duty of care to help recover bitcoin which is inaccessible as a result of criminal activity.
This is not a final decision. The Court has simply decided that the claim, against foreign defendants, is arguable and can go to trial.
Crypto Exchange Found to Hold Stolen Assets on Trust for Victim of Crypto Crime
In Jones v Persons Unknown & Others the High Court made several rulings of interest in the developing area of crypto fraud litigation.
After granting judgment in favour of the claimant for claims of deceit and unjust enrichment against fraudsters, the court went on to rule that a crypto exchange controlling the wallet holding the claimant’s stolen Bitcoin was a constructive trustee. The court ordered the fraudsters and the exchange to deliver up the Bitcoin to the claimant.
The decision that an exchange is a constructive trustee in these circumstances remains controversial and will likely be tested in future contested litigation where the stolen funds have been deposited and then withdrawn from an innocent exchange. Contested cases may also explore the question of whether and in what circumstances stolen crypto assets can be traced through intermediary accounts, particularly where they have been mixed with other assets that are not part of the fraud.
Injunctions against “persons unknown” – uncertainty ahead
Injunctions against “persons unknown” have increased in popularity in recent years; however, the recent judgment in MBR Acres Ltd and others v McGivern [2022] EWHC 2072 has cast doubt on the how widely these injunctions can take effect in future. Following this judgment parties will have to carefully consider whether it will be possible to prove an unknown person is bound by the injunction and it can be enforced against them.
So… A crisis has arisen? Don’t Panic!
A crisis can take many different forms. Depending upon the nature of the business in question, a crisis can mean a crippling cyber-attack, material fraudulent activity coming to light, a whistleblower raising serious allegations of impropriety, or something else entirely that is unique to the business.
Economic Crime (Transparency and Enforcement) Act 2022: Nowhere to Hide
The Economic Crime (Transparency and Enforcement) Act 2022 has received Royal Assent. The intention of the act is to crack down on illicit finance and expand the UK Government’s ability to monitor and disrupt those individuals engaged in money laundering or sanction evasion related activities. This post considers the key features of the new legislation.