Under the sword

Tom Baker assesses attempts to revive the flagging Serious Fraud Agency amid a fractious political debate

It is fair to say that David Green QC took over the Serious Fraud Office (SFO) in 2012 at what was, even for the frequently beleaguered agency, a low ebb. The good news is the consensus among hardened white-collar crime specialists is that the veteran silk has had considerable success turning around a body derided as toothless and operationally slack. The bad news is that the biggest remaining sceptic of the SFO happens to be the prime minister, with Theresa May having gone into this year’s general election with the pledge to disband the agency, rolling it into her own creation, the National Crime Agency (NCA).

The policy was met with derision in legal circles. One City partner sums up the view of many: ‘I was disappointed to see it in the Conservative manifesto. When the country is facing some of the most challenging issues since the war, the SFO did not seem like something that needed to be on the agenda.’

Such scrutiny is all the more uncomfortable considering the SFO was already the subject of an unfinished Cabinet Office review. Claire Shaw, Keystone Law white-collar specialist and former SFO prosecutor, notes the detrimental effect: ‘If you keep hanging the sword of Damocles over the SFO, no-one is going to take it seriously.’

‘When Green came in, he made it clear from the start: “We are a prosecution agency.”’

As it is, June’s election threw up more uncertainty and a probable reprieve, with a severely-weakened May losing her parliamentary majority and a lack of support from Conservative figures to push through the SFO’s final chapter; plans to abolish the 29-year-old body were notably absent from the Queen’s Speech on 21 June.

That allowed the SFO to make good on the dividend of a run of high-profile plea deals and convictions it has secured in recent years. And on 20 June the agency announced its boldest move: a high-stakes criminal prosecution of Barclays and four former executives in the wake of a long-running investigation into a funding deal struck at the height of the financial crisis.

Will it be enough to secure the agency’s future and Green’s reputation?

‘A prosecution agency’

If there is one certainty around Green’s directorship, it is that he took the SFO in a very different direction to predecessor Richard Alderman, who put less emphasis on prosecutions. After relinquishing leadership to Green in 2012, Alderman appeared before the Public Accounts Committee in 2013, where he was criticised for running the SFO in a ‘sloppy’ and ‘slovenly’ way. Committee chair and Labour MP Margaret Hodge described Alderman’s conduct as ‘shocking’ over three generous severance packages given to colleagues without Treasury approval. The agency was regularly in the pages of Private Eye in well-briefed and highly-critical reports.

One barrister, who has prosecuted for the SFO, says that ‘people were really down under Alderman. The SFO was almost reduced to an advisory body – it was farcical. When Green came in, he made it clear from the start: “We are a prosecution agency.”’ Shaw, meanwhile, argues that Alderman’s history at HMRC instigated a ‘settle-at-all-costs culture’.

A settlement culture certainly looked out of step with political realities in the wake of the banking crisis and the subsequent disclosure of widespread rigging of wholesale interest rates, when the pressure to proactively combat corporate malfeasance ramped up dramatically.

But it was the disastrously botched raid in March 2011 on property investors Robert and Vincent Tchenguiz, who subsequently sued the agency for £300m, which became a lightning rod for the agency’s many critics. (Green rapidly dropped the Tchenguiz investigation on assuming office and settled the matter out of court in 2014.)

Certainly, Green was to face setbacks, including misplacing 32,000 pages of evidence in a case against BAE Systems and a continued struggle with budgetary constraints, but he also helped institute a more robust stance from the body.

During his tenure, the SFO has taken on ambitious investigations against big corporates like Barclays, GlaxoSmithKline, Rolls-Royce and Tesco, and secured several high-profile criminal prosecutions. Funding constraints were at least eased, with additional ‘blockbuster’ funding awarded to take on specific matters, such as its investigation into Libor manipulation.

‘Green’s legacy is bigger than DPAs. He’s achieved big wins and leaves it much more secure than when he began.’
Stephen Parkinson, Kingsley Napley

In some regards, Green was fortunate. Matt Getz, white-collar crime partner at Boies Schiller Flexner, notes the benefit of legislative powers not available to his predecessors.

For one, the introduction of the Bribery Act, which came into force amid some controversy in July 2011, gave the body far greater scope to pursue corporate wrongdoing. By a similar token, the trend of regulators not only taking a tougher line on enforcement but increasingly co-operating across borders, provided a more hospitable environment for its work.

Also hugely significant was the 2014 introduction in the UK of deferred prosecution agreements (DPAs), corporate plea deals based on the US model of tackling corporate excess. Moreover, new sentencing guidelines have also enabled Green to impose much higher fines on corporates.

But while he had a following wind many give the veteran barrister, who clearly went out on a limb with this prosecution-driven strategy, considerable personal credit. Notes Kingsley Napley head of criminal litigation Stephen Parkinson: ‘He’s restored morale in the SFO. The agency looked like it lacked ambition previously. He’s been bold in going for Rolls-Royce, Barclays and GlaxoSmithKline. He’s aimed for cases that would have been very difficult for some other investigators.’

By consensus morale has been much improved and, while the SFO has long had issues in paying enough money to attract experienced fraud specialists, the high-profile work and team spirit means that it retains many talented individuals in its 369-strong workforce (Green was also astute at securing secondees from the many law firms keen to brush up their white-collar credentials, with specialist contract staff helping to substantially swell the agency’s staff roster to over 500 in the 2016/17 financial year). Overall spending with additional monies from the Treasury and fines has boosted its resource, with total operating expenditure for 2016/17 hitting £51.8m, against £47.9m the previous year.

Indeed, huge demand for former SFO hands at top law firms has bolstered the attraction of working at the agency. Joint head of bribery and corruption Ben Morgan, for example, joined Freshfields Bruckhaus Deringer as a partner earlier this year. Morgan’s SFO role carried a salary banded as £85,000 to £90,000 for 2015/16. He moved to a firm where even junior partners earned over £350,000.

The primary reservation from the legal community has been that an unwillingness to engage with suspects under Green has seen the agency strike an increasingly antagonistic line with its investigations, which many believe undermines the drive for companies to self-report potential wrongdoing. As a related issue, a number of challenges by the SFO to legal privilege – most prominently in its investigation of Eurasian Natural Resources Corporation – is viewed as counterproductive by many lawyers. ‘It’s problematic,’ notes Quinn Emanuel Urquhart & Sullivan partner Robert Amaee. ‘I was at an event with David recently where he was challenged that corporates will now stop self-reporting. You could see from the look in his eye that he conceded it is an issue.’

Yet there is no doubt that Green’s advocates far outweigh his critics in the profession.

Much more secure

If one of the lingering criticisms of Green’s run has been a lack of high-profile prosecutions, 2017 has seen the SFO attract more headline-friendly cases, notably in cases involving Barclays and Tesco. In the case of Tesco, three former executives have been charged over a 2014 profit misstatement, in a trial that started in September.

Meanwhile, Barclays and four of its former senior executives (including ex-chief executive John Varley) have been charged in relation to a £6.1bn cash injection at the height of the financial crisis from Qatari investors. A conviction against Barclays would act as a rejoinder to those citing the lack of cases emerging from the banking crisis.

The SFO’s prosecution rate has been contentious for some, with Serjeants’ Inn Chambers’ Chris Daw QC noting that only 13 individual defendants were convicted between April 2016 and March 2017. Jones Day partner Glyn Powell, however, dismisses this assertion: ‘The SFO does not only pursue cases that it is certain it can win. It would be unusual for it to have a 100% conviction rate.’

‘The SFO needs someone with inspirational leadership qualities.’
Claire Shaw, Keystone Law

The FTSE 100-sized caveat to that assessment is that poor results from either case – in particular the Barclays prosecution, which came after a five-year investigation – would be a substantial knock to the SFO’s reputation.

The use of DPAs remains controversial in some quarters. Some critics argue it dilutes the agency’s integrity as a prosecutor, while Green’s public comments this year on the SFO’s £460m contribution to the Treasury through such DPAs grates with some advisers. But for most in the profession, such tactics are simply a practical response to the challenges of pursuing wrongdoing in the boardroom.

‘A corporate is not an individual,’ notes one partner at a leading US firm. ‘The only thing we can do to a corporate is drive it out of business or fine it. DPAs are looking like an incentive to me. English-listed companies are much better behaved than before.’

The SFO’s hand will also soon be further strengthened as the 2017 Criminal Finances Act comes into force this autumn. The act, which substantially toughens powers to tackle money laundering and tax evasion, has been cited as the largest expansion in corporate liability since the 2010 Bribery Act and another major weapon in the SFO’s armoury.

Having had his first four-year term extended by two years, Green will stand down in April 2018, when he will have no shortage of lucrative offers from private practice.

The body’s well-regarded general counsel Alun Milford is viewed as one possible replacement, as is bribery and corruption head Matthew Wagstaff, both key early Green appointments from The Crown Prosecution Service.

There will be some challenge to recruit from private practice for a role carrying a salary of £175,000. ‘Milford would be the safe bet,’ notes Parkinson. ‘He’s been involved in all of the big cases and would be a safe pair of hands. It’s going to be hard to attract external people to the role without reassurances over the future of the SFO.’ While himself cited as candidate, Parkinson notes drolly: ‘That moment passed 14 years ago when they didn’t select me.’

Newly-ensconced at Freshfields, Morgan says he never considered a run at the job, adding: ‘It takes a certain type of person to handle the public scrutiny.’

Shaw says that the SFO’s political spotlight means it requires a certain kind of leader, specifically ‘someone with real inspirational leadership qualities, someone who’s prepared to say: “I’ve got your back.” It [the SFO] definitely needs a great leader to galvanise everybody’.

On Green’s record, Morgan concludes: ‘He has been a very stern hand on an agency that needed it at the time. His legacy has been to shore up the SFO and make it more seaworthy.’

Parkinson goes further. ‘Green’s legacy is bigger than DPAs. He’s achieved some big wins and leaves it much more secure than when he began. He’s been bold.’

Perhaps the greatest achievement for the SFO is that it has helped contribute to an environment in which sharp practice and corporate wrongdoing is taken more seriously in British boardrooms. Much of that was thanks to acting on the mood of the age, but seized it was. Barring more political upheaval, Green’s successor is set for a strong inheritance.

tom.baker@legalease.co.uk