Extended pre-investigative powers for the UK Serious Fraud Office coming soon

Current powers and proposed changes to pre-investigation s2A power 

Currently the SFO can compel individuals and companies to provide information before a formal investigation has been formally opened (ie pre-investigation). However, that power, under section 2A Criminal Justice Act 1987, can only be used in international bribery and corruption cases where there are “reasonable grounds to suspect” that a crime has taken place. It does not extend to cases of suspected fraud, domestic bribery or corruption.

Section 211 of the Economic Crime and Corporate Transparency Act 2023 (the Act) expands the SFO’s section 2A power to all potential SFO cases at the pre-investigative stage. The SFO’s power to compel individuals and companies to provide information before a formal investigation has been opened will therefore no longer be limited to suspected international bribery and corruption, and will extend to circumstances where the SFO has “reasonable grounds to suspect” that an offence involving serious or complex fraud, including domestic bribery or corruption, has taken place. The change comes into force on 15 January 2024.

Impact of the expansion of SFO’s s2A power

1. Potential increase in use of formal compulsion powers: At the pre-investigation stage, the SFO is heavily reliant on the voluntary provision of information. Many third-party organisations which hold useful data for potential SFO investigations are cognisant of their confidentiality, regulatory and data protection obligations, and not in a position to provide such data absent legal compulsion. We would expect to see an uptick in the number of organisations receiving pre-investigation compulsory notices from the SFO as a result of these expanded powers. In turn this will mean an increased compliance burden in reviewing and responding and therefore a corresponding increased burden of refreshing risk analysis across the client relationship or updated due diligence.

2. Increased evidence gathering at the pre-investigative stage may lead to an increase in formal investigations: Having compulsory evidence gathering powers at the pre-investigative stage will mean that the SFO can more quickly gather information to help decide whether there are reasonable grounds to suspect criminal offences, and, if so, whether they fall within the SFO’s remit.

3. Other agencies and third parties could also benefit from expanded powers: The SFO can share information it obtains using its compulsory powers with other agencies (including overseas) via one of the information sharing gateways in s3(5) Criminal Justice Act 1987, even if those agencies do not have equivalent pre-investigation compulsory powers.  The SFO may also be obliged to disclose the information to a third party (company or individual) that the SFO is investigating for an offence, as part of its prosecutor’s duty of disclosure or as part of negotiations for a Deferred Prosecution Agreement. That third party may in turn be forced to disclose the material to a counterparty in civil litigation.¹  So, whilst the SFO is the recipient of an expanded power, the repercussions may echo beyond SFO investigations.

4. Efficiency of investigations: On the one hand, information overload through unfocused s2A notices might lead to even more stagnation and backlogs in the SFO’s caseload, unless they have sufficient team members to review it.  On the other, the SFO may be able to operate and investigate with increased efficiency, resourcing only those cases most likely to yield results from an investigation. In its 2022-25 Strategic Plan, the SFO reinforced the importance of section 2A powers and the importance of using them at the first possible opportunity: "The use of these powers at the earliest possible stage usually results in high-quality targeted intelligence packages, which allow an investigation to advance more quickly."

The SFO originally was given its s2A power in 2008 due to the difficulties it had securing information on suspected overseas bribery and corruption in order to decide whether to open an investigation.  It is difficult to know whether the SFO has used its existing s2A power much as it has so far refused to provide data on that.

Expansion of this power has been on the SFO’s wish list for some time.  The justification given for the expansion to all cases is that the SFO needs it to improve its operating capability to tackle complex fraud. The SFO has said that it needs it so that it can reduce its reliance on third parties providing information voluntarily and enable it to obtain material from institutions such as banks and administrators, who may be unable to share information voluntarily due to confidentiality restrictions.

This is a significant expansion of the SFO’s powers of compulsion.  Whilst it is unclear whether it will be the magic bullet to enhance the SFO’s operational capabilities, it is clear that companies and individuals should expect more circumstances in which they will be compelled to provide information to the SFO before an investigation is formally initiated.

NCA also given new power to compel information earlier

The Act also includes a new, easier route for the National Crime Agency (NCA) to compel information at an earlier stage.

The NCA’s power to use ‘Further Information Orders’ (FIOs) was originally introduced by the Criminal Finances Act 2017.  Upon receipt of a Suspicious Activity Report from someone in the regulated sector, if the NCA believes it needs to know more about potential money laundering or terrorist financing, it can apply to the magistrates court for an FIO to be served on the reporting entity or anyone in the regulated sector.

The UK Government’s January 2023 Impact Assessment states that the power has never been used, with the NCA instead preferring to rely on a voluntary route, under s7 Crime and Courts Act 2013, to secure information.

Following criticism from the Financial Action Taskforce^2_, the Act gives the NCA the power to obtain one before a SAR has been submitted.  FIOs are being rechristened simply as ‘Information Orders’.  Failure to comply results in a GBP5000 fine.  This provision is not yet in force.

A firm which does not provide information to the NCA voluntarily following a s7 request (which most larger firms already do) may therefore start seeing these types of compulsory information orders.

With thanks to Anouska Jantzen who helped draft this article.

^{2 FAFT 2018 Mutual Evaluation Report.}