British businesses will have to navigate a “regulatory minefield” in 2009 as global law enforcement agencies and regulators step up activity in response to the economic downturn, leading lawyers warn.

Neil Gerrard, head of the regulatory and litigation practice at DLA Piper, said: “I have no hesitation in calling the developing situation a regulatory minefield - and this is not an exaggeration. We are operating in an unprecedented time of financial pressures and market volatility and the authorities are more determined than ever that everyone will play by the rules.”

Mr Gerrard’s comments, which are echoed across the legal industry, follow an intense burst of regulatory activity in 2008. Last year saw the Financial Services Authority (FSA) launch its maiden criminal prosecutions for insider dealing and forging documents as well as tens of civil cases for market abuse and other offences. It also saw the Office of Fair Trading (OFT) launch its first criminal price-fixing prosecutions and levy record fines on businesses for breaking competition rules. Elsewhere the Serious Fraud Office (SFO), HM Revenue and Customs and the Health and Safety Executive all announced major investigations against British businesses and individuals.

Robert Wardle, former director of the SFO and a consultant at DLA Piper, said the aftermath of the credit crunch would create a particular focus: “We live in a fast changing world and have witnessed drastic and irreversible changes to our financial sector this year with the effects due to continue well into the new year and into the next decade,” he said.

“In the UK, the SFO has already announced a 50 per cent increase in investigations planned for 2009, whilst the FSA and City of London Police are keen to show that London is no soft touch on regulatory enforcement,” Mr Wardle added.

Although experts are divided over whether there is an increase in the actual level of corporate crime committed during an economic downturn, they are united in the belief that the level of such crime which is discovered always surges when times are tough. “When credit dries up and management changes, fraud comes to light,” Mr Wardle said, “There will be lots of material for regulators to look at it in 2009.”

As well as having more material to investigate, regulators and prosecutors will have the benefit of new tools to help pursue wrongdoing. In particular, Mr Wardle points out that the current recession is the first for which the Fraud Act 2006 will be in effect. In addition to simplifying the offence of fraud, the act also criminalises new practices such as making false representations and failing to disclose information, making it easier to prosecute behaviour that previously slipped outside the definition of fraud.

Mr Gerrard adds that regulators and prosecutors investigating businesses next year will do so with unprecedented access to information. Money laundering reporting rules that require businesses to make frequent and detailed disclosures and the ability to demand electronic data and communications are among factors that Mr Gerrard said give regulators “warehouses worth” of information that they would not previously have had access to.

In the UK, experts warn that businesses are at greater risk of bribery and corruption investigations in 2009. Jeremy Cole, partner at Lovells, said: “The US has developed a strong reputation for its aggressive stance on bribery and corruption. Other countries have recognised the success it is having in imposing higher standards and recognise they must follow suit.”

Last year saw a number of successful SFO bribery cases. Crucially, the British Government has responded to criticism from the OECD and other commentators and proposed a new Bribery Bill. Many commentators questioned whether the current Government, preoccupied with the economy and other issues, would devote legislative time to new bribery and corruption laws. That they did, Mr Cole says, is a sign that the Government has acknowledged the inadequacy of existing laws and is taking steps to address to issue.

Among the new issues for business likely to become law in the near future is a criminal offence of negligently allowing bribery to take place – a major shift and onerous burden that businesses will need to begin preparing for next year well before it comes into effect.

Just because the UK has begun steps to sharpen its bribery laws does not mean that the US, which considers itself the world’s policeman on the issue, will relax its scrutiny of British business. The lead US anti-bribery legislation, the Foreign Corrupt Practices Act (FCPA), gives American prosecutors very strong powers to pursue foreign nationals and impose massive fines and custodial sentences.

Jonathan King, former Assistant US Attorney and partner at DLA Piper, said: ““The explosion of cases is staggering. The US Department of Justice (DoJ) has brought more prosecutions under the FCPA in the last two years than in the preceding twenty years. Cases often lead to severe penalties with 80 per cent of individuals sentenced for FPCA violations receiving jail terms ranging from several months to over five years.”

Mr King added that public statements from the head of the DoJ’s fraud section combined with the general feeling in regulatory circles means that there is “absolutely no reason to think this trend will not continue into 2009. Given the wide powers the FCPA gives the US to investigate foreign businesses, this puts the UK firmly in the spotlight.”

The so-called long arm of the US law, where American regulators use their powers to question or investigate British and other foreign businesses, has become a fixed feature in the UK regulatory landscape. Attention is most likely to come from the DoJ or Securities and Exchange Commission (SEC), the financial regulator, although other US bodies are also active.

A recent study by Fulbright & Jaworski found that 40 per cent of UK businesses had hired external lawyers in relation to investigations from the DoJ with 33 per cent in relation to SEC probes. Lista Cannon, managing partner of Fulbright’s London office, said: “The increasing cooperation amongst international regulatory bodies means that UK businesses are just as exposed, if not more so, to regulatory matters that originate from outside the UK.”

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