Trials and Tribulations of the SFO: Plain Sailing from Here On?
Following a tumultuous 2018 for the Serious Fraud Office, Iskander Fernandez, Partner and white collar crime expert at BLM, addresses the agency’s recent investigations, whether recent changes in senior leadership could steady the SFO ship, and issues surrounding corporate criminal liability.
The Serious Fraud Office (SFO) suffered a troubling 2018. The collapse of its high-profile investigation into two former Tesco executives in December, after allegations the retailer overstated profits by sums into the millions, followed the judge’s decision that “the prosecution was so weak it should not be left for a jury’s consideration”. The SFO’s investigation is said to have cost an estimated £10m.
The SFO has also since scaled back a probe into its investigation of bribery and corruption allegations at Rolls-Royce. Inquiries into a number of individuals have been dropped, two years after a deferred prosecution agreement (DPA) was approved by Southwark Crown Court. A DPA defers the prosecution of a company in exchange for the company complying with financial and non-financial conditions.
SFO supporters argue that the scaling back of the Rolls-Royce investigation is only right if the evidence is not sufficient to provide a realistic prospect of a conviction; critics on the other hand point to the earlier troubles surrounding the SFO’s Tesco investigation, which also involved a DPA.
In an earlier blow, a five-year investigation into Barclays, concerning a 2008 $3bn loan made to Qatar, was dismissed by Southwark Crown Court in May. The loan, linked to Qatari investment in the bank, was alleged to have enabled Barclays to avoid a government bailout at the height of the financial crisis. Barclays was charged with conspiracy to commit fraud and unlawful financial assistance under the Companies Act 1985. After the initial charge was dismissed by Southwark Crown Court, the SFO made an application to the High Court to reinstate these charges – a highly unusual move, which the High Court rejected in October
Despite its failure in prosecuting Barclays as an entity, the SFO is proceeding with the trials of four former executives; its ex-CEO being among the defendants. The court case commenced in early January, with the executives implicated in the rescue package investigation. They face charges of conspiracy to commit fraud, and have all pleaded not guilty. However, as the court case begins, questions remain about whether the agency is properly equipped financially and if it has the right personnel to pursue complex cases. That said, if the SFO is successful in its prosecution of the senior bankers the result would be a coup for the agency.
The end of 2018 saw a change at the helm at the SFO with Sir David Green’s six-year term coming to an end and the arrival of Lisa Osofsky, an ex-Deputy General Counsel and Ethics Officer for the FBI.
Osofsky has pledged to improve cross-border cooperation, increase the use of technology and to continue using DPAs to encourage corporate engagement with investigations; on this issue particularly, Osofsky has been firm that companies wanting to accept a DPA should co-operate with the agency from the start.
Many see Osofsky as bringing new energy to the SFO, and ahead of her first full year in office, she already appears to be revitalising the SFO’s operations. The former US federal prosecutor quickly got to grips with criticisms that the agency was “too slow” in conducting investigations and bringing individuals to trial.
Reporting to the Justice Select Committee in December and days after the collapse of the Tesco trial, Osofsky stated she had begun holding all senior staff to account on why its 70 cases were not progressing faster. Though speeding up individual charges would put the criticisms of being “too slow” to bed, the SFO still faces the challenge of prosecuting corporates.
Osofsky also lamented the ‘controlling mind’ principle which has hampered previous corporate investigations. Bringing a corporate to account and proving its “guilt” is challenging. The law on corporate liability in the UK dictates that a corporate can only be found criminally liable if it can be proved that an offence was committed by an “individual [who] is sufficiently senior… [and is] the ‘controlling mind and will’ of the company”. Given that the SFO investigates companies with often complex management structures – such as Barclays – pierce the corporate veil to establish criminal liability is no easy task, and very different to what is involved when prosecuting individuals. With this in mind, at the parliamentary hearing, Osofsky called for new “failure to prevent” offences, which could cover economic crimes, and overcome the ‘directing mind and will’ hurdle.
With new leadership at the helm and the Barclays trial looming, the time may well be nigh for the SFO to secure a significant victory. As to the message this signals to corporates, a hungry SFO will spell tighter oversight of governance and financial compliance. If corporates are to come under greater scrutiny, now is the time to review compliance strategies and transparently resolve any issues.