Understand Your Rights. Solve Your Legal Problems
Here, Aziz Rahman of business crime solicitors Rahman Ravelli considers criticism that the SFO may not be offering value for money and wonders whether the problem goes beyond the balance sheet.
The SFO recently announced that it has dropped investigations into Rolls-Royce and drugs manufacturer GlaxoSmithKline, citing either insufficient evidence or that it was not in the public interest to continue with them. Both cases have been lengthy and will surely have cost a sizeable chunk of money. And the announcement comes just days after a Freedom of Information Request compelled the taxpayer-funded SFO to reveal that is unsuccessful prosecution of three Tesco executives cost £6.2M.
It may well be that the Tesco saga has led to soul searching at the SFO regarding how it chooses its cases. After all, the SFO agreed a deferred prosecution agreement (DPA) with Tesco. That DPA saw the supermarket giant avoid a prosecution for its 2014 accounting scandal by admitting there had been false accounting and paying £129M. But the acquittal of the three individuals who were charged means that nobody has been found guilty of the wrongdoing that Tesco admitted had been committed.
Maybe this is why the SFO has dropped its investigation into Rolls-Royce. Like Tesco, Rolls-Royce entered into a DPA and admitted wrongdoing which, in its case, involved widespread bribery over many years in many countries. The SFO could be wary of suffering another Tesco-style embarrassment. Its decision to drop both the Rolls-Royce and GSK investigations could be an indicator that the SFO realises that it needs to pick its legal fights shrewdly.
But the decision to drop both cases could simply come down to the SFO’s new Director Lisa Osofsky. It is understandable if she is looking to clear her in-tray of some investigations that she inherited and keen to avoid any potentially high-profile banana skins. After all, Tesco is not the SFO’s only major defeat. Just four months ago a High Court judge denied an SFO application to charge Barclays over its 2008 capital raising – five months after a court originally dismissed the charges the agency had brought against the bank.
The SFO is almost damned if it does and damned if it doesn’t. Dropping such lengthy investigations into Rolls-Royce and GSK leads to its judgement being questioned and accusations that it isn’t making the shrewdest use of its resources. But the criticism is likely to have been twice as loud if the SFO had doggedly continued with such cases only for them to end in unsuccessful prosecutions. So perhaps credit is due to Osofsky and her colleagues for making some tough decisions and clearing the decks so that the SFO is not dogged by its past.
And maybe these developments are a sign that situations where both a company and individuals within it could be prosecuted need to be viewed through a different set of glasses. The SFO will certainly want to have avoided Rolls-Royce ending up like Tesco, with nobody being convicted for the criminal activity the company admitted had been committed.
There certainly needs to be some attempt to square the circle regarding how individuals and corporates are investigated and prosecuted – and an awareness that the DPA process is in need of some serious fine tuning. Because if it isn’t there is the danger that a DPA comes to be seen as a way for senior business figures to escape liability for wrongdoing by pushing the company down the DPA route.
It could be argued that it would be better to see individuals prosecuted first before any decision is made by the SFO regarding whether to prosecute – or enter into a DPA with – the company. But that, in reality, would simply take too long. Yet the situation we currently have needs to change to avoid the anomaly where courts have granted DPAs based on evidence of supposed wrongdoing and yet that evidence has been too weak to obtain the conviction of an individual.
If we are in need of a new approach, maybe we are closer to one than we realise. Lisa Osofsky has already talked of making greater use of what some would call informers and others may call co-operators or grasses. Coming from the US and having worked for the FBI, she is familiar with the art of “striking a deal’’ whereby a suspect receives more lenient treatment in exchange for cooperation. In the UK, the Serious Organised Crime and Police Act 2005 provides the opportunity to offer more lenient penalties or even immunity from prosecution in exchange for cooperation.
This be the route to a more cost-effective future for the SFO.
Lisa M. Barnes and Associates is a personal property fine art appraisal business. Over the past 26 years, I have developed a business as an appraiser/expert witness. My educational background provided me with the skill set to create and perform expert services in the area of fine art with hands on training at institutions in London, Paris, and Italy. Rather than pursuing a traditional education, I attended Oxford, Sotheby’s, Christie’s, the LOUVRE and The British Institute in Florence where I was able to study and physically handle rare art from the 14th century to today. I furthered my education with work experience at a notable art gallery in Chicago, Richard Gray. Later I worked for a major art investment fund in New Zealand and acquired first-hand knowledge in art as an investment. I then developed one of the premier corporate art advisory firms and over a two-year period built 10 major corporate art collections, as well as implemented a public art programme in Wellington, New Zealand.
Many people do not know that from a monetary point of view, art is the second largest crime in the world, which includes fraud and theft.
In 1990 I moved back to the US and became the youngest member of the Appraisers Association of America. While continuing my art consultancy, I began appraising art for museums and private collections. In 2001, I was asked/approached to appraise a Picasso in Las Vegas that the clients wished to sell. This case involved work with the US (AZ) attorney and FBI.
Over the next several years, I joined the Forensic Expert Witness Association and spoke at conferences where I furthered my skills as an expert witness. I acquired the skills and tools to educate both the client and attorneys on the complexity of the art world. Many people do not know that from a monetary point of view, art is the second largest crime in the world, which includes fraud and theft.
Over the past ten years, I have been retained and as an art expert in both superior and municipal courts, working for both private and corporate clients. My experience and knowledge have had a positive impact on many disputes to the substantial benefit of my clients.
Recently, I have found one of the major challenges as an expert witness is that attorneys have a tendency to demand short deadlines without understanding the complexity of researching and navigating the art world.
My experience as an art consultant, gallery owner, and appraiser has afforded my clients a multi-faceted understanding of the art world. I also have copyright experience.
Recently, I have found one of the major challenges as an expert witness is that attorneys have a tendency to demand short deadlines without understanding the complexity of researching and navigating the art world. For example, unlike a car that one researches Blue Book value, an art appraisal involves more varied criteria to evaluate a work of art. Considerations are authenticity, condition, provenance, aesthetics, artist’s reputation, history and comparables. For instance, not every work of art Picasso created is a million-dollar work.
I believe as an art appraiser, we wear several hats. We need to be sympathetic to the needs of the client, be diplomatic, and be a good detective and analyst.
There is also forgery to consider, especially when appraising Dali, Miro, Chagall, Picasso, Rembrandt, Warhol. A well-educated appraiser can detect indications of a fake although unfortunately, their services are frequently sought only after an ill-advised purchase has already been made.
I believe as an art appraiser, we wear several hats. We need to be sympathetic to the needs of the client, be diplomatic, and be a good detective and analyst.
Lisa M. Barnes
42302 N. Vision Way, Suite 105 Anthem, Arizona 85086
623.582.4500
Lisa.rareart@gmail.com
Fax – 623.582.4505 Cell – 480.212.6248 Web – www.rareart.net
Lisa Barnes is a seasoned professional with 26 years experience as a professional art appraiser and an expert assisting insurance companies, attorneys, estate planners, wealth advisories and banks, as well as providing philanthropic services for new and aspiring collectors.
As Patisserie Valerie staff are made redundant in the wake of a suspected fraud, Nicola Sharp, at Rahman Ravelli, explains why companies should not rely on the accountants to recognise financial crime.
Whilst Patisserie Valerie’s chairman has extended an interest-free loan to the company to ensure wages are paid to staff still working for it this does not cover those made redundant.
More than 900 people lost their jobs when 70 of the cafe group’s outlets closed last month; just over three months after a £40M black hole was found in its accounts. The company, which is now in administration, blamed the problem on “potentially fraudulent” accounting irregularities and the Serious Fraud Office has begun an investigation.
Those worst affected by the problems at Patisserie Valerie may have little time for anyone who argues that a company’s auditors shouldn’t shoulder the blame for failing to uncover fraud.
David Dunckley, the head of Grant Thornton, the café chain’s former auditors, told MPs on the business, energy and industrial strategy committee that normal audit procedures may not be able to identify sophisticated fraud.
His arguments are valid. Of course, those who check the accounts may have a chance to recognise when something is obviously wrong. But most frauds are unlikely to be glaringly obvious. If they were, they would all be detected.
Having represented accountants in a variety of cases, it would be wrong to simply blame the money men for failing to recognise fraud. Any company that is genuine about wanting to prevent fraud must devise and implement measures that have the effect of making it as difficult as possible to carry out. Every member of staff needs to be aware of possible signs of wrongdoing and of the need to report any suspicions they may have.
Research has indicated that companies lose an average of 7% of annual turnover to fraud. Exactly how much Patisserie Valerie has lost – and whether it is all down to fraud – remains to be seen. But as it stands, the company is in turmoil. That in itself is an indicator of how important it can be for a company to create procedures to combat fraud.
Businesses themselves need to ensure they are doing everything possible to design out the possibility of fraud. Putting it simply, the harder it is to perpetrate fraud, the less likely it is to be committed. And it is the companies who have to recognise this and take all relevant steps.
The accountants are not there to protect firms against fraud. They never have been. That responsibility lies with the company itself.
And two thirds (66%) said they were concerned about employees committing fraud due to the lack of job security that Brexit brings. Below, senior forensic accounting investigator Andrew Durant at FTI Consulting explains.
These results do not come as surprise to me after 30 years of investigating fraud. Motive has always been something I have tried to understand when carrying out investigations together with opportunity and rationalisation – the three aspects of the so-called Fraud Triangle. One of the primary motives for committing fraud is need, both the need for money now and in the future. And fear of losing your job clearly exacerbates that need.
Data has shown that employees are more likely to be able to commit fraud against a company versus an outsider. The reason why? Employees will know what systems are in place and, more importantly, where the weak points are - particularly those who have been with their company for more than five years. They will also have built up trust, meaning they will have more authority. So, if the fraud does get spotted, they are less likely to be put under the spotlight as most of the focus will be on outsiders. of UK business leaders are fearful of job losses in their company as a result of Brexit* 80% The results of our recent Brexit survey, Brexit in the Boardroom - Autumn The results of our recent Brexit survey, Brexit in the Boardroom - Autumn The results of our recent Brexit survey, Brexit in the Boardroom - Autumn The results of our recent Brexit survey, Brexit in the Boardroom - Autumn The results of our recent Brexit survey, Brexit in the Boardroom - Autumn of UK business leaders are concerned about employees committing fraud due to increased job insecurity as a result of Brexit* 66%.
Our survey showed that 71% of UK business leaders said they were concerned that the disruptions caused by Brexit will enable external fraudsters to target them. This is interesting not least because companies tend to overlook the more likely threat of their employees committing fraud, and often do not pay enough to potential internal dangers. There is a clear need for businesses to up the ante in their efforts to protect themselves from fraud and be on their guard.
71% of UK business leaders said they were concerned that the disruptions caused by Brexit will enable external fraudsters to target them.
So what should business leaders do to counter the increased risk of fraud?
10 key steps for businesses to combat fraud
Don’t discuss it with anyone as they may be involved
Don’t mark any evidence
Do be aware that losses may still be occurring
*Source: Brexit in the Boardroom – Autumn 2018 Update: 522 UK business leaders out of over 2000 in the UK, France, Germany and Spain.
What critical strategic considerations are essential for success in a complex fraud investigation or asset recovery?
1. Where is the documentation/information I need?
Understanding where documentation is held, what form it is in, the ability to acquire it (whether provided at source, for example, in internal investigations, or if it has to be obtained through legal discovery tools) and being cognizant of the data protection laws of certain jurisdictions, are initial key considerations.
Complex frauds are often multi-jurisdictional, understanding international legal remedies is key in determining a successful strategy.
2. Where are the assets?
Getting reliable and usable information about where the assets are, is key if the investigation is likely to result in successful asset recovery. Whilst an entity (corporation or trust) that is the focus of a fraud investigation may be incorporated in the Cayman Islands, it is unlikely that any assets derived from fraud will actually exist here. There is no use pursuing causes of action and incurring the time and expense of those proceedings (including the risk of adverse costs being order against you) if you are not ultimately pursuing a recovery, particularly in complex multi-jurisdictional cases.
3. Are these in jurisdictions where there are robust legal remedies in place?
Complex frauds are often multi-jurisdictional, understanding international legal remedies is key in determining a successful strategy. We have heard many times from litigants pursuing claims (and maybe even having successful judgements) that they made no recoveries of assets. Too often we hear stories of wasted money and time spent pursuing a remedy that was not viable, or worse obtaining a judgement but failing to bring in a recovery. It is critical, therefore, that you do some research upfront to ensure those advising you, particularly offshore, have the relevant knowledge and experience to get you the best result. We use a range of remedies depending on the most efficient route to recovery. For example, we may use insolvency tools if there is debt owed, and in some fraud causes it may be possible to obtain a winding-up or receivership of a legal entity which could provide additional discovery powers regarding its assets, and possibly additional causes of action to be pursued.
The main difference will arise between civil law and common law jurisdictions; it can be more problematic to obtain discovery in civil law jurisdictions.
When undertaking cross-border investigations and asset recovery, how can processes differ across jurisdictions? What misconceptions and assumptions are often made about the ability to recover onshore and offshore?
One of the main challenges in complex financial investigations and asset recovery cases is their multi-jurisdictional nature. In cases where it is discovered that the perpetrators have used offshore corporate vehicles to conceal their proceeds of fraud, a common belief is that with bank secrecy and there being little public information available, there are few options to investigate the fraud and recover the assets. However, whilst the means in which to obtain information and pursue assets will differ, the reality is that many principles in obtaining information to assist in investigations or asset recovery apply equally in offshore jurisdictions as they do onshore, particularly in common law jurisdictions such as Canada, Australia, Ireland, Scotland, Hong Kong, Cayman Islands, the Bahamas, British Virgin Islands, the Channel Islands, and Gibraltar, just to name a few.
Therefore, obtaining disclosure from third parties through the Courts e.g. Norwich Pharmacal, or Bankers Trust Orders, are widely available and often used, making it possible to obtain details of bank accounts and assets from banks, auditors, and registered agents, (all of which should hold detailed KYC information on clients) which may be critical to the investigatory and asset tracing process.
The main difference will arise between civil law and common law jurisdictions; it can be more problematic to obtain discovery in civil law jurisdictions. However victims in civil law countries are not left without remedies, and assumptions about what can and cannot be done often occurs where there is a lack of experience in international asset recovery. We ensure we work with experienced local counsel to navigate the most effective and expeditious path to asset recovery.
We may reveal hidden files, recover deleted files, uncover timelines and other relationships among documents and communications and indeed this has often been the case when the perception was that the information had been deleted and was no longer available.
How does digital forensics and e-discovery tools help you and your clients in this line of work?
Using forensic software and other tools, we apply investigative and analytical techniques to examine digital devices in order to identify, preserve, recover, and analyse data for evidence or other relevant material. We follow industry standards to capture and present this information in a forensically sound manner which can then be used in a Court of law.
We may reveal hidden files, recover deleted files, uncover timelines and other relationships among documents and communications and indeed this has often been the case when the perception was that the information had been deleted and was no longer available. For example, in a recent money laundering and corruption case, we were able to forensically image mobile phone data to recover deleted messages and texts so that we could identify key persons and the level of involvement/knowledge in the fraud.
We often use e-discovery tools whereby through a series of complex processes, data is loaded into a platform where it is organised, and displayed in a manner where we may search, review, and analyse it. The data may be the result of a legal hold, in response to a request for production, or part of an investigation, and may include emails, stand-alone documents like Word and Excel, instant messages, calendars, and social media. Regardless of the format, the content, or the source of the materials, eDiscovery professionals and technology provide us with the ability find the needle in a haystack, quickly, accurately, and cost effectively. For example, I worked with a client whose legal counsel had obtained documentation in support of a corruption and money laundering investigation and was seeking to obtain a worldwide freezing order on a defendant. Fortunately the information had already been uploaded onto our e-discovery platform when we were first engaged to seize and image the data around 18 months prior. Within 48 hours we identified the transfer of millions of dollars from a construction project into the personal bank account of the individual concerned.
What differentiates you and your firm’s approach to financial investigations and asset recovery cases?
First is our hands-on approach. Our firm is markedly different in that we are heavy at the senior level, so each assignment is led and has the integral involvement of a senior member of staff. We do not delegate to junior staff the responsibility of the project. Nor do our senior team members only “front and end” the assignment; they are there step by step, and this allows us to be nimble and creative in addressing issues.
The second is our independence, we are focused on the client’s interests, and not from a prospective audit or tax relationship, which also means we very rarely have conflicts of interests. We are proud of the diversity in our team which includes a wide range of professional expertise, including asset tracing and verification, forensic accounting, insolvency practitioners, former law enforcement and IT forensic experts; having a multi-disciplinary team with experience in a wide range of recovery mechanisms, empowers independence and free-thinking that enables a truly practical approach for our client’s needs.
Thirdly, whilst we incorporate the assimilation of publicly available information as part of our methodology for identifying targets for asset recovery, KRyS Global differentiates itself from other firms in our knowledge, and use discovery tools and on the ground intelligence gathering, to find critical information outside the scope of our peers. We have unrivalled expertise in locating and recovering hidden assets in offshore jurisdictions, and understand that asset recovery is not just the acquisition and analysis of information and assets through technical expertise, but in implementing a considered but creative strategy in conjunction with legal counsel in criminal, civil or commercial dispute proceedings.
Angela Barkhouse is Managing Director at Krys Global, an international asset recovery firm with an expertise in offshore focused fraud investigations, cross-border insolvency and restructurings, and dispute resolution and litigation support. The firm has grown to over 50 outstanding professionals working from eight offices worldwide, predominantly situated in offshore financial centres; she leads the Cayman Island office.
Angela has over 15 years of professional experience consulting with governments, law firms, banks, corporations and NGO’s in investigating financial fraud, bribery, corruption, conflicts of interest, embezzlement, stolen sovereign wealth, and making cross-border asset recoveries, having assisted in a broad range of investigations using criminal, civil and insolvency mechanisms to provide practical solutions in ascertaining the facts and repatriating stolen assets.
Below Lawyer Monthly hears from Nicola Sharp, of award-winning business crime solicitors Rahman Ravelli, who explains why recent fraud statistics cannot be ignored by anyone in business who wants to prevent it happening to them.
It appears that we may be in the midst of an epidemic of fraud cases coming to court. Research carried out by KPMG shows that a record number of fraud cases reached UK courts in the first half of 2018. The research revealed that 252 cases headed for the courts in that time. That is 25% higher than the previous highest six-monthly figure – and only seven below what the total number was for the whole of last year.
Should we be alarmed? Arguably, yes - if the increase in cases going to court can be shown to be a straightforward reflection of an increase in this type of crime. Yet, in the authorities’ defence, it may be the case that fraud is not on the increase – but the detection and prosecution of it is. The degree to which either argument is true will depend largely on the authorities’ ability to keep pace with those looking to commit fraud.
Fraud, by its very nature, evolves with changing circumstances and the opportunities these present.
For example, there will always be those who see the potential for fraud posed by cross-border activity. Large-scale tax evasion and evading customs duties on imported goods have been practices that have gone on for years. And carousel fraud – the systematic abusing of tax laws through complex trading arrangements – has been an issue for the authorities since the late 20th century.
Such fraud is almost traditional compared with more modern methods of carrying out the offence. The fraud that is committed on banks through loan and mortgage applications is less “old school’’. As are the boiler room tactics of those who dangle the promise of huge returns in front of individuals to persuade them to invest in worthless or non-existent shares.
But recent years have seen new developments. Technology has advanced. And so has the use of it by those who are keen to commit fraud. Online fraud, malware and hacking have opened up new possibilities for those wanting to make fraudulent gains. And much of this modern fraud crosses borders, which has prompted greater cooperation between law enforcement agencies in various countries.
Such cooperation by the authorities has to be seen as an attempt to play catch-up with those perpetrating fraud. This need to keep up with those looking for fraudulent gains has also seen many tax loopholes closed, led to financial institutions tightening up their lending procedures and resulted in some major multinational boiler room operations being dismantled.
The question now is whether enough is being done to tackle the latest forms of fraud. The answer to that may help explain whether the increase in fraud cases going to court is an indicator of inroads being made into tackling this type of crime, merely a statistical blip or a sign that the problem of fraud is becoming much bigger.
The honest answer may well be that we never find out. Which is why those in business have to take all appropriate steps to reduce the risk of fraud being committed against them. Hoping to avoid fraud is not an option.
Research earlier this year by another accountancy firm, PWC, found that half of all UK companies may have been affected by fraud or other economic crime in the past two years. Yet only 50% of the firms that responded to the questioning had carried out a fraud risk assessment in that time. That is a dangerous state of affairs.
Fraud harms a company’s finances. But it also causes disruption, lowers staff morale and damages a company’s reputation and its relationships with customers and trading partners. Which is why every firm needs to examine the potential for fraud being committed by its staff, customers, trading partners and anyone else with a detailed knowledge of its workings.
Senior staff need to devise, introduce and maintain procedures that enable fraud to be identified and prevented. The conduct of personnel, record keeping, payment procedures and management and monitoring structures could all be exploited by those looking to commit fraud. If those holding senior positions are unable or unwilling to take the necessary steps to prevent this, they should seek advice from business crime lawyers.
Such lawyers can examine a company’s workings, identify the areas vulnerable to fraud and then introduce measures to design out that risk. For example, an appropriate whistle blowing procedure that encourages staff to report their suspicions of wrongdoing will promote an anti-fraud workplace culture that will boost the chances of a company both detecting and deterring fraud.
Whether the statistics indicating a rise in fraud court cases are good or bad news remains to be seen. We may never know. But at the very least, such figures must serve as a reminder of the scope of fraud and the need to do whatever is possible to prevent it.
At companies and institutions around the world, pensions are collapsing and vulnerable consumers are paying the price. Lloyds Banking Group, for example, is in the midst of a multi-million dollar lawsuit that alleges that women received fewer benefits than their male counterparts. At the same time, Future Income Payments, a private pension fund based in the US, shut its doors after their operation proved to be little more than a Ponzi scheme that preyed on retirees. Below Lawyer Monthly hears from Anastasia Andrianova, ex Lehman Brothers and now CEO and Founder of Akropolis, on the impending severity of pension reform.
On the current state of private pensions, The Wall Street Journal reports: “The blow-up shines a light on the boom in opaque private markets, to which investors have flocked in the hope of doing better than they can in traditional stock and bond markets.”
The timing couldn’t be worse. Aging populations and a broad lack of retirement saving are stressing retirement infrastructures like never before. According to CNBC, half of Americans don’t have any retirement savings, and the Economy Policy Institute concludes that 401K style retirement plans have failed most workers as an investment vehicle for retirement.
While glaring budget deficits and chronic underfunding contribute to this global crisis, the current fiscal pipeline for pensions is too often ripped to shreds by inefficiencies, inaccessibility, and in some cases outright fraud. It is so dysfunctional, in fact, that fixes to the current system are no longer viable. Instead, the pension crisis can only be solved by a complete overhaul. As with many other decaying industries, that overhaul is arriving in the form of the blockchain.
Blockchain Basics
Originally built as the record-keeping system supporting and recording Bitcoin tokens and transactions, distributed ledger technology is finding new applications in everything from agriculture to payments. A blockchain, aptly named, takes shape by grouping verified transactions into “blocks" and linking those together, much like a chain.
By tying these transactional groups to one another, a blockchain ledger provides heightened data integrity, regardless of the application. To alter one block, every prior block would have to also be falsified, requiring near-impossible levels of computing power. Thus, data entered into this system retains its validity to a previously-unattainable degree.
Maximizing Efficiency
The essence of the blockchain lies significantly in its streamlined approach to data input and storage protocols. Rather than relying on convoluted, multi-tiered storage in centralized repositories,
Improving Accessibility
In addition to the root-level deficiencies in the current pension system’s operating principles, it is shockingly unclear and opaque in conduct, with Andy Haldane, the chief economist of the Bank of England, admitting that he doesn’t understand either workplace or High Street pensions. Clearly, then, there is significant need for a new system. Offenses like discrimination and mismanagement are made currently possible by this demonstrably opaque nature of the current solutions, but the blockchain specializes in transparency, and can renew confidence in a wilting industry. Even in perfectly anonymous platforms, the ledger provides a clear and easily searchable database of transactions. With no extra interference, consumers on a blockchain pensions system could access previous changes to their accounts with total reliability and clarity.
Eliminating Fraud and Looking Forward
By far the most impactful element of the blockchain in a pension application is its fraud elimination potential. As discussed earlier, the construction protocol for each link in the chain unbreakably ties it to surrounding blocks, thereby making post-entry alteration by dishonest means almost impossible. Only approved rights-holders, then, would be allowed access (by private key) to their data.
By addressing the 3 most pressing issues plaguing the pensions systems in place today, a totally novel rebuild with blockchain as the operating framework provides the best path forward. On a global scale, such an application would provide scalable traceability and accessibility of funds, solving the cash sinkhole that is fraud. Consumers also benefit from increased autonomy and accessibility of data, with a clearer path to discovery and dramatically improved authenticity.
Yesterday, The Court of Appeal overturned a controversial ruling by the High Court from May 2017, which threatened to have significant implications for companies carrying out internal investigations.
At issue were documents generated during an internal investigation conducted by Dechert LLP, led by partner Neil Gerrard, that was first triggered by a whistleblower email. In a thorough vindication of ENRC's position, the Court of Appeal has overturned the original judgment and upheld ENRC's claim to privilege in respect of the overwhelming majority of the documents, including witness interview notes prepared by Dechert as well as a "books and records" review undertaken by forensic accountants.
This historic ruling by the Court of Appeal is significant not just for ENRC but for any company faced with undertaking an internal investigation in response to a whistleblower or other allegation of wrongdoing.
As the trial judge had found, ENRC took all the steps that might be expected of a responsible corporation in response to the whistleblower. Crucially, however, the Court of Appeal recognised that the dialogue with the SFO did not preclude the investigation from being privileged. Contrary to the SFO's case, ENRC had never intended or agreed to share materials from the internal investigation with the SFO, and the SFO had never even run an argument based on waiver of privilege.
ENRC maintains that the SFO's approach was fundamentally misconceived and that the proceedings, which have resulted in wholly unnecessary costs (both to ENRC and the taxpayer), should never have been brought. ENRC will now be seeking recovery of millions in fees from the SFO.
Michael Roberts, Partner at Hogan Lovells representing ENRC commented: “This historic ruling by the Court of Appeal is significant not just for ENRC but for any company faced with undertaking an internal investigation in response to a whistleblower or other allegation of wrongdoing. It is critical that companies are not penalised for acting responsibly, and are able to instruct lawyers to conduct investigations without fear that the authorities will later be able to demand all of the lawyers' work product."
ENRC also continues to pursue related legal proceedings against Dechert LLP and Neil Gerrard (the global co-head of Dechert's white collar and securities litigation practice), who conducted the internal investigation and advised on ENRC’s engagement with the SFO between 2011-13.
In the Particulars of Claim, which can be requested through http://www.enrcnews.com/, ENRC claims (amongst other things) that Neil Gerrard deliberately leaked privileged and confidential documents to the press in July 2011 in order to "kick start" an expansion of the investigation. Mr Gerrard arranged for an envelope of confidential and privileged documents to be collected from Dechert's reception. Those documents subsequently formed the basis of an article published in The Times on 9 August 2011, which directly led to the initial approach from the SFO to ENRC the very next day.
Mr Gerrard then described himself as being in "rape mode" and that he wanted to "screw" ENRC for millions of pounds in fees. True to his word, Mr Gerrard went on to bill ENRC over £16 million in fees.
The result is welcome indeed. It amounts to a re-calibration of the law of privilege, moving it in a more realistic and principled direction.
Separately, ENRC has launched disclosure proceedings against the SFO premised on ENRC having civil claims against the SFO for misfeasance in public office as a result of its unlawful collusion with Mr Gerrard, involving numerous unauthorised (and unfounded) disclosures by Mr Gerrard, covert (and subsequently deleted) text messages, and private meetings in "out of the way" places. One internal SFO document even acknowledged at the time that Mr Gerrard might be "up to no good".
Mr Gerrard was also the subject of an anonymous whistleblower letter to David Green QC in July 2012 which raised serious concerns about the unhealthy relationship between Mr Gerrard and a senior official at the SFO. The SFO has now admitted that it failed to take proper steps to investigate the allegations.
Further significant evidence continues to come to light and to support ENRC's claims against both Dechert and the SFO.
Nonetheless, Dechert LLP had commented:
"We stand by the work we did and look forward to the opportunity of defending it in open court. We note that the criminal investigation by the Serious Fraud Office into ENRC is continuing and deplore ENRC’s attempt to discredit that investigation by seeking now to publicise unwarranted allegations against Dechert and its personnel.
"We emphatically reject any suggestion of an improper relationship between Dechert/Neil Gerrard and the SFO or that there was any unauthorised disclosure of information to or from the SFO. The work we did during our investigation was with the authority and knowledge of the members of the independent committee of the board which was instructing us at the time. We shall in the ensuing court proceedings fully address these unfounded allegations”
Further to this, also working on the case was Eoin O’Shea, Partner at Reed Smith, who had advised The Law Society in its intervention in the case; he stated:
“The law of privilege is a vital element of the rule of law and a precondition for proper access to justice. Reed Smith was glad to be able to assist the Law Society with its intervention in this very important case.
“The result is welcome indeed. It amounts to a re-calibration of the law of privilege, moving it in a more realistic and principled direction. Privilege now clearly applies in circumstances where there is a genuine concern about future prosecution and there is no longer any artificial distinction between civil and criminal proceedings. The Court of Appeal also made clear that the problematic definition of “client” in the law of privilege is in need of review by the Supreme Court, which is another significant move forward.”
(Source: ENRC News)
With ongoing discussions around the SFO's operations, expert journalist & noted legal commentator, Dominic Carman, provides Lawyer Monthly with an outlook on the SFO's own whistleblowing procedure, citing some concerns that in his opinion must be addressed.
The Serious Fraud Office welcomes whistleblowers. That is the message featured prominently on the front page of its website: “If you suspect wrongdoing in your workplace, you should follow the whistleblowing procedures in your own organisation. If there aren’t any or you are not comfortable reporting the matter internally there are a number of prescribed bodies to whom you can report in confidence. The Serious Fraud Office is one of those prescribed bodies and we would like to hear from you if the wrongdoing concerns serious or complex fraud, bribery or corruption in a UK company.”
But a whistleblower email sent to the SFO in July 2012 about its own conduct has provoked a rather different response over the last six years: the agency has persistently failed to respond to the central allegations contained therein. The email - sent to David Green who had recently been appointed as SFO Director - begins: ‘I am writing to you anonymously because I fear my career will be ended if I am identified.’ The author later explains ‘I cannot come forward publicly as my career would be ended.’
What follows is a summary of the email’s content relating to comments, allegedly made by Neil Gerrard, who was - and still is - a partner at the London office of the US law firm Dechert. “Even if partially true they (the comments) make a mockery of the operational independence of the Serious Fraud Office and its ability to effectively investigate,” the email states.
It proceeds to recount how the anonymous author had been in the company of “a fairly large group” comprised mainly of lawyers. This included Gerrard, who, it is alleged, was “worse for wear” when he made a number of assertions about the SFO in general, including key personnel and David Green. The email then catalogues allegations relating to Gerrard’s conversation.
In response, a spokesperson for Dechert commented: "The allegations in the letter are entirely without foundation. They were investigated by the SFO at the time and no action was taken. Dechert LLP categorically reject all of these allegations."
Gerrard claimed to be receiving “insider information” from a man called “Dick” on companies and individuals that were subject to SFO investigations, referring to him as ''the only Dick a lawyer ever needed.” The insider information included allegations, copies of case notes and SFO investigation strategy which Gerrard then used to obtain instructions from the party being investigated. Three specific cases are mentioned - one of which Gerrard allegedly claims to have high-level contact in the relevant HMRC department whom he "did deals with."
Gerrard further alleged that he was warned by the SFO that there was a multi-agency investigation into a number of leading law firms in London. He claimed that this, and other insider information, was provided with “the tacit agreement” of David Green and Dominic Grieve, who was then Attorney General.
As part of "the agreement" with the SFO, Gerrard alleged that he could guarantee that his clients would never be investigated and that he could change a criminal investigation into a civil settlement. He further claimed that via Miriam Gonzales, a fellow partner at Dechert, he had direct access to her husband, Nick Clegg (who was then Deputy Prime Minister), as well as to the heads of many European governments. As a result, Gerrard alleged that he had the ability to influence, and in some cases, change government policy.
Turning to the SFO, Gerrard allegedly claimed that the SFO was “inept and toothless” and could only investigate seven or eight cases a year. He described "in confidence" how he had been asked by Grieve to oversee and guide changes to UK regulatory strategy with the aim of giving the SFO the "kick up the arse" it needed.
Of Green’s then recent appointment, Gerrard allegedly said that he was "very much second choice" and that he (Gerrard) did not accept the post "this time round" because he could not afford "a pay cut". He claimed that Green was "keeping the seat warm for him" and when he took over in 2016, Grieve had “guaranteed him £250,000 a year as a salary” – well above Green’s £150,000 - and an “elevation to the House of Lords as opposed to a knighthood” (which Green did, in fact, receive in 2018).
The email concludes: “Whatever the truth or otherwise a number of us were appalled that, despite being obviously drunk, he (Gerrard) should speak so openly, especially as it appears that he is receiving confidential and commercially sensitive information from contacts inside the Serious Fraud Office.”
The serious concerns raised by the email in relation to the conduct of a senior SFO member of staff (Dick), included the leaking of confidential information with the "tacit agreement" of the then SFO Director and the former Attorney General. It alleges that Dick colluded with Gerrard in a manner that was highly unethical, in clear breach of the Civil Service Code, and potentially giving rise to criminal liability. In short, there is an obvious public interest in such misconduct being uncovered.
So what has been the SFO’s response over the past six years to the various allegations contained in the whistleblower email? Not much, it would appear, despite repeated requests for information and meetings with Green and the Attorney General to discuss the allegations. But events have recently returned to the content of the email in the form of a Freedom of Information (FOI) Request from international law firm Hogan Lovells.
Their FOI request, sent in June, asks a series of questions: what steps the SFO took to investigate the allegations in the 2012 email; whether the SFO has a written record of the findings of any such investigation (or alternatively of any decision not to conduct an investigation); and what policy or procedure did the SFO follow in conducting any such investigation into the allegations? Furthermore, the FOI request asks whether the SFO: (a) conducted any interviews; or (b) carried out any searches for documents (electronic or hard copy), as part of its investigation into the allegations; and whether the SFO has records of these interviews or searches.
A lot has happened since 2012. Green, shortly to become Sir David, departed from the SFO in April and is set to join Slaughter and May. Grieve left the office of Attorney General in July 2014 as part of the Cabinet reshuffle. The new permanent SFO Director, Lisa Osofsky, assumes the role in September while the interim appointee Mark Thompson is separately alleged to have had “extensive interaction” with Gerrard including communications that are alleged to be “improper and unauthorised”. The new Attorney General, Geoffrey Cox QC MP, (successor to Grieve’s replacement Jeremy Wright) was only appointed in July by Theresa May following the Cabinet resignations of David Davis and Boris Johnson.
Neil Gerrard remains where he was: a London-based partner of Dechert and global co-head of the firm’s white collar and securities litigation practice. The FOI request affects him as much as it does the SFO. The concerns raised regarding the unhealthy nature of his relationship and interaction with the SFO – and the potential effect on a variety of SFO investigations – need to be addressed.
It is clear from subsequent events that the whistleblower email was never properly investigated at the time, not least because the SFO is now belatedly commissioning an investigation into it alongside other related matters. The SFO, therefore, should soon be in a position to respond in full to the questions raised – in particular, whether it followed its own whistleblowing procedures.
And if not, why not?
The Commodity Futures Trading Commission (CFTC) recently announced its largest whistleblower award to-date in a commodity fraud case. According to the Commission, it issued “an award of approximately $30 million to a whistleblower who voluntarily provided key original information that led to a successful enforcement action.”
“This is a major breakthrough for whistleblower protections. The CFTC has been slow in processing and granting awards for whistleblowers. Today’s $30 million award is good news for whistleblowers who expose frauds in the trillion-dollar commodities markets,” said Stephen M. Kohn, a leading whistleblower attorney and the pro bono Executive Director of the National Whistleblower Center.
“Large awards in whistleblower cases are the key in deterring future wrongdoing, and incentivizing other whistleblowers to step forward, facts that the Chairman of the CFTC recognized.” Kohn added
In light of this award, the Chairman of the CFTC, J. Christopher Giancarlo, issued the following statement:
“The Whistleblower Program has become an integral component in the agency’s enforcement arsenal. We hope that an award of this magnitude will incentivize whistleblowers to come forward with valuable information and provide notice to market participants that individuals are reporting quality information about violations of the Commodity Exchange Act [CEA].”
James McDonald, Director of the CFTC Division of Enforcement, stated: “Whistleblower submissions have become a significant part of our enforcement program, allowing us to pursue violations we might otherwise have been unable to detect. That’s one reason why we’ve worked hard to expand our Whistleblower Program, including by increasing the protections afforded to whistleblowers that come forward. I expect the Whistleblower Program to contribute even more substantially to our enforcement efforts going forward.”
The CFTC’s Whistleblower Program, established as part of the Dodd-Frank Act, pays monetary awards to eligible whistleblowers who voluntarily provide the CFTC with original information on violations of the Commodity Exchange Act that leads to a successful enforcement action resulting in monetary sanctions exceeding $1,000,000. Rewards under the program are mandatory for qualified whistleblowers, and must be paid in the range of 10-30% of the collected proceeds.
(Source: Commodity Futures Trading Commission)
