Is it curtains for the Serious Fraud Office?

April 2022 | SPOTLIGHT | FRAUD & CORRUPTION

Financier Worldwide Magazine

April 2022 Issue

A Treasury Committee on Economic Crime reported at the end of January that the growth in white-collar crime poses a real challenge to government, harming consumers, businesses and damaging the reputation of the UK as a pre-eminent financial centre, as well as being a threat to national security. The report notes that economic crime does not seem to be a priority for law enforcement. The Committee’s report suggests that there should be a single law enforcement agency with clear responsibilities and objectives to fight economic crime. Many thought that was the job of the Serious Fraud Office (SFO), which exists to tackle the most serious and complex cases of fraud, bribery and corruption. Surprisingly, in the report the SFO is only mentioned in passing a handful of times. Is this because the fate of the SFO hangs in the balance?

Judicial criticism of the SFO

In December 2021 the Court of Appeal, in a judgment overturning the conviction of a businessman, severely criticised the SFO’s “wholly inappropriate” dealings with a ‘fixer’ during the course of a high stakes bribery investigation. The basis of the Court of Appeal’s decision was that there had been improper conduct by the SFO in relation to how it dealt with a third party who claimed that he could assist in securing guilty pleas from accused in the investigation. The Court of Appeal was robust in its criticism of the SFO, noting that the interactions with the ‘fixer’ were inappropriate. There were disclosure failures masking the true nature of what had occurred from the trial court and the defence teams.

The end of the SFO?

The questions raised in that judgment led to the attorney general, Suella Braverman, saying she was “deeply concerned about the findings” of the work of the SFO and would be commissioning an independent review.

Two months later, on 9 February 2022, the attorney general finally set out the parameters of that independent review. The remit of the review is wide, asking what happened in this case and why. In particular, the review will assess what occurred as regards the SFO contact with third parties and why the SFO disclosure failures occurred? The review will also look at wider issues of SFO policies, practices, procedures and related culture at the organisation.

Sir David Calvert-Smith, a former director of public prosecutions and a High Court judge, will lead the review. Sir Calvert-Smith has the right credentials to bring about lasting change. As recently as 2019 he was examining the way the SFO had handled aspects of its investigation into a natural resources company. However, before he was able to conclude his work the SFO pulled the plug on his review. This time the attorney general will make sure he can complete his important work.

This bruising judgment was the capstone on a tough year for the SFO; which saw trials collapsing and embarrassing high-profile civil litigation brought by a company being investigated by the fraud fighting agency. The civil litigation remains unresolved but relates to further allegations of improper dealings between the SFO and third-party advisers.

As the terms of the review were announced, Lisa Osofsky, the head of the SFO, was before the Commons public accounts committee to answer questions about overspend at the SFO directly relating to yet another disastrous prosecution arising from SFO disclosure failings. Ms Osofsky’s position is becoming untenable with even MPs asking if she would seek a further term in office – a question she initially dodged and when pressed said she had not yet decided. Many think the decision will be taken out of her hands.

The future of deferred prosecution agreements

However, it has not all been disastrous at the SFO. The key success of the agency under Ms Osofsky’s leadership is its money generating ability, achieved through deferred prosecution agreements (DPAs). A DPA is an agreement reached between a prosecutor and an organisation which could be prosecuted. The agreement allows the prosecution to be suspended for a defined period, provided the organisation meets certain specified conditions. In practice, this means that companies admit their role in economic crime and in return for cooperation and extremely sizeable financial reparation, the case is concluded without prosecution. The selling points for corporates are the ability to ‘wipe the slate clean’ without a conviction and avoid costly trials. Though, in reality, the enormous financial consequences are many multiples of what a trial would cost.

In 2022, will companies still be so keen to enter into DPAs? In trial after trial of business leaders, many of whom have allegedly been at the heart of the wrongdoing described in the DPAs, we have seen acquittals or cases collapsing, regularly with judicial criticism of the SFO.

There are many examples where after a DPA is agreed the company officers at the heart of the agreement are then not subject to charges. Recently, the SFO confirmed that it would not even attempt to prosecute any individuals arising out of its latest DPA despite the company involved agreeing that it had been involved in widespread bribery in multiple jurisdictions. The company accepted egregious wrongdoing by individuals linked to the company. This is getting to be a pattern with the SFO. In an earlier case, the judge presiding over the DPA had noted the investigation had revealed the most serious breaches of the criminal law in the areas of bribery and corruption, some of which impacted senior management, yet no prosecutions of company officers followed. This raises questions about why the SFO regularly feels it cannot successfully prosecute executives. Under the weight of SFO investigations, big business is paying hundreds of millions of pounds and entering DPAs to avoid prosecution for the criminal actions of employees who usually do not suffer any consequences themselves. Businesses must now be asking if they should have agreed to the DPAs in the first place.

With the SFO’s poor record before the criminal courts, growing lack of credibility and worrying investigative behaviours, companies are no longer concerned about the outcome of an SFO investigation, or the threat of large financial orders. Considering the SFO’s dismal track record, defence lawyers will be cautious to recommend the old approach of trying to agree a DPA. Anecdotally, directors and company officers are being advised to push back when the SFO investigates. Businesses need to engage experienced white-collar crime lawyers who are confident enough to challenge the SFO’s stance. If companies are no longer willing to cooperate because they do not believe they will have to face repercussions, what is the point of the SFO?

The implications of the latest review for Ms Osofsky, and the entire organisation, are likely to be serious. Many think that it could bring down the final curtain on the SFO and clear the way for a new, more effective agency.

A more effective agency

A dedicated new arm to the National Crime Agency (NCA) would do a better job. The NCA is the UK’s lead agency tackling serious and organised crime, including cyber crime, economic crime and supply of drugs and weapons. The NCA already has a remit to tackle money laundering, fraud, bribery, corruption and illicit finance. Its brief is national rather than regional and it has superb links with counterparts internationally. A relatively new body, only established in 2013, it had teething problems but over the years it has built a formidable reputation. In 2021, the NCA secured £150m of suspected criminal money through freezing, seizing or restraint. A recent success involved smashing thousands of criminal conspiracies after working with other law enforcement agencies to infiltrate an encrypted communication platform. This led to the arrest of 746 suspects seizing £54m in suspected criminal cash. A well-resourced new department under the NCA umbrella, tasked with tackling the mushrooming issue of fraud, is a solution worth considering.

Francesca Titus and Chloe Steele are partners and Katie Steven is an associate at McGuireWoods London LLP. Ms Titus can be contacted on +44 (0)20 7632 1685 or by email: ftitus@mcguirewoods.com. Ms Steele can be contacted on +44 (0)20 7632 1671 or by email: csteele@mcguirewoods.com. Ms Steven can be contacted on +44 (0)20 7632 1660 or by email: ksteven@mcguirewoods.com.

Francesca Titus, Chloe Steele and Katie Steven

McGuireWoods London LLP