Michael West assesses the prospects for the agency after settlement of the Tchenguiz claims
He was always going to have a painfully full in-tray on taking over as head of the troubled Serious Fraud Office (SFO) a little over two years ago, but even against that context, the previous 12 months must have looked something like an annus horribilis to David Green QC. Lows during this period saw the Public Accounts Committee issue trenchant criticism of the body, important investigation documents misplaced and the chaotic collapse of the trial against Victor Dahdaleh.
But the summer at last brought some hope of turning the corner, with the resolution of the biggest issue hanging over from the old regime: the civil claims from the Tchenguiz brothers for a flawed raid in March 2011.
The settlement with both brothers for a combined £4.5m plus £3m in costs did not come cheap but it will be seen as a necessary step, while the SFO also salvaged something from the Dahdaleh investigation with the related conviction of former Alba chief executive Bruce Hall for conspiracy to corrupt. There have also been successes this summer, with the conviction of four former Innospec executives for bribing officials in Indonesia and Iraq.
Green used the SFO’s 2013/14 annual report to highlight his vision for the agency, with a focus on fewer but more complex investigations and those involving greater harm or significant sums of money. Green has also positioned the body more clearly as a prosecutor and investigator rather than a consultative regulatory agency.
Jonathan Kelly, litigation partner at Cleary Gottlieb Steen & Hamilton, comments: ‘He’s sent a strong message that the SFO has gone back to its prosecutorial roots. It has provided a clear sense of direction where sometimes there have perhaps been mixed messages about its role.’
‘Prosecuting serious fraud is never going to be easy. The SFO will be keen to make use of anything that increases their flexibility and their armoury.’
Jonathan Kelly, Cleary Gottlieb
The focus also mitigates a key risk for the agency – insufficient funding. Due to government cutbacks, the agency has been forced to rely on special funds for so-called ‘blockbuster’ investigations which require individual sign-off. Even so, funding remains an issue. The agency planned to spend £31m in 2013/14 but ended up with nearly £20m more. However, it is having to plan to return to around £37m for 2014/15.
The agency has also long struggled to retain good staff given relatively low salaries, a problem aggravated by the hiring spree in white-collar crime by many law firms in recent years. In response, Green is attempting to set up long-term secondments, similar to the Financial Conduct Authority, to plug the gap.
While many practitioners feel Green’s leadership has restored the SFO’s purpose, Barry Vitou, a partner at Pinsent Masons, sums up a common view in noting ‘there are still a number of milestones to pass’.
Chief among these is securing a corporate conviction under the 2010 Bribery Act and the use of Deferred Prosecution Agreements (DPAs), the controversial model of plea bargaining that is central to the US approach of securing sanctions for corporate wrong-doing.
Aaron Stephens, partner at Berwin Leighton Paisner, says: ‘DPAs may only be viable for offences under section 7 of the Bribery Act [institutional failure to prevent bribery] – that’s when the bar for corporate liability is low enough for a company to engage with the SFO.’
Still, most lawyers believe DPAs are a significant asset to the SFO, with Cleary’s Kelly adding: ‘Prosecuting serious fraud is never going to be easy. They’ll be keen to make use of anything that increases their flexibility and their armoury.’
To this end Green has been pushing for the bar for corporate criminal liability to be further lowered, bringing the UK more in line with the US. Such a move may arise from a government review currently being conducted into the UK’s enforcement of corruption and bribery offences.
The review’s outcome is anticipated this autumn and is touted as creating a consolidated anti-corruption plan, which establishes a co-operation framework for agencies and addresses enforcement.
The SFO had expected to see its position as the lead agency for international bribery and complex fraud cases safeguarded, though a ministerial reshuffle earlier this year is thought to have deprived the body of known political support. There is also the complication of the 2015 general election.
Should it remain, the agency expects to benefit from tougher sanctions under new sentencing guidelines from October 2014. But without successful prosecutions, the new guidelines will have little deterrent. Vitou says: ‘The big stick will be when a corporate is prosecuted under the new guidelines. But the real issue is not sentencing, it’s enforcement.’
Ultimately, the measure of success is always successful prosecutions. There are a number of high-profile ‘blockbuster’ investigations underway, including Rolls-Royce, and Barclays and Qatar, while criminal proceedings have started against Alstom.
The biggest test will be the Libor cases, which will see the first case, which is against Tom Hayes, a former trader at UBS and Citigroup, go to trial in January 2015. It is an archetype of the kind of complex cases that Green is pushing the agency towards. Opinion among City lawyers is strongly divided on whether the SFO has the skills and resources to humble major banks.
The high stakes involved demonstrate the cross-roads the body finds itself at – still mired in controversy and questions over its future but now having more powers, a string of high-profile cases to pursue and a potentially central role to play in a tougher enforcement regime in the UK. For Green the stakes couldn’t be higher.
michael.west@legalease.co.uk