With deferred prosecution agreements proving a success and the scale of investigations increasing, things have never been busier for corporate crime firms. Anna Cole-Bailey discusses
The consensus among white-collar crime partners is that financial misconduct cases are not going away any time soon. With many investigations historic, they leave deep footprints over time.
And, as the Serious Fraud Office (SFO) continues to make its presence felt in the corporate world, corporate crime lawyers predict more deferred prosecution agreements (DPAs) will be offered to companies under suspicion of wrongdoing.
According to Richard Kovalevsky QC (pictured), head of financial crime at the UK’s largest litigation-only firm Stewarts: ‘Financial crime ultimately has a great effect on the market. There are a lot of people out there who need representation – in addition to which there’s a lot of companies that need representation.’
Lord Justice Leveson, president of the Queen’s Bench Division and the designated judge on several high-profile court cases, including the failed SFO case against Tesco and Rolls-Royce, has been ‘pulling the strings’ behind the enforcement of DPAs despite being initially hesitant.
‘[Leveson] was dead against DPAs to start with and he’s softened,’ says Kovalevsky, while Lisa Osofsky, the SFO’s director who began her five-year term last year, recognises that ‘she’s got to play within the rule envelope’.
Stewarts’ financial crime department launched last year after the firm hired Kovalevsky from criminal set 2 Bedford Row where he practised for 13 years. He made silk in 2003 and his 35 years at the Bar has seen him advise on SFO cases against Unaoil, Eurasian Natural Resources Corporation and Rolls-Royce.
David Corker, founding partner at criminal defence specialist Corker Binning, thinks more fraud cases will appear over the next five years within the public procurement sector, which saw construction giant Carillion collapse in 2018 followed by probes into the behaviour of its directors. Corker’s work has focused on alleged insider dealing, boiler room frauds and misleading the market, advising clients such as JJB Sports and Tesco on SFO investigations.
As the SFO continues to make its presence felt in the corporate world, corporate crime lawyers predict more deferred prosecution agreements will be offered to companies under suspicion of wrongdoing.
‘In the public procurement area we’re going to see the emergence of fraud in the sense that those contractors had a duty to share profits, or to share efficiencies and costs with the government, but they may have gone out of their way to massage their internal records to prevent them having to hand over a slice of their savings to the government.’
Earlier this year the SFO dropped its four-year investigation into Rolls-Royce, which was being investigated over concerns about bribery and corruption, because of a lack of evidence. The company entered into a DPA with the SFO in 2017. Tesco entered into a DPA that same year after admitting to false accounting practices dating back to 2014. But the SFO’s case against three directors at the supermarket chain have since fallen apart because of insufficient evidence.
‘Rolls-Royce must have spawned about 120, 130 cases because, of course, you’ve got to deal with all the directors, all the officers, in all of the jurisdiction,’ says Kovalevsky. ‘Then, you’ve got the Tesco inquiry where there was a whole load of people who never made the cut in terms of charge.’
Earlier this year, former Tesco UK finance director Carl Rogberg was the third director to be acquitted of charges after suffering a heart attack during his first trial, which was then abandoned.
‘At Rolls-Royce you’ve had lots of people who have died or have become really old and so there are timing issues. Let’s say the first judge had got Tesco out to the jury, then, of course, the second trial wouldn’t have stopped. There wouldn’t have been a heart attack and who knows what would have happened,’ comments Kovalevsky. He says the length of time it takes to progress cases to trial can be problematic: ‘You’ve got a corporate that wants to get a resolution and move on, and wants some certainty, and even then it takes between four and seven years. Then you’ve got individuals who get older and can become ill.’
However, he says it is early days for refining investigations: ‘We need some perspective on this,’ he says. ‘If you look at the trajectory in the States, they’ve had the system for a very long time now and it took them 15 years to get going at all. Ultimately, we’re a bit quicker and a lot of this is teething problems.’
Despite calling the SFO’s case at trial against Tesco ‘extremely weak’, Corker says the DPA was a success for the watchdog: ‘It took on a large plc, Britain’s second-largest employer, and extracted £120m from it. It seems it forced Tesco take a different stance to being defiant – Tesco would not have paid a penny otherwise.’
Freshfields Bruckhaus Deringer and Kingsley Napley advised on aspects of Tesco’s investigation by the SFO when it agreed to pay £129m in fines relating to accountancy discrepancies. Freshfields disputes partners Andrew Austin, Ian Taylor and Ali Sallaway provided counsel, while the retailer also enlisted a Kingsley Napley team led by Stephen Parkinson, senior partner and former head of criminal litigation at the firm.
‘Freshfields, in acting for Tesco, was clever with what it did, because it limited Tesco’s real liability to £120m,’ says Corker.
Kovalevsky also notes more investigatory activity by HM Revenue and Customs (HMRC): ‘The tax man seems to have got his mojo back as well. We’re getting a lot of that. They’ve got a real thing against tax schemes and also high-net-worth individuals. I did quite a lot with HMRC on the contentious tax side.’ Last year a woman who spent £16m in Harrods was investigated by the National Crime Agency in the UK’s first ever unexplained wealth order (UWO) and was forced to outline to the courts how she could afford £22m worth of property in the UK.
You’ve got a corporate that wants to get a resolution and move on, and wants some certainty, and even then it takes between four and seven years.
Richard Kovalevsky QC, Stewarts
Kingsley Napley’s head of criminal litigation Louise Hodges predicts that there will be more joint working between investigatory bodies in the UK around UWO investigations, a model used in Europe: ‘Having joint investigation teams means you have individuals and maybe the SFO and the Financial Conduct Authority working together on a particular case and bringing their different specialisations and expertise. But it is likely that UWOs will be used sparingly and I don’t think we are going to see a confetti of such orders being issued. However, in the right cases it is an extraordinarily powerful tool to be used.’
An olive branch
If more DPAs look set to be on the horizon, what does this mean for organisations guilty of financial misconduct? ‘The SFO will shoot itself in the foot if it starts offering DPAs easily to companies that spent a long time before coming round to cooperating,’ says Corker.
‘I’ve had several clients in the past where I’ve said to them, “There’s a problem here, you’re overcharging the customers, you have an obligation to report this,” and they say goodbye. I never hear from them again and they got away with it, they were never prosecuted.’
Hodges adds: ‘Look at the SFO when it set up its whistleblowing hotline. When they first published it, they forgot to put the telephone number on the advert, which I think was one of the most wonderful mistakes to be made.’
According to Corker, DPAs can be an attractive option for businesses. ‘They can be offered despite only minimal investigation by the SFO. The threshold for offering one is extremely low, and of course, if the offer is accepted it becomes very easy for the SFO to gain a result, and really the only issue then is how much the penalty is going to be.’
However, he says the SFO will need to be careful not to ‘dilute the threshold’ to the extent that DPAs are seen as easily available to companies that have not self-reported.
‘There is criticism,’ adds Harry Travers, a partner at BCL Solicitors which specialises in domestic and international corporate and financial crime. ‘Should Rolls-Royce, which didn’t self-report originally, be allowed to have a deferred prosecution agreement or should they be prosecuted? The court approving the DPA has never been asked to consider whether the company is agreeing to an individual’s guilt simply because of commercial expediency.’
See ‘Financial crime and criminal prosecutions in the UK’ by Stewarts