Greg Kilminster
Head of Product - Content
Serious Fraud Office’s evolving tactics against economic crime
In a speech at the Cambridge International Symposium on Economic Crime, Freya Grimwood, the Interim Chief Capability Officer at the Serious Fraud Office (SFO), discussed the agency’s strategic priorities and recent achievements.
Recent successes in high-profile cases
Grimwood began by highlighting several significant convictions achieved by the SFO in the past year. Notable among these was the March conviction of a former Ministry of Defence employee involved in misconduct related to Saudi Arabian defence contracts. The case not only resulted in the individual’s conviction but also led to the recovery of approximately £30 million from the defence firm that later employed him.
In another case, an investment manager was sentenced to eight years' imprisonment for his role in a £100 million no-win no-fee fraud. More recently, the SFO brought charges against five individuals accused of conspiring to make corrupt payments to benefit Glencore, a FTSE 100 company. This development followed Glencore's record-breaking corporate penalty for bribery, which accounted for more than half of all dirty money confiscated by UK public authorities in that year.
Grimwood also touched on the SFO’s ongoing proceeds of crime work, including a novel legal approach in the High Court to ensure that funds recovered from fraudsters are paid directly to their victims. Grimwood noted that this innovative method demonstrates the agency’s commitment to preventing criminals from profiting from their illegal activities.
The SFO’s broader mission
Beyond individual cases, Grimwood emphasised the SFO’s broader mission of protecting the UK’s business environment. By pursuing complex fraud cases, the SFO sends a clear message to foreign investors that the UK is a safe and secure place for their investments. In tackling bribery and corruption, the agency ensures that UK companies operate under the rule of law, both domestically and internationally. Grimwood stressed that the SFO’s work is a critical component of the UK Government’s economic growth strategy, which hinges on maintaining a robust and fair market environment.
Adapting to an evolving landscape
The economic crime landscape is continually evolving, and the SFO must adapt its tactics to stay ahead of increasingly sophisticated criminals. Under the leadership of Director Nick Ephgrave, who joined the agency in September 2023, the SFO has launched a new five-year strategy focused on improving case progression, enhancing the use of technology, and strengthening its recruitment and retention efforts.
One of the key areas of focus is the use of machine learning to manage the vast amounts of data involved in SFO cases. Grimwood noted that the average SFO case involves reviewing around five million documents, with the largest cases encompassing up to 48 million. Meeting this disclosure burden consumes 25% of the SFO’s operational budget, making the implementation of machine learning critical to reducing costs and improving efficiency.
Grimwood also highlighted the importance of whistleblowers in the fight against economic crime. Whistleblowers provide rare and valuable evidence from within organisations, and the SFO is keen to incentivise more individuals to come forward. Similarly, the agency is looking to encourage those complicit in criminal activities to cooperate with investigators, with the potential for immunity in certain circumstances.
Corporate cooperation and international collaboration
Grimwood acknowledged the vital role that companies play in the SFO’s work. The agency is updating its guidance to provide clearer expectations for companies that suspect wrongdoing within their ranks. This guidance will inform companies on how to cooperate effectively with the SFO and what considerations may be considered when negotiating Deferred Prosecution Agreements.
In addition to its domestic efforts, the SFO relies heavily on international collaboration. Grimwood said that all the 15 sites searched by the SFO in the past year were secured with the support of the National Crime Agency or local police forces. Furthermore, every SFO case has some form of international dimension, whether through intelligence sharing, mutual legal assistance requests, or joint investigations and global settlements.
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Australia's superannuation CEOs discuss investment governance challenges
The Australian Prudential Regulation Authority (APRA) and the Australian Securities and Investments Commission (ASIC) have released the notes from superannuation CEOs roundtables held in June and July 2024. The discussions primarily focused on the role of superannuation funds as investors of members’ money.
Investment governance challenges
The CEOs highlighted the need to enhance investment governance within these funds, including segregating duties, delegating responsibilities, and ensuring appropriate technical expertise and leadership for robust risk management.
The CEOs also discussed the possibility of funds insourcing their investment functions and agreed on the importance of fostering a strong risk culture. They acknowledged that transitioning from profit-focused funds management to member-centric superannuation can be culturally challenging. The roundtables identified opportunities for superannuation funds to learn from investment managers in structuring and operating their businesses, such as implementing technical standards. Benchmarking fund practices against external best practices was also discussed.
Liquidity management
In terms of liquidity, the CEOs emphasised the need for more substantive liquidity stress testing, with consideration for extreme scenarios. They highlighted the importance of understanding the relationship between public and private assets and how changes in the valuation of one asset can impact the overall balance of asset allocations and fund liquidity levels. With the increasing investment opportunities in private markets, they stressed the importance of prudent valuation practices and investment governance.
Importance of regulatory reforms
The CEOs acknowledged the value of APRA’s work in establishing clear links between prudential standards. They encouraged further efforts in this area. They also recognised regulatory reforms, including the performance test and mandatory ESG and climate reporting, as tools to help funds integrate investment risk into their strategies and drive improved member outcomes through performance.
APRA and ASIC ongoing work
APRA has been undertaking thematic work on investment governance, including deep dives into liquidity and exploring the interactions between superannuation and other industries. ASIC is looking at superannuation funds as participants in financial markets to understand how they interact with the market and meet market integrity obligations. Both regulators urged CEOs to reflect on their comments and apply superannuation and other industry learnings to their operations.
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Navigating the evolving landscape of financial crime: SFC's approach to enforcement
In a speech at the GIR Live Asia-Pacific Investigations Summit in Singapore, Christopher Wilson, Executive Director of Enforcement at Hong Kong's Securities and Futures Commission (SFC), reflected on the complexities of modern financial crime and outlined the SFC's strategies for upholding market integrity in an increasingly interconnected world.
Crafting enforcement strategies: the SFC's approach
Wilson began by outlining the SFC's enforcement strategy, which is guided by the principles of "Collaboration, Rapid Response, Alliance, Flexibility, and Technology"—an approach he summarised as "CRAFT."
The SFC's enforcement efforts are organised into three specialised teams, focusing on market misconduct, corporate misconduct, and intermediary misconduct. This specialisation allows investigators to develop expertise in their respective areas. However, as Wilson pointed out, financial crimes are becoming more complex and often involve multiple forms of misconduct. To address these challenges, the SFC has increasingly relied on cross-team collaboration, forming task forces that bring together different areas of expertise to tackle multi-faceted crimes.
One such crime, ramp-and-dump schemes, illustrates the complexity of modern financial fraud. In these schemes, syndicates manipulate the share price of a company by coordinating with its management and leveraging social media influencers to entice retail investors. Once the share price is artificially inflated, the syndicate sells its shares, leaving retail investors with worthless stock. Tackling such schemes requires coordinated efforts across all three of the SFC's specialised teams, highlighting the importance of flexibility and collaboration in enforcement.
Embracing technology in the fight against financial crime
A central theme of Wilson's address was the SFC's increasing reliance on technology to manage the growing complexity of financial investigations. The sheer volume of data involved in these investigations is, he noted, staggering. Each year, the SFC reviews more than 30 million digital image files, sends out thousands of notices seeking transaction records, and manages an eDiscovery platform that contains up to 50 terabytes of data. However, as Wilson also noted, the challenge lies not in collecting data but in extracting actionable insights from it.
To address this, the SFC established a Strategy and Technology team composed of financial engineers, data scientists, and forensic specialists, which is driving the adoption of new technologies to improve operational efficiencies and accelerate investigations. A key focus is on leveraging artificial intelligence (AI) to integrate information from previously siloed data sources, enabling investigators to identify patterns, trends, and hidden links within criminal syndicates.
Wilson quoted the former US Army General John Pershing: "Infantry wins battles, logistics wins wars," to stress the importance of investing in better data and evidence-gathering tools. The SFC's commitment to using technology reflects the evolving nature of financial crime, where digital anonymity and global connectivity have become significant challenges.
Pursuing diverse enforcement outcomes
Wilson also discussed the SFC's broader approach to enforcement, which goes beyond securing convictions. While the SFC has had a successful year in terms of prosecutions—including a landmark jury trial against a sophisticated market manipulation scheme—Wilson stressed that legal proceedings are not the only means of achieving enforcement outcomes.
For instance, the SFC has strengthened its collaboration with the Stock Exchange of Hong Kong to impose sanctions on company directors. While the SFC has broader investigatory powers, the lengthy court processes required to disqualify directors can be bypassed through the Exchange’s "Director Unsuitability Statement." This allows the SFC to achieve similar outcomes while freeing up resources to tackle more serious issues.
The SFC also works closely with other Hong Kong authorities, such as the Independent Commission Against Corruption (ICAC) and the Commercial Crime Bureau, to address misconduct from multiple angles.
Cross-border cooperation: a global effort against financial misconduct
This domestic collaborative approach extends beyond Hong Kong's borders, reflecting the transnational nature of financial crime. Wilson noted that the SFC's work is increasingly conducted in partnership with regulatory bodies across Asia-Pacific and beyond. He cited several examples where cross-border cooperation was crucial to securing enforcement outcomes. For instance, the SFC recently collaborated with regulators in Singapore, Canada, and the United States to obtain critical evidence in various cases, including a cross-border market manipulation case and a preservation order against a former executive director of a listed company.
This international collaboration is facilitated by the International Organisation of Securities Commissions (IOSCO), where the SFC plays a leading role. SFC Chief Executive Officer Julia Leung's recent appointment as Chair of the IOSCO Asia-Pacific Regional Committee would strengthen these cooperative efforts, ensuring that regulatory approaches are aligned across jurisdictions to minimise opportunities for regulatory arbitrage.
In closing, Wilson reiterated that the landscape of financial crime is changing rapidly, driven by technological advancements and globalisation. For regulators, the challenge is to remain agile and responsive to these evolving threats. The SFC's "CRAFT" strategy, with its emphasis on collaboration, technology, and international cooperation, is designed to meet these challenges head-on.
Wilson reminded the audience that maintaining the integrity of financial systems is a shared responsibility, one that benefits all stakeholders in ensuring fair and open markets. With this in mind, he urged continued collaboration across industries and borders to protect the financial markets that underpin global economic stability.
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SFC publishes new licensing regime guides
The Hong Kong Securities and Futures Commission (SFC) has published two new quick reference guides to assist visiting and returning professionals in understanding the SFC's licensing regime. The two new guides offer useful information about licensing options and processes as well as various conditions for examination exemptions.
This initiative follows the positive reception of previous quick reference guides on licensing and competence requirements for family offices, private equity firms, hedge fund managers, and overseas and Mainland practitioners.
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