Partner & Head of White Collar Crime at BLM, Iskander Fernandez considers recent SFO developments in 'The SFO - The good, the bad & the ugly'
Partner Iskander Fernandez, Head of White Collar Crime at BLM examines recent SFO developments in his article - THE SFO - THE GOOD, THE BAD AND THE UGLY below.
"Never a stranger to headlines, the Serious Fraud Office (SFO) has gone through a challenging number of months, with more than a few column inches dedicated to its successes and failures.
In terms of high profile successes, the agency has entered into its eighth deferred prosecution agreement (DPA) to date and secured convictions in the long running Unaoil trial. However, those successes appear to be mired by controversy by the conduct of Lisa Osofsky, the agency’s director, as she came under scathing criticism by the judge in the Unaoil trial. The result has seen the commencement of an inquiry by the agency into what went wrong.
Eight and counting
On 17 July 2020, the SFO’s eighth DPA was approved since that tool was introduced by the Crime and Courts Act 2013.
Under the terms of the DPA, responsibility was accepted for three offences under the Fraud Act 2006, namely fraud by false misrepresentation.
In approving the DPA, the court had to consider whether the interests of justice test were met. Mr Justice Davis began by highlighting that the fraud involved a substantial loss to the public purse and its “less than full cooperation” with the SFO’s investigation until a very late stage pointed to the public interest test being properly served by a prosecution. That said, and moving to the interests of justice test, in particular (i) the relative age of the conduct; and (ii) the remedial measures taken, which the court described as a “root and branch self-cleaning” exercise – the court noted that these factors pointed away from a prosecution.
In addition to the financial penalty of the DPA - £38.5m fine and the SFO’s costs of almost £6m - the DPA, much like Serco’s DPA, includes a term that the parent company, is to monitor compliance. Lisa Osofsky noted that both companies would be subjected to “unprecedented, multi-year scrutiny and assurance”. This may signal the start of a trend with future DPAs if the circumstances are right.
Of further interest is the discount applied to the financial penalty was less than the 50%, which is normally afforded for extraordinary cooperation. As noted above, cooperation was, in the court’s eyes, “less than full”.
This appeared not to be the only success for the SFO.
After a 10 week trial, which was partially interrupted by the pandemic, and after the lifting of reporting restrictions, it was reported that after one of the SFO’s longest investigations to date, three executives of Unaoil were found guilty of conspiring to make corrupt payments to secure lucrative Iraqi oil contracts between 2005 and 2011 for the benefit of Unaoil and its clients. That period marked the reconstruction of Iraq following the overthrow of Saddam Hussein. The three executives used the consequent uncertain and turbulent period to pay bribes to public officials; one bribe totalling over USD$6m to secure a contract worth $800m and the other for £500,000 to secure a £55m contract.
The verdict provided some respite to the SFO, which had seen its ability to successfully prosecute individuals coming under increasing criticism (see below). Many had raised questions on whether it was properly resourced to be able to not only manage complex investigations, but to also see that work reflected through securing convictions at court. This was typified in strong comments raised recently by the judge in the trial of three former executives of Tesco who noted that “the prosecution was so weak it should not be left for a jury’s consideration”.
For now, the pressure seems to have abated. Or has it?
Despite the notable successes, the SFO remains in the cross hairs of many doubters, who question its efficacy. News emerged that in the period 2019-2020, the number of individuals and organisations charged rose to only nine, one more than in the 2018-2019 period, but significantly lower than the 28 charges that were brought in 2017-2018. The number of criminal cases also dropped in 2019-2020, with the agency opening five investigations, down from 11 the previous period.
The reduction could be explained by the type of cases that the SFO is tasked with investigating, of which there may be a dearth. That said, critics will point to high profile investigations being dropped despite, as shown with Rolls-Royce, the offending being of such magnitude. Rolls-Royce entered into a DPA and no charges were brought against any individuals.
Away from this issue, criticism remains over the length of time SFO investigations take, with a recent House of Lords Select Committee on the Bribery Act 2010 (see here) hearing from leading professionals in the field drawing attention to the effect the slow pace has on their clients’ businesses and wellbeing. Individuals on occasions are subject to significant periods of uncertainty during what can be a protracted investigation. In response, the SFO noted that because of the very nature of the complex work it undertakes, investigations not only span a number of jurisdictions, but often involve the interview of large numbers of witnesses, which can delay progress.
Paucity of convictions
One area that has dogged the SFO of late is its ability to secure convictions when charges are laid. Although the convictions in the Unaoil case have helped to stop the rot, this is against a backdrop of failed high profile prosecutions against former executives of Tesco, and Barclays.
In its 2019 annual report, figures released show that only 17 of 32 defendants were convicted, a rate of 53%, which was down from 77% the previous year. Some, in part, linked that drop in the spending cuts at the agency, where legal spend on external counsel fell 5.7% to £10.6m, while staff costs fell 2.4% to £30.6m. In responding to these figures, a review by HM Crown Prosecution Service Inspectorate did not help the agency’s cause when it highlighted “neglectful approaches to management or, in some cases, of unacceptable behaviours”. The latter comment was almost prophetic as the fallout from the Unaoil trial illustrates (see below).
In response to the figures, Lisa Osofsky noted that conviction rates can vary significantly due to the small number of complex cases it accepts. The figures can also be explained by the inherent uncertainty of litigation; a conviction is never guaranteed.
The above, to an extent, has the ability of being rectified through the better allocation of resources and/or approach to investigations by the SFO, but what happens when things go very wrong?
The gloss on the SFO’s long awaited success in prosecuting individuals in Unaoil has been rather tarnished by the comments of HHJ Beddoe during an abuse of process argument raised by the Unaoil defence. It was alleged by counsel for one of the defendants that Lisa Osofsky had repeatedly made “improper” contact with a former US prosecutor, who was Unaoil’s owner’s representative in the US, during the investigation.
The court heard that texts were exchanged between the US representative and Lisa Osofsky during the period in which the US representative pressed the SFO for Unaoil’s owners to be prosecuted in the US rather than the UK. In return, the US representative offered to help the SFO to secure a guilty plea from two executives of the company.
In dismissing the application, the judge concluded that while there was no suggestion that Lisa Osofsky and/or the SFO was influenced by the contact with the US representative, the former had become “vulnerable to flattery” and that the US representative was more interested in “the art of the deal, rather than the legal process of justice being done [and] justice being seen to be done”. Worryingly the contact came despite repeated advice from case controllers for Lisa Osofsky to cease contact with an individual clearly motivated by self-interest and having no recognised legal role in the investigation.
Although the court did not find there had been an abuse, the judgment makes for uncomfortable reading and has led the SFO to open an inquiry into the matter. In a statement, the SFO said “a review will be conducted into this matter, and a protocol covering contact with non-legal representatives has been put in place”.
What next for the SFO?
The airing of the contact between Lisa Osofsky and the US representative in the course of the Unaoil investigation will only do more harm to what has become an embattled agency of late, which appears to be fighting fires from all sides. It is likely that this will lead to further calls, initially started by Theresa May, the then home secretary, to subsume the SFO with the National Crime Agency.
Time will be the best judge of how far this fallout from the Unaoil trial extends, and whether, more significantly, the SFO fully recovers and survives in its current form from such a public airing of its director’s conduct."
Disclaimer: This document does not present a complete or comprehensive statement of the law, nor does it constitute legal advice. It is intended only to highlight issues that may be of interest to customers of BLM. Specialist legal advice should always be sought in any particular case.