A new year note on the SFO: Review of 2020 and outlook for 2021
However, the SFO’s failure to prosecute individuals associated with corporates who have agreed DPAs was a trend which continued from 2019. And the impact of the Covid-19 pandemic on the organisation was marked.
Below we recap the SFO’s highlights, and lowlights, of 2020 and look ahead to what 2021 might bring.
Covid-19 lockdown hit hard
The lockdowns and shift to remote working necessitated by the Covid-19 pandemic appeared to hit the SFO hard this year. Anecdotal evidence suggests a marked slowdown in the pace of investigations. Whilst other agencies, notably the FCA, appeared to get back into their stride more quickly following the initial lockdown in March/April 2020, the SFO appears to have struggled to make progress on its caseload. For a considerable period, SFO interviews were suspended as no satisfactory alternative to in-person meetings was found and the processing of physical evidence was halted.
This slow down comes on the back of a 2019 post-legislative scrutiny report by members of the House of Lords Committee on the Bribery Act to determine whether the Act is achieving its desired purpose. This report described the SFO as having “excessive delays” in relation to some cases and “slow” progress more generally. The lockdown will have done nothing to alleviate those issues.
Despite these apparent concerns, the SFO described its response to the pandemic as a “success” in response to HM Crown Prosecution Service Inspectorate’s review of the SFO’s immediate response to Covid-19. Reference was made to positive steps taken to progress cases and the SFO’s work to keep staff updated and to promote well-being as an organisation.
But Deferred Prosecution Agreements continued to roll in
Although most things were suspended in 2020, the SFO’s appetite to secure DPAs was not. Three DPAs were concluded in the year – more than has been concluded in any previous year. The year opened with the SFO agreeing a record-breaking DPA with Airbus, following a multi-jurisdictional investigation. In the UK alone, Airbus agreed to pay a fine, disgorgement of profits and costs of £830m; part of a worldwide €3.6bn settlement involving France and the United States.
In July the next DPA was entered into with G4S relating to frauds arising from G4S’ provision of tagging services to the Ministry of Justice. The SFO had form in this area as a DPA was entered into in 2019 with Serco Geografix Limited in relation to the same subject matter. Two notable features of the G4S DPA were the lower level of discount applied to the financial penalty - reflecting G4S’ delayed cooperation with the SFO’s investigation, and the high level of external scrutiny required by way of an independent reviewer to assess G4S’ corporate renewal programme. This latter requirement, essentially being the appointment of a US-style monitor, was included on account of G4S and its parent company’s exposure to government contracts.
The final DPA of the year came in October after a five-year investigation into Airline Services Limited for paying bribes to secure contracts. This wasn’t quite the blockbuster DPA that heralded the new year, with a total monetary penalty of only £3m. This low penalty was a result of the relatively low level of benefit received by the business due to their misconduct and also their very high degree of cooperation, which included a limited waiver of legal professional privilege. The company’s compliance procedures were found to be “woefully inadequate” and the criticism and ensuing DPA serve as a reminder of the importance of having robust policies and procedures in place in relation to financial crime risks.
In an address to the Cambridge Symposium on Economic Crime in September, Lisa Osofsky, the Director of the SFO, described “the unique leverage DPAs give us to drive better corporate citizenship”. It therefore comes as no surprise that the SFO has continued to place emphasis on the conclusion of DPAs throughout 2020.
As well as three DPAs, the SFO also published guidance on how they approach DPAs and how they engage with companies where a DPA is a prospective outcome. The guidance did not represent a significant change from existing practice but provides a helpful steer on the SFO’s policy in respect of DPAs: including on what cooperation looks like in practice.
DPAs are likely to remain a key feature of the SFO’s modus operandi and we expect more in the pipeline in the coming year.
And the individuals?
The continued success of securing DPAs has not been matched by success in prosecuting individuals at the affected corporates. No individuals from either of the SFO’s blockbuster DPAs: Rolls-Royce and Airbus, have been prosecuted. In respect of Airlines Services, the SFO have reportedly confirmed that they will not pursue prosecutions against the individuals involved.
Whether the trial of two Serco executives or the charging of three former executives of G4S in September will buck this trend is yet to be seen. The G4S trial is currently set for January 2022 and whilst the Serco trial which was due to start later this month has already been shunted into February, we wait to see whether lockdown or Covid-19 safety fears jeopardises that court date even further.
One SFO investigation which has resulted in convictions of individuals is the Unaoil investigation; albeit not on the back of a corporate DPA. Three Unaoil-linked defendants were convicted in 2020 and sentenced to between three and five years in prison.
Corporate criminal liability
Arguably the SFO’s biggest case of 2020 was the trial of three senior Barclays executives, being the first and only trial of bank executives for misconduct during the 2008 financial crisis. The three men were charged with conspiracy to commit fraud in relation to allegedly misleading investors and the markets over capital raising arrangements in 2008.
All three individuals were acquitted of fraud in February 2020. The acquittals in May 2018 follow the dismissal of charges against Barclays Bank PLC and Barclays PLC, a rejection by the High Court of the SFO’s attempt to re-instate those charges, a refusal of permission to appeal to the Supreme Court and the dismissal of the case against the former CEO of Barclays in April 2019.
One of the biggest talking points arising from the case was that of corporate criminal liability and in particular the perceived difficulties in the UK of holding corporates to account criminally. The acquittal in February 2020 of the three executives precipitated the release of previous judgments from the dismissal of charges against the bank. From the judgments, it became clear that the reasoning behind the dismissal of the charges against the bank was that the executives, who included the CEO, did not represent the “directing mind and will” of the bank and therefore the bank could not be criminally liable. This conclusion was based on the fact that the executives could not act with final authority as their actions were subject to the approval of a board committee.
The SFO has been, and continues to be, particularly vocal in its criticism of the UK’s existing rules on corporate criminal liability, consistently maintaining that they hinder the prosecution of corporate entities. During the Barclays trial, Osofsky described the system as “antiquated” and one which was “not at all reflective of today’s world”; sentiments shared by many in respect of this area.
In November 2020 it was announced that the Law Commission would begin a review of the UK’s corporate criminal liability legislation, after the Government instructed the body to examine potential reforms. The announcement of the review follows the “call for evidence” on the reform of corporate liability, put out by the Ministry of Justice in January 2017.
Looking ahead to 2021
2020 has been the year which has like never before taught us that nothing in life is certain. Despite this, we attempt to predict the themes we anticipate will feature in 2021.
In October 2020, Osofsky delivered Future Challenges in Economic Crime, a speech in which she set out her “wish-list” for the SFO. Top of this list was the introduction of a “failure to prevent economic crime” offence. The difficulties in holding corporates to account, as highlighted above, make it almost certain that the SFO will continue to push the case for the introduction of a failure to prevent economic crime offence. This would be along the lines of the existing failure to prevent bribery and failure to prevent the facilitation of tax evasion offences. However, there will be no changes anytime soon as the Law Commission will not be publishing its Options Paper in relation to its review of corporate criminal liability legislation until late 2021.
The remainder of Osofsky’s wish-list contained a desire to have legislation which would allow the SFO to use Section 2 powers before the opening of a formal investigation in fraud and domestic bribery cases and a “tipping off” offence in relation to Section 2 notices. The latter wish would remove the current quandary the agency faces in deciding whether to remain fully covert in their operation or risk potentially prejudicing an investigation through the service of a Section 2 notice.
One area of work on the horizon for the SFO will be Covid-19 related frauds and misconduct. We are confident it will be a question of when, not if, such conduct comes before the agency. However, if the slowdown due to lockdown and the difficulties faced by the SFO with its current case load of investigations and prosecutions is anything to go by, we might be repeating this prediction at the end of 2021.