BCL’s partner Richard Sallybanks looks at the present state of play for the SFO.
While “beleaguered” may presently be an apt adjective for the UK’s Serious Fraud Office (“SFO”), it does have the opportunity this year to demonstrate that it has learned (or at least will learn) from its recent mistakes (and mistakes they very clearly are), to re-establish its credibility as an effective agency when it comes to prosecuting individuals after some high-profile failures, and to continue to build upon an increasing track-record of success in holding large corporates to account, whether through Deferred Prosecution Agreements (“DPAs”) or with guilty pleas after charge.
Contrast: the SFO’s success against corporate suspects versus its frequent failure when prosecuting individuals
The SFO concluded three DPAs in 2021, the most significant of which was with Amec Foster Wheeler Energy Ltd (“Amec”) which resulted in financial penalties and costs in the UK of £103 million as part of a $177 million global settlement involving the UK, US and Brazilian authorities. The Amec DPA covered ten offences of corruption, charged predominantly as conspiracies to make corrupt payments to public officials with one count of failing to prevent bribery (under section 7 of the Bribery Act 2010 – the “section 7 offence”), relating to the use of corrupt agents in the oil and gas sector in Nigeria, Saudi Arabia, Malaysia, India and Brazil in the legacy Foster Wheeler Energy business (prior to its acquisition by Amec) over an almost 20-year time frame between 1996 and 2014.
The introduction of DPAs into the armoury of the SFO (less than ten years ago, through the Crime and Courts Act 2013) has heralded a sea-change in the level of enforcement activity against corporates in the UK, but two cases from 2021 serve as a reminder that, while increasingly common, a DPA is not the SFO’s default position in respect of corporate suspects and that substantive prosecution remains an option. Following a long-running investigation announced by the SFO in 2012, GPT Special Project Management Ltd last year pleaded guilty to one count of corruption relating to the award of contracts to it for work carried out for the Saudi Arabian National Guard and was made the subject of financial penalties totalling £30 million (comprising a confiscation order of £20.6 million, a fine of £7.5 million and costs of £2.2 million). Then, in October 2021, Petrofac Ltd, a FTSE listed company which provides oilfield services to the international oil and gas industry, pleaded guilty to seven counts of the section 7 offence in respect of its failure to prevent bribery in respect of the award of contracts in Iraq, Saudi Arabia and the United Arab Emirates worth £2.6 billion for which it was made the subject of financial penalties totalling £77 million (comprising confiscation of £22.8 million, a fine of £47.2 million and costs of £7 million).
Are DPAs alone an appropriate measure of the SFO’s success?
To date, the SFO has concluded a total of 12 DPAs which has led the SFO to declare that it has contributed over £1.3 billion to the Treasury since 2016, four times its cost to the taxpayer, with the prospect of more to come. For example, a recent financial report from commodities trader and mining company Glencore, which is currently under investigation by the SFO for suspected bribery offences, referenced that it had made a provision of $1.5 billion in expectation that it would resolve investigations by the US, UK and Brazilian authorities in the course of this year.
While the level of the SFO’s financial recoveries pursuant to DPAs is laudable, a question which is increasingly being asked in the UK is whether this should be the sole, or dominant, criterion of measuring the SFO’s success particularly when set against its recent track record in the prosecution of individuals. This is especially so in trials which follow the conclusion of a DPA with the corporate suspect.
The SFO is still waiting to secure a conviction of an individual in a post-DPA prosecution
To date, prosecutions of individuals have come to trial in four cases where the corporate suspect had concluded a DPA and the SFO is yet to secure the conviction of a single person. In two of the four cases (Tesco Stores Ltd (“Tesco”) and Serco Geografix Ltd (“Serco”)) the trial was stopped, and the individuals acquitted, before the case even went to the jury and in the other two cases (Sarclad Ltd and Guralp Systems Ltd) the individuals were all acquitted by the jury. The SFO will be looking to end this pattern with the trial of three former executives of G4S Care and Justice Services (UK) Ltd which is due to commence in January 2023, some two-and-a-half years after that company concluded a DPA in respect of a fraud committed against the Ministry of Justice resulting in a financial penalty of £38.5 million and costs of £5.9 million, having already paid £121.3 million to the Ministry of Justice by way of an earlier civil settlement.
This discrepancy between a corporate suspect entering into a DPA, often predicated on the conduct of senior executives which cause a company to accept liability under the UK’s “directing mind” principle of corporate criminal liability, and the subsequent acquittal of those self-same executives has led some to question whether this undermines the credibility of the DPA process. Seemingly in the context of this issue, it was notable that the judgment of Lord Justice Edis, when approving the Amec DPA, expressly made clear that the Court’s role in approving the DPA did not involve it determining or assessing the culpability of any individual or hearing from any individuals; the Court’s role was to determine the culpability of the corporate, and not to make any findings of fact against any individual. Nevertheless, it remains the case that parties to a DPA are able to agree an underlying Statement of Facts which refers to and criticises the conduct of individuals in circumstances where those individuals have no ability to object to or participate in that process; where prosecutions of those individuals have followed, on the basis of the conduct set out in the Statement of Facts, those individuals have, so far, always been acquitted.
Will the picture change if the SFO can encourage co-operators?
When considering the SFO’s recent track-record as against individuals, it is only fair to note that, in the Petrofac case referred to above, the SFO secured the conviction and co-operation of Petrofac’s former Head of Sales whose evidence ultimately helped bring the corporate to the table to plead guilty.
The UK has a formal statutory process by which suspects who co-operate in investigations and plead guilty can receive a substantially discounted sentence to reflect their value as co-operators. In this instance, the cooperating defendant (as such people are known) pleaded guilty to 14 counts of corruption (involving the payment of bribes totalling $81 million in connection with the award of contracts worth $8.4 billion) and provided over 300 pages of witness statements detailing the breadth of corrupt activity in which he, and through him Petrofac, was involved. As a consequence he ultimately received a substantially reduced sentence (two years – as against the statutory maximum of 10 years) and avoided going to prison as that sentence was suspended; he was however still made subject to a confiscation order of £140,000 to deprive him of the amount by which he had personally benefitted from his corrupt activity.
The SFO will no doubt hope that the fact that this person (despite the extent of his corrupt activity) avoided an immediate prison sentence will encourage other suspects to co-operate in its investigations, but it remains a fact that a co-operating defendant in a SFO investigation is a very rare occurrence, most likely because the co-operation process in the UK is rigid and, generally speaking, requires an individual first to ‘come clean’ with limited protection in place.
That may, in part, also be due to the SFO’s long-standing reputation (whether or not justified) of losing its most high-profile cases. Now added to this is a trend that, even in cases where a corporate suspect accepts liability and enters into a DPA, it does not necessarily follow that the SFO will prosecute the individuals whose conduct underlies the corporate’s DPA. Most recently this has been seen in relation to the Amec and Airbus DPAs (Airbus concluded a €990 million DPA with the SFO in January 2020 as part of a €3.6 billion global settlement) where the SFO has not prosecuted any of the individuals involved. This is notwithstanding, for example, the Statement of Facts in the Amec DPA containing numerous references to the involvement of directors and senior employees in UK companies.
This is part of a developing pattern, beginning with the decision of the SFO in 2019 not to prosecute any of the individuals involved in the corruption which had led Rolls Royce plc to conclude a £497 million DPA with the SFO in January 2017. While this pattern continues to develop, and an individual under investigation sees that there is every chance that he or she might not be prosecuted at all, the incentive to co-operate and plead guilty – notwithstanding the advantage that can accrue on sentence – is far from compelling. Even where a prosecution does follow, given the SFO’s failure so far to secure any individual convictions following a DPA, an individual may consider that withholding co-operation and defending the case is a risk worth taking.
Failures in the prosecution of individuals have exposed failings of process within the SFO
The most recent example of the failure of a prosecution of individuals following a DPA with a corporate suspect was when the 2021 trial of two individuals in the Serco investigation collapsed several weeks into trial when the SFO recognised that there were major failings with its disclosure process (in the sense that certain highly relevant materials had not been disclosed). An application by the SFO to adjourn the trial to enable the position to be rectified was refused by the Judge with the consequence that the SFO was forced to offer no evidence and the jury were directed to acquit.
Such is the level of concern surrounding the disclosure issues which caused the collapse of the Serco trial that Lisa Osofsky, the director of the SFO, has appointed a very experienced criminal barrister with a focus on prosecution work, Brian Altman QC, to review the SFO’s failings in this case. His independent review is due to conclude by the end of May 2022. We should add that our experience in having defended individuals in a number of significant SFO trials (including the Tesco trial referred to above) is that disclosure is a perennial issue, often requiring multiple applications to the Court to try to get the SFO to hand over material which is plainly relevant, with disclosure sometimes happening through the trial itself. A thorough review of the SFO’s disclosure processes, recognising that the extent of material to be reviewed has proliferated as a result of the volume of digital data captured during the course of an investigation, is in our view long overdue. Last month Ms Osofsky faced questioning over the collapse of the Serco trial when she appeared before the House of Commons (Parliamentary) Public Accounts Committee to explain a £2.6 million overspend in the SFO’s 2020-2021 budget (to which defence costs which it had to pay as a result of the Serco trial collapse appear to have been the sole factor). In her evidence to the Committee, Ms Osofsky said that she saw the collapse of the Serco trial as “a real call for change and for needing to strengthen our controls” while at the same time commenting that “we’re human beings, we make mistakes.” We doubt whether those individuals in the Serco case subjected to investigation and then prosecution, to be acquitted because of the SFO’s disclosure errors seven years after the investigation began, will have any sympathy especially when, as explained below, the problems which caused the collapse of the Serco trial were not a one-off. As an aside, during her appearance before this Committee, Ms Osofsky was pressed on whether she would be seeking an extension to her term in office which expires in 2023; she conceded she had not yet decided. It may well be that the determining factor in whether she seeks an extension of her term as director, or indeed whether she stays in office until the conclusion of her present contract, will be determined by the outcome of a separate review following serious criticism of the SFO, and to an extent of Ms Osofsky personally, in the Unaoil case.
In July 2020, the SFO will have felt a sense of relief and accomplishment when its high-profile investigation into Unaoil resulted in the conviction of Ziad Akle for paying over $500,000 in bribes to public officials in connection with the award of a $55 million contract by the Iraqi government Akle was sentenced to five years’ imprisonment. The SFO also secured a guilty plea from a co-conspirator called Basil Al-Jarah, and guilty verdicts in respect of other co-conspirators, Paul Bond and Stephen Whiteley. Without descending into too much detail, attention became focused on the SFO’s dealings (some involving Ms Osofsky herself) with a third-party, David Tinsley (an ex-DEA agent), who represented Unaoil’s owners, the Ahsani family, and who, in communications and meetings with the SFO, said he could persuade Akle and Al-Jarah to plead guilty in return for a more lenient deal for his own clients; he did not represent Akle or Al-Jarah. As mentioned above, AlJarah ultimately entered a plea of guilty and the SFO relied on his guilty plea as evidence against Akle. Unsurprisingly, the SFO’s dealings with Al-Jarah came under the spotlight in the trial itself and, following his conviction, in Akle’s appeal to the Court of Appeal.
Following Akle’s conviction, it emerged that at a pre-trial hearing the judge had expressed some criticism of Ms Osofsky and the SFO’s dealings with Tinsley, following which the SFO said that it would commission a review into the issues raised. That review was put on hold pending the outcome of Akle’s appeal. Last December the Court of Appeal quashed Akle’s conviction and refused the SFO’s request that it be permitted to re-try him. In a robust judgment which found that Akle did not have a fair trial and that the SFO’s conduct had “handicapped the defence”, the judges commented that they could not understand how Ms Osofsky and the SFO could have thought it appropriate to let Tinsley become embroiled in Akle’s case, and found that there had been a material failure of disclosure in respect of the SFO’s dealings with him (noting that some of the documents had the “clear potential to embarrass the SFO”, albeit the Court said that it did not believe that there had been a deliberate cover-up).
The extent of the criticism caused the Attorney-General, the government’s most senior law officer, to announce on the day of the Court of Appeal judgment that the SFO’s handling of this case would be investigated. To coincide with Ms Osofsky’s appearance before the Public Accounts Committee, it was announced that a retired High Court judge and former Director of Public Prosecutions, Sir David Calvert-Smith, has been appointed to conduct an independent review into the SFO’s handling of the Unaoil case. The review will focus on the SFO’s two key failings: what occurred in respect of the SFO’s contact with third parties (and why), and why did the SFO disclosure failures identified by the Court of Appeal occur. This review is also due to conclude by the end of May 2022.
And if that wasn’t enough, the SFO’s Unaoil investigation had bought separate embarrassment for the SFO earlier in 2021 when its case controller in that investigation successfully sued the SFO for unfair dismissal. The decision of the Employment Tribunal, publicly available, shines a spotlight on the strained relationship between the SFO and the American authorities in relation to the Unaoil investigation and found that the real reason for the dismissal (as opposed to the reason given – an alleged verbal altercation between the case controller and a FBI agent in a London pub) was that the US authorities wanted him removed from the investigation. As is now clear, at this time there was something of a turf-war between the UK and US authorities as to who should be controlling the Unaoil investigation and leading the pursuit of the core suspects.
The SFO’s conduct in relation to its separate fraud and corruption investigation into ENRC Ltd also came under scrutiny in 2021 during the High Court trial of ENRC’s civil claim against the SFO and ENRC’s former legal advisors, in which ENRC alleged that they had together conspired to ensure that an investigation into ENRC was opened by the SFO. In addition, it is alleged by ENRC that the SFO failed to conduct itself properly in a number of regards, including by failing to keep proper records and by leaking confidential information to the press. Judgment in this case is due in 2022 and there exists the obvious risk of further embarrassing findings against the SFO. Interestingly, Sir David Calvert-Smith, now tasked with the Unaoil review, had been appointed by the SFO in late 2018 to lead an independent review into its handling of the ENRC investigation following allegations from ENRC of serious wrongdoing; his review was stopped in 2019 when ENRC launched its civil claim but, at the time, it was reported that his review would be revisited when the civil proceedings were concluded.
Beleaguered – but not down and out
Hence “beleaguered”, although the SFO tries to present a “business as usual” impression (it carried out a series of dawn raids and arrests in a new investigation last week, well-timed given recent criticism that the SFO conducted no raids at all last year) while knowing that the outcome of the Altman and Calvert-Smith reviews may have far reaching implications. But, those reviews and the ENRC judgment aside, there are reasons why the SFO might hope that, by the end of 2022, the focus will have moved away from its historic conduct.
According to the SFO’s website at the time of writing, it has four trials against individual defendants starting within the next 12 months, and thus has ample opportunity to re-establish its credentials as a capable prosecuting agency, not only if it secures convictions but also by demonstrating that, in high profile cases (all of which will surely attract greater attention given what’s gone before), it is able properly and fully to discharge its disclosure obligations and duties as a prosecutor.
Another light on the horizon for the SFO is the potential for reform of the UK’s laws on corporate criminal liability to make it easier for companies to be held to account for criminal activity undertaken by employees at any level or by people associated with the company (for example an agent). The SFO has long complained about the difficulties it faces trying to hold corporate suspects to account due to the state of the law; in the words of Ms Osofsky, she can go after Main Street but she cannot go after Wall Street.
In very general terms, under UK law a corporate can only have criminal liability if somebody of sufficient seniority within the company to be a “directing mind” is involved in the criminal conduct. In complex corporate structures, where the board of directors might be distant from the operating units on the ground, the difficulty in holding the company criminally liable is obvious – hence Ms Osofsky’s observations. The introduction of the “failure to prevent bribery” offence in section 7 of the Bribery Act 2010 was a move towards making it easier to hold companies criminally liable and this template has been adopted in the Criminal Finances Act 2017 (“CFA”) which introduced the criminal offences of failing to prevent the facilitation of UK and foreign tax evasion. These “failure to prevent” offences are strict liability, subject to a defence of “adequate procedures” in respect of the section 7 offence and “reasonable procedures” for the CFA offences, and the discussion is whether this model should be extended further into the world of economic crime offences. The debate on changes to the law on corporate criminal liability moved forward in 2021 when the Law Commission launched a consultation paper. Responses to the consultation paper have closed and the Law Commission is now expected to provide the Government with an options paper this spring.
The increased focus of the US authorities on anti-corruption enforcement may also ultimately play to the SFO’s advantage. In December 2021 the US Administration published its first ever ‘Strategy on Countering Corruption’ (“the Strategy”), which makes it clear that the US is committed to taking “aggressive enforcement action” to root out widespread corruption, including by vigorously pursuing the enforcement of foreign bribery cases via criminal and civil enforcement actions, including through the Foreign Corrupt Practices Act. The Strategy further sets out that it will expect assistance and cooperation from foreign governments in criminalising and prosecuting foreign bribery.
Given this expectation, the SFO may well feel the pressure coming from across the Atlantic to step up its activities in terms of investigating, and importantly, prosecuting bribery cases.
Certainly, in recent years, we have seen a progressive decline in the number of new investigations opened by the SFO (four in 2021 and 12 across the previous two years) and impetus from the traditionally more active US enforcement agencies may help the SFO move on from recent events.