Business as usual or storms on the horizon? A mid-year review looking at the Serious Fraud Office’s achievements and upcoming pressure points for 2022

SFO

Business as usual or storms on the horizon? A mid-year review looking at the Serious Fraud Office’s achievements and upcoming pressure points for 2022

In this article Shula de Jersey and Matt Davies provide a brief mid-year update looking at what the Serious Fraud Office (“SFO”) has achieved so far this year and what is on its plate for the rest of the year.

In March and April, Richard Sallybanks and Anoushka Warlow published updates on SFO activity, see here and here. This article builds on those reviews.

Outcome of the ENRC civil claim against Dechert LLP, Neil Gerrard and the SFO

In May, Waksman J gave judgment in the Commercial Court in the trial between ENRC, Dechert LLP, the SFO and Mr Neil Gerrard.  Mr Gerrard was a partner at Dechert, originally representing ENRC between 2011-2013 in what became an investigation by the SFO into ENRC and alleged bribery and corruption concerning mining contracts in the DRC.  ENRC denies the allegations and brought proceedings against Dechert and the SFO alleging that the two had conspired to have the investigation opened.  ENRC further alleged that the SFO failed to conduct itself properly in a number of regards, including by failing to keep proper records and by entering into unauthorised contacts with Mr Gerrard.  The trial of the matter took place over the course of several months in 2021.

In his lengthy judgment which, found for ENRC in certain aspects and for Dechert and the SFO in others, Waksman J was critical of the SFO’s conduct, finding that it willingly took information disclosed to it by Mr Gerrard, which was plainly against the interests of his client and unauthorised.  The SFO’s “bad faith opportunism” led to it encouraging Mr Gerrard to breach Dechert’s contract with ENRC through its inappropriate contacts with him.

The SFO was however able to take some small positives from the outcome of the case.  It is still able to use the material obtained from ENRC’s lawyers.  It also rebuffed an attempt by ENRC to replace members of the SFO case team who had seen those materials.  Most importantly, the SFO was found to have not committed misfeasance in public office – which was a serious allegation levelled against it. However, where all this leaves the SFO’s investigation, opened in April 2013 and now in its ninth year, remains to be seen.

Whilst Dechert has agreed to pay ENRC £20m on account of interim costs, a decision on any costs payable by the SFO has been reserved pending the outcome of a separate trial due to take place next year on issues of causation and loss.

Convictions, trials and future hearings

Since our last update, in what the SFO has self-styled “the year of the trial”, it has secured several successful outcomes:

  • The SFO’s investigation into Global Forestry Investments concerned actions by Andrew Skeene and Junie Bowers to encourage investors to invest into ethical products that claimed to protect the Amazon rainforest. There was no such green investment scheme, and the defendants withdrew the money for personal enjoyment.  After convictions for conspiracy to defraud, Skeene and Bowers were sentenced to 11 years’ imprisonment.
  • Following guilty pleas, Glencore Energy (UK) Ltd was convicted of all charges of bribery. This case related to an investigation into the payment of bribes by Glencore Energy, via employees and agents, of over $28 million for oil access and preferential treatment.  There were convictions relating to five counts under Section 1 Bribery Act 2010 and two counts under Section 7 Bribery Act 2010 – the corporate failure to prevent bribery offence. In what is becoming an increasingly common characteristic, the SFO has prioritised action against the corporate suspect while the investigation continues against individuals.
  • David Ames was found guilty of two counts of fraud by abuse of position in relation to a £226 million fraud involving the Harlequin Group, a hotel and resorts development venture in the Caribbean.  Mr Ames is due to be sentenced in September.
  • Timothy Schools, the founder of the Axiom Fund, was sentenced to 14 years in prison for fraudulent trading, fraud by abuse of position and money laundering. The Axiom Fund was set up to give loans to law firms pursuing no-win-no-fee cases.  The money investors provided to the fund instead went to just three law firms that Schools siphoned money from.  As both the Global Forestry and Axiom cases show, a defendant of fraud against investors where there is a significant element of personal gain (for example, by funding a lavish lifestyle), will be met with very severe prison sentences.

However, the SFO suffered a setback in July, when the jury was discharged at the trial of Jeffrey Cook and John Mason in its GPT Airbus case. The prosecution of Mr Cook and Mr Mason followed the company’s guilty plea in April 2021 which resulted in a fine of £7.5m, a confiscation order of £20.6m and an award of costs in favour of the SFO of £2.2m.  Mr Cook was the former managing director of GPT Special Project Management, which was a related company to Airbus.  John Mason was a subcontractor.  Both defendants are accused of paying £9.7 million in bribes in relation to contracts awarded to GPT for work for the Saudi Arabian National Guard; Cook claims in his defence that the payments were approved by the British Government.  Owing to reporting restrictions, it is unclear why the jury was discharged but it means that a retrial will take place if the SFO are to continue to pursue the case.

September is looking to be a very busy month for the SFO, with multiple trials at the Southwark Crown Court listed to start:

  • Balli Group Plc and Balli Steel Plc, four individuals are between them charged with offences relating to fraudulent trading and conspiracy to defraud.
  • Greenergy, the SFO charged a biodiesel trader and former employee at Greenergy with two counts of fraud by abuse of position and one count of money laundering.
  • The third major trial the SFO is preparing for in September relates to an underlying investigation into bribes paid to win contracts within the UK construction industry. Five individuals are between them charged with various counts of bribery, receiving bribes and money laundering.   The relevant corporate entities are not specified.

In contrast with previous years, there have been no deferred prosecution agreements concluded this year (so far). It was, however, previously intimated that one might be on the horizon with UK insurance company, Jardine Lloyd Thompson (“JLT”).  Though not confirmed by the SFO, a publicly available letter from the US Department of Justice (“DoJ”) to JLT’s US lawyers confirms that JLT had agreed to pay $29million in disgorgement of profits obtained from “corruptly obtained and retained contracts” in Ecuador, and that the DoJ “would credit the Disgorgement Amount against the amount JLT pays to the UK Serious Fraud Office… pursuant to the Company’s separate resolution with the SFO that addresses the same underlying conduct”.   While this indicates that a DPA with JLT may soon hit the news, it may be that the matter has been dealt with in the UK through the Financial Conduct Authority which in June announced that it had fined JLT Specialty Limited (JLTSL) £7,881,700 for financial crime control failings, which in one instance had allowed bribery of over $3m to take place.

Reports by Sir David Calvert-Smith and Brian Altman QC

On 21 July 2022 two much-anticipated reports into the Serious Fraud Office (“SFO”) were published: the review of Brian Altman QC into the collapse of the Serco trial and Sir David Calvert-Smith’s Independent Review into the SFO’s handling of the Unaoil investigation.  As Lisa Osofsky, Director of the SFO, said on their publication, the reviews made a “sobering read”.

The two reviews laid bare a catalogue of failings at every level of the SFO: individual, managerial and leadership weaknesses and fundamental deficiencies in systems and controls in the disclosure process.  Sir David Calvert-Smith’s review makes a total of 11 recommendations and Brian Altman QC’s review a total of 18 recommendations.     The reports raise issues concerning the internal running of the SFO including a lack of trust between the case team and senior management, a lack of quality assurance and poor compliance with relevant internal SFO policies.    A key theme running through both reports is the need for the SFO to have effective disclosure strategies and management, as well as ensuring that the disclosure process is properly resourced, that those conducting it are properly trained and their work is properly reviewed.

Still grey clouds on the horizon?

There is little doubt that the SFO has significant lessons to learn following the publications of the two reports and there will be internal pressure focused on rebuilding its reputation.  While the Government accepted all the recommendations in the Altman and Calvert-Smith reports, it has however asked the SFO to model the impact of a 20-40% cut in headcount and there is an obvious disparity between the Government’s stated commitment to clamp down on economic crime and its willingness to make sufficient resources available to the SFO.

Subject to any extension of her five-year term, Ms Osofsky’s tenure as Director will end in September next year, and thoughts will naturally move to successors.  While the SFO may look to its pending trials as further opportunities to move on from past failings and demonstrate its credibility as a prosecuting agency, the question mark over its long-term resources, and the impact that will inevitably have on recruitment, staffing levels and its ability to do what it was set up to do (investigate and prosecute serious fraud and corruption), mean that there might not be a queue of candidates clamouring to take over from Ms Osofsky.

 

Shula de Jersey is a partner specialising in business crime and regulation. Shula has particular expertise in representing individuals in cases involving allegations of complex and serious fraud, money laundering, bribery and corruption. She has acted in numerous high profile matters. Shula also has experience in health and safety investigations and Coroner’s inquests having represented both individuals and corporates in relation to work place accidents and deaths. Shula has represented professionals including solicitors and doctors in disciplinary matters before regulatory bodies and has previously acted for the Financial Reporting Council in Tribunal proceedings against accountancy firms.

Matt Davies is an associate in BCL’s business crime team. Prior to joining BCL Solicitors, Matt worked on a range of complex disputes involving prosecutors and regulators including the SFO, FCA, FRC, ICO and SEC. He has also assisted with conducting private prosecutions, internal investigations and reviewing internal policies and procedures for large multinational corporations. Matt also has considerable experience with acting for both claimants and defendants in large-scale civil litigation.

Related articles