A Christmas note on the SFO – review of 2019 and outlook on 2020
Whilst the ex-US prosecutor’s leadership style – as an outward-facing moderniser and a self-described “avaricious” reformer – has now been established, effecting fundamental change continues to prove a difficult task. As the SFO heads into 2020, onlookers will be watching closely to see if the agency can push forward, particularly with regard to successfully prosecuting individuals.
In late 2018, Osofsky told a House of Commons select committee that she was personally reviewing more than 70 cases and had been challenging staff at the agency as to why it was not moving faster in its decision-making. This desire to streamline the SFO’s focus led to a significant juncture in February 2019 – the decision to drop the high-profile investigations into individuals at Rolls Royce Plc and GlaxoSmithKline (GSK).
The probe into Rolls Royce Plc was opened in late 2013 and led to a £500m Deferred Prosecution Agreement (DPA), the largest ever agreed in this jurisdiction. The indictment covered 12 counts of conspiracy to corrupt, false accounting and failure to prevent bribery spanning three decades. The SFO’s decision in February 2019 therefore prompted raised eyebrows – the DPA had required the company to aid the SFO’s investigation of its employees, and expectation had risen that the company’s executives would face prosecution.
Similarly, the investigation into commercial practices at GSK stemmed back to May 2014, following a Chinese government probe into the company’s use of third party intermediaries.
“After an extensive and careful examination…” the agency concluded “…that there is either insufficient evidence to provide a realistic prospect of conviction or it is not in the public interest to bring a prosecution in these cases.”
Osofsky has framed the GSK decision as one of practical necessity, showing a willingness to acknowledge the jurisdictional constraints the agency faces: “Good luck getting anything out of China,” she stated in an interview in April 2019, adding generally “when it came to individuals, we had a couple of low-level people and it didn’t make sense to prosecute them for the sprawling crime scenario that was painted.”
The SFO is pursuing individuals in other cases. Following the conclusion of a DPA with Serco Geografix Ltd (SGL) in July 2019, it announced in December 2019 that it was charging two former employees of the outsourcing firm with fraud and false accounting. The initial DPA was reached after SGL admitted to three offences of fraud and two of false accounting arising from a scheme to dishonestly mislead the Ministry of Justice as to the true extent of the profits made through its parent company’s contract to provide electronic monitoring services. SGL agreed to pay a fine of £19.2m, issue regular reports on its compliance programme and co-operate with the SFO as to any ongoing investigations.
In October 2019, the SFO reached a further DPA for bribery offences with Güralp Systems Ltd – the company agreed to pay a total of £2,069,861 in disgorgement of profits. All three of the company’s executives prosecuted by the SFO, however, were acquitted following their trial in December 2019.
As her predecessor Sir David Green QC admitted in an interview earlier this year, Osofsky took over an array of unfinished cases that Green was unable to bring to completion. Osofsky’s view was that applying a harsh prosecutorial filter to these historic cases was essential in allowing the agency to pursue new, less unwieldy targets within its tight budget.
The SFO continues to pursue the prosecution of three former Barclays bankers in relation to two emergency fundraisings with the state of Qatar during the 2008 financial crisis. The three defendants have pleaded not guilty to charges of conspiracy to defraud and substantive fraud offences. The case against John Varley, the bank’s CEO in 2008, fell apart earlier this year after the court held there was insufficient evidence to proceed. The trial represented the first criminal proceedings brought against senior UK banking executives for actions they took during the global financial crisis in 2008.
The SFO was criticised by Mr Justice Jay for having “not taken all reasonable and appropriate steps” to obtain documents pertaining to Qatar and Sheikh Hamad bin Jassim, the Qatari prime minister at the time of Barclays’ emergency fundraising in 2008. Osofsky has firmly defended the decision to initiate the prosecutions, arguing that ‘it was “conduct from the time when we were suffering a real financial hit from the banking crisis... we haven’t shirked from these kinds of cases.”
The SFO had an early year success on a separate Barclays case, when two executives were convicted of conspiracy to defraud in March 2019 for their role in manipulating the Euribor rate. It also successfully convicted Alstom Network UK Limited for conspiracy to corrupt – the company was ordered to pay a £15m fine in November 2019. The agency stated that the Alstom conviction, the culmination of a decade-long investigation, “shows that we will work tirelessly with law enforcement around the world to root out bribery and corruption.”
Significant long-running cases remain on the books for the SFO. These include the ongoing joint UK-French investigation into Airbus, the continuation of the electronic tagging investigation into Serco’s rival G4S, and the corruption allegations stemming from the investigation of Monaco-based oil intermediary Unaoil. In December 2019 the SFO confirmed it was investigating energy giant Glencore Plc and its employees and associated persons over suspicions of bribery. Other key cases to watch in 2020 include the long-running battle over the African business of mining giant ENRC, and the continued probe into bribery and corruption at oil firm Petrofac.
Need for speed
The SFO has given renewed vigour this year to a focus on expedition. An October 2019 inspection of SFO operations by HM Crown Prosecution Service Inspectorate, titled “Case Progression in the Serious Fraud Office” seemed to justify the desire for reform. The report found that, partly due to eternal resourcing constraints, certain cases were failing to progress – sometimes for as long as 18 months.
Digital material continues to be cited as a particular obstacle – the sheer volume of which often results in “key blockages” to case progression. Osofksy has sought to pioneer the use of technology in raising efficiency standards. The agency has utilised artificial intelligence to impressive effect recently, spearheaded by its use of a disclosure robot to deal with over 30m documents thrown up by the Rolls Royce investigation. The appointment of John Kielty as Chief Intelligence Officer in January 2019 - a newly created role – signals a further concentration on using technological expertise to speed up cases.
2019 has seen continued discussion of the so-called “Americanisation” of UK white collar crime enforcement, driven by substantive initiatives from the SFO to expand the tools at their disposal. In June 2019, Osofsky set out her stall by signalling an aspiration to increase the use of the Serious Organised Crime and Police Act 2005 (SOCPA) immunity provisions.
Section 71 SOCPA enables a specified prosecutor (including the director of the SFO - s71(4)(c)) to offer any person immunity from prosecution for any offence if they think it is appropriate to do so for the purpose of an investigation or prosecution.
Such a “plea deal” approach to investigations - utilising so-called “supergrass” or “flipped” witnesses to provide inside information where possible, has long been a mainstay of US enforcement culture. S.71 SOCPA deals, however, have been few and far between in this jurisdiction since the provisions came into effect. Part of the obstacle remains the relative lack of prosecutorial discretion in the UK, where “back-room deals” are frowned upon by a staunchly independent judiciary.
The agreements often hinge on the willingness of the enforcement body “to make the first move” – showing impetus to agree the outline of a deal in order to incentivise the suspect to give up the relevant information. The success of such an initiative will depend not only on juries but on the readiness of the agency to adopt a more cooperative approach to investigations - positive signs exist that the SFO is willing to back Osofsky’s rhetoric with action. Some structural barriers remain, however, with comparatively low sentences for white collar offences giving UK prosecutors less “stick” than their US counterparts.
A more ambitious American adoption would be the mooted utilisation of active wiretaps in UK white collar cases. Whilst wiretaps can act as powerful information-gathering technique if combined with “flipped” witnesses, such techniques have been typically reserved for the infiltration of organised criminal gangs, and significant legal barriers remain to more widespread use. The SFO may instead seek to work alongside the National Crime Agency, other specialist agencies and the police - pooling resources in pursuit of a similar outcome.
Looking to 2020
There has been some suggestion that 2019 signalled a gradual withdrawal from the SFO – shifting away from taking on large blue-chip corporates and instead renewing their focus on so-called “investor or consumer-led” targets. The recently opened investigation of Patisserie Valerie and London Capital & Finance are cited as evidence for this new restrained approach, which is less likely to result in high profile, difficult trials or test the patience of the government amidst a post-Brexit Britain keen to attract investment.
Whilst the agency will no doubt have to pick its targets carefully in the coming years, a simplistic narrative of retreat from big fights – back to an era of restraint and civil recovery – should be resisted. The SFO will continue to adapt its processes and culture to meet the challenge of the 2020s, but the agency’s ongoing portfolio of cases portrays a willingness to take on big companies and high-profile individuals where the evidence exists.
We can expect these cases to be built through growing technological innovations and a steady evolution towards a co-operative style of prosecution. This will continue to utilise deferred prosecution agreements, whilst wielding immunity provisions where possible to expand the agency’s inside knowledge of complex business operations. It will also seek to use inter-agency cooperation to further intelligence sharing and evidence gathering, including abroad with the SFO’s counterparts in the OECD and the European Union after Brexit. Going forward, the SFO may appear less confrontational than at points in the past few years, but companies should not mistake understatement for disengagement.