Brexit: Consequences for Investigations
July 5, 2016
Download: Brexit: Consequences for Investigations (PDF, 358.45 K)
On 23 June 2016, the people of the United Kingdom voted to leave the European Union. This note reviews the potential consequences for investigations, trans-national law enforcement and international agreements.
By Matt Getz and Natasha Harrison
We know the decision will lead to changes. We cannot know what changes there will be. EU law is intertwined with UK law, through (a) legislation that has direct effect in the UK and (b) directives and other instruments which have been transposed into UK law through UK domestic legislation. Legislation with direct effect will cease to have effect – but the UK government may need to pass new laws temporarily or permanently mirroring the EU legislation to prevent absurd results and patchy legislative schemes. Legislation that has been transposed into UK law will remain UK law – until and unless the UK government amends or repeals such laws. Overall, the Financial Times considers that there will have to be “holding and saving legislation for at least a political generation”.
The UK is also party to a large number of EU treaties, conventions and agencies. In some cases, there will be total withdrawal, in others the government may seek to rejoin as a non-EU party.
The following areas will be expected to see changes, though the extent and nature of the changes cannot with certainty be predicted.
Co-operation in criminal matters
Most anti-corruption and similar investigations and prosecutions are under the rubric of the Serious Fraud Office (“SFO”). They have worked hard on fostering cooperation with other countries, so, while it is possible that EU authorities will be less enthused to help the UK post-Brexit, that is not necessarily the case. After all, the SFO (and other UK bodies) have very good relations in this sphere with the likes of Singapore and the US, so being part of the EU is not absolutely necessary.
However, certain important mechanisms will either have to be replicated in UK law, or new systems set up. In criminal matters, requests for information, assistance with procuring interviews, and the like, are done through mutual legal assistance treaties (“MLATs”). The Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union serves as an MLAT for all EU member states, and greatly simplifies access and co-operation; the UK will no longer be a party to the Convention, so may need to forge a new agreement with the EU (though it already has MLATs with some member states).
In addition, intra-EU assistance and co-operation is due to be enhanced next year with the launch of the European Investigative Order – but the UK will not be able to take advantage of that.
The EU also has a number of MLATs of its own, including with the US (as does the UK). So, the UK may need to negotiate and enter into a new MLAT with a number of other countries.
The UK will no longer be a member of Eurojust, the EU’s judicial cooperation unit, or Europol, the EU’s law enforcement agency.
Once the UK leaves the EU, it will no longer be bound by any EU sanctions measures against Russia, Iran etc. Some EU sanctions legislation has been implemented in UK law, so will remain binding on UK persons if a later UK government does not decide to repeal or amend it. And much EU sanctions legislation was never implemented in UK law, so will cease to have effect from the moment the UK leaves.
At that stage, the UK will be bound only to follow the much more limited sanctions imposed by the UN. At that stage, the UK may decide to be like Norway or Switzerland and pass laws essentially mirroring EU sanctions.
New EU sanctions – and changes to existing sanctions – will obviously have no input from the UK, so the UK will need to decide whether or not it follows decisions over which it has had no input. The UK will also regain the option to unilaterally impose sanctions against particular countries or persons. That is, the UK will be able to choose between mirroring the EU, being stricter and being more lenient – or some combination of the three.
English law in international agreements
Because of its transparency, certainty and rationality, English law has been the preferred choice of law of international agreements by corporates, financial institutions and others for many years, indeed since long before the European Union was ever contemplated. The benefits of using English law as the governing law of agreements, and selecting the High Court of England and Wales as a forum for resolving disputes, remain. The new Financial List in the High Court provides experienced judges who are fluent in all types of financial instruments and disputes. At the same time the Commercial Court and Chancery Division provide an expert and neutral forum for the resolution of complex and high value commercial disputes, together with the rigour and discipline which underscore an appellate system. English law will remain stable and commercially oriented, and best suited to determining complex international disputes. We therefore encourage our clients not to replace the use of English law in their existing agreements and to continue to write any future agreements to the English law, and subject to the jurisdiction of the English Courts.
In the EU, the law governing contractual and non-contractual obligations is determined by application of the Rome Regulations, which will no longer apply after Brexit. However, there is unlikely to be significant change in this area, for two reasons. First, other Member States will continue to be bound by the Rome Regulations, which also apply to dealings with non-Member States. Therefore, the rest of the EU will accept English law as the governing law post-Brexit to the same extent they would have done so pre-Brexit. Second, the legacy English statutes are very similar to the Rome Regulations. As such, there is little or no reason for the UK to implement an entirely new regime regarding the determination of governing law.
Jurisdiction and enforcement of judgments
As an EU member, the UK is bound by the Recast Brussels Regulation (“Brussels”) and party to the Lugano Convention (“Lugano”) – whose members also include Switzerland, Norway and Iceland – establishing rules for jurisdiction and the enforcement of judgments across much of Europe. These rules provide for English courts’ judgments to be enforceable across the EU and the Lugano states (though there are some minor differences between Lugano and Brussels, relating mainly to jurisdiction). The UK should probably be able to join Lugano, either through joining the European Free Trade Area, or with the consent of the current states parties, so the vast bulk of the rules on jurisdiction and recognition of judgments do not need to change.
The UK could also join the Hague Convention on Choice of Court Agreements, which the EU is already a party to. Of course, the UK could decide not to take steps to follow the existing rules, and attempt to forge a new treaty or treaties, though it is difficult to see what would be gained from that.
The UK will no longer form part of the EU’s data protection regime. The UK’s own law, the Data Protection Act 1998, implements an EU Directive that will shortly be superseded by the new EU General Data Protection Regulation. The UK may decide to mirror the changed provisions of the new regulation, or to stick with existing law, which will put it out of step with the EU member states. Whichever happens, the transfer of personal data between the UK and the EU is set to become more complicated.
It is a principle of EU data protection law that, in general, personal data can be transferred outside the EU only if the receiving country provides the same amount of protection to personal data as the EU does. If the receiving country does not provide this protection, data can only be transferred through the use of onerous mechanisms or narrow exceptions. The UK has long been seen as more lax than other EU countries on the data protection front, which makes it unlikely that the protection provided by the UK will be deemed adequate by the EU. Therefore, the flow of personal data between the UK and the rest of the EU will slow down, and companies will need to put new mechanisms in place. This could be a major undertaking for companies operating across Europe, especially in the context of litigation, investigations and enforcement.
On the other hand, it may become easier to send personal data outside the UK, to the US for example, especially if Parliament amends existing data protection laws.
The UK and other EU countries extend reciprocal trust to one another in connection with AML, based on EU-wide implementation of the Third EU Money Laundering Directive. A UK firm can rely on KYC checks carried out by an Austrian bank, and simplified due diligence applies to any financial institution in the EU. This may change, though it is not clear to what extent.
In addition, the Fourth EU Money Laundering Directive was due to be transposed into UK law by 2018, which made the future contours of UK AML law and procedure quite clear. Now, with no obligation on the UK to continue implementing the provisions of the Directive after it leaves the EU, the future direction of UK AML law has suddenly become opaque. UK-based banks would like the UK to mirror EU AML laws, so they do not need to add another compliance layer, but the government may not wish to follow laws it has no influence over.
On the side of financial regulation, there are a large number of EU instruments affecting such regulation and enforcement directly, such as MiFiD, the newly implemented Market Abuse Regulation, and so forth.
The Financial Conduct Authority has stated: “Much financial regulation currently applicable in the UK derives from EU legislation. This regulation will remain applicable until any changes are made, which will be a matter for Government and Parliament. Firms must continue to abide by their obligations under UK law, including those derived from EU law and continue with implementation plans for legislation that is still to come into effect…. The longer term impacts of the decision to leave the EU on the overall regulatory framework for the UK will depend, in part, on the relationship that the UK seeks with the EU in the future. We will work closely with the Government as it confirms the arrangements for the UK’s future relationship with the EU.” That is, some changes will come in the future, but that depends on what the UK Government and Parliament do. Extradition Extradition between the UK and the rest of the EU is easier than with other countries, through the European Arrest Warrant (“EAW”). The UK will probably need to negotiate a new treaty with the EU (or even individual EU member states) for extradition; in any event, it will no longer be able to use the streamlined procedures of the EAW. (Julian Assange, arrested on an EAW, may have to be released from the Ecuadorean Embassy.)
Fines, confiscation orders and freezing orders Recognition and enforcement of fines and confiscation orders, as well as freezing orders, will be affected, since there are EU instruments in force in connection with all of these matters. However, the effect will not be uniform or particularly large, as the UK has not transposed all the EU instruments into national law yet. In some areas, there will be no change.
For more information, contact:
+44 20 7614 0982
Managing Partner, London
+44 20 7614 0951
Related Practice: Global Investigations and White Collar Defense
Download: Brexit: Consequences for Investigations (PDF, 358.45 K)