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ENF 2 Annex 1 Information gathering and investigation powers

G

Appendix to the guidelines on investigation of cases of interest or concern to the Financial Services Authority and other prosecuting and other investigating agencies

Purpose, status and application of the guidelines

1.

These guidelines have been agreed by the following bodies ("the agencies"):

• the Financial Services Authority ("the FSA");

• the Serious Fraud Office ("the SFO");

• the Department of Trade and Industry ("the DTI");

• the Crown Prosecution Service ("the CPS");

• the Association of Chief Police Officers in England, Wales and Northern Ireland ("ACPO");

• the Crown Office;

• the Department of the Director of Public Prosecutions for Northern Ireland ("the DPP(NI)");

• the Association of Chief Police Officers in Scotland ("ACPO(S)").

2.

The guidelines are intended to assist the agencies when considering cases concerning financial crime and/or regulatory misconduct that are, or may be, of mutual interest to the FSA and one or more of the other agencies. Their implementation and wider points arising from them will be kept under review by the agencies who will liaise regularly.

3.

The purpose of the guidelines is to set out some broad principles which the agencies agree should be applied by them in order to assist them to:

(a)

decide which of them should investigate such cases;

(b)

co-operate with each other, particularly in cases where more than one agency is investigating;

(c)

prevent undue duplication of effort by reason of the involvement of more than one agency;

(d)

prevent the subjects of proceedings being treated unfairly by reason of the unwarranted involvement of more than one agency.

4.

The guidelines are intended to apply to the relationships between the FSA and the other agencies. They are not intended to apply to the relationships between those other agencies themselves where there is no FSA interest. They are not legally binding.

5.

The guidelines are subject to the restrictions on disclosure of information held by the agencies. They are not intended to override them.

6.

The guidelines are relevant to ACPO and ACPO(S) only in so far as they relate to investigations. Similarly, they are relevant to the CPS and the DPP(NI) only in so far as they relate to prosecutions.

Commencing Investigations

7.

The agencies recognise that there are areas in which they have an overlapping remit in terms of their functions and powers (the powers and functions of the agencies are set out in the Appendix to this document). The agencies will therefore endeavour to ensure that only the agency or agencies with the most appropriate functions and powers will commence investigations.

8.

The agencies further recognise that in certain cases concurrent investigations may be the most quick, effective and efficient way for some cases to be dealt with. However, if an agency is considering commencing an investigation and another agency is already carrying on a related investigation or proceedings or is otherwise likely to have an interest in that investigation, best practice is for the agencies concerned to liaise and discuss which agency or agencies should take action, ie investigate, bring proceedings or otherwise deal with the matter.

Indicators for deciding which agency should take action

9.

The following are indicators of whether action by the FSA or one of the other agencies is more appropriate. They are not listed in any particular order or ranked according to priority. No single feature of the case should be considered in isolation, but rather the whole case should be considered in the round.

(a)

Tending towards action by the FSA

Where the suspected conduct in question gives rise to concerns regarding market confidence or protection of consumers of services regulated by the FSA.

Where the suspected conduct in question would be best dealt with by:

- criminal prosecution of offences which the FSA has powers to prosecute by virtue of the Financial Services and Markets Act 2000 ("the 2000 Act") (see Appendix paragraph 1.4) and other incidental offences;

- civil proceedings under the 2000 Act (including applications for injunctions, restitution and to wind up firms carrying on regulated activities);

- regulatory action which can be referred to the Financial Services and Markets Tribunal (including proceedings for market abuse); and

- proceedings for breaches of listing rules.

Where the likely defendants are FSA authorised or approved persons.

Where the likely defendants are issuers or sponsors of a security admitted to the official list or in relation to which an application for listing has been made

Where there is likely to be a case for the use of FSA powers which may take immediate effect (eg powers to vary the permission of an authorised firm or to suspend listing of securities).

Where it is likely that the investigator will be seeking assistance from overseas regulatory authorities with functions equivalent to those of the FSA.

Where any possible criminal offences are technical or in a grey area whereas regulatory contraventions are clearly indicated.

Where the balance of public interest is in achieving reparation for victims and prosecution is likely to damage the prospects of this.

Where there are distinct parts of the case which are best investigated with regulatory expertise.

(b)

Tending towards action by one of the other agencies

Where serious or complex fraud is the predominant issue in the conduct in question (normally appropriate for the SFO).

Where the suspected conduct in question would be best dealt with by:

- criminal proceedings for which the FSA is not the statutory prosecutor;

- proceedings for disqualification of directors under the Company Directors Disqualification Act 1986 (normally appropriate for DTI action);

- winding up proceedings which FSA does not have statutory powers to bring (normally appropriate for DTI action); or

- criminal proceedings in Scotland.

Where the conduct in question concerns the abuse of limited liability status under the Companies Acts (normally appropriate for DTI action).

Where powers of arrest are likely to be necessary.

Where it is likely that the investigator will rely on overseas organisations (such as law enforcement agencies) with which the other agencies have liaison.

Where action by the FSA is likely to prejudice the public interest in the prosecution of offences for which the FSA is not a statutory prosecutor.

Where the case falls only partly within the regulated area (or criminal offences for which FSA is a statutory prosecutor) and the prospects of splitting the investigation are not good.

10.

It is also best practice for the agencies involved or interested in an investigation to continue to liaise as appropriate throughout in order to keep under review the decisions as to who should investigate or bring proceedings. This is particularly so where there are material developments in the investigation that might cause the agencies to reconsider its general purpose or scope and whether additional investigation by others is called for.

Conduct of concurrent investigations

11.

The agencies recognise that where concurrent investigations are taking place, action taken by one agency can prejudice the investigation or subsequent proceedings brought by another agency. Consequently, it is best practice for the agencies involved in concurrent investigations to notify each other of significant developments in their investigations and of any significant steps they propose to take in the case, such as:

interviewing a key witness;

requiring provision of significant volumes of documents;

executing a search warrant; or

instituting proceedings or otherwise disposing of a matter.

12.

If the agencies identify that particular action by one party might prejudice an investigation or future proceedings by another, it is desirable for the parties concerned to discuss and decide what action should be taken and by whom. In reaching these decisions, they will bear in mind how the public interest is best served overall. The examples provided in paragraph 9 above may also be used as indicators of where the overall balance of interest lies

Deciding to bring proceedings

13.

The agencies will consider, as necessary, and keep under review whether an investigation has reached the point where it is appropriate to commence proceedings. Where agencies are deciding whether to institute criminal proceedings, they will have regard to the usual codes or guidance relevant to that decision. For example, agencies other than the DPP(NI) or the Crown Office will have regard to the Code for Crown Prosecutors (Note: Different guidance applies to the DPP(NI) and the Crown Office. All criminal proceedings in Scotland are the responsibility of the Lord Advocate. Separate arrangements have been agreed between the FSA and the Crown Office for the prosecution of offences in Scotland arising out of FSA investigations). Where they are considering whether to bring non-criminal proceedings, they will take into account whatever factors they consider relevant (for example, in the case of market abuse proceedings brought by the FSA, these are set out in paragraph 14.4 of the FSA Enforcement manual).

14.

The agencies recognise that in taking a decision whether to commence proceedings, relevant factors will include:

whether commencement of proceedings might prejudice ongoing or potential investigations or proceedings brought by other agencies; and

whether, in the light of any proceedings being brought by another party, it is appropriate to commence separate proceedings against the person under investigation.

15.

Best practice in these circumstances, therefore, is for the parties concerned to liaise before a decision is taken.

Closing Cases

16.

It is best practice for the agencies, at the conclusion of any investigation where it is decided that no further action need be taken, or at the conclusion of proceedings, to notify any other agencies concerned of the outcome of the investigation and/or proceedings and to provide any other helpful feedback.

APPENDIX TO THE GUIDELINES ON INVESTIGATION OF CASES OF INTEREST OR CONCERN TO THE FINANCIAL SERVICES AUTHORITY AND OTHER PROSECUTING AND INVESTIGATING AGENCIES

1.

The FSA

1.1

The FSA is the single statutory regulator for all financial business in the UK. Its regulatory objectives (when acting other than in its capacity as the UK Listing Authority ("UKLA"))under the Financial Services and Markets Act 2000 ("the 2000 Act") are:

market confidence;

public awareness;

the protection of consumers; and

the reduction of financial crime.

(NOTE: The 2000 Act repealed and replaced various enactments which conferred powers and functions on the FSA and other regulators whose functions are now carried out by the FSA. Most notable in this context are the Financial Services Act 1986 and the Banking Act 1987. Transitional provisions under the 2000 Act permit the FSA to continue to investigate and bring proceedings for offences under the old legislation. Details of these transitional provisions are not set out in these guidelines)

1.2

The FSA is also the UKLA. The UKLA's regulatory objectives in this area are:

the protection of investors;

access to capital; and

investor confidence.

1.3

Under the 2000 Act the FSA has powers to investigate concerns including:

*regulatory concerns about authorised firms and individuals employed by them;

*suspected market abuse under s.118 of the 2000 Act;

*suspected misleading statements and practices under s.397 of the 2000 Act;

*suspected insider dealing under of Part V of the Criminal Justice Act 1993;

suspected contraventions of the general prohibition under s.19 of the 2000 Act and related offences;

*suspected offences under various other provisions of the 2000 Act (see below);

suspected breaches of the Listing Rules and related offences in relation to listing.

The FSA's powers of information gathering and investigation are set out in Part XI of the 2000 Act and in s.97 in relation to its UKLA functions.

1.4

The FSA has power to take the following enforcement action:

discipline authorised firms under Part XIV of the 2000 Act and approved persons under s.66 of the 2000 Act;

impose civil penalties in cases of market abuse under s.123 of the 2000 Act;

prohibit an individual from being employed in connection with a regulated activity, under s.56 of the 2000 Act;

apply to Court for injunctions (or interdicts) and other orders against persons contravening relevant requirements (under s.380 of the 2000 Act) or engaging in market abuse (under s.381 of the 2000 Act);

petition the court for the winding-up or administration of companies, and the bankruptcy of individuals, carrying on regulated activities;

apply to the court under ss.382 and 383 of the 2000 Act for restitution orders against persons contravening relevant requirements or persons engaged in market abuse;

require restitution under s.384 of the 2000 Act of profits which have accrued to authorised persons contravening relevant requirements or persons engaged in market abuse, or of losses which have been suffered by others as a result of those breaches;

(in England and Wales) prosecute offences under the Money Laundering Regulations 1993, Part V Criminal Justice Act 1993 (insider dealing) and various offences under the 2000 Act including (Note: The FSA may also prosecute any other offences which are incidental to those which it has express statutory power to prosecute):

- carrying on regulated activity without authorisation or exemption, under s.23;

- making false claims to be authorised or exempt, under s.24;

- promoting investment activity without authorisation, under s.25;

- breaching a prohibition order, under s.56;

- failing to co-operate with or giving false information to FSA appointed investigators, under s.177;

- failing to comply with provisions about influence over authorised persons, under s.191;

- making misleading statements and engaging in misleading practices, under s.397;

- misleading the FSA, under s.398;

- various offences in relation to the FSA's listing authority function under Part VI;

Fine, issue public censures, suspend or cancel listing for breaches of the Listing Rules by an issuer; and

Issue public censures , suspend or remove a sponsor from the UKLA list of approved sponsors for breaches of Listing Rules by a sponsor.

2

DTI

2.1

The Secretary of State for Trade & Industry exercises concurrently with the FSA those powers and functions marked with an asterisk in paragraphs 1.3 above. The investigation functions are undertaken by Companies Investigation Branch ("CIB") and the prosecution functions by the Solicitors Office.

2.2

The principal activities of CIB are, however, the investigations into the conduct of companies under the Companies Acts and the Fair Trading Act. These are fact-finding investigations but may lead to follow-up action by CIB such as petitioning for the winding up of a company, disqualification of directors of the company or referring the matter to the Solicitors Office for prosecution. CIB may also disclose information to other prosecution or regulatory authorities to enable them to take appropriate action under their own powers and functions. Such disclosure is, however, strictly controlled under a gateway disclosure regime.

2.3

The Solicitors Office advises on investigation work carried out by CIB and undertakes criminal investigations and prosecutions in respect of matters referred to it by CIB, the Insolvency Service or other divisions of the DTI or its agencies.

3

SFO

3.1

The aim of the SFO is to contribute to:

reducing fraud and the cost of fraud;

the delivery of justice and the rule of law;

maintaining confidence in the UK's business and financial institutions.

3.2

Under the Criminal Justice Act 1987 the Director of the SFO may investigate any suspected offence which appears on reasonable grounds to involve serious or complex fraud and may also conduct, or take over the conduct of, the prosecution of any such offence. The SFO may investigate in conjunction with any other person with whom the Director thinks it is proper to do so; that includes a police force (or the FSA or any other regulator). The criteria used by the SFO for deciding whether a case is suitable for it to deal with are set out in paragraph 3.3.

3.3

The key criterion should be that the suspected fraud is such that the direction of the investigation should be in the hands of those who would be responsible for any prosecution.

The factors that are taken into account include:

whether the amount involved is at least £1 million (this is simply an objective and recognisable signpost of seriousness and likely public concern rather than the main indicator of suitability);

whether the case is likely to give rise to national publicity and widespread public concern. That includes those involving government bodies, public bodies, the governments of other countries and commercial cases of public interest;

whether the case requires highly specialist knowledge of, for example, stock exchange practices or regulated markets;

whether there is a significant international dimension;

whether legal, accountancy and investigative skills need to be brought together; and

whether the case appears to be complex and one in which the use of Section 2 powers might be appropriate.

4

CPS

4.1

The CPS has responsibility for taking over the conduct of all criminal proceedings instituted by the police in England and Wales. The CPS may advise the police in respect of criminal offences. The CPS prosecutes all kinds of criminal offences, including fraud. Fraud cases may be prosecuted by local CPS offices but the most serious and complex fraud cases will be prosecuted centrally.

5

ACPO and ACPO(S)

5.1

ACPO represents the police forces of England, Wales, and Northern Ireland. ACPO(S) represents the police forces of Scotland.

6

The Crown Office

6.1

The investigation and prosecution of crime in Scotland is the responsibility of the Lord Advocate, who is the head of the Procurator Fiscal Service, which comprises Procurators Fiscal and their Deputes, who are answerable to the Lord Advocate. The Procurator Fiscal is the sole public prosecutor in Scotland, prosecuting cases reported not only by the police but all regulatory departments and agencies. All prosecutions before a jury, both in the High Court of Justiciary and in the Sheriff Court, run in the name of the Lord Advocate; all other prosecutions run in the name of the local Procurator Fiscal. The Head Office of the Procurator Fiscal Service is the Crown Office and the Unit within the Crown Office which deals with serious and complex fraud cases and with the investigation of cases of interest or concern to the Financial Services Authority is the Fraud and Specialist Services Unit: the remit of this Unit is directly comparable to that of the Serious Fraud Office.

7

The DPP(NI)

7.1

The DPP(NI) is responsible for the prosecution of all offences on indictment in Northern Ireland, other than offences prosecuted by the Serious Fraud Office. The DPP(NI) is also responsible for the prosecution of certain summary offences, including offences reported to it by any government department.