How can UK legislation and the powers of UK regulatory authorities extend to international companies?

Summary

There has been a recent trend of greater regulatory enforcement for international companies that “carry on a business (or part of a business) in the UK”.  We have set out in this article the relevant UK legislation and authorities that can enforce against international companies, with a particular focus on how these may apply to Indian-based companies.  Ultimately, it is important that Indian companies choosing to trade or carry out any business in the UK are fully aware of the regulations that may apply to them and ensure compliance in order to avoid a potential public investigation, or worse, prosecution.

The current UK regulatory landscape

The Serious Fraud Office (SFO) has increasingly pursued international companies and individuals located outside of the UK and has been receiving more cooperation from global regulators to facilitate its investigations.  Recent examples of regulatory enforcement activity involving India and the UK include the SFO investigation in the UK into the former managing director of Alstom Transport India (an Indian subsidiary of a French train and turbine group).  This investigation related to bribes that were allegedly paid to win transport contracts in India for the benefit of a UK subsidiary.  It was reported that the Indian authorities cooperated with the SFO in providing information in respect of the conduct in India to assist the investigation in the UK.

Further, in January 2023, the Financial Conduct Authority (FCA) issued a fine of £4 million to Al Rayan Bank, a UK subsidiary of Qatar’s Masraf Al Rayan, for failing to carry out adequate checks on potential money laundering and terrorist financing.  This followed suit from the FCA’s decision to fine the UK subsidiary of India’s Canara bank in the UK for anti-money laundering breaches, which it said were attributable to the bank’s choice to second staff from its head office in India, who did not properly understand British legal and regulatory anti-money laundering (AML) requirements, to fill senior management positions in the UK. ^[1]

In light of the above, it is of particular importance that international companies with a UK nexus are aware of the regulations imposed by the relevant UK authorities so that they can ensure compliance.

When do international companies need to be concerned about UK regulations?

There are several key pieces of UK legislation which may apply to international companies i.e. which have extra-territorial reach and which international businesses, including Indian businesses, should take note of.

The Bribery Act 2010 (the UKBA)

Under Section 7 of the UKBA (Section 7), a commercial organisation which is:

1. a body corporate or partnership; and
2. “carries on a business or part of a business” in the UK

can commit an offence if an associated person pays or offers a bribe intending to benefit the organisation, unless the organisation can show that it had adequate procedures in place to prevent bribery.

What it means to “carry on a business or part of a business in the UK” is not defined within the UKBAbut the Bribery Act Guidance does suggest that the company will need to have a “demonstrable business presence” in the UK, which is to be determined by a common-sense approach. ^[2]

Section 7 has a broad reach and the bribery itself need not take place in the UK, as long as the company has some business connection to the UK; this was evidenced in SFO v Sweett Group Plc ^[3], where it was held that the corrupt actions of a foreign subsidiary of a UK parent company, carried on outside the UK in relation to an international contract, were caught by the UKBA as a result of the UK parent company.

The principal offences under the UKBA have an even broader jurisdictional scope.  An individual will be guilty of these offences if they offer, promise, give or accept an advantage, directly or indirectly, to or from another person, intending that a person is rewarded for, or induced to, perform a relevant function or activity improperly.  Jurisdiction for these offences can be based on either any act or omission which forms a part of the offence taking place in the UK (even if the relevant individual is not based in the UK) or if the offender has a “close connection” to the UK. Individuals with a close connection to the UK such as UK nationals, UK residents and/or companies incorporated in the UK can therefore be captured by these offences.

Modern Slavery Act 2015 (MSA)

Under the MSA, businesses need to publish a ‘modern slavery statement’ if they are:

1. a commercial organisation;
2. carrying on business in the UK;
3. with a turnover of no less than £36 million or more in a financial year

As with the UKBA, there is no strict definition of what constitutes ‘carrying on business in the UK’, however UK Government guidance states that for a company to be ‘carrying out business in the UK’, there must be a “demonstrable business presence”, and this can be demonstrated by, but is not limited to, any of the following:

1. Registration at Companies House;
2. UK offices;
3. Providing services or support functions in the UK;
4. Receiving income in the UK; and
5. Any other visible UK business presence (e.g. a website).

Proceeds of Crime Act 2002 (POCA)

Individuals and companies can also be prosecuted for money laundering under POCA, even if the money laundering took place entirely outside the UK, provided that a significant portion of the underlying criminal conduct took place and had harmful consequences in the UK.  This was the case in R v Rogers [2014] EWCA Crim 1680, where there was no act of money laundering in England but it was sufficient that the underlying fraud generating the criminal property took place in England and there were English victims.

The Money Laundering Regulations 2017 (the MLR)

Whilst the MLR do not have extra-territorial effect, they will capture UK subsidiaries of international companies that carry on specified activities (“relevant persons” under the MLR).  There are stringent requirements placed on such subsidiaries under the MLR that include not only implementing systems, policies, controls and procedures to address money laundering and terrorist financing risks, but also establishing an independent audit function to examine, evaluate and make recommendations about the adequacy of their policy controls and procedures and ensure compliance with them.  There are also strict customer due diligence procedures to be abided by.

Failure to prevent fraud

The Economic Crime and Corporate Transparency Bill which is currently going through the UK Parliament is set to introduce several new offences, including a failure to prevent fraud offence modelled on Section 7 of the UKBA.  Under the new offence, an organisation may be prosecuted if an employee or agent commits fraud and the organisation does not have in place adequate policies and procedures to prevent the fraud.  Although the exact jurisdictional scope remains unclear, the new offence will apply to organisations and employees who are based overseas where an employee or agent commits a fraud offence under UK law or where the fraud targets UK victims.  This appears to be slightly different from the jurisdictional scope of the UKBA (which focuses on organisations carrying on a business in the UK).  It will be important for international companies to keep abreast of these developments. 

This bill and the failure to prevent fraud offence is expected to come into force by the end of this year.

Criminal Finances Act 2017 (CFA)

Under the CFA, businesses with a UK connection may be held criminally liable where they fail to prevent associated persons (for instance agents and other third parties, including suppliers and subcontractors) from criminally facilitating tax evasion.  The tax which is evaded does not have to be owed in the UK, but can be owed overseas.  The scope of this offence is therefore wide.

Similar to the UKBA, the only defence available to a company is that it had in place such ‘prevention procedures’ that in all the circumstances it was reasonable to expect it to have, or that in all the circumstances it was not reasonable to expect it to have any prevention procedures in place. 

Those entities found guilty of this offence may face potentially unlimited fines. 

Particular relevance to Indian companies

The various legislation and regulations, and their potential impact, are particularly important to Indian companies with a global reach for a number of reasons.

• Firstly, the UK regulations, in particular the section 7 bribery offence under UKBA and the proposed failure to prevent fraud offence, are much more stringent than their counterparts in Indian law.  Therefore, while an Indian company with a demonstrable UK presence may be abiding by Indian regulations, they could simultaneously be in breach of UK regulations.  To this extent, it will be very important for Indian companies to be properly advised on the regulatory risks they face.
• This is even more relevant considering the pace at which Indian companies are growing, and their increased trade and cooperation with UK companies, which exposes them to potential investigations by the relevant UK authorities.  In August 2022, Grant Thornton predicted India-UK bilateral trade to double by 2030, with India’s trade in goods and services with the UK increasing to $31.34 billion in 2022 from $19.51 billion in 2015. ^[4]

Notably, there are mechanisms within the Indian Criminal Procedure which enable investigating agencies in India to obtain evidence from a foreign jurisdiction.  India and the UK are also signatories to a Mutual Legal Assistance Treaty regarding the Investigation and Prosecution of Crime and the Tracing, Restraint and Confiscation of the Proceeds and Instruments of Crime.  Legal assistance under the treaty extends to crimes relating to currency transfers and terrorist financing.  It is important to note that global regulators are reported to be increasingly cooperating with each other in the form of information sharing.

How we can help

Indian companies that are looking to carry out trade with the UK will need to be properly advised in order to ensure compliance with UK regulations, given the recent increase in enforcement by UK regulatory authorities.  Norton Rose Fulbright can assist on these matters, with extensive experience in advising on regulatory matters across international offices. 

Pamela Reddy is a white-collar crime and investigations partner based in London with more than 25 years’ experience, and is able to advise on the full spectrum of criminal and regulatory law, covering all stages of domestic and global investigations, both internal and external.

Shabnam Karim is a dispute resolution Partner based in Dubai with a specific focus across the Middle East and India on boardroom risk, D&O/management liability, as well as negligence related litigation and contentious cyber matters.

Annie Birch is a senior associate with a focus on litigation and regulatory investigations and enforcement proceedings. Her work has covered both civil and related criminal law proceedings before international regulators.

Lubna Fahoum is an associate and has assisted on a number of internal and external regulatory investigations.

Emily Greig is a litigation associate who has worked in both the UK and Dubai with experience in a wide range of disputes including general commercial, civil fraud, contentious trust, shareholder disputes and regulatory investigations.