Distrust, bias and incompetence at the SFO
Partner Shula de Jersey and associate Matt Davies of the economic crime team at BCL Solicitors examine how the Serious Fraud Office got two of its investigations badly wrong
The much-anticipated reports by Sir David Calvert-Smith and Brian Altman QC into failings at the Serious Fraud Office (SFO) in their Unaoil and Serco investigations were published on 21 July. As Lisa Osofsky, Director of the SFO said on their publication the reports “are a sobering read”.
On 26 April 2021 the trial of R -v- Woods and Marshall collapsed at Southwark Crown Court when the SFO offered no evidence. The case concerned the SFO’s prosecution of Mr Woods and Mr Marshall, both former directors of Serco, in relation to allegations of false accounting concerning the provision of electronic monitoring services within the criminal justice system: an investigation which commenced in October 2013. The collapse of the trial followed the discovery of significant disclosure problems with the trial Judge refusing the SFO’s application for an adjournment. In May 2021, Lisa Osfosky commissioned Brian Altman QC “to examine the circumstances, facts and matters which caused or contributed to the disclosure failures” in the case.
On 10 December 2021 the Court of Appeal Criminal Division gave judgment in the appeals against conviction of Ziad Akle and the appeal against sentence for Paul Bond. Both had been convicted of bribery in respect of their involvement in corruption to secure Iraqi oil contracts. The SFO opened an investigation into Unaoil in July 2016. The Court of Appeal overturned Akle’s conviction on the basis that the SFO had failed to comply with its disclosure obligations and the trial judge had wrongly refused to order further disclosure with regard to the extent of the SFO’s contact with David Tinsley, a so-called ‘fixer’, who approached the SFO and, in the ensuing dialogue, indicated that he might be able to assist in persuading persons charged by the SFO to plead guilty; he did not, however, represent those people (and the SFO knew they were represented by lawyers in the UK). Paul Bond subsequently had his conviction overturned in March 2022 with another defendant, Stephen Whiteley’s conviction being overturned in July 2022.
Following the Court of Appeal’s judgment, the Attorney General issued a statement that she was “deeply concerned about the findings in the judgment” and commissioned an independent review of the SFO’s failings identified in the case.
Calvert-Smith Report – SFO handling of Unaoil investigation
The Calvert-Smith review looked beyond the Court of Appeal’s decision, including a consideration of the SFO’s policies, practices, procedures and related culture, but only as these were relevant to the Unaoil case.
Quality assurance was an area of weakness in the SFO’s handling of the Unaoil case. Ownership and accountability were unclear and there was no internal challenge of the key issues. Record keeping was insufficient and disclosure poorly managed. There was also inadequate resourcing and other cases competing for attention within the investigation team.
The contact with Mr Tinsley (a former US Drug Enforcement Administration official put in touch with Ms Osofksy by one of her former colleagues in the US) was a priority for SFO senior management rather than the case team, who were more sceptical of his involvement with the investigation. There had been tensions between the US and UK investigating agencies in the Unaoil investigation (now well-documented in the context of employment proceedings brough by Tom Martin, the Unaoil case controller, against the SFO following his dismissal) which meant that the SFO senior management, including Ms Osofsky, were keen to build bridges with the US. The review found a lack of independence or control over the relationship with Mr Tinsley. Although now since amended, the SFO’s Operational Handbook did not cover interactions with non-legal representatives – so there was a lack of guidance on how the organisation ought to have handled contact with Mr Tinsley.
The Report concluded that four key changes were required to ensure such failures do not happen again:
- Establish effective case assurance processes.
- Have clear routes for the case team to voice concerns about cases, ensuring Heads of Division are not side-lined.
- Embedding of regular assessments and challenges to case strategies, alongside clear determination of case resources.
- Interactions which could affect disclosure obligations must be recorded and there must be stricter adherence to the Operational Handbook.
The Report made a total of 11 recommendations which in its response to the Report, the SFO accepted.
Brian Altman QC’s Report – collapse of Woods and Marshall v R
Mr Woods and Mr Marshall were charged with fraud by false representation in respect of Serco’s contract to provide electronic monitoring services to the Ministry of Justice. The defendants were accused of misrepresenting financial models covering costs incurred in delivering the services. Serco had two years earlier concluded a DPA with the SFO in which it had accepted criminal liability.
The prosecutions collapsed before Mrs Justice Tipples at Southwark Crown Court in April 2021 because it was found, during the trial, that there were significant disclosure problems, including a failure to disclose or even search for certain documents potentially favourable to the defence. This led to the SFO applying for a lengthy adjournment which, when refused, meant the SFO was forced to offer no evidence against both defendants.
The terms of reference for the Review included: reviewing the roles, responsibilities and skills of the case controller, disclosure office, counsel and the disclosure reviewers; reviewing the SFO’s compliance and methodology documents; understanding the failures in the disclosure review process and seeing what the wider disclosure issues were.
The Report found that document reviewers were overloaded with detail and lost sight on what the real issues of the case were, and guidance documents were of little practical help. The Disclosure Officer was inexperienced, however finding more experienced Disclosure Officers was challenging. Remuneration for disclosure reviewers was unreasonable and ought to be increased. There was also too much pressure on case teams, highlighting a need for both more resourcing and better pay.
There was no quality assurance review conducted after 2019. As the SFO’s case and arguments developed, ongoing QA would have ensured the most pertinent documents were captured. The Report described this as “a serious systemic failure”.
The SFO did not sufficiently engage with the defence in the disclosure process, and this may have been because document reviewers did not fully appreciate their role. Despite several internal guidance documents on disclosure, it appeared to be the case that they were not practical and ended up overwhelming reviewers.
The Report made a total of 18 recommendations which the Attorney General and SFO have accepted. In its response, the SFO committed to increasing its training and pay for disclosure reviewers and that it has bid for additional funding in technology to assist with its document review and evidence handling. Its management of disclosure is a recurring theme through the recommendations and the SFO has undertaken a project to review how it hires and retains disclosure officers, as well as how existing staff can be trained up for this role.
The SFO has also committed to updating its Operational Handbook, with new policies or guidance to be issued by the end of the year. Interestingly, the SFO implies through its responses that it cannot always engage with the defence in the disclosure process because there is a lack of reciprocity.
What of the future?
These Reports criticised the SFO for various reasons, with some overlap, yet together paint a picture of an organisation in some distress. There are essential characteristics of good management one would expect of an organisation investigating and prosecuting serious and complex financial crime including good record-keeping, appropriate resourcing, communication, fairness, independence and quality assurance. The Reports outlined how these characteristics were lacking, and at times altogether absent, in two of the SFO’s largest investigations. Both reports refer to underlying issues with the disclosure process which hampered both investigations, such as inadequate supervision of the case team, a lack of resources and insufficient compliance with internal policies and procedures.
The Calvert-Smith Report refers to tensions in the relationship during the Unaoil investigation between the SFO and the US DoJ and indicates that the sequence of events suggested that senior managers in the SFO were in 2018 anxious to find ways to “re-establish collaborative relationships” with the US DoJ. In December 2021, the Biden administration published its strategy on countering corruption which contemplates greater co-operation with partner countries through joint investigations and co-ordinated prosecutions. Indeed, there have been a number of recent successful collaborations between the SFO and the DoJ including the Airbus and Glencore bribery investigations which resulted in a global DPA with Airbus in 2020 and guilty pleas from Glencore earlier this year. In October 2019 the UK and US signed what was described as an “landmark data-sharing agreement” under the US Cloud Act and UK Crime (Overseas Production Orders) Act which will allow investigators to “gain better access to vital data to combat serious crime”. It would seem that the collaborative relationship is on the road to recovery.
In its most recent Annual Report published in July this year, Ms Osofsky describes 2022 as the “year of the trial” with a total of eight trials throughout the year, six relating to fraud allegations and two relating to bribery and corruption allegations. Several of those have already concluded resulting in a number of convictions and three trials are due to start at Southwark Crown Court in September. The Annual Report indicates that the SFO has 130 active cases and 43 new cases opened in the last financial year, so few would deny that the SFO has its work cut out in the coming months.
The SFO’s remit is to investigate and prosecute serious and complex fraud and corruption cases. Such cases inevitably involve huge volumes of material and a properly conducted disclosure process is integral to the fairness of proceedings which the SFO chooses to bring. In March 2022 before the Justice Committee, Lisa Osofsky appeared to be advocating for a revision to the disclosure regime including what appeared to be criticism of defence teams for not engaging early enough in the process stating that “we have rules that do not require them [the defence] or even encourage them, to engage with us”.
The Altman Review found that the defence teams in that case had “clearly engaged with the SFO in order to ensure that material that passed the disclosure test was disclosed and was disclosed at the earliest time possible” and yet key material was not disclosed. As the Altman Review recognises disclosure is a two-way street and the SFO should encourage and engage with the defence in the disclosure process. A change to the long-established disclosure rules and obligations however is not the solution, indeed neither Review recommends such a change. As is clear from both Reports, what is needed is investment in technology and sufficiently trained and properly supervised people conducting the disclosure process at the SFO.
SFO must learn from its mistakes
The Government on the one hand has accepted the recommendations to ensure that lessons are learnt with the Attorney General commenting “this remains a priority for the Director and me”, yet with the other hand has asked civil service departments, including the SFO, to forecast the impact of a 20-40% reduction in headcount. It is difficult to see how the SFO can implement the reforms and recommendations it, and the Government, has signed up to in its responses to the Reports, if it has reduced resourcing to do so.
Ms Osofsky’s five-year term as Director of the SFO is due to end in August 2023. Thoughts are no doubt moving towards who her successor will be although in February she told MPs that she had not decided whether to seek another term. How the SFO get on with its trials in the next six months may provide an opportunity for it to put its past failings behind it, but despite its recent successful convictions following contested trials (Global Forestry, Harlequin and Axiom investigations), there has still yet to be an individual convicted following a Deferred Prosecution Agreement with the corporate entity.
The SFO will remain under Government scrutiny with the Attorney General stating that she will be “closely monitoring the SFOs progress and delivery of that plan [of action to respond to the recommendations made] and will provide an update to Parliament in November 2022 and February 2023”. The SFO must learn from its mistakes, but it cannot do so without proper resourcing from Government.
About the authors
Shula de Jersey is a partner and Matt Davies an associate in the economic crime team at BCL Solicitors LLP specialising in business crime and regulation. They have particular expertise in representing individuals in cases involving allegations of complex and serious fraud, money laundering, bribery and corruption.