In a speech at the Royal United Services Institute last week, the Director of the Serious Fraud Office (SFO), Lisa Osofsky, revealed a list of measures that would, in her view, help to improve the SFO’s crime-fighting capabilities.
New ‘failure to prevent’ offence
Top of Ms Osofsky’s wish list (indeed, described by her as what she would do with a ‘magic wand’) is a ‘failure to prevent’ offence for economic crime. At present most corporate offending in the UK is prosecuted using the ‘identification principle’, a long-standing concept where the guilt of the company’s ‘directing mind and will’ (DMW) is used to attribute liability to the company itself.
The DMW normally encompasses the board of directors, the managing director and other senior officers who carry out the functions of management (in other words, those who ‘speak and act as the company’). It can include their subordinates too, but only where they have been delegated full discretion to act independently of instructions.
In practice, prosecutors tend to face one of two difficulties. The first is being able to prove to the criminal standard that individuals who were sufficiently senior in the company are guilty of criminal wrongdoing. The second is establishing that those individuals who are provably guilty (usually the more junior employees) were in fact a DMW. What this means in practice is that smaller companies (with simple, centralised management structures) are easier to prosecute than larger companies (with complex, devolved management structures).
A ‘failure to prevent’ offence bypasses these problems altogether. Instead, a company is guilty of failing to prevent the criminal conduct of its employees and agents (regardless of seniority), unless it can be shown that there were adequate or reasonable procedures in place to prevent that criminal conduct from occurring.
‘Failure to prevent’ offences already exist for bribery and the facilitation of tax evasion, and the idea of extending the concept to other forms of economic crime (e.g. fraud, money laundering and false accounting) has been mooted for quite some time. With more pressing matters dominating the government’s agenda, the idea has stalled for the time being. But it does seem that reform in this area is definitely on the cards.
Greater scope to use section 2 powers
The second item on Ms Osofsky’s wish list is the ability to use the SFO’s powers under section 2 of the Criminal Justice Act 1987 (CJA) prior to the commencement of an investigation. This is already permitted in cases of overseas bribery and corruption under section 2A. In cases of fraud and domestic bribery, however, the SFO’s powers under section 2 can only be used once the Director has formally opened an investigation.
Ms Osofsky argues that this restriction hinders the SFO in situations where its Intelligence Division suspects criminal wrongdoing but lacks sufficient information to proceed to a full-blown investigation. Much better, she says, for the SFO to make an informed ‘proceed or abandon’ decision at an early stage, rather than wasting its limited resources launching a costly investigation.
At first blush this seems logical. However, it should be remembered that section 2 notices are a draconian power that carry with them the possibility of criminal sanction for non-compliance. The fact that, in most cases, section 2 can only be deployed during an investigation is an important safeguard that prevents its misuse.
That an exception is made for overseas bribery and corruption cases is also no justification: section 2A was introduced for the simple, pragmatic reason that it can be difficult to gather sufficient information from abroad to launch an investigation.
New ‘tipping off’ offence
The third and final item on Ms Osofsky’s wish list is another new offence. This one would prevent the recipients of section 2 notices from ‘tipping off’ the subject(s) of an investigation. According to Ms Osofsky, without such an offence the SFO is forced to choose, in non-public investigations, between using its section 2 powers or remaining ‘wholly covert’.
No doubt the model Ms Osofsky has in mind is section 333A of the Proceeds of Crime Act 2002. This makes it an offence for someone in the regulated sector to disclose to any person that a suspicious activity report has been made, or that a money laundering investigation is being contemplated or carried out, if the disclosure is likely to prejudice the investigation.
While this provides an obvious precedent, there is perhaps a more fundamental question to grapple with: is inserting a new ‘tipping off’ offence into the CJA really necessary? Why not use the existing common law offence of perverting the course of justice to prosecute the most serious cases?
We can probably leave that argument for another day, however. Even if the government agrees with Ms Osofsky it will be quite some time before this wish or her other two are granted. If only she had that magic wand. Or perhaps a genie. We are approaching what should be pantomime season, after all…
 SFO v Barclays Plc  EWHC 3055 (QB)