As the National Crime Agency (“NCA”) releases its 2019 National Strategy Assessment, NCA Director General Lynne Owens is calling for an extra £2.7 billion in law enforcement funding to combat serious and organised crime over the next three years. With 4,542 active UK-based organised crime groups and 181,000 UK people involved in serious and organised crime, law enforcement agencies are starting to creak under the strain.
Lynne Owens argues that failing to make the investment she seeks will result in “the gradual erosion of our capabilities and our ability to protect the public”. Whilst her primary focus is on the harm organised crime does to people in our society, she points also to the economic impact of organised crime – it costs the UK economy at least £37 billion a year – and argues that failing to make the investment she seeks would be a false economy.
In this blog, we review the National Strategy Assessment’s analysis of current trends in financial offending and we look at the authorities’ response within their current funding arrangements. Against that background, we consider the argument for greater investment in law enforcement capacity.
Approach of the National Strategy Assessment
The National Strategy Assessment (“NSA”) is an intelligence-based assessment of the threat to the UK from serious and organised crime of all kinds, including financial crime, over the course of the past year. It also sets alongside its analysis some information about law enforcement’s response to the threats it describes.
The NSA highlights the fact that, owing to the prominence of London’s capital markets, the UK is highly vulnerable to money laundering. Given that money laundering associated with financial markets is likely to be high value and international, the techniques adopted by such launderers are generally highly sophisticated and complex. Whilst the actual extent of laundering funds passing through the UK is impossible to calculate, the NCA estimates that there is a realistic possibility that hundreds of billions of pounds of laundered funds enter the UK money cycle annually.
We are told that the values of individual cash seizures have risen over the past year, from which the NCA infers that organised crime groups are growing more confident in their ability to move cash undetected. There were increases last year in the number of suspicious activity reports filed with UK FIU by the regulated sector and defence against money laundering requests made of the UK FIU by the non-regulated sector. We are told that those defence against money laundering requests resulted in the prevention of more than £51 million being laundered. We are also told of 95 account freezing orders made in February 2019 against UK bank accounts together containing £3.6 million.
The NSA does not refer to prosecution activity against money launderers. But some light was shed on that issue in the form of an answer to a parliamentary question given on 9 October 2017 by Steve Barclay MP when he was the Economic Secretary to the Treasury. Mr Barclay informed Parliament that, since 2010, 9,705 people had been convicted of money laundering offences, mainly for offences under the Proceeds of Crime Act 2002. He added that, over that same time, ten people had been convicted of offences under the money laundering regulations.
Fraud and other economic crime
The NCA describes fraud as ‘the most commonly experienced crime in the UK’ with its annual cost to the UK economy estimated at £190 billion. 2018 saw a leap of approximately 20% in financial fraud losses, jumping from £408.8 million in 2017 to £506.4 million, and a 12% increase in reported fraud. Taken together, these figures suggest that not only are more frauds occurring, but that those frauds are of a higher value than before.
In particular, the UK is being targeted by cyber criminals based abroad, who are using the dark web and virtual private networks (VPNs) to perpetrate frauds and subsequently transfer the proceeds of fraud abroad. 84% of frauds occurring in the UK are now cyber-enabled.
In response, according to the NSA, just 3% of reported frauds led to criminal charges, summons, cautions, or community resolutions in 2017/2018.
International bribery and corruption
According to the NCA, UK contractors are highly likely to continue to pay bribes overseas to do business, with the gas and oil industries singled out as the most vulnerable to this kind of offending. Also singled out for mention as being at risk of bribery and corruption are large infrastructure projects as well as the mining and extractive industries. The NSA considers it a realistic possibility that the UK’s exit from the EU will impact the prevalence of bribery and corruption as companies come into contact with a greater concentration of corrupt markets.
Although the NSA does not address the success of enforcement measures to prevent bribery, the recently published post-legislative scrutiny of the Bribery Act recorded that, between 2011 and 2017, there had been 15 successful convictions for bribing (contrary to section 1 of the Bribery Act) and 14 for being bribed (contrary to section 2 of the Bribery Act). Additionally, there have been two convictions of commercial organisations for failure to prevent to prevent bribery, contrary to section 7 of the Bribery Act, and three deferred prosecution agreements which involved offences under the Bribery Act.
The NSA also addresses the UK financial sanctions regime and the extent of sanctions breaches. These sanctions target foreign individuals and companies who have been identified by either the UN, EU, or UK, and the rationale behind their being targeted is either to coerce a regime, or to constrain the target themself so as to circumscribe any harmful behaviour. Sanctions can both limit the provision of certain financial services and restrict access to financial markets, funds and economic resources.
The NSA states that, from April 2017 to March 2018, the Office of Financial Sanctions Implementation received 122 reports of suspected breaches of financial sanctions, at a reported value of £1.35 billion. Given the value averages out at just over £11 million per breach, sanctions breaches are evidently large scale, even if relatively small in number. The NSA alludes to the fact that these breaches are being facilitated by the use of UK Trust and Company Service Providers, who assist in the concealment of assets. Again, the NSA makes no reference to any prosecutions or convictions. The Policing and Crime Act 2017 introduced a monetary penalty scheme for breach of financial sanctions; however, use of such penalties as an enforcement tool has been limited, with the first such penalty being imposed on by the Office of Financial Sanctions Limitation on 25 February 2019.
The NSA reports that Russian-language organised crime groups represent the most serious threat, deploying a form of malicious software known as Trojans to disrupt, damage or gain unauthorised access to a victim’s device. Beyond this, cyber crime is growing more complex, using ‘modular malware’ which offers a ‘multitude of [presumably criminal] opportunities’ beyond theft of financial data. As just one example, by using ransomware, organised criminal groups access a victim’s computer, infect the files on the device, and demand a ransom be paid in return for restoring the device to its normal state. Not only are cyber crimes increasing in complexity, but there is evidence to suggest that the criminal groups responsible for cyber crimes are working more closely together than ever before. The tools they employ are of a comparable sophistication to ‘those used by nation-state threat actors’.
The NSA makes no mention of prosecutions or convictions in response, and focuses instead on preventative measures. But Ministry of Justice statistics show that in the year ending December 2018, there were 51 prosecutions for computer misuse offences and 45 convictions.
The case for increased law enforcement funding
The NSA extends to the various ways serious and organised criminals exploit the vulnerable and otherwise impact on communities. Here too it paints a picture of a problem that is increasing both in scale and complexity.
In her speech marking the NSA’s publication, Lynne Owens called for a societal response to serious and organised crime:
- the government to give law enforcement more powers;
- the finance and regulated sectors to help combat illicit finance;
- the technology sector to work better with law enforcement; and
- the public to report concerns.
But an increase in law enforcement funding which it could invest in expanding its capabilities was at the heart of her case.
According to the NCA annual accounts, the NCA’s budget for 2017-2018 was £550 million, which represents little increase to the £520 million received by one of its predecessor agencies, the Serious Organised Crime Agency (“SOCA”) in 2008 – 2009. Adjusted for inflation, that represents a budget cut of more than 16%. To put that into context, the NCA was formed out of not just SOCA, but also the Child Exploitation and Online Protection Centre, the Missing Persons Bureau, as well as parts of the National Policing Improvement Agency and the UK Border Agency. Despite assuming the functions of these agencies, the NCA inherited only half of their combined funding.
As a result, until this year, according to The Guardian, NCA officers have had a £5,000-£15,000 pay gap relative even to regular police in equivalent jobs, not to mention those doing comparable jobs in the private sector. This goes some way to explaining the high annual attrition rate at the NCA, with an 8% turnover of staff each year. Indeed, in the crucial area of cyber crime, that increases to 20% - one in five employees has been leaving each year, no doubt in order to accept more lucrative employment elsewhere.
That Lynne Owens was willing to make public her call for a £2.7 billion increase in funding over three years for the NCA and other enforcement agencies fighting serious and organised crime illustrates just how urgent she judges the situation to be. Cuts to funding the fight against serious and organised crime have been severe at a time where the complexity and quantity of criminal behaviour is rising steeply. The argument that there is no correlation between cuts to law enforcement budgets and increasing rates of crime is unsustainable. In making her case for an investment now in law enforcement’s capabilities, Lynne Owens acknowledged that some might say it was unaffordable. Her response was that we cannot afford not to make that investment. She was right.
Should you have any questions about the issues covered in this blog, please contact a member of our Criminal Law team.
This article was co-authored with Dorian Robinson in the Criminal Litigation team.
About the author
Alun Milford is a partner in the Criminal Litigation team and specialises in serious or complex financial crime, proceeds of crime litigation and corporate investigations. He has particular knowledge and experience of issues surrounding corporate crime and deferred prosecution agreements.