SFO: review of 2021 and outlook for 2022
That is not to say that convictions have been left entirely by the wayside; the SFO also capped off the year with a corporate conviction in one of its longest running investigations, a case that demonstrated the advantage to negotiating with star witnesses to provide evidence.
Nevertheless, the failure to prosecute individuals associated with corporates who have agreed DPAs is a trend that continues from previous years; whilst the DPA regime continues to expand, the number of criminal cases on the SFOs books has almost halved in the past three years. Meanwhile, the agency has experienced courtroom challenges to its investigatory powers, with implications for its ability to conduct investigations on a global scale.
Below we recap the SFO’s highlights, and lowlights, of 2021 and consider what may lie ahead in 2022.
SOCPA and cooperation
2021 saw the SFO crystallise success in its approach to using co-operators to “crack open” key cases. Lisa Osofsky has previously discussed a desire to adopt American methods of using insiders on high profile cases to provide important evidence for the SFO to make its case. Whilst the notion that the SFO would start using wire-tapped informants to provide evidence in corporate crime cases remains unlikely, last year has demonstrated the role that co-operation may have to play in securing corporate convictions, as Petrofac Limited pleaded guilty to seven separate counts of failure to prevent bribery under section 7 of the Bribery Act 2010.
Key to the SFO’s evidence was the co-operation of a key individual, inside Petrofac’s business, David Lufkin, who assisted the SFO in understanding how bribery was conducted and what the most relevant documents for the SFO’s case were. Lufkin had entered into an agreement under section 73 of the Serious Organise Crime and Police Act 2005 (SOCPA) in 2018. An agreement under section 73 offers a defendant who has provided assistance to an investigator or prosecutor a reduction in their sentence, on the condition that they also enter into a guilty plea.
The advantages of being able to utilise a SOCPA agreement in this case are clear. In what was a large and complex case, Lufkin’s co-operation was key and was able to help the SFO identify evidence and provide cogent explanations of the various issues involved. This co-operation enabled the SFO to expedite its investigation and ensure that it could put together a coherent case, which ultimately resulted in the corporate pleading guilty to offences. For Lufkin, what may otherwise have been a seven-year prison sentence was ultimately reduced to a two-year suspended sentence, to reflect the co-operation given and his admission of guilt. However, it should also be noted that he did not at any point have a guarantee that his sentence would be suspended, and the process has involved several years of personal uncertainty until the outcome of the sentencing decision. Lufkin also faced confiscation proceedings and has been ordered to pay over £140,000, following a hearing at Southwark Crown Court.
The success of a SOCPA agreement in this case may be a signal that the SFO will look to utilise this legislation to pursue complex cases in future, given the significant value that co-operation from key individuals can have for the SFO’s cases. However, for individuals that may have been caught up in wrongdoing, whilst reductions in sentences are a clear advantage to co-operation with investigators, the hurdles to settling a SOCPA agreement remain high, and the potential uncertainty of the process does not offer any clear conclusion as to what the best cause of action for individuals may be. Lufkin may not have been sent to prison, but he has paid a heavy price both financially and to his reputation.
DPAs and individual prosecutions
The success of future SOCPA negotiations for the SFO, however, will depend in large part on its ability to hold a credible threat of prosecution over key individuals. Despite the plea agreement with Mr Lufkin, and other isolated successes – such as the conviction of an executive at SBM Inc, the fourth conviction during the SFO’s investigation into the Unaoil bribery case – this continues to be an area in which the agency has struggled. The recent overturning of the conviction of Ziad Akle, a former Unaoil employee, is the latest in a series of setbacks when it comes to prosecuting individuals. Mr Akle was originally sentenced to a five-year custodial sentence in 2020 for his role in conspiring to bribe officials in order to secure oil contracts. However, in December his conviction was quashed after the Court of Appeal found that the SFO had not properly complied with its duty of disclosure, failing to provide documents to the defence that would have allowed Mr Akle to properly run his case and in doing so undermining his right to a fair trial. This case has refocused concerns about the SFO’s ability to secure convictions against individuals in key cases.
In particular, the SFO has received criticism for failing to convert its success in securing DPAs against companies into the prosecution of individuals concerned in the conduct set out in the DPA. The agency has now secured 12 DPAs, with three agreements added in 2021; a settlement with Amec Foster Wheeler Energy Limited regarding the use of corrupt agents in the oil and gas sector, and two separate DPAs for bribery offences which remain subject to reporting restrictions. This continued turnover of DPAs indicates that the long-touted “Americanisation” of UK corporate crime enforcement – further emphasised by the hiring of ex-US federal prosecutor Osofsky to lead the agency in 2016 – has borne fruit, as a succession of headline-grabbing agreements demonstrate the SFOs ability to police corporate crime and recover funds for HM Treasury. From those twelve DPAs, however, the agency has yet to secure a single consequent prosecution of an individual involved in the conduct.
In an acute illustration of the problem, the SFO’s prosecution of two former executives of Serco Geografix Limited collapsed amidst disclosure failings in April, two years after the SFO had reached a DPA with their former employer. The lack of individual prosecutions implies that, in adopting the DPA regime from the US, the UK may also have adopted some of its longstanding weaknesses, particularly the lack of evidential scrutiny regarding the stated wrongdoing in question. A key benefit of a DPA for companies is that it allows them to draw a line under the conduct and move on, whilst the key benefit for the SFO lies in its ability to garner significant fines without facing a contested trial. The shared interest of both parties is such that the key evidence in the case need not necessarily meet the standard of a typical jury trial in order to facilitate an agreement, and such evidential flaws have been exposed in the subsequent failures to convict individuals for substantially the same wrongdoing that the companies in question have already acknowledged in their DPAs with the SFO.
A global enforcement agency?
The successes that the SFO has experienced last year do include the conclusion of investigations of a global nature, whether through settling DPAs or in securing the high-profile corporate conviction in the Petrofac case. A key feature of this recent record is the extra-territorial scope of the Bribery Act, which has allowed the SFO to successfully conduct investigations relating to more complex cross-border corruption cases.
However, that is not to say that there have not also been challenges to the SFO’s ability to exert influence in international investigations. In February the Supreme Court ruled that the SFO had overreached its powers by issuing a notice for a US incorporated company to produce documents in its possession, pursuant to section 2(3) of the Criminal Justice Act 1987 (CJA). Section 2 CJA grants the SFO its key investigative powers, including the power to compel a person to answer questions, to produce certain documents and to apply for a search warrant.
In this case, the SFO had begun an investigation into the UK subsidiaries of US engineering company KBR, Inc and when informed that those UK subsidiaries did not hold certain documents but that those documents may be held by the US parent company, the SFO issued KBR, Inc with a notice under section 2 CJA. KBR, Inc challenged the section 2 notice and the Supreme Court ultimately found that there is nothing in the CJA to rebut the presumption that the statute does not apply extra-territorially, not least as there is already a mutual legal assistance agreement between the US and UK for obtaining evidence outside the jurisdiction.
This decision represented a set-back for the SFO’s aim to be a serious global enforcer with broad extra-territorial powers and could hamper its ability to be able to efficiently obtain evidence in complex international investigators, forcing it to utilise the slower mutual legal assistance avenue for requesting documents. As we begin 2022 it will be interesting to see whether amendments to the CJA or new, broader investigatory powers will be at the top of the SFO’s wish list.
The SFO in 2022
In early December, Osofsky gave a speech in which she explained that in future the SFO will make more use of its authority to seize assets under the Criminal Finances Act 2017 (CFA). To date the SFO has lagged behind other agencies, such as the National Crime Agency, in using powers under the CFA to seize assets from jewellery to cash from criminals. However, there is now a clear statement of intent to combat criminality through the seizing of criminal assets.
Osofsky has also previously expressed a desire to reform section 2 powers to allow the SFO to use them prior to opening a formal investigation in fraud and domestic bribery cases. Any reform to section 2 powers advocated for by the SFO would now surely also include broader extra-territorial application for those powers. However, at a time when the legislature is still pre-occupied with combatting the Covid pandemic, it remains to be seen whether such reform is a wish that can be fulfilled any time soon.
When writing this article last year, we estimated that a substantial area of work on the horizon for the SFO would be Covid related fraud and misconduct. Writing one year later, whilst the ongoing Covid situation remains uncertain, the first indications of major misconduct and wrongdoing during the Covid crisis have started to come to light. As we move forward in 2022, it shall be interesting to see the extent to which the SFO engages with such conduct and how the scope of its investigations will develop.