Fraud Intelligence, 23 September 2023
Some attritional legacy cases shut down in time for the new director’s arrival, as well as an imminent expansion of legal powers long sought, should set the UK Serious Fraud Office on a positive path. Paul Cochrane rings the changes.
Following the decision to close down two high profile investigations into mining majors Rio Tinto and ENRC (1), there have been broad calls for the UK’s Serious Fraud Office (SFO) to be reformed to better tackle complex cases. Proposals range from changing the disclosure regime and the investigative model to better funding and more cooperation with other enforcement agencies. The calls come as Nick Ephgrave, former assistant commissioner for London’s Metropolitan Police, enters post as the SFO’s new director at the end of September (2023).
Mixed record
The agency has had a checkered 36-year history investigating and prosecuting serious or complex fraud and corruption cases: “The SFO is referred to by (satirical and current affairs news magazine) Private Eye as ‘the Serious Farce Office’, pretty much since its inception. It has a poor reputation as I don’t think there’s confidence that it is addressing serious fraud. That is not to disrespect the excellent people there, but the whole set-up is misconceived,” said Tristram Hicks, also a senior Metropolitan Police officer, financial crime expert and author of ‘The War on Dirty Money’.
In August (2023), the department dropped a decade-long investigation into Kazakhstan-focused mining company ENRC due to “insufficient admissible evidence to prosecute,” as well as an investigation against Anglo-Australian mining company Rio Tinto over suspected corruption in Guinea, as it was “not in the public interest to proceed with a prosecution in the UK”; the case is ongoing in Australia.
On the flip-side, over the past five years the SFO has secured 29 convictions, eight deferred prosecution agreements worth over GBP1 billion (US$1.24 bn), and recovered more than GBP150 million (US$186.4 mn) in proceeds of crime (2).
External review
But three quashed convictions in the past two years, following the Unaoil bribery investigation, and the collapse of a case against three former executives at security company G4S has prompted heightened calls for reform. (3)
Of particular concern is that these cases followed criticism from the HM Crown Prosecution Service Inspectorate in 2012 carrying out the “first substantive inspection of the SFO” since it was founded, which concluded: “The SFO has some very capable operational staff, but the quality of casework handling, and the capability of the SFO to assure itself of this is significantly undermined by weakness in systems and processes… Recruitment, training and development need to be addressed, and given real impetus from the top... The SFO should review and update its disclosure guidance, design and mandate updated schedule templates, and ensure that all casework staff are trained accordingly.” (4)
A City of London Law Society’s (CLLS) corporate crime and corruption committee report on “The Future of the Serious Fraud Office” (April 2023) indicated that these lessons had not been learned, saying a conclusion can be drawn “that, for various reasons, the prosecution of serious economic crime in the UK is failing”. (5)
Kept short
A key observation in the CLLS report, echoed by other experts, is underfunding since the 2008 financial crisis. “The SFO budget of GBP70 million [US$87 million] is peanuts. The ENRC is alleged to have spent three times that amount on litigation to stop being a subject of a criminal investigation,” said a source familiar with the SFO and the National Crime Agency (NCA) who requested anonymity.
Dr Susan Hawley, executive director of Spotlight on Corruption, a British nonprofit organisation, points out that the SFO “cannot set its own pay levels so it can’t attract the best lawyers. A lot of City lawyers say they can’t afford to work there, when they’ve become addicted to big salaries.”
Furthermore, analysis by Spotlight on Corruption showed that the head of the SFO’s advertised salary is “half that of the head of the Financial Conduct Authority (FCA) and significantly less than the (head of the) NCA,” said Hawley.
A bigger issue is that the SFO’s “failure to win cases” may lead to lawyers “not wanting the SFO on their CV [resume],” she added. The SFO itself has admitted that out of its 500-person staff, it has “permanent vacancies of around 20 to 25 percent, largely back-filled by agency workers.” (6)
Existential question
On top of its perceived failings, ongoing speculation that the SFO could disappear into another agency has been off-putting to potential candidates: “This probably reduces the number of candidates that go forward for the top jobs, but also at any level, as they don’t know if their job will be secure should a merger happen. Working for the SFO should be regarded as one of the greatest jobs in criminal law, tackling the most serious and complex fraud at a time when fraud is so prolific,” said Louise Hodges, chair of CLLS corporate crime and corruption committee.
The CLLS is against merging the SFO into another body, as there is “a place for a well-resourced and well-motivated fraud investigation agency that deals exclusively with the most complex and serious kinds of fraud and corruption,” argued Hodges.
The well-connected source quoted earlier is also against any merger of the SFO with the NCA: “It would be an unmitigated disaster as the NCA is predominantly managed by the police, who are used to dealing with local or regional cases not national or international issues.”
At issue for Hawley is whether law enforcement agencies are working together effectively: “Are these different agencies joined up enough, or permanently in competition mode? Can the SFO for instance access NCA surveillance and use undercover officers for corporate crime work?” she asked.
Lawyers in control?
A further criticism of the SFO has been the use of the ‘Roskill model’, which embeds investigators with prosecutors, led by a case controller. The result has been too much influence for lawyers, the source believes: “They might have knowledge of what the court system is, but they don’t know how to collect evidence. Take the average copper, they spend umpteen months training and two years' probation just walking the beat, so lawyers need training to understand what they’re doing. Over the past 30 years I have known two SFO lawyers that were investigators first, then lawyers, and they’re head and shoulders above the average as they have an understanding of both career paths.”
Hicks pointed out how well regional organised crime units’ asset recovery teams, which bring together multiple agencies and are police-led, have worked in England and Wales. “The SFO can learn from that success, of police-led investigations and the prosecutors acting as a legal advisor,” he said. “Investigators think about getting to the truth whilst prosecutors think about all the legal barriers in the way, so often investigators will be much more audacious with the law than a prosecutor.”
The CLLS’ Hodges thought the Roskill model was a “sensible one”, with the problem being turnover in staff. “It goes back to the need for a well-skilled, motivated and well-resourced work force that stays in situ for a period of time to have continuity in a long running case,” she said.
Disclosure – ever more demanding
The rules of disclosure have proved a thorny issue for the SFO, which has repeatedly called for overhauling current legislation, in part to better handle digital data, with the amount of material for a standard hearing enough to “fill up 22 London buses,” said outgoing director Lisa Osofsky in a 2022 speech.
Under the Criminal Procedure and Investigations Act (CIPA) of 1996, UK prosecutors must share with the defence any material that could assist the defendant or undermine the prosecution (7). The CPIA Code of Practice and the Attorney General’s Guidelines on Disclosure were published in 2020 and updated in 2022 (8).
The government is also reviewing disclosure as part of a new strategy to combat fraud.
And while the SFO has clearly struggled with evidence management in its complex cases, Hodges argued the current disclosure sharing system “has the right balance”. She told FI: “We all appreciate there is an increase in both the volume of data and the different types of data to grapple with, but that doesn’t change the basic premise that the framework we have in place is designed to achieve a fair trial in the adversarial system we have,” she said. “Many of the disclosure failures have been about the way that the disclosure test has been applied, not the test itself.”
Hawley however, said there is a need for a “proper review” of the disclosure system. “There is now quite a broad consensus that some kind of reform or update is necessary, and it is not really fit for the digital age. There are a lot of different views on the table as to what should happen, and all of them carry slight risks,” said Hawley.
Keys to the henhouse
One idea is to give the “keys to the henhouse”, i.e. - to provide all documents to the defence, making it their responsibility to sift through the data.
The source said that the solution, short of changing the CPIA regime itself, was to take a leaf out of Canada’s handbook: “They have addressed complex, predominantly digital, corporate crime by dumping it all onto a secure database and giving keys to the defence team. It means the defence needs to check the evidence. (UK) law firms may say, we don’t get money to do that, well, neither does the SFO.”
Hawley said this approach has raised concerns about commercial sensitivity and privacy issues, “such as whether this creates unfairness for defendants as results could vary according to the quality of legal representation.” Hodges said that 22 buses worth of paper are not presented to the jury: “It is only a fraction of the total volume of material that is gathered by the prosecution which will be provided to the jury in a trial. There is often a mass of material that is available in a complex case but technology is available to sift and sort through vast amounts of data quickly to find what is relevant to a particular individual or issue – it is the availability and transparency of how those technological tools are used that is important to ensure a fair process and trial.”
As for issues over disclosure in trials, Hodges said that “what sometimes gets missed is the Attorney General’s Guidelines on Disclosure, which does provide practical ways that disclosure can be approached in complex and document or data heavy cases.”
And she pointed to two recent reviews of the SFO, by Sir David Calvert-Smith and Brian Altman QC respectively, that saw the problem less with the disclosure regime itself “but more application of guidelines.” (9, 10)
The identification principle – change, at last
Criteria for establishing corporate liability for fraud is also to be addressed: instead of the prosecutor having to demonstrate that a company's ‘directing mind and will’ is responsible, - often interpreted as the most senior executives, who, in large organisations, may be deemed too far removed to have the required control – under the Economic Crime and Corporate Transparency Bill a company would be liable for offences by “senior managers”, those who play a “significant role in the making of decisions about how the whole or a substantial part of the activities of the body corporate” (11).
“This is potentially revolutionary for going after companies, and alongside the failure to prevent fraud offence, could really help in corporate crime prosecutions in the UK,” said Hawley.
Other proposed reforms such as introducing a specialist panel of expert judges for complex fraud cases should be considered, she added: “We definitely need specialist judges. It is extraordinary that fraud is 40 percent of reported crime and judges don’t have proper training. And we have a really dire level of recruitment among judges,” said Hawley.
Hodges argued against other suggested amendments such as introducing expert panels for juries in complex fraud cases: “It is a bit of a distraction. The issues that the jury looks at are simple concepts: honesty or dishonesty. Corruption is not a difficult concept for juries to grasp,” she said.
A former police officer, Nick Ephgrave, taking over as SFO director and expanded legal powers are grounds for optimism about the agency's future performance. “It will be quite interesting having ex-Metropolitan Police officers in charge of both the NCA and SFO,” Hicks remarked.
NOTES
1- https://www.reuters.com/article/britain-sfo-enrc-idAFL8N3A557D
3 - https://www.reuters.com/article/britain-sfo-enrc-idAFL8N3A557D
5 - https://www.citysolicitors.org.uk/storage/2023/04/CLLS-Recommendations-for-SFO-19-04-23.pdf
7 - https://www.legislation.gov.uk/ukpga/1996/25/contents
8 - https://www.gov.uk/government/publications/attorney-generals-guidelines-on-disclosure
11 - https://bills.parliament.uk/bills/3339
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