Research: Trends & Conclusions

With the benefit of over 17 years of research and tens of thousands of votes from clients and private practitioners, Who’s Who Legal takes a closer look at developing trends in the business crime legal marketplace worldwide.

Business crime defence is booming,” enthused one UK-based practitioner. It is a sentiment echoed in jurisdictions around the globe. While the recession dampened other legal practice areas, many of which are still not back to pre-crisis levels, this is certainly not the case for white-collar defence specialists. According to those we spoke to, everything to do with this area has increased over the past 18 months: volume of work, number of practitioners in the legal market, number of firms developing practices in this area, levels of scrutiny by regulators, scope of legislation and cooperation between regulators, levels of fines and sentences... the list goes on.

The business crime defence market is growing, with increasing specialisation in the field and new firms entering the market. The results of our research, as shown in chart one, reflect this trend as we recognise more lawyers from a greater array of firms than ever before. We also include over 200 more individuals than in our 2009 edition – thus demonstrating how, in the wake of the financial crisis and with increased focus by regulators around the world on this area, the legal market has correspondingly developed.

 

 

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Although England and the US remain the key jurisdictions, we have heard reports of an increased emphasis on corruption and fraud in Latin America, Asia and Africa. This year we recognise more individuals from these regions, indicating an increasing sophistication of their business crime defence bars. This is driven by a changing global climate of enforcement, spearheaded by US and UK regulators. In the more mature white-collar crime legal markets, the key trend is that of much more aggressive enforcement by authorities.

In terms of the type of work lawyers are seeing, it is a mix of traditional and new. Compliance with the Foreign Corruption Practices Act (FCPA), the UK Bribery Act (UKBA) and other regulations, introduced following the financial crisis, remains a steady source of work. Although many companies have already ensured they are compliant, the ramping-up of enforcement by regulators, and the high fines imposed on those falling foul of the law, keep private practitioners in demand to ensure that corporate compliance programmes are more than enough to satisfy the inquiries of even the most stringent regulators.

For those who have fallen short, experienced private practitioners are the first port of call when investigations commence. This has kept many of our leading lawyers busy. This year Who’s Who Legal launched its first guide on the leading practitioners for investigations work; it is interesting to note the extent of crossover between these experts, and those in our business crime defence and asset recovery guides. As figure two shows, two-thirds of those singled out as leaders in the business crime defence world concentrate solely on this area, which – given the reports we have heard of the amount of crossover – is perhaps surprising.

However, when taking a look at the two largest jurisdictions for business crime defence, the US and England, the trend is markedly different. In England nearly half of our business crime defence experts are leading investigations lawyers as well, whereas in the US only 30 per cent are. This can be explained by the fact that the US boasts a much larger and more mature market, with a very established group of trial lawyers specialising in white-collar crime who have not diversified into investigations work. Whether or not the English legal market will replicate this trend, given its much smaller size, remains to be seen.

In the US, meanwhile, sources have reported on an extremely busy year, as the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) continue their “relentless probing” of companies and their activities around the globe. Although the number of actions in 2013 was much less than the 2011 peak, with only nine companies facing charges by one or both bodies, levels of fines are getting larger, with the agencies taking $720 million between them over the course of last year. So far this year Aloca, Hewlett-Packard and Smith & Wesson have paid fines for violating the FCPA following SEC and DOJ investigations, with Aloca’s being the largest to settle at $384 million. Thus the deterrent remains strong, and lawyers are seeing continued high levels of investigations advisory and contentious work in relation to the FCPA.

Significantly, 2013 saw the first FCPA non-prosecution agreement (NPA) with the SEC and DOJ entering into an agreement with Ralph Lauren Corporation, resolving allegations that its Argentine subsidiary allegedly paid bribes to officials to improperly secure the importation of its products into Argentina. The NPA resulted from the corporation’s quick self-reporting and “exceptional assistance”, in the words of the SEC. Some sources suggest that this could signal a “new era of FCPA enforcement” with more scope for cooperation between those being investigated and the regulators. Crucially it has given lawyers a much clearer picture of the potential benefits of quick disclosure. As one DC-based source said, “We can tell our clients that if you get your house in order, find an issue and report it immediately then there is hope for a good outcome.” However, given the small size of the bribes involved in this instance and the fact that Ralph Lauren’s two-week turnaround will be difficult for other corporations to replicate, it is by no means a “get out of jail free card” for those violating the FCPA.

 

 

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At the same time, we have also heard that prosecutors have a “bigger appetite” for forcing large financial institutions to plead guilty to criminal charges, and not “wriggle out” via defended prosecution agreements (DPAs). The recent Credit Suisse and BNP Paribas cases are notable examples of this. Previously, some have suggested that the DOJ take a softer approach to larger financial institutions for fear they could destabilise wider markets; however, with these recent cases it seems they are being more aggressive. For lawyers and their clients, these examples have shown pleading guilty is not necessarily a “death sentence”. According to our sources, despite concerns regarding the effect on share price and the market there has been “no material impact”. In fact, pleading guilty is likely to have a positive impact as it ends the uncertainty of drawn-out investigations and proceedings, and in the long term such a move could be beneficial. Thus, it is likely that more companies will pursue this course in the year ahead, now that it has been tried and tested – if circumstances make it a viable option.

Another notable US trend is the greater focus on individuals by regulators, with practitioners reporting a “spike” in charges against them. This development is creating a larger demand for private practice experts, with top litigation and white-collar crime specialist firms especially benefiting as the larger outfits tend to represent the corporations, meaning that due to potential conflict, individuals being investigated are seeking representation elsewhere.

Our US sources estimate there to be approximately 100 ongoing investigations in relation to the FCPA, with China being the major jurisdiction where supposed violations have taken place. Brazil, Russia, India and parts of the Middle East are also “key regions of concern” for clients. All this bodes well for the volume of work practitioners should see for the year ahead, which is “only going to grow”.

In England, the UKBA has just celebrated its third birthday and everyone is still waiting for a “flagship” corporate prosecution, although several minor convictions have taken place. For lawyers, compliance work relating to the Act has mostly been done and dusted and since then it has been a “damp squib”. Yet there is the potential for fireworks soon, as the Serious Fraud Office (SFO) launched a formal criminal investigation into Rolls-Royce last December and GlaxoSmithKline (GSK) in May this year. Further inquiries are expected to be announced before the year is out, with lawyers reporting a constant and growing stream of internal investigations work from clients. The only question on everyone’s lips at the moment is how soon the first major UKBA prosecution will be; lawyers and clients alike are watching with interest to see how it will play out. For many, GSK seems to be the most likely candidate – although, as one practitioner asked: “Will the SFO have the balls to do it?” With its chequered history and inability to fully shake off its nickname of “Seriously Flawed Office”, there is a huge amount of pressure for the SFO to get it right.

Certainly, lawyers still consider the SFO to be understaffed and underfunded, with one lawyer referring to an “air of despair which makes it very hard to take it seriously as a credible law enforcement agency”. Several lawyers we spoke to claim it is “on its last legs”, with one even estimating that it had only two more years of life left in it. This current situation means that clients only really get concerned when the US becomes involved in investigations. “The SEC and DOJ are taken incredibly seriously,” says a source. “However, when it is the SFO alone clients believe they have a real chance of getting off.”

This attitude to the SFO, despite its change in leadership from Richard Alderman to the “more aggressive” David Green, does not bode well for the potential success of DPAs, which came into force in February this year. This development is “keeping anyone who is anyone busy”, which is very timely given the close of the phone-hacking trial which involved almost every lawyer in London. Multiple sources report that there are already ongoing talks with the SFO exploring the potential for DPAs; however, whether voluntarily self-reporting will become a trend in the UK, as it is on the other side of the Atlantic, hinges on whether the SFO can make it seem like a preferable option for corporations. This is the biggest matter of debate; can the SFO under Green achieve some successful prosecutions so there is a stick to match the DPA carrot? If it can, it will make DPAs an appealing option for companies and they will become a viable enforcement tool for the regulator, however at the moment this is far from certain.

A lot rests on the outcome of LIBOR; Alderman turned it down, but when Green took over the SFO he accepted it, indicating a more proactive and forceful stance. Currently a number of traders are awaiting prosecution, although given recent history – including the collapse of the case against executives at Goldshield in 2009, which implied that price-fixing does not constitute fraud – it will be a challenge. So far, the advent of DPAs has resulted in a mound of advisory work for practitioners, but as one interviewee explained, “DPAs in themselves are not creating more work. It is the huge increase in internal investigations that they have spawned which is really feeding the legal market.” At the moment it seems that the vast majority of clients are deciding to “sit on anything uncovered” rather than approach the regulator, as many are waiting to see a “test case”. One lawyer summed up the attitude of the majority of clients at the moment: “They correctly believe that they can get away with it; there is no real incentive to self-report given the current state of the SFO.”

In contrast, the Financial Conduct Authority (FCA) is going from strength to strength. Formed in April last year as one of the successors to the Financial Services Authority, it has emerged as a real force to be reckoned with. It is well funded and has “buzz” about it. As one lawyer put it, “If the FCA is after your clients, then they – and you – should be worried.” With its prominent role in LIBOR, a close working relationship with the SEC and DOJ, and a more forceful approach (which is translating into raids, arrests and investigations), it is certainly providing reams of work for lawyers. Although so far actual results have been mixed, its proactiveness and vigour is turning it into a formidable force as a global policing unit for financial crimes and a formidable source of work for lawyers.

The trend for increasing cooperation between regulators continues to grow, with the US leading the way, although the UK is certainly stepping up and other bodies around the world are following suit. LIBOR and now FOREX are excellent examples of the increasingly joined-up nature of investigations, with regulators from the US, Switzerland and Hong Kong (to name but a few) joining the FCA in an international investigation into FOREX. Many of those we spoke to emphasised the significance of US involvement in investigations; SEC or DOJ involvement adds huge complexity and intensity to cases and they cause local regulators to up their game. This can create issues however, with lawyers commenting on the potential for “turf wars” with regard to who is leading investigations. For some regulators it gives the impression that they are unable to properly pursue matters independently, which can undermine their authority. Ultimately, though, for private practitioners around the world the US’s aggressive worldwide enforcement approach has been fundamental in helping business crime defence become a booming practice area. There is a need for experts in jurisdictions around the world, and the US has played a pivotal role in the development of the global legal market for this area.

Jurisdictions such as France, Hong Kong and Brazil, which were previously considered fairly soft on white-collar crime, are now taking a much more stringent approach, undoubtedly inspired by the US attitude. The French courts recently imposed a €1.1 billion court guarantee on Swiss bank UBS, and this phenomenally high amount is, according to our sources, a real attempt by the country to demonstrate that its reputation of having a lukewarm approach to prosecuting financial crime is over. Hong Kong has tightened its money laundering laws, resulting in a sharp increase in investigations work. Brazil’s Clean Companies Act came into effect in January this year, and is a clear signal of its intention to clamp down on corruption. It represents an operational and compliance challenge for both local and foreign companies doing business in Brazil, and the demand for experienced local experts has considerably increased. We have also heard reports of the big four accountancy firms looking to expand their fraud and investigations practices into Latin America, as well as an ever-growing presence of international outfits, which should result in increasingly sophisticated white-collar crime bars across the region. Not to be outdone, parts of Africa are also upping their game, with the Ghanaian government introducing a clause in its contracts with oil companies that requires them to comply with the FCPA, the UKBA, Ghanaian anti-corruption laws and the principles set out by the OECD’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. This is being heralded as a positive step for international compliance and a raising of anti-corruption standards in the country. As a result of these changing attitudes and legislation, local legal markets are growing and more firms are looking to develop expertise in this area to meet demand.

The focus of regulators continues to broaden and shift to new areas, with health-care fraud, environmental crime, and cyber-crime and security all considered “super hot right now”. Medical fraud is one of the fastest-growing areas of criminal investigation, with the Obama administration renewing its focus on it. The Medicare Fraud Strike Force, which is coordinated by the DOJ and Department of Health and Human Services, has been particularly busy over the past year and since its inception in 2007 more than 1,900 individuals have been charged. Similarly, environmental enforcement has become increasingly strict with authorities in many jurisdictions, notably the US and Australia, renewing their focus on this area. Technology-related crime is also a growing field of focus as lawmakers try and keep up with advances. Perhaps the biggest issue of this year was highlighted in the book Flash Boys by Michael Lewis, which exposed the practice of high frequency trading (HFT) in the finance industry. In the book’s wake the DOJ, the FBI and the SEC all revealed they had begun HFT-related investigations and in the UK the Economic Affairs Committee of the House of Lords is pushing the FCA to launch an inquiry. On a European level the revised Markets in Financial Instruments Directive is expected to come into force in 2016 and is likely to have more onerous rules on HFT. Germany has already introduced new legislation and in the near future practitioners are predicting that other jurisdictions will introduce regulatory changes to address HFT. It seems that, as the focus of regulators broadens to encompass more areas, the need for lawyers to have increasingly sector-specific expertise grows; they need to have not only strong experience in investigations and criminal cases, but also “niche” knowledge. Some of our sources claim that in the years ahead this will result in a much more diversified business crime defence bar.

In regards to the legal market, the biggest trend is the entrance of medium-sized and large full-service firms into this sector over the past few decades. Prior to this it was largely the preserve of specialist outfits. Those we spoke to point to two key reasons for this. Firstly, full-service firms’ existing clients are increasingly in need of counsel in this area due to the changing regulatory landscape and aggressive enforcement. To cater to this need and keep the work with them, these outfits begun practices in this area, largely through lateral hires. Secondly, due to the global financial crisis other practice areas have become less lucrative, whereas there is growing demand for business crime defence advice. As one source put it, “When M&A or capital markets practices are not bringing home the bacon, business crime defence can.” Although firms cannot charge outrageous fees, it is certainly a field where clients are less concerned about cost and much more concerned about quality of counsel. The need to get it right in regards to compliance, investigations and trials means that they are prepared to pay for the best as the consequences of scrimping are far too high in the current regulatory environment.

As a result of this trend the legal market is now a mix of full-service and specialist litigation and/or criminal firms. When the types of firms in our research this year are categorised 48 per cent are full-service outfits, and when looked at from the perspective of where the individuals in our research hail from 54 per cent are from full-service firms. Thus, an area that was once dominated by specialist firms is now fairly evenly divided between the two types.

Those we spoke to at specialist firms commented on the increased competition and pressure in the market. Also, the entrance of full-service firms into this field has resulted in many of their strongest associates or partners moving to develop or bolster practices at these outfits. In the UK especially this has resulted in a huge amount of movement over the past few years, although the market now seems to be stabilising. There is still demand for good practitioners, which has led to some firms turning to the bar to find lawyers to join their growing teams or “luring away” talent from the regulators.

Crucially, both types of firm are able to coexist in the legal market because their focus is different; with the specialists tending to represent the individuals and the full-service firms catering to the corporations, who are usually existing clients. Due to conflict it is often impossible for the full-service firm to deal with both, and hence there is a “strong system of referral” with individuals being “farmed out” to specialist firms. Thus, the key difference is that, in the past, anything business crime-related was referred to the specialists, whereas now it tends to be only in case of conflict.

However, a recent hearing regarding the actions of partners from Allen & Overy in a bribery case has highlighted the need for some practitioners operating in the business crime sphere to be aware of the depth of their experience. Alexander Cameron QC, who was defending the two partners in a hearing before Southwark Crown Court, drew attention to this change, telling the court, “There is certainly a school of thought which says that, you know, in an ideal world, a client of A&O should be referred to firm X – I will not name any – who, as they probably would have done in the old days, are more experienced with the criminal courts in this country.” This example suggests that there remains a need in the market for those with in-depth knowledge of the regulators and processes, and in certain situations it might be advisable to seek additional counsel. However, at the same time there is also, more than ever, a need for the larger international outfits in the market as well. Given the scale and multi-jurisdictional scope of compliance and investigations, and the growing cooperation between regulators they are extremely well positioned to handle this burgeoning type of work. Thus it is likely that this balance of both types of firms will remain for the foreseeable future.

 

 

 

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The other trend of recent years has been the growing presence of US firms in the English legal market. As chart three shows, there are three times as many England-based individuals from US firms recognised in our guide as in 2012. According to those we interviewed, the introduction of the UKBA is a key driver for this, as US firms believed it would yield the same volume of activity as the FCPA. In regards to compliance it has been a significant source of work, but now that companies have got their houses in order there is debate surrounding the long-term prospects of these practices, especially given the lack of UKBA prosecutions. There is consensus that those firms that hired leading practitioners and who supported them in developing a “real practice beyond just UKBA-related work” will be able to stay the course. Also, as there is mounting cooperation between US and UK regulators, being part of a firm with a presence in both jurisdictions certainly can be an advantage. However, it is predicted some practices may fall by the wayside and most practitioners agree that any more significant moves to US firms are unlikely.

In the US the big trend of the “revolving door between government and then private practice” continues. Furthermore, many of the US firms entering the English market have applied this “gamekeeper turned poacher” criteria when hiring. In the US, where this path is much more established, the SEC is trying to address this issue by subjecting more of its staff, not just those at the top level, to a one-year “cooling off” period before they can join private practice. According to some, this could mean that talented members of the younger generation are put off joining the SEC. This could result in problems for the regulator in recruiting and maintaining top-quality lawyers, as many litigators who join tend to do so for a limited period, seeking experience. Some have even suggested that a “mass exodus” of existing staff could occur. This comes at a time when the SEC has already seen a fairly high turnover following its change in leadership in 2012 and is actively trying to hire more lawyers, notable those with the expertise relevant for HFT and FOREX investigations.

At the UK bar the biggest change has been cuts to legal aid. Alexander Cameron QC highlighted the impact this has had earlier this year when he called for a complex fraud trial to be halted because “the state has failed to provide adequate representation to allow the trial to take place”. In a significant ruling, the trial was thrown out. According to those we spoke to the cuts have been “very damaging for the criminal bar” and are “endangering the criminal justice system” as many barristers are not accepting work under the new, much lower rates. According to those barristers we spoke to the future of the criminal bar is “gloomy” if the situation is not reversed, as without the calibre of barristers necessary to represent both parties, there will be a lack of cases in this area. There will also be less opportunity for juniors to gain vital experience, and in the longer term this could put talented lawyers off joining the criminal bar altogether. In the short term the most likely impact is greater consolidation of the criminal bar; already, we have seen the merger of criminal set Argent with civil and crime set Goldsmith Chambers, with the reduction in fees from legal aid work being cited as the key reason for this consolidation.

 

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The global business crime defence bar has transformed over the past few decades to become a genuine mix of full-service and specialist firms and it continues to grow as this area of law continues to increase in importance. The past year has seen more stringent enforcement by regulators around the globe and greater cooperation between them. New areas of crime are being focused on, while traditional ones continued to be pursued. With new scandals such as FOREX and HFT breaking out and large scale multi-jurisdictional investigations such as LIBOR continuing, practitioners are keeping busy and the global legal market continues to evolve.

 

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Nominees have been selected based upon comprehensive, independent survey work with both general counsel and private practice lawyers worldwide. Only specialists who have met independent international research criteria are listed.

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