The Serious Fraud Office: What’s on the horizon?

As the SFO operates under the shadow cast by independent reviews, BCL Financial Crime partner Richard Sallybanks and senior associate Anoushka Warlow examine where next for the beleaguered agency. 

It might be fair to describe 2021 as a turbulent year for the Serious Fraud Office (SFO), which over the course of the year:

• saw its prosecution of executives in the Serco trial collapse as a result of disclosure failings, meaning that the SFO continues its track record of failing to secure the conviction of any individual prosecuted after concluding a Deferred Prosecution Agreement (DPA) with the relevant corporate entity, and brings its tally of unsuccessful trials in this regard to four;
• suffered the embarrassment of the Court of Appeal quashing Ziad Akle’s conviction in the Unaoil trial, again as a result of disclosure failings and amidst serious criticism of the SFO’s underlying conduct, including the role of Lisa Osofsky, the SFO’s Director and
• recorded its lowest number of new investigations opened.

Against this backdrop, how is 2022 looking so far?

Unaoil Part 2: Paul Bond

On 24 March 2022, the Court of Appeal quashed the conviction of Paul Bond, one of Zaid Akle’s co-defendants in the Unaoil trial.  Although the decision was widely reported as a ‘fresh blow’ to the SFO, and represents a further setback, the outcome cannot come as too much of a surprise insofar as it arises from the same disclosure failures that resulted in Akle’s own conviction being quashed in late 2021.

Those failures, which have been the subject of widespread criticism, are already the subject of an ongoing independent review being carried out by the former Director of Public Prosecutions, Sir David Calvert-Smith. Much is riding on the outcome of the review.  When probed last month by the Parliamentary Justice Select Committee on the disclosure and conduct failures which led to the quashing of Akle’s, and now Bond’s convictions, Ms Osofsky indicated that she was duty bound not to answer any questions until Sir David Calvert-Smith’s report had been published.

The report is expected in May and is likely to comment not only on the SFO’s conduct and disclosure failures which were central to the quashing of the convictions in the Unaoil case, but also on wider issues relating to the SFO’s policies, practices, procedures, and culture.  The report may well be a painful read for the SFO and it remains to be seen whether its conclusions will result in Ms Osofsky being forced to (or choosing to) step away before the end of her five-year term.

Whatever the Calvert-Smith report finds and recommends, it seems likely that Ms Osofsky will at the least be called upon again to answer those difficult questions which she has so far avoided; she has indicated to the Justice Committee she ‘gladly and willingly’ will do so.  With a separate review (conducted by Brian Altman QC) into the Serco disclosure failures also due to conclude in May, Ms Osofsky may be in for an uncomfortable next session before the Justice Committee.  Indeed, her appearance before the Public Accounts Committee earlier this year, in which the Serco trial featured, led to the solicitors involved in that case writing to the Committee criticising Ms Osofsky for making a number of factual misstatements and commenting that she appeared to have a fundamental misunderstanding of the factors that led to the collapse of the Serco trial.

Whether a change in leadership is the answer to the problems the SFO currently faces is but one issue.  Given the level of scrutiny to which the SFO is currently subject, we may well see the re-emergence, if it ever went away, of the debate about its future as an independent investigating and prosecuting agency or whether it should be subsumed into an existing, or indeed form part of a new agency tasked with the fight against financial crime.

Disclosure reforms: ‘paper rules in a digital world’?

What did come to light during Ms Osofsky’s evidence to the Justice Committee last month was that the SFO had written to the Attorney General seeking reforms to the current disclosure regime, in particular, a new Code of Practice applicable in serious and complex fraud and bribery and corruption cases.  In her evidence, Ms Osofsky stated that the SFO was finding the current disclosure regime ‘especially difficult’ in circumstances where the out-dated framework not only failed to reflect the reality of investigating offences in a ‘data first’ world, but also failed to require or encourage defendants to engage with the disclosure process at an early stage.

Proper disclosure is a crucial part of ensuring that defendants receive a fair trial.  At present, the Criminal Procedure and Investigations Act 1996 (CPIA) governs prosecution disclosure obligations and requires that the defence is provided with copies of or access to all material which is capable of undermining the prosecution case and/or assisting the defence.  Disclosure obligations are ongoing throughout the course of an investigation, and the CPIA and its accompanying Codes of Practice also require that investigators pursue all reasonable lines of inquiry, whether they point towards or away from a suspect.

With significant and increasing volumes of electronic material coming to the SFO during the course of an investigation, it is unsurprising that managing disclosure in serious and complex fraud or bribery and corruption cases is becoming progressively more difficult.  The agency has powers to compel the production of documentation by anyone holding relevant information and section 2 notices, the means by which the SFO exercise these powers, are often widely-drafted, resulting in the receipt and review of vast swathes of documentation that can often go beyond what might be regarded as strictly necessary to conduct a focussed investigation.

It does not follow, therefore, that the blame for the SFO’s recent disclosure failures can or should be laid at the door of the statutory regime or defence conduct.  Many defence practitioners will take umbrage at the suggestion that they are in some way to blame for the SFO’s difficulties and the Home Office’s director of economic crime last week indicated that the Attorney General’s view is that no systemic issues exist, rather “it’s an issue connected to the application of the law, rather than the law itself”.

It has since been confirmed by the Attorney General’s Office that an upcoming report will examine the application of disclosure guidelines across the criminal justice system and its conclusions remain to be seen, but the answer to the difficulties identified by the SFO may best lie in a ‘data first’ solution, and the SFO does rely on artificial intelligence to assist in examining evidence, and not in changes to the disclosure rules which have the potential to prejudice the defence.

“The year of the trial”

In her evidence to the Justice Committee, Ms Osofsky described 2022 as the ‘the year of the trial’, highlighting that there are eight SFO trials due to be heard this year.  Those include the ongoing trials of individuals in the Axiom Legal Financing Fund and Global Forestry Investments investigations, and the upcoming trials of individuals connected to the SFO’s investigations into the Harlequin Group, Balli Group, Greenergy and G4S.

If the SFO can successfully navigate those trials and discharge its disclosure obligations and duties as a prosecutor – and especially if it can secure convictions – that will go a long way to re-establishing some of its lost credibility as an effective prosecuting agency, as opposed to one which is disproportionately focussed on securing lucrative DPA resolutions with corporate suspects.

Moreover, given that the SFO concluded a DPA with G4S in July 2020, the upcoming trial of individuals in that investigation provides an opportunity for the SFO to show, for the first time, that it can in fact achieve convictions of individuals in a contested trial following a DPA with the corporate suspect – to date its record is no convictions from four trials and it will no doubt be hoping to reverse this trend.

New investigations

Finally, after two historically quiet years, the SFO:

• recently announced the opening of a new investigation into collapsed broadcaster, Arena Television Ltd (accompanied by a series of raids and arrests);
• appears to be in the process of agreeing a resolution with a UK insurance company, Jardine Lloyd Thompson (JLT). Whilst this has not been confirmed by the SFO, a publicly available letter from the US Department of Justice (DoJ) to JLT’s US lawyers confirms that JLT agreed to pay $29million in disgorgement of profits obtained from “corruptly obtained and retained contracts” in Ecuador, and that the DoJ “would credit the Disgorgement Amount against the amount JLT pays to the UK Serious Fraud Office… pursuant to the Company’s separate resolution with the SFO that addresses the same underlying conduct”. It therefore looks as though a DPA with JLT may soon hit the news; and

has brought charges against a London solicitor for tipping off a client about a money laundering investigation, an offence under the Proceeds of Crime Act 2002, and for forgery in connection with the production of an allegedly false engagement letter – the trial is scheduled for March 2023.

While these developments, and the trials presently taking place, give a ‘business as usual’ impression, there can be no doubt that, for the time being, the SFO is operating under a shadow cast by the independent reviews being conducted by Sir David Calvert-Smith and Brian Altman QC.  Success in the current trials may only provide short-term relief.

Richard Sallybanks is a partner who specialises in the representing individuals and companies in UK and international business crime investigations and prosecutions. His core UK practice is defending senior executives who are suspects in investigations conducted by the SFO, FCA, CMA, and other regulatory and investigative authorities. His recent SFO experience includes the Petrofac, Airbus, Barclays Qatar, Alstom and Tchenguiz / Kaupthing Bank investigations as well as the successful defence at trial of Tesco’s Commercial Director on charges arising from an alleged £250m accounting fraud. In the financial sector he has acted for bankers, brokers, traders and senior executives in criminal and regulatory investigations, by the FCA and overseas authorities, including in relation to allegations of money laundering, insider dealing and market abuse. He is also experienced in acting for executives and employees caught up in CMA investigations.

Anoushka Warlow is a senior associate specialising in acting for individuals in complex, multi-jurisdictional, allegations of serious fraud, bribery and corruption.  She has been involved in many high-profile investigations and prosecutions brought by all the major domestic and international enforcement agencies.  Her recent SFO experience includes acting for individuals in the ENRC, British American Tobacco, Libor and Standard Bank investigations, and she is currently representing several high-net- worth individuals who are the subject of complex, international fraud and corruption investigations conducted by the SFO, HMRC and the US DOJ/SEC.  Anoushka has experience defending individuals in complex civil fraud proceedings and is also frequently asked to advise on the propriety of investigative steps taken by enforcement authorities, including asset freezing orders and steps taken pursuant to mutual legal assistance requests.